<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8836
HAWAIIAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0042880
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (808) 835-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Class A Common Stock ($.01 par value) American Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to files such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes (X) No ( )
As of March 15, 1996, 27,067,424 shares of Class A Common Stock of the
Registrant were outstanding. The aggregate market value of voting stock held by
non-affiliates (8,281,624 shares of Class A Common Stock) of the Registrant is
$23,809,669.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXHIBIT INDEX ON PAGE 54
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE 1
PART I
ITEM 1. BUSINESS. 5
ITEM 2. PROPERTIES. 11
ITEM 3. LEGAL PROCEEDINGS. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS. 11
ITEM 6. SELECTED FINANCIAL DATA. 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 28
ITEM 11. EXECUTIVE COMPENSATION. 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. 39
EXHIBIT INDEX 54
SIGNATURES 56
TABLE-INDEX
BALANCE SHEETS F-2
STATEMENTS OF OPERATIONS F-4
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-8
SUPPLEMENTAL FINANCIAL INFORMATION F-38
SELECTED FINANCIAL AND STATISTICAL DATA F-39
SCHEDULE S-2
</TABLE>
4
<PAGE>
PART I
ITEM 1. BUSINESS.
---------
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was incorporated
in January 1929 under the laws of the Territory of Hawaii and maintains its
principal offices at 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii 96819.
Its telephone and facsimile numbers are (808) 835-3700 and (808) 835-3690,
respectively. Based on operating revenues, Hawaiian Airlines is the largest
airline headquartered in Hawaii and is engaged primarily in the scheduled
transportation of passengers, cargo and mail over a route system which services
the six major islands of the State of Hawaii, several cities primarily in the
U.S. West Coast region and certain destinations in the South Pacific.
OPERATIONS
----------
The Company's passenger airline business is its chief source of revenue.
Scheduled passenger service consists of, on average, approximately 150 flights
per day among the six major islands of the State of Hawaii ("Interisland"),
daily service to four U.S. West Coast cities and Las Vegas ("Transpac"), and two
flights per week to Pago Pago, American Samoa and one flight per week to
Papeete, Tahiti in the South Pacific ("Southpac"). The Company also provides
charter service to Las Vegas. For the fifth consecutive year, the Company was
rated by the travel and hospitality publication, Conde Nast Traveler, as one of
the ten best airlines in the U.S. based on scheduling, punctuality, cabin
comfort/service, food and baggage handling.
The Interisland and Transpac routes served by the Company are highly competitive
with such competition primarily based on fare levels, performance, aircraft
equipment and service. The markets are subject to seasonal and cyclical
volatility primarily due to seasonal leisure and holiday travel. The Company
believes Hawaii is one of the most popular destinations for passengers flying on
frequent flyer travel awards and is in general a popular spot for vacation
travelers. As such, the Company typically experiences strong travel periods
during June, July, August and December. Fare levels and load factors are higher
during these peak travel periods. Conversely, reduced fare levels and lower
load factors are typically experienced in periods outside of these months.
Aggressive fare pricing strategies that increase the availability of ticket
discounts are utilized during these weaker travel periods.
The Company believes that its markets have historically been insulated to some
degree from the downward pressures affecting the airline industry due to
Hawaii's high level of year-round tourism. However, during the recessionary
period commencing in 1990, Hawaii's visitor counts decreased from over 6.9
million in 1990 to 6.5 million in 1994. Statistics from the Hawaii Visitors
Bureau indicate that year over year Hawaii visitor arrivals increased by 3.0% to
approximately 6.6 million visitors in 1995. Local industry consultants project
a moderate 2.0% to 3.0% increase in visitor counts for 1996, with the Hawaii
tourism industry not experiencing pre-recession visitor counts until 1997. The
recent cold weather front throughout the continental U.S., the effects of the
hurricane in the Caribbean and the apparent rebound of the Japanese economy
should hopefully assist in the continued recovery of Hawaii tourism.
INTERISLAND OPERATIONS
- ----------------------
The Interisland market averages approximately nine million passengers annually,
comprised of visitors and Hawaii residents. One-third of this market is
represented by residents of Hawaii who rely on Interisland flights in much the
same way as mainland residents rely on a state highway system. While there are
several small commuter and air taxi companies which provide air transportation
to airports which cannot be served with large aircraft, the Interisland market
is basically serviced by two carriers, Hawaiian Airlines and Aloha Airlines,
Inc. ("Aloha").
The Company's Interisland operations provide service to seven airports on the
six major Hawaiian islands of Oahu, Hawaii, Maui, Kauai, Molokai and Lanai. In
1994 the Company inaugurated the Hawaiian Airlines Island Shuttle, which offers
flights departing between Oahu and Maui every half hour and Oahu and Kauai every
hour. At December 31, 1995, Hawaiian Airlines' Interisland fleet consisted of
13 DC-9-50 aircraft. During 1995, the Interisland market represented
approximately 41.0% of the Company's scheduled passenger revenues.
5
<PAGE>
The Company's primary competition in the Interisland market is Aloha, whose
competitive position is strengthened through its marketing affiliations with
United Airlines, Inc. ("United"). Aloha is a member of United's frequent flyer
program and also has a code sharing agreement with United. Aloha principally
utilizes 16 Boeing 737 aircraft with a schedule that averages approximately 190
daily flights to service the same basic Interisland routes as the Company.
In October 1993, a new competitor, Mahalo Air ("Mahalo"), commenced service to
Kauai, Maui and Kona from Honolulu. Mahalo utilizes six ATR-42 aircraft with an
average schedule of approximately 65 daily flights. Statistical information is
not available on Mahalo. However, because of its limited capacity, management
believes that Mahalo has not had a major impact on the Interisland market since
its inception.
Until the late 1980's, Hawaiian Airlines held a dominant share of the
Interisland market. The Company's market share began to decline in 1989 due to
customer service difficulties, as well as a decline in its available seat miles,
and reached a low of 35.0% in October 1991. The Company subsequently
implemented a number of operating strategies to improve its market share,
including focusing on customer service, on-time performance and schedule and
lift availability. The Company also strengthened its competitive position when
it became a member of the AAdvantage(R) frequent flyer program of American
Airlines, Inc. ("American") in 1994. Based on the Company's interpretation of
certain statistical information on Aloha and excluding the effects of Mahalo,
the Company believes that these programs and improvements are the reason for an
increase in its Interisland revenue passenger mile market share from the low of
October 1991 to an average of 41.3%, 41.1% and 40.8% in 1995, 1994 and 1993,
respectively.
TRANSPAC OPERATIONS
- -------------------
During 1995, the Company's Transpac operations served the U.S. West Coast cities
of Los Angeles, San Francisco, Seattle and Portland and Las Vegas. At December
31, 1995, eight DC-10-10 aircraft leased from American were used to service
Transpac routes. Refer to Operating Affiliations and Agreements below for a
discussion on leased DC-10-10 aircraft.
The Company currently competes with major carriers such as United, American,
Delta Airlines, Inc., Continental Airlines, Inc., and Northwest Airlines, Inc.
("Northwest") on its Transpac routes. In addition to the competition produced
by the major carriers, the Company saw continued competition in 1995 from
charter carriers in the Transpac market. The presence of charter carriers has
placed additional downward pressure on fares.
During 1995, Hawaiian Airlines flew approximately 994,000 passengers or 2.5
billion revenue passenger miles between Hawaii and the cities of Los Angeles,
San Francisco, Seattle, Las Vegas and Portland. Based on information obtained
from the State of Hawaii Department of Transportation, the Company believes that
based on the number of flights during peak seasonal travel periods in 1995, the
Company maintained 14.3% and 12.3% of the total passenger market from U.S.
Gateway cities into Honolulu and the State of Hawaii, respectively. The Company
is the leading direct carrier between Honolulu and the cities of Las Vegas and
Portland. The Company also believes that it is second in market share between
Honolulu and the cities of Los Angeles, San Francisco and Seattle.
In 1995, Transpac passenger revenues represented approximately 52.5% of the
Company's scheduled passenger revenues.
SOUTHPAC OPERATIONS
- -------------------
Hawaiian Airlines currently is the sole carrier providing air service between
Honolulu and American Samoa and Tahiti. As a result of this lack of
competition, fares are relatively stable throughout the year. Southpac routes
are serviced with DC-10-10 aircraft leased from American. During 1995, the
Southpac market represented approximately 6.5% of the Company's scheduled
passenger revenues.
OVERSEAS CHARTER OPERATIONS
- ---------------------------
In January 1995, the Company commenced, in association with a Hawaii tour
operator, Transpac charter flights to Las Vegas, Nevada. The Company operates
six charter flights per week utilizing DC-10-10 aircraft leased from
6
<PAGE>
American. The Company's overseas charter operation produced $22.2 million or
6.9% of total operating passenger revenues in 1995.
SEGMENT INFORMATION
-------------------
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Part IV, Item 7 of this Form 10-K for discussion on
Industry Segment Information.
AVIATION FUEL
-------------
Aviation fuel is a significant expense for any air carrier and even marginal
changes in fuel prices can greatly impact a carrier's profitability. The
following table sets forth statistics about Hawaiian Airlines' aviation fuel
consumption and cost for each of the last three years:
<TABLE>
<CAPTION>
GALLONS TOTAL COST, AVERAGE % OF
CONSUMED INCLUDING TAXES COST PER OPERATING
YEAR (IN THOUSANDS) (IN THOUSANDS) GALLON EXPENSES
- ------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1995 92,167 $56,463 61.3c 16.2%
1994 78,180 $47,457 60.7c 14.9%
1993 74,939 $49,570 66.1c 15.0%
</TABLE>
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Part IV, Item 7 of this Form 10-K for further
discussion on aircraft fuel expense.
The single most important factor affecting petroleum product prices, including
the price of aviation fuel, continues to be the actions of the OPEC countries in
setting targets for the production and pricing of crude oil. In addition,
aviation fuel prices are affected by the markets for heating oil, diesel fuel,
automotive gasoline and natural gas. Seasonally, second and third quarter
aviation fuel prices are typically lower than during the first and fourth
quarters as the demand for heating oil, which competes with aviation fuel for
refinery production, subsides and refiners switch to gasoline production which
also increases the output of aviation fuel. All petroleum product prices
continue to be subject to unpredictable economic, political and market factors.
Also, the balance among supply, demand and price has become more reactive to
world market conditions. Accordingly, the price and availability of aviation
fuel, as well as other petroleum products, continues to be unpredictable.
In 1993, new taxes were placed on the production of certain fuels based on their
energy content. The airline industry received a two-year moratorium from the
effects of such taxes. In October 1995, the industry and therefore, the Company
became subject to an additional 4.3c per gallon tax which may result in as much
as $3.5 to $4.0 million per year in additional fuel expense to the Company. The
Company cannot predict whether it will be able to pass on such additional costs
to its customers.
Although Hawaiian Airlines has contracts with approximately 10 different fuel
suppliers, almost all of its aviation fuel is purchased from Northwest pursuant
to an Aviation Jet Fuel Agreement between the two companies. The Aviation Jet
Fuel Agreement requires Northwest to provide Hawaiian Airlines with aviation
fuel at Northwest's actual acquisition cost without markup for profit and
reimbursement only for out-of-pocket costs. Hawaiian Airlines is prohibited
from reselling such fuel. In case of shortages, Northwest will provide fuel to
its own fleet first and then a portion of the remaining fuel available will be
allocated between Hawaiian Airlines and any other applicable airlines. Hawaiian
Airlines paid Northwest approximately $53.0 million, $43.9 million and $44.1
million for the fuel supplied under this agreement in 1995, 1994 and 1993,
respectively.
OPERATING AFFILIATIONS AND AGREEMENTS WITH AMERICAN
---------------------------------------------------
The Company requires certain equipment and outside services which are imperative
for its overall operation. A large portion of such equipment and outside
services is provided to the Company through a variety of agreements between the
Company, American, AMR Training & Consulting Group, Inc. and its affiliates.
These services and equipment include data processing, licensing of reservations
system, leasing of eight DC-10-10 aircraft,
7
<PAGE>
maintenance services on such DC-10-10 aircraft and participation in the
AAdvantage(R) frequent flyer program. Commencing in October 1994 and throughout
1995, the Company was delinquent in making certain payments due American under
the long-term aircraft lease agreement pursuant to which American leases DC-10s
to the Company (the "Aircraft Lease Agreement"). These payments were deferred by
American and paid by the Company in January 1996 through the delivery of a
promissory note in connection with the AIP Investment (as defined below). Refer
to Management's Discussion and Analysis, Liquidity and Capital Resources
contained in Part IV, Item 7 of this Form 10-K for further discussion on such
matters.
EMPLOYEES
---------
As of December 31, 1995, Hawaiian Airlines had 2,272 employees, of which 1,917
were employed on a full-time basis. This compares to 2,299 total employees,
including 1,945 full-time employees as of December 31, 1994. The majority of
Hawaiian Airlines' employees are covered by labor agreements with the
International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM"),
the Air Line Pilots Association, International ("ALPA"), the Association of
Flight Attendants ("AFA"), the Transport Workers Union ("TWU") and the
Communications Section Employees Union.
In the first quarter of 1995, an early retirement program was offered by the
Company primarily to qualified participants of the IAM and salaried defined
benefit plans. Thirty-six employees accepted early retirement under the
provisions of the program.
In January 1996, the IAM, ALPA, AFA, TWU and Communications Section Employees
ratified new bargaining unit contracts which became effective in conjunction
with the AIP Investment. Refer to Note 16 of Notes to Financial Statements for
further discussion on the new bargaining unit contracts.
The Company believes that it maintains good relations with its employees and the
unions that represent them.
REGULATION
----------
As a certificated air carrier, Hawaiian Airlines is subject to the regulatory
jurisdiction of the U.S. Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA"). The DOT has jurisdiction over
certain aviation matters such as international routes and fares, consumer
protection policies including baggage liability and denied-boarding compensation
and unfair competitive practices. Hawaiian Airlines and all other domestic
airlines are subject to regulation by the FAA under the Transportation Act. The
FAA has regulatory jurisdiction over flight operations generally, including
equipment, ground facilities, security systems, maintenance and other safety
matters. To assure compliance with its operational standards, the FAA requires
air carriers to obtain operations, air worthiness and other certificates which
may be suspended or revoked for cause. The FAA also conducts safety audits and
has the power to impose fines and other sanctions for violations of aviation
safety and security regulations. Hawaiian Airlines is subject to inspections by
the FAA in the normal course of its business on a routine ongoing basis.
Hawaiian Airlines operates under a Certificate of Public Convenience and
Necessity issued by the DOT authorizing it to provide commercial aircraft
service as well as a Part 121 Scheduled Carrier Operating Certificate issued by
the FAA.
The FAA frequently issues air worthiness directives, often in response to
specific incidents or reports by operators or manufacturers, requiring operators
of specified equipment to perform prescribed inspections, repairs or
modifications within stated time periods or numbers of cycles. Hawaiian
Airlines has developed extensive maintenance programs which consist of a series
of phased checks of each aircraft type. These checks are performed at specified
intervals measured either by time flown or by the number of takeoffs and
landings ("cycles") performed. Checks range from daily "walk around"
inspections, to more involved overnight maintenance checks, to exhaustive and
time consuming overhauls. Aircraft engines are subject to phased, or
continuous, maintenance programs designed to detect and remedy potential
problems before they occur. The service lives of certain parts and components
of both airframe and engines are time or cycle controlled. Parts and other
components are replaced or overhauled prior to the expiration of their time or
cycle limits. The FAA approves all airline maintenance programs, including
changes to the programs. In addition, the FAA licenses the mechanics who
perform the inspections and repairs, as well as the inspectors who monitor the
work.
8
<PAGE>
Hawaiian Airlines believes that it is in compliance with all requirements
necessary to maintain in good standing its operating authority granted by the
DOT and its air carrier operating certificate issued by the FAA. A
modification, suspension or revocation of any of the Company's DOT or FAA
authorizations or certificates would have a materially adverse effect upon the
Company.
Several aspects of airlines' operations are subject to regulation or oversight
by Federal agencies other than the FAA and DOT. The antitrust laws are enforced
by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction
over certain aspects of the transportation of mail and related services provided
by the Company's cargo services. Labor relations in the air transportation
industry are generally regulated under the Railway Labor Act. The Company and
other airlines certificated prior to October 24, 1978 are also subject to
preferential hiring rights granted by the Transportation Act to certain airline
employees who have been furloughed or terminated (other than for cause).
In 1990, Congress passed legislation phasing out the use of Stage II aircraft in
the U.S. by December 31, 1999, with the possibility of certain waivers until
December 31, 2003 when full phase out is required. Congress provided an
exemption for air carriers operating in Hawaii, or between a place in Hawaii and
a place outside the 48 contiguous states, to operate as many Stage II aircraft
of a certain weight as they operated on November 5, 1990. Air carriers that
provided flights between places only in Hawaii on November 5, 1990 may include
in the number of Stage II aircraft under the exemption all Stage II aircraft
that it owned or leased on November 5, 1990, whether or not the aircraft were
operated by the carrier on that date. However, an air carrier may provide
flights between places only in Hawaii using Stage II aircraft only if the
carrier provided the service on November 5, 1990. The Company believes these
exemptions restrict air carriers other than the Company and Aloha from operating
Stage II aircraft in Hawaii. Because Stage II aircraft are less expensive to
acquire than Stage III aircraft, this exemption provides limited protection
against the entry of another carrier, which would be required to operate an all
Stage III fleet. This advantage is partially offset by the fact that Stage III
aircraft are generally less expensive to operate and maintain, as well as the
fact that in any event over time, carriers will move toward having an all Stage
III fleet.
REORGANIZATION AND SUBSEQUENT FINANCIAL TRANSACTIONS
----------------------------------------------------
REORGANIZATION
- --------------
On September 21, 1993, Hawaiian Airlines together with HAL, INC., Hawaiian
Airlines' parent company, and West Maui Airport, Inc., another wholly owned
subsidiary of HAL, INC. (collectively the "Predecessor"), commenced
reorganization cases by filing voluntary petitions for relief under Chapter 11,
Title 11 of the United States Code in the U.S. Bankruptcy Court for the District
of Hawaii. Concurrently therewith, the Debtors filed a Consolidated Plan of
Reorganization dated September 21, 1993 (as amended through the most recent
amendment dated April 20, 1995, the "Reorganization Plan") and the
Reorganization Plan became effective on September 12, 1994 (the "Effective
Date"). Pursuant to the Reorganization Plan, on the Effective Date, first West
Maui Airport, Inc. and then HAL, INC. were merged with and into Hawaiian
Airlines with Hawaiian Airlines being the sole surviving corporation. Upon the
effectiveness of the mergers, all of the outstanding equity securities of the
Company, HAL, INC., and West Maui Airport, Inc. were canceled.
Under the Plan, the Company will issue and distribute approximately 9,400,000
shares of its common stock to all of the unsecured creditors with claims allowed
under the Plan. At December 31, 1995, the Company's common stock consisted of
two classes, one with full voting rights, Class A Common Stock, and the other
with limited voting rights, Class B Common Stock. On June 19, 1995, the Company
commenced distribution of its Class A and Class B Common Stock and as of
December 31, 1995, 6,845,105 shares of Class A Common Stock and 1,894,955 shares
of Class B Common Stock were issued and outstanding. The Company anticipates
issuing 636,247 shares of Class A Common Stock under the Plan by late 1996 in
satisfaction of disputed claims outstanding as of December 31, 1995. Any shares
withheld in excess of the amount distributed to the holders of such claims will
be held until all disputed claims have been resolved. The disputed claims
consist of an aggregate $534,000 for alleged prepetition violations and various
other claims asserted by various governmental agencies and $5.2 million for
damages arising from the return of aircraft asserted by the Federal Deposit
Insurance Corporation, as receiver. Upon resolution of all disputed claims,
there will be a final distribution of any remaining withheld shares to all
general unsecured creditors on a pro rata basis.
9
<PAGE>
Following the consummation of the AIP Investment, each share of the Class B
Common Stock issued pursuant to the Reorganization Plan was converted into one
share of Class A Common Stock.
Pursuant to the Reorganization Plan, the Company (1) granted warrants to
purchase an additional 989,011 shares of its Class A Common Stock (the "Existing
Warrants"), none of which have been exercised, and (2) reserved 600,000 shares
of the Class A Common Stock for issuance to certain employees under the
Company's 1994 Stock Option Plan, as amended. The Class A Common Stock began
trading on the American Stock Exchange (the "AMEX") and the Pacific Stock
Exchange on June 21, 1995.
AIP INVESTMENT AND RELATED TRANSACTIONS
- ---------------------------------------
In February 1995, the Company's Board of Directors began to explore options to
supplement the Company's capital base, reduce its reliance on short-term bank
debt and promotional coupon sales and increase the Company's financial
flexibility. The Company, with the assistance of its outside financial advisor,
identified and met with potential investors, including Airline Investors
Partnership, L.P. ("AIP"), regarding a possible equity investment in the
Company. AIP ultimately agreed to make a $20.0 million cash investment in the
Company through the purchase of 18,181,818 shares of Class A Common Stock, par
value $.01 per share, and four shares of the Company's Series B Special
Preferred Stock, par value $.01 per share (the "AIP Investment"). On January
31, 1996, the AIP Investment and a series of related transactions, which were
dependent and effective upon one another, were consummated. Among other things,
the related transactions included:
. Certain agreements and arrangements with American, including amendment to the
Aircraft Lease Agreement, which provide for, among other things, the making of
$10.0 million of previously deferred rent and maintenance payments and
interest thereon with a secured promissory note, rent reduction and the
release of a $2.0 million security deposit in the form of a letter of credit.
In addition, the Company issued to AMR Corporation, American's parent company
("AMR"), warrants (the "AMR Warrants") to acquire up to 1,897,946 shares of
the Class A Common Stock at $1.10 per share. One-half of the AMR Warrants are
immediately exercisable but the balance will only be exercisable if American
and the Company enter into a code sharing agreement by January 1, 1997
regarding the placement of the two letter flight designator code for
American's flights on the Company's Interisland flights. The AMR Warrants
expire on September 11, 2001; and
. Agreements with each of the Company's labor unions regarding certain
modifications to their respective collective bargaining unit agreements.
These modifications include certain wage concessions which will generate
significant annual cost savings to the Company.
As of March 15, 1996, AIP owned approximately 67% of the outstanding Class A
Common Stock, which constitutes the only outstanding class of the Company's
common stock. Until such time as AIP ceases to own at least 35% of the
Company's outstanding common stock, it would have the right to nominate six of
the 11 nominees to stand from time to time for election as directors of the
Company. Thereafter, AIP would have the right to nominate five, four or three
directors so long as it owns at least 25%, 10% or 5%, respectively, of the
outstanding common stock. On January 30, 1996, six of AIP'S director nominees
were elected to the Board of Directors. Pursuant to their collective bargaining
agreements, AFA, IAM and ALPA each have the right to nominate one of the
nominees to stand from time to time for election as directors of the Company.
On January 30, 1996, each of the IAM, ALPA and AFA director nominees were
elected to the Board of Directors.
Refer to Note 16 of Notes to Financial Statements contained in Part IV, Item 14
of this Form 10-K for further description of the AIP Investment and the related
transactions.
10
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ITEM 2. PROPERTIES.
------------
Information provided in Notes 5, 6, and 7 to the Financial Statements
contained in Part IV, Item 14 of this Form 10-K is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS.
------------------
Information provided in Part I, Item 1 and Note 13 to the Financial
Statements contained in Part IV, Item 14 of this Form 10-K is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
-----------------------------------------------------------------
MATTERS.
--------
(a) Market Information.
The Registrant's Class A Common Stock is listed on the American Stock
Exchange and Pacific Stock Exchange trading under the symbol HA. On
June 19, 1995, the Company commenced distribution of its Class A
Common Stock. Trading during the succeeding days was so volatile that
the American Stock Exchange suspended trading on June 23, 1995.
Trading was resumed on June 26, 1995.
The following table sets forth the reported high and low sales prices
for the Class A Common Stock for the quarters indicated, as reported
by the American Stock Exchange:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------------
<S> <C> <C> <C> <C>
High N/A 13 1/2 6 7/16 3 7/8
Low N/A 1 5/8 2 3/4 2 3/16
</TABLE>
(b) Holders.
Information provided in Part I, Item 1 of this Form 10-K is
incorporated herein by reference.
(c) Dividends.
Under the terms of the financing arrangement with CIT Group/Credit
Finance, Inc., the Company is restricted from paying any dividends. No
dividends were paid by the Company in 1995, 1994 or 1993.
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
Information under the caption "Selected Financial and Statistical
Data" on pages F-39 through F-41 contained in Part IV, Item 14 of this
Form 10-K is incorporated herein by reference.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
------------
The airline industry is a highly cyclical business with substantial volatility,
and airlines frequently experience short-term cash requirements caused by both
seasonal fluctuations in traffic that often put a drain on cash during off-peak
periods and other factors that are not necessarily seasonal, including the
extent and nature of price and other competition from other airlines, changing
levels of operations, national and international events, fuel prices and general
economic conditions, including inflation. Accordingly, airlines require
substantial liquidity to sustain continued operations under most conditions.
The Company has operated with limited cash and cash equivalents and a working
capital deficit for a number of years. Working capital deficits are not
uncommon in the airline industry since airlines typically have no product
inventories and sales not yet flown are reflected as current liabilities.
Since the commencement of deregulation in 1978, the U.S. airline industry has
become extremely competitive and volatile. Increased competition, rising
operational costs and pricing pressures have created financial difficulties for
most airlines and many airlines have been acquired, forced to restructure or
ceased operations. After five years of losses totaling $13.0 billion, the U.S.
airline industry is expecting to make more than $2.0 billion in 1995, its first
annual profit since 1989. Improvements in total passenger traffic, cargo
traffic, fares and operations were experienced in 1995 compared to 1994.
Further recovery will depend on the continuing strength of the overall economy,
cooperation for more efficient work rules by employees and governmental
decisions on taxes applicable to the airline industry.
As with other airlines, Hawaiian Airlines was adversely affected by the
unpredictable and often unfavorable, industry and economic conditions of the
past five years. As discussed in Business contained in Part I, Item 1 of this
Form 10-K, the Interisland and Transpac routes served by the Company are highly
competitive with such competition primarily based on fare levels, performance,
aircraft equipment and service. The markets are subject to seasonal and
cyclical volatility primarily due to seasonal leisure and holiday travel. The
Company typically experiences strong travel periods during June, July, August
and December. The Company, along with other airlines, uses discount fares and
other promotions to stimulate traffic during normally slack travel periods, to
generate cash flow and to sustain relative market share in its Interisland and
Transpac markets.
Recent announcements of capacity increases to Hawaii by both international and
domestic carriers will bring pressure to bear on forecasted pricing levels. The
charter carriers have increased capacity from secondary markets in the Western
region and United has scheduled an additional 9,000 seats per week from Japan
and the U.S. mainland, with the bulk of that capacity dedicated to San Francisco
and Los Angeles routes. Subsequent announcements by United of service from Los
Angeles to Kona and Maui are believed to be in addition to the 9,000 seats
mentioned above. The ever increasing presence of charter carriers and United's
increased frequencies are examples of the competitive pricing and capacity
issues facing the Company in the future.
As discussed in Business, contained in Item 1, Part I of this Form 10-K, on
September 21, 1993, Hawaiian Airlines voluntarily commenced a Chapter 11
reorganization process and emerged from bankruptcy less than a year later on
September 12, 1994, the Effective Date of the Reorganization Plan. The Chapter
11 process resulted in the Company recognizing an extraordinary gain of $190.1
million, representing the relief of $204.7 million of liabilities net of offsets
and certain liabilities that survived the reorganization.
Consistent with the industry, excluding nonrecurring noncash transactions, the
Company improved its operating and net performance in 1995. Nevertheless, the
Company's working capital deficit during 1995 reached an extreme level, even by
industry standards. To address this problem, in January 1996 the Company
consummated a series of transactions, including the completion of the $20.0
million AIP Investment and certain arrangements and agreements with American and
the Company's labor unions. These transactions have improved the Company's
liquidity substantially and will result in reduced cash operating expenses over
the next few years.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
OVERVIEW
- --------
As of December 31, 1995, the Company had a net working capital deficit of $51.7
million, representing a $5.9 million increase from the net working capital
deficit of $45.8 million at December 31, 1994. Principally, the increase in the
working capital deficit resulted from the net of (1) an increase in accounts
payable of $17.7 million primarily due to deferred aircraft lease rents and
maintenance payments due American as further described below; (2) a decrease in
air traffic liability of $9.9 million due to the burnoff throughout 1995 of
promotional fare ticket sales held in the second and last quarters of 1994; and
(3) miscellaneous changes in other working capital accounts resulting in a $1.9
million decrease in the working capital deficit from that of 1994.
For several years, the Company has been operating with a cash balance equivalent
to less than one week's worth of operating expenses. Continuing to operate at
that level of liquidity would place the Company's existence at risk; there would
be no cushion to respond to unexpected operational upheavals that have
periodically affected the airline industry or to cover the seasonal downturn
typically experienced by the Company in the first quarter of the year.
Due to its working capital shortage, the Company has deferred certain
discretionary capital expenditures that management believes may improve
profitability. One example is a series of investments in improved software that
are expected to increase operating efficiency. Another is the outlay needed to
consolidate operations into one terminal at Honolulu International Airport. The
working capital shortage also has had an unfavorable effect on yield, which,
although difficult to quantify, is believed to be significant. Prior to the AIP
Investment, the Company found it necessary to offer its products to wholesalers
and to the public at reduced rates in order to enhance cash flow. The uncertain
financial situation has also limited the availability of trade credit and at
times has necessitated the use of cash or equivalent security to obtain
services. Finally, potential partners in the airline industry have been
reluctant to enter into business arrangements with the Company until its
financial difficulties have been overcome.
Since the Effective Date, the Company has financed its operations from:
. Operating cash flow;
. Borrowings under an $8.15 million credit facility provided by CIT Group/Credit
Finance, Inc. (the "Credit Facility"). The Credit Facility consists of an
$8.15 million secured revolving line of credit including up to $3.0 million of
letters of credit. Available credit is subject to reduction determined by
recalculation of the borrowing base and repayments arising from disposition of
collateral. As of December 31, 1995, the total availability under the Credit
Facility had been effectively reduced due to recalculation of the borrowing
base to approximately $3.4 million, which amount was fully drawn in the form
of $1.3 million in borrowings and $2.1 million in letters of credit. As of
March 15, 1996, $2.0 million of additional borrowing capacity was available
due to American's release of $2.0 million in letters of credit as described
under Arrangements with American below;
. A series of promotional fare ticket sale activities. Such promotional sales
increase liquidity, but also increase air traffic liability, which could
adversely affect yields and revenues, as well as liquidity, in future periods;
and
. Payment deferrals from existing creditors, including American.
AMERICAN DEFERRAL
- -----------------
On October 31, 1994, the Company failed to make certain payments due to American
pursuant to the Aircraft Lease Agreement pursuant to which American leases six
DC-10s to the Company. American sent the Company notice of the failure to make
rent and prepaid maintenance payments and noted that such failure constituted an
event of default under the Aircraft Lease Agreement, but did not declare the
Aircraft Lease Agreement in default or exercise any of the remedies available to
it, which include, but are not limited to, termination of the Aircraft Lease
Agreement, repossession of certain aircraft and engines, recovery of damages and
drawings under letters of
13
<PAGE>
credit then in place in the amount of $2.0 million posted by the Company as
required by the Aircraft Lease Agreement. The Company subsequently made the rent
and prepaid maintenance payments due American in November 1994.
On several occasions during 1995, the Company again failed to timely make
certain rent and prepaid maintenance payments in full due pursuant to the
Aircraft Lease Agreement. Again, while American sent the Company notice of the
failure to make such payments in full, American did not declare the Aircraft
Lease Agreement in default or exercise any of the remedies available to it. On
several occasions during the year, American deferred the payment of the
delinquent amounts. As of December 9, 1995, the Company owed American $7.1
million in deferred payments and accrued interest. American agreed to permit
the deferral of the payment of this $7.1 million (plus interest thereon) and the
periodic payments of lease rents and maintenance payments that would become due
on or after December 8, 1995, up to a maximum of an additional $2.9 million
(including interest), until the earlier of the consummation of the AIP
Investment or February 7, 1996. As of January 4, 1996, the Company had deferred
the maximum deferrable amount of lease rents and maintenance payments under the
Aircraft Lease Agreement. These deferred amounts were paid by the Company on
January 31, 1996 through the delivery by the Company of a secured promissory
note in connection with the AIP Investment as described below under Arrangements
with American.
AIP INVESTMENT
- --------------
For a variety of reasons, including the Company's financial results, its
inability to meet its current financial responsibilities, including its
obligations to American under the Aircraft Lease Agreement, thereby creating an
urgent need to obtain an infusion of capital, and the uncertain economic
outlook, the Board of Directors determined in 1995 to explore options to
supplement the Company's capital base, reduce its reliance on short-term bank
debt and promotional coupon sales and increase the Company's financial
flexibility. The Company, with the assistance of its financial advisor,
identified and met with potential investors, including AIP, regarding a possible
equity investment in the Company. As a result of such efforts, AIP agreed to
make the AIP Investment, in which AIP purchased 18,818,181 shares of the Class A
Common Stock and four shares of the Series B Special Preferred Stock for $20.0
million in cash. The AIP Investment was unanimously approved by the Company's
Board of Directors in December 1995, approved by the Company's shareholders on
January 30, 1996 and consummated on January 31, 1996.
Of the $20.0 million gross proceeds from the AIP Investment, a portion has been
used to pay (1) approximately $2.8 million of fees and expenses associated with
the AIP Investment and its related transactions; (2) approximately $3.2 million
of accrued landing fees for the Company's Hawaii operations and accrued rent on
the Company's facilities in Hawaii; and (3) approximately $310,000 of deferred
Board of Director compensation. Although the Company has not designated
specific uses for the $13.7 million balance of the proceeds from the AIP
Investment, it is anticipated that such proceeds will be used to meet working
capital needs.
ARRANGEMENTS WITH AMERICAN
- --------------------------
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, the Company entered into certain arrangements with American pursuant
to which American and the Company agreed to, among other things, the following:
. The payment of $10.0 million of deferred lease rents and maintenance payments
under the Aircraft Lease Agreement (and accrued interest thereon) and the
reimbursement of American's fees and expenses in connection with the
transaction through the issuance by the Company to American of a $10.25
million promissory note secured by certain assets of the Company (the
"American Note"). The American Note bears interest at 10.0% per annum,
payable quarterly in arrears, and has a final maturity date of September 11,
2001. The American Note requires repayment of principal equal to one-sixth of
the original principal amount on each anniversary of its date of issuance
(January 31). The Company has the option to prepay the American Note for $9.15
million at any time before January 31, 1997, or at any time thereafter, in
whole or in part, at its remaining principal balance, without premium. The
American Note is prepayable in full, at the option of the holder, in the event
and at the time that any person or group (other than AIP) acquires more than
30.0% of the voting interest in the Company;
14
<PAGE>
The American Note is secured by a lien on substantially all of the personal
property of the Company through December 31, 1997. This lien is a first
priority lien except that it is junior to (1) liens of security deposits held
by credit card processors and (2) liens securing up to $15.0 million in
obligations of the Company consisting of (x) secured obligations of the
Company (other than credit card processor security deposit liens) existing on
the date of issuance of the American Note, and (y) additional secured
obligations of the Company incurred after such issuance. As of January 31,
1996, in addition to its credit card deposits, the Company had $7.6 million in
secured obligations (including all amounts under the Credit Facility), the
liens of which are prior to the lien of the American Note. On and after
January 1, 1998, the Company is obligated to secure the American Note and the
other obligations of the Company to American with a first priority lien on
identified assets with a fair market value (supported by an appraisal) of at
least 125.0% of the remaining outstanding principal balance of the American
Note from time to time;
. Basic rents under the Aircraft Lease Agreement have been reduced by
approximately 28.0% for a period of three years, at which time basic rents
would revert back to 1995 levels. The Company has agreed to pay a minimum
monthly charge for maintenance services and basic rents and maintenance
charges are payable monthly in arrears rather than weekly in advance. American
has the right to terminate its obligation to provide aircraft maintenance
services on and after January 1, 1999 upon 180 days prior notice; and
. American's relinquishment of $2.0 million of letters of credit which secured
the Company's obligations to American under the Aircraft Lease Agreement. The
termination of these letters of credit increased the Company's borrowing
capacity under the Credit Facility.
The arrangements with American have provided the Company with substantial
benefits. The payment through the American Note of $10.0 million of deferred
rents and maintenance payments otherwise due on February 7, 1996 will
effectively permit the Company to make such payments in installments over the
period from January 1997 to September 2001, thereby freeing up working capital
for other purposes. In addition, basic rents under the Aircraft Lease Agreement
have been reduced by approximately 28.0% for three years, resulting in lower
operating costs. Furthermore, the release by American of the security deposit
letters of credit resulted in $2.0 million of borrowing capacity becoming
available to the Company under the Credit Facility. In total, these
arrangements with American have further improved the Company's liquidity by
approximately $15.0 million and will result in the reduction of cash operating
expenses by approximately $3.0 million per year for three years.
UNIONS AND LABOR AGREEMENTS
- ---------------------------
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, amendments to the labor agreements for each of the Company's labor
unions became effective. The modifications to the labor agreements extend the
amendable date of all five contracts from February 28, 1997 to February 28,
2000. Each of the five unions agreed to certain economic concessions, which
include cancellation of certain scheduled pay increases, with new pay increases
to be effective December 1, 1998 and January 1, 2000. Management expects that
these concessions will reduce cash operating expenses which would have been
incurred by an aggregate amount of approximately $10.0 million during the two-
year period ending December 1997. In exchange for the wage concessions, the
Company has agreed to negotiate gain-sharing programs to provide employees the
opportunity to receive wage rate increases resulting from work rule and
productivity modifications, which produce cost savings to the Company. In
addition, the Company has agreed to establish a profit bonus plan, which would
provide all employees (other than senior management) with cash bonuses if the
Company achieves certain pre-tax profit targets. The contracts as modified
provide additional furlough protection to employees under certain specified
circumstances. The Company and unions also have agreed to include certain
additional low-cost or no-cost provisions that are specific to each of the
respective union contracts. The estimated cash operating expense savings noted
above do not include estimated costs associated with these gain sharing and
profit bonus plan initiatives because management cannot presently determine the
amount of such costs.
RIGHTS OFFERING
- ---------------
The AIP Investment agreement requires AIP to use its best efforts to cause the
Company, as soon as practicable after the consummation of the AIP Investment, to
make a rights offering (the "Rights Offering") pursuant to which the Company
would offer to such persons as the Board of Directors shall determine at the
time of the Rights Offering (which would not initially include AIP (except
possibly with respect to Rights not exercised
15
<PAGE>
during the allotted time) but would include, among others, shareholders who hold
shares at the record date for the Rights Offering and holders of options granted
under the 1994 Stock Option Plan) rights to purchase shares of Class A Common
Stock (the "Rights"), during a 20-day period after the issuance of the Rights,
at a discount equal to at least 30.0% of the trading price of the Class A Common
Stock measured over a period of time to be designated by the Board of Directors
after the consummation of the AIP Investment and prior to the Rights Offering,
subject to a minimum exercise price of $1.10 per Right. Unexercised Rights would
be offered to certain employees, as provided in the modifications to the
collective bargaining agreements described below, and possibly to AIP. The other
terms and conditions of the Rights Offering, including the number of Rights to
be offered, the record date for the Rights Offering and whether the Rights would
be transferable, would be established by the Board of Directors at the time of
the Rights Offering. It is currently expected that Rights with respect to
approximately 10,000,000 shares of Class A Common Stock would be distributed,
subject to the Board's determination at the time. If Rights with respect to
10,000,000 shares were distributed and exercised in full, the Rights Offering
would produce gross proceeds to the Company of at least $11.0 million. The
timing of the Rights Offering can not be estimated at this time. The Rights
Offering would be made only by means of a separate prospectus constituting a
part of a registration statement to be filed by the Company with the Securities
and Exchange Commission.
The Company has agreed with GPA Group plc and its affiliate AEROUSA, Inc. (the
"GPA Companies") that, if the closing of the Rights Offering shall have
occurred by September 30, 1996, the Company shall repurchase all of the shares
of Class A Common Stock owned by the GPA Companies and repay certain secured and
unsecured promissory notes held by the GPA Companies. The stock repurchase
price would be $1.10 per share and the promissory notes would be repaid at
approximately 85.0% of the then carrying value of the notes, including any
deferred costs and other expenses owed. Based on the number of shares owned by
the GPA Companies as of January 31, 1996 and the carrying value of the notes as
of such date, the Company would pay approximately $4.91 million to the GPA
Companies. The Company has the option at any time prior to the Rights Offering
to repurchase the GPA Companies' shares and repay their notes on the above
terms.
AUTHORIZED CAPITAL STOCK; WARRANTS AND OPTIONS
- ----------------------------------------------
In connection with the AIP Investment, the Amended Articles of Incorporation of
the Company, as amended were further amended to increase the authorized number
of shares of Class A Common Stock from 40,000,000 shares to 60,000,000 shares.
The increase in the number of authorized shares allows the Company to have a
sufficient number of authorized and unissued shares of Class A Common Stock to
permit the exercise of Rights under the Rights Offering and ensures that the
Company will have, from time to time, an adequate number of authorized and
unissued shares available for corporate purposes, such as future public and
private equity offerings, to raise working capital.
Pursuant to the anti-dilution provisions of the Existing Warrants, upon the
consummation of the AIP Investment, the holders of the Existing Warrants
received warrants to purchase an additional 587,356 shares of Class A Common
Stock exercisable at $1.71 per share. The holders of the Existing Warrants have
agreed that the anti-dilution provisions will not apply in connection with the
AMR Warrants and the Rights.
Options to acquire 592,500 shares of Class A Common Stock were granted in 1995
pursuant to the terms of the 1994 Stock Option Plan. As a result of an
amendment to the 1994 Stock Option Plan in connection with the AIP Investment,
the option exercise period was extended to February 2, 2005. The option
exercise price is $1.62 per share. The aforementioned amendment to the 1994
Stock Option Plan resulted in a new measurement date for the awarded options and
approximately $782,000 of noncash compensation expense was recorded in January
1996. To date, no options have been exercised.
In connection with the arrangements with American described above, the Company
issued to AMR the AMR Warrants, which entitle AMR to acquire up to 1,897,946
shares of the Class A Common Stock at $1.10 per share. One-half of the AMR
Warrants are immediately exercisable but the balance will only be exercisable if
American and the Company enter into a code sharing agreement by January 1, 1997
regarding the placement of the two letter flight designator code for American's
flights on the Company's Interisland flights. The AMR Warrants expire on
September 11, 2001.
16
<PAGE>
Except for shares of Class A Common Stock that have been reserved in connection
with the Existing Warrants, the 1994 Stock Option Plan, the Reorganization Plan,
the AMR Warrants and the Rights Offering, the Company has no present agreements
or commitments to issue any additional shares of Class A Common Stock.
TAX AND NET OPERATING LOSS ("NOL") CONSIDERATIONS
- -------------------------------------------------
The Company believes that the transactions with respect to its equity following
its bankruptcy reorganization, including those pertaining to the AIP Investment,
issuance of the AMR Warrants, consummation of the Rights Offering, and possible
purchases or sales of its stock by significant shareholders or exercises of
options to acquire equity in the Company, has resulted in or has significantly
increased the likelihood of an "ownership change" of the Company for purposes of
Section 382 of the Internal Revenue Code. An ownership change under Section 382
results in an annual limitation (the "Section 382 Limitation") on the amount of
pre-ownership change NOLs of the Company that can be used to offset the
Company's taxable income for periods following the ownership change.
Based on values used by the Company in preparing its 1994 federal income tax
return, the Company's Section 382 Limitation that generally applied to all NOLs
attributable to the period prior to the ownership change that resulted from the
Company's bankruptcy reorganization was approximately $2.4 million, plus certain
"built-in" income items that increase the Section 382 Limitation. While the
Company anticipates that any ownership change resulting from the AIP Investment
and its related transactions would result in a new Section 382 Limitation which
is lower than the Section 382 Limitation in effect previously, the amount of
such reduction and its effect on the Company (as well as the effect on the
Company of subjecting NOLs incurred following the Company's bankruptcy
reorganization to the Section 382 Limitation) depend on numerous issues,
including but not limited to the value of the Company's equity at certain dates,
the amount and timing of future taxable income and loss, and the amount of
"built-in" income items of the Company. Therefore, while the effect of an
ownership change resulting from the AIP Investment and its related transactions
could be to increase the future tax liabilities of the Company, the precise
effect of such an ownership change of the Company resulting from the AIP
Investment and its related transactions is unclear.
CURRENT STATUS
- --------------
The Company's capital resources have been increased substantially due to the AIP
Investment and the arrangements with American. It is anticipated that the
combination of the Company's improved liquidity and reduced operating costs will
enable the Company to make necessary capital expenditures, take advantage of
prompt payment discounts, avoid the need to provide early payment incentives to
wholesalers and become less dependent on promotional fare ticket sales to the
traveling public, thereby further improving liquidity.
In addition, the Company is anticipating the consummation of the Rights Offering
and is currently negotiating to increase the capacity of the Credit Facility to
$15.0 million. No assurance can be given that the Company will be successful in
either of these efforts. If the Company is unsuccessful, it will seek other
sources of financing. However, because the Company has no remaining
unencumbered assets, its access to additional sources of liquidity remains
limited. If the Company is unsuccessful in obtaining additional sources of
liquidity, an adverse change in events and circumstances could result in the
Company being unable to meet its financial obligations after it exhausts its
current and foreseeable capital resources.
The financial statements at December 31, 1995, have been prepared on a going
concern basis which assumes continuity of operations and realization of assets
and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary as a result of the outcome
of future uncertainties. Management recognizes that the continuation of the
Company as a going concern is dependent upon a return to profitable, positive
cash flow operations and the generation of adequate funds to meet its ongoing
obligations.
17
<PAGE>
RESULTS OF OPERATIONS
---------------------
1995 COMPARED TO 1994
---------------------
INTRODUCTION
------------
The Company understands that financial results of the Reorganized Company have
been affected due to the recapitalization and adoption of fresh start reporting
as of September 12, 1994 and such results are not comparable to the Predecessor.
Nevertheless, the operating revenues and expenses of the Reorganized Company in
1995 have been compared to the combined operating revenues and expenses of the
Reorganized Company and Predecessor in 1994. Significant differences between
1995 and 1994 as a result of the recapitalization and fresh start adjustments
have been disclosed.
For the year ended December 31, 1995, the Company incurred operating and net
losses of $1.9 million and $5.5 million, respectively. The 1995 operating loss
represents a decrease of $10.8 million or 85.0% from the operating loss of $12.7
million in 1994.
OPERATING REVENUES
------------------
The following table compares 1995 operating revenues to those in 1994, in
thousands, by service type:
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
-------------------------------------------
<S> <C> <C> <C>
Interisland:
Passenger............. $122,079 $119,750 $ 2,329
Charter............... 33 25 8
Cargo................. 6,702 6,513 189
Other................. 5,665 5,645 20
-------- -------- -------
134,479 131,933 2,546
-------- -------- -------
Transpac:
Passenger............. 156,155 142,116 14,039
Cargo................. 9,555 7,688 1,867
Other................. 3,114 2,896 218
-------- -------- -------
168,824 152,700 16,124
-------- -------- -------
Southpac:
Passenger............. 19,293 18,311 982
Cargo................. 1,912 2,138 (226)
Other................. 229 252 (23)
-------- -------- -------
21,434 20,701 733
-------- -------- -------
Overseas Charter:
Passenger............. 22,167 646 21,521
-------- -------- -------
Total............... $346,904 $305,980 $40,924
======== ======== =======
</TABLE>
18
<PAGE>
The following table compares applicable 1995 operating and financial passenger
revenue statistics to those in 1994:
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE) %
-------------------------------------------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers*....... 3,721 3,639 82 2.3
Revenue passenger miles*.. 490,044 476,051 13,993 2.9
Available seat miles*..... 937,736 854,073 83,663 9.8
Passenger load factor..... 52.3% 55.7% (3.4) (6.1)
Yield..................... 24.9c 25.2c (0.3)c (1.2)
Transpac:
Revenue passengers*....... 994 880 114 13.0
Revenue passenger miles*.. 2,506,774 2,231,106 275,668 12.4
Available seat miles*..... 3,034,177 2,857,081 177,096 6.2
Passenger load factor..... 82.6% 78.1% 4.5 5.8
Yield..................... 6.2c 6.4c (0.2)c (3.1)
Southpac:
Revenue passengers*....... 66 65 1 1.5
Revenue passenger miles*.. 174,548 173,182 1,366 0.8
Available seat miles*..... 266,406 284,495 (18,089) (6.4)
Passenger load factor..... 65.5% 60.9% 4.6 7.6
Yield..................... 11.1c 10.6c 0.5c 4.7
Overseas Charter:
Revenue passengers*....... 155 1 154 N/M**
Revenue passenger miles*.. 426 2 424 N/M**
Available seat miles*..... 439 4 435 N/M**
</TABLE>
- ---------------------
* In thousands
** Not Meaningful
Operating revenues totaled $346.9 million in 1995 compared to $306.0 million in
1994, an increase of $40.9 million or 13.4%.
Revenues from Interisland passenger service totaled $122.1 million during 1995,
an increase of $2.3 million or 1.9% from 1994 Interisland passenger revenues of
$119.8 million. Increases of 2.3% and 2.9% in Interisland passengers carried
and revenue passenger miles, respectively, were offset by a decrease in
Interisland yield of 0.3c or 1.2%. Increases in Interisland revenue passengers
carried, revenue passenger miles and available seat miles were a direct result
of increased schedule frequencies due to operational concepts such as the Island
Shuttle operating for a full year in 1995 versus a partial year in 1994 and the
use of promotional fare ticket programs to stimulate traffic and increase
liquidity. The promotional fare ticket programs, however, were also the primary
cause of dilution in the 1995 Interisland yield.
Revenues from Transpac passenger operations amounted to $156.2 million during
1995 compared to $142.1 million in 1994, an increase of $14.0 million or 9.9%.
The increase in Transpac passenger revenues resulted primarily from an increase
in Transpac load factor of 5.8%. The increase in load factor was offset by a
0.2c or 3.1% decrease in Transpac yield year over year. Transpac yields were
affected by heavy pricing competition in the Transpac market and similar to
above, the effects of promotional fare ticket programs.
19
<PAGE>
Southpac passenger revenues in 1995 totaled $19.3 million, representing an
increase of $982,000 or 5.4% from 1994. Both Southpac load factor and yield
increased year over year by 7.6% and 4.7%, respectively. The increase in yield
is primarily attributable to increases to all Southpac fares in late 1994.
Transpac cargo revenues increased by $1.9 million or 24.3% from 1994. Increased
frequency in its Transpac routes allowed the Company to transport 5.1 or 48.4%
more tons of freight in 1995. The increase in tonnage was offset by a decrease
in yield year over year of 5.9c or 16.3%. The decrease in Transpac cargo yield
was primarily caused by a change in mix as the Company carried more agricultural
and bulk freight in 1995 versus 1994.
Overseas charter revenues of $22.2 million were earned in 1995 due to the
commencement of charter operations between Honolulu, Hawaii and Las Vegas,
Nevada in 1995.
OPERATING EXPENSES
------------------
The following table compares operating expenses for 1995 with 1994 by major
category, in thousands:
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
-------------------------------------
<S> <C> <C> <C>
Wages and benefits.......... $108,274 $102,670 $ 5,604
Aircraft fuel, including
taxes and oil.............. 56,724 47,682 9,042
Maintenance materials and
repairs.................... 60,581 46,541 14,040
Aircraft rentals............ 16,477 23,966 (7,489)
Purchased services.......... 20,192 19,866 326
Sales commissions........... 13,875 12,841 1,034
Rentals other than aircraft
and engines................ 9,021 9,633 (612)
Passenger food.............. 8,185 8,972 (787)
Depreciation and
amortization............... 7,859 6,797 1,062
Landing fees................ 8,202 6,793 1,409
Reservation fees and
services................... 6,808 6,635 173
Advertising and promotion... 8,301 4,909 3,392
Personnel expenses.......... 3,868 4,056 (188)
Insurance-bill and liability 3,920 3,388 532
Interrupted trips........... 1,823 2,038 (215)
Early retirement provision.. 2,000 -- 2,000
Nonreorganization
professional and legal
fees....................... 2,032 1,656 376
Other....................... 10,663 10,226 437
-------- -------- -------
Total.................... $348,805 $318,669 $30,136
======== ======== =======
</TABLE>
Operating expenses totaled $348.8 million in 1995, an increase of $30.1 million
or 9.4% from total operating expenses of $318.7 million in 1994.
Wages and benefits increased $5.6 million or 5.5% in 1995. The increase is
primarily attributed to (1) $3.6 million of additional wages and benefits due
to 5.0% to 6.7% wage increases effective September 1, 1994 and (2) $2.0 million
of noncash compensation expense recognized under the provisions of a 1994 Stock
Option Plan for officers and key employees of the Company.
Aircraft fuel, including taxes and oil, increased by $9.0 million or 19.0% from
$47.7 in 1994 to $56.7 million in 1995. While average cost per gallon remained
relatively stable year over year at $0.61, the Company consumed
20
<PAGE>
14.0 million or 17.9% more gallons in 1995 than 1994, primarily due to increased
frequencies on the Company's Interisland and Transpac routes.
Maintenance materials and repairs totaled $60.5 million in 1995 an increase of
$14.0 million or 30.1% over 1994. The Company incurred approximately $9.8
million less in L-1011 and DHC-7 maintenance costs in 1995 as these aircraft
were phased out during 1994. However, $23.8 million of additional maintenance
was incurred in 1995 for the Company's DC-10-10 and DC-9-50 fleets.
Aircraft rentals decreased by $7.5 million or 31.2% year over year. The
decrease was a net result of (1) $7.7 million less in DHC-7 and L-1011 aircraft
rents, again as these aircraft were phased out during 1994; (2) $4.2 million
less in DC-9-50 aircraft and engine rents due to such rents being restructured
on the Effective Date; and (3) $4.4 million more in rents for DC-10-10 aircraft.
Sales commissions totaled $13.9 million in 1995, an increase of $1.1 million or
8.6% over total sales commissions of $12.8 million in 1994. The increase is
primarily attributable to $1.0 million in additional commissions related to
incentive programs offered to wholesalers designed to stimulate traffic.
Depreciation and amortization increased by $1.1 million or 15.6%. An additional
$2.5 million of amortization of reorganization value in excess of identifiable
assets in 1995 was offset by $1.7 million less in depreciation from the
reclassification of approximately $13.5 million of Property and equipment to
Assets held for sale on the Effective Date.
Landing fees increased by $1.4 million or 20.7% to $8.2 million in 1995. The
increase was principally caused by increased frequencies in the Interisland and
Transpac markets, specifically Los Angeles, Las Vegas and Portland.
Advertising and promotion totaled $8.3 million in 1995, an increase of $3.4
million or 69.1% over 1994, a direct result of efforts to increase the Company's
exposure in the Interisland and West Coast markets through advertising and
telecommunications media.
Other operating expenses in 1995 were reduced by the reversal of $1.8 million in
preconfirmation contingency accruals initially provided for on the Effective
Date.
Early retirement provision of $2.0 million represents the estimated effects on
the Company's pension and postretirement benefit obligations from the early
retirement program offered in the first quarter of 1995.
NONOPERATING INCOME (EXPENSE)
-----------------------------
Reorganization expenses in 1994 totaled $14.0 million and principally represents
$5.7 million and $7.6 million in legal and professional fees and employee
concession claims, respectively, associated with the Predecessor's Chapter 11
process and $638,000 in fresh start adjustments recorded on the Effective Date
in accordance with SOP 90-7.
EXTRAORDINARY ITEMS
-------------------
An extraordinary gain of approximately $190.1 million was recorded in the third
quarter of 1994 primarily due to the extinguishment of prepetition obligations.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards (the "SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of." This Statement is effective for years beginning after December 15, 1995
and applies to long-lived assets and certain identifiable intangible assets
whether held and used or to be disposed of, and goodwill.
21
<PAGE>
SFAS No. 121 requires that a review be made of long-lived assets and certain
identifiable intangible assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the future cash flows expected to result from use of
the asset (undiscounted and without interest charges) are less than the carrying
amount of the asset, an impairment loss is recognized. Such impairment loss is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. In instances where goodwill is identified with assets
that are subject to an impairment loss, such goodwill should be allocated to the
assets tested for recoverability on a pro rata basis using the relative fair
values of the assets acquired in the transaction generating the goodwill.
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.
The Company plans to adopt SFAS No. 121 in 1996. Restatement of previously
issued financial statements is not permitted. The Company does not believe that
adoption of SFAS No. 121 will have a material impact on its financial condition
or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value based method of
accounting for stock-based compensation, but does not require an entity to adopt
the new method for purposes of preparing its basic financial statements. For
entities not adopting the new method, SFAS No. 123 requires footnote disclosure
of pro forma net income and earnings per share information as if the fair value
based method had been adopted. The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company will comply with the disclosure requirements of SFAS No. 123
in its 1996 financial statements.
1994 COMPARED TO 1993
---------------------
INTRODUCTION
------------
The Company believes that its operating revenues and expenses after the
Effective Date have been presented on a basis which is in all material respects
consistent with the presentation of operating revenues and expenses before the
Effective Date. Therefore, operating revenues and expenses of the Reorganized
Company and the Predecessor in 1994 have been combined for purposes of
comparison to 1993.
Excluding nonrecurring items, the Company's operating and net losses for 1994
decreased over 1993 by $12.1 million and $16.0 million, respectively, to $12.7
million and $12.9 million, respectively.
22
<PAGE>
OPERATING REVENUES
------------------
The following table compares 1994 operating revenues to those in 1993, in
thousands, by service type:
<TABLE>
<CAPTION>
INCREASE
1994 1993 (DECREASE)
-------------------------------------------
<S> <C> <C> <C>
Interisland:
Passenger............. $119,750 $118,530 $ 1,220
Charter............... 25 1,016 (991)
Cargo................. 6,513 6,954 (441)
Other................. 5,645 5,569 76
-------- -------- -------
131,933 132,069 (136)
-------- -------- -------
Transpac:
Passenger............. 142,116 136,543 5,573
Cargo................. 7,688 6,121 1,567
Other................. 2,896 2,669 227
-------- -------- -------
152,700 145,333 7,367
-------- -------- -------
Southpac:
Passenger............. 18,311 18,313 (2)
Cargo................. 2,138 1,925 213
Other................. 252 178 74
-------- -------- -------
20,701 20,416 285
-------- -------- -------
Overseas Charter:
Passenger............. 646 6,153 (5,507)
Other................. -- 138 (138)
-------- -------- -------
646 6,291 (5,645)
-------- -------- -------
Total............... $305,980 $304,109 $ 1,871
======== ======== =======
</TABLE>
23
<PAGE>
The following table compares applicable 1994 operating and financial passenger
revenue statistics to those in 1993:
<TABLE>
<CAPTION>
INCREASE
1994 1993 (DECREASE) %
-------------------------------------------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers*....... 3,639 3,386 253 7.5
Revenue passenger miles*.. 476,051 438,979 37,072 8.4
Available seat miles*..... 854,073 770,171 83,902 10.9
Passenger load factor..... 55.7% 57.0% (1.3) (2.3)
Yield..................... 25.2c 27.0c (1.8)c (6.7)
Transpac:
Revenue passengers*....... 880 885 (5) (0.6)
Revenue passenger miles*.. 2,231,106 2,257,472 (26,366) (1.2)
Available seat miles*..... 2,857,081 2,784,980 72,101 2.6
Passenger load factor..... 78.1% 81.1% (3.0) (3.7)
Yield..................... 6.4c 6.0c 0.4c 6.7
Southpac:
Revenue passengers*....... 65 66 (1) (1.5)
Revenue passenger miles*.. 173,182 174,262 (1,080) (0.6)
Available seat miles*..... 284,495 294,983 (10,488) (3.6)
Passenger load factor..... 60.9% 59.1% 1.8 3.0
Yield..................... 10.6c 10.5c 0.1c 1.0
</TABLE>
- -------------------
* In thousands
Operating revenues totaled $306.0 million in 1994 compared to $304.1 million in
1993, an increase of $1.9 million or 0.6%.
Revenues from Interisland passenger service totaled $119.8 million during 1994,
an increase of $1.2 million or 1.0% from 1993 Interisland passenger revenues of
$118.5 million. Increases of 7.5% and 8.4% in Interisland passengers carried
and revenue passenger miles, respectively, were offset by a decrease in
Interisland yield of 1.8c or 6.7%. Increases in revenue passengers carried,
revenue passenger miles and available seat miles were a direct result of (1) the
utilization of 13 DC-9-50 aircraft during a majority of 1994 versus four DHC-7
and, on average nine DC-9-50 aircraft in 1993; and (2) increased passenger
counts due to the overall increase in Hawaii tourism year over year and, newly
implemented operational concepts such as the Island Shuttle to Maui and Kauai
and promotional fare ticket programs. However, the promotional fare ticket
programs, such as those held in the second and fourth quarters of 1994, were
also the primary cause of dilution in the 1994 Interisland yield.
Revenues from Transpac passenger operations amounted to $142.1 million during
1994 compared to $136.5 million in 1993, an increase of $5.6 million or 4.1%.
The increase in Transpac passenger revenues resulted primarily from a 0.4c or
6.7% increase in Transpac yield year over year. The increase in yield was
offset by decreases in revenue passengers carried and revenue passenger miles of
0.6% and 1.2%, respectively. As noted above, promotional fare ticket programs
were held in 1994, with a portion of such promotional fare ticket programs
associated with Transpac routes. Such allocations assisted in increasing
Transpac yields in 1994 as no such allocations were made in 1993. Decreases in
Transpac revenue passengers carried, revenue passenger miles flown and available
seat miles were a direct result of the Company completing in 1994 its
transition to an all DC-10-10 aircraft fleet from an all L-1011 fleet. In their
current configuration, at full load, the DC-10-10 on average accommodates 35
less passengers than the L-1011.
24
<PAGE>
Southpac passenger revenues in 1994 remained comparable to 1993 at $18.3
million. While period over period revenue passengers carried and revenue
passenger miles decreased by 1.5% and 0.6%, respectively, Southpac yield
increased by 0.1c or 1.0%. Again, decreases in Southpac revenue passengers
carried, revenue passenger miles flown and available seat miles may be
attributed to the transition to an all DC-10-10 aircraft fleet in 1994.
Southpac yields increased due to the downsized operations of a competitor in the
Southpac market in 1994.
Transpac cargo revenues increased by $1.6 million or 26.2% from 1993. Increased
frequency in its Transpac routes allowed the Company to transport 5.4 million or
34.3% more pounds of freight in 1994. The increase in tonnage was offset by a
decrease in yield year over year of 2.5c or 6.4%.
Overseas charter revenues decreased by $5.5 million or 88.7% upon comparison of
1994 to 1993. A majority of the decrease is associated with the Predecessor
obtaining in 1993 a $3.9 million settlement from the Military Airlift Command
for charter operations during Operations Desert Shield and Desert Storm in 1991
and 1990.
OPERATING EXPENSES
------------------
The following table compares operating expenses for 1994 with 1993 by major
category, in thousands:
<TABLE>
<CAPTION>
INCREASE
1994 1993 (DECREASE)
-------------------------------------
<S> <C> <C> <C>
Wages and benefits.......... $102,670 $101,292 $ 1,378
Aircraft fuel, including
taxes and oil.............. 47,682 49,777 (2,095)
Maintenance materials and
repairs.................... 46,541 40,986 5,555
Aircraft rentals............ 23,966 29,342 (5,376)
Purchased services.......... 19,866 17,789 2,077
Sales commissions........... 12,841 11,153 1,688
Rentals other than aircraft
and engines................ 9,633 7,292 2,341
Passenger food.............. 8,972 8,150 822
Depreciation and
amortization............... 6,797 7,442 (645)
Landing fees................ 6,793 4,803 1,990
Reservation fees and
services................... 6,635 5,762 873
Advertising an promotion.... 4,909 3,154 1,755
Personnel expenses.......... 4,056 4,199 (143)
Insurance-bill and liability
Interrupted tripe........... 3,388 2,126 1,262
Early retirement provision.. 2,038 4,074 (2,036)
Nonreorganization
professional and legal
fees....................... 1,656 3,872 (2,216)
Restructuring charges....... -- 14,000 (14,000)
Other....................... 10,226 13,734 (3,508)
-------- -------- --------
Total.................... $318,669 $328,947 $(10,278)
======== ======== ========
</TABLE>
Operating expenses totaled $318.7 million in 1994, a decrease of $10.2 million
or 3.1% from total operating expenses of $328.9 million in 1993.
Wages and benefits increased $1.4 million or 1.4% in 1994. The increase is
primarily attributed to 5.0% to 6.7% wage increases effective September 1,
1994.
Aircraft fuel, including taxes and oil decreased by $2.1 million or 4.2% from
$49.8 in 1993 to $47.7 million in 1994. In addition to a $0.05 or 8.2% decrease
in average cost per gallon year over year, the Company incurred approximately
$2.3 million less in aircraft fuel expense in 1994 due to the phase out of its
DC-8 aircraft in 1993.
25
<PAGE>
Maintenance materials and repairs totaled $46.5 million in 1994 an increase of
$5.6 million or 13.7% over 1993. On a net basis, the Company incurred
approximately $5.1 million in additional maintenance expense from the DC-10-10
aircraft transitioned in 1994.
Aircraft rentals decreased by $5.4 million or 18.3%, of which $4.1 million
represents decreased rents due to DC-9-50 aircraft operating under capital
versus operating leases in 1994 and other DC-9-50 aircraft operating lease rents
being restructured on the Effective Date. Approximately $1.3 million of the
decrease is attributable to decreased rents associated with phased out L-1011,
DHC-7 and DC-8 aircraft in 1994 and 1993.
Purchased services increased $2.1 million or 11.8%, to $19.9 million in 1994
from $17.8 million in 1993. The Company incurred an additional $1.6 million in
costs in 1994 associated with simulator training, operation of its flight
operating system, credit card fees and outsourced computer mainframe services.
Sales commissions totaled $12.8 million in 1994, an increase of $1.6 million or
14.3% over total sales commissions of $11.2 million in 1993. The increase is
primarily attributable to an 18.0% increase in commissionable sales processed
through area settlement plans.
Rentals other than aircraft and engines totaled $9.6 million in 1994 versus $7.3
million in 1993. The $2.3 million or 31.5% increase is due to increased space
rental rates and additional joint use and system support expenses charged
primarily by the State of Hawaii airport authorities.
Landing fees increased by $2.0 million or 41.6% to $6.8 million in 1994.
Increases associated with DC-9-50 aircraft landings and wide-body aircraft
landings of $1.4 million and $900,000, respectively, were experienced in 1994.
Such increases were due to (1) increased landing fee rates in Hawaii and Los
Angeles, California and (2) increased frequency due to implementation of the
Island Shuttle, schedule changes to Los Angeles, California and Las Vegas,
Nevada and commencement of scheduled service to Portland, Oregon.
Advertising and promotion totaled $4.9 million in 1994, an increase of $1.8
million or 58.1% over 1993. Approximately $900,000 is due to a conscious effort
by management to increase the Company's exposure through advertising and
promotional media, especially on the U.S. West Coast. Another $200,000 of
additional expenses were incurred in connection with the Company's participation
in American's frequent flyer program.
Insurance-hull and liability increased from $2.1 million in 1993 to $3.4 million
in 1994. The $1.3 million or 61.9% increase was mainly due to an 84.2% increase
in the applicable premium rate for liability applied to the Company's revenue
passenger miles in 1994.
Interrupted trip expense decreased by $2.0 million or 49.9% year over year. The
Company experienced $1.8 million less in flight interruption manifest and denied
boarding expenses due to its continual efforts to improve customer service and
on-time performance.
Nonreorganization professional and legal fees decreased $2.2 million period over
period due to a majority of professional and legal fees being classified, in
accordance with the provisions of SOP 90-7 as reorganization expenses during the
year 1994.
Restructuring charges in 1993 represent the Predecessor's provision for the
anticipated return and termination of five of its DC-9-50 aircraft in the second
quarter of 1993.
26
<PAGE>
NONOPERATING INCOME (EXPENSE)
-----------------------------
Reorganization expenses in 1993 of $52.6 million primarily consists of $47.1
million in anticipated L-1011 and DHC-7 aircraft rental and return costs, $4.7
million for the write-off of related flight equipment leasehold improvements and
$800,000 in legal and professional fees.
EXTRAORDINARY ITEMS
-------------------
The $12.1 million extraordinary item in 1993 represents a one-time non-monetary
gain due to the reduction in the net accrued pension benefit obligation of the
Predecessor. Effective October 1, 1993, the IAM and salaried employee defined
benefit pension plans were frozen with no future pay or credited service
increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The Reorganized Company's and Predecessor's Financial Statements, accompanying
Notes and related Independent Auditors' Report and Selected Financial and
Statistical Data are contained in Part IV, Item 14 of this Form 10-K and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
27
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
------------------------------------------------------------
DIRECTORS OF THE COMPANY
------------------------
The following eleven Directors comprise the Board of Directors of the Company.
JOHN W. ADAMS has been Chairman of the Board since February 2, 1996. He has
been the President of Smith Management Company, a New York based investment firm
since 1984. He has been Chairman of the Board of Directors of Regency Health
Services, Inc. since 1994. He is also Chairman of the Board of Servico, Inc.
and a director of Harvard Industries, Inc. He has been a director of Hawaiian
since January 31, 1996. Age 52.
TODD G. COLE was Chairman and Chief Executive Officer of CIT Financial
Corporation from 1982 until his retirement in 1986. He has served as Managing
Director of SH&E, Inc., a consulting firm specializing in aviation from 1992
until 1995, President and Chief Executive Officer of Frontier Airlines, Inc.
D.I.P. from 1986 until 1990 and Vice Chairman of Eastern Airlines, Inc. D.I.P.
from 1989 until 1991. He is Vice Chairman of CapMAC Holdings, Inc. and is a
Director of Kaiser Ventures, Inc., NAC Re Corporation, Delta Insurance
Corporation, Dillon Read Structured Finance Corporation and Arrow Air, Inc. He
has been a director of Hawaiian since 1994. He is member of the Audit
Committee. Age 74.
RICHARD F. CONWAY has been Vice President of Smith Management Company since
1994. He was Senior Vice President of Needham & Company, a New York based
investment banking firm from 1992 until 1994 and he was Vice President of
Security Pacific Merchant Bank from 1990 until 1991. He is a director of Inland
Resources, Inc. He has been a director of Hawaiian since January 31, 1996. He
is Chairman of the Nominating Committee and a member of the Compensation
Committee. Age 42.
ROBERT G. COO has been an independent financial consultant since 1995. He was
Vice President, Chief Financial Officer and Secretary of Pengo Industries, Inc.,
an industrial holding company, from 1990 until 1995. He is a director of First
National Bank in San Diego, California and of Regency Health Services, Inc. in
Tustin, California. He has been a director of Hawaiian since January 31, 1996.
He is the Chairman of the Audit Committee and a member of the Nominating
Committee. Age 54.
CAROL A. FUKUNAGA has been a Hawaii State Senator since 1992. She was a Hawaii
State House of Representative from 1978 until 1992. She has been a director of
Hawaiian since 1991. She is a member of the Nominating Committee. Age 48.
WILLIAM BOYCE LUM is a psychologist and an attorney. He has been on the faculty
and a training analyst with the Institute for Psychoanalysis and Psychotherapy
of New Jersey since 1988. He has been Of Counsel with the law firm of Lum,
Danzis, Drasco, Positan & Kleinberg in Roseland, New Jersey since 1981. He was
a director of The Summit Bancorporation from 1981 until 1996. He has been a
director of Hawaiian since January 31, 1996. Age 57.
RICHARD K. MATROS has been Chief Executive Officer and President of Regency
Health Care Services, Inc. since April 1994. He was Chief Executive Officer and
President of Care Enterprises, Inc. from January 1994 until April 1994, at which
time Care Enterprises, Inc. was merged into Regency Health Care Services, Inc.
He was President and Chief Operating Officer of Care Enterprises, Inc. from 1991
until January 1994 and Executive Vice President of Operations of Care
Enterprises, Inc. from 1988 until 1991. He has been President of the California
Association of Health Facilities since 1995. He has been a director of Hawaiian
since January 31, 1996. He is the Chairman of the Compensation Committee. Age
42.
RENO F. MORELLA has been a pilot for Hawaiian since 1983. He is currently a
Captain on the DC-10. He has been Chairman of the Hawaiian Master Executive
Council of ALPA since 1994. He was the First Officer
28
<PAGE>
Category Representative for Council 102 of ALPA from 1993 until 1994. He has
been a director of Hawaiian since March 1, 1996. Age 47.
BRUCE R. NOBLES has been the President and Chief Executive Officer of Hawaiian
since 1993. He was Chairman of the Board of Hawaiian from September 1994 until
February 1996. In 1991 he was President and Chief Executive Officer of
L'Express, Inc. in New Orleans, Louisiana. He was President and Chief Operating
Officer of Trump Shuttle, Inc. in New York, New York from 1988 until 1990. He
has been a director of Hawaiian since 1993. Age 49.
SAMSON POOMAIHEALANI has been the Assistant General Chairman of the Airline
Machinists District 141 of the IAM since 1987. He has been a mechanic for
United Airlines, Inc. since 1963. He has been a director of Hawaiian since
1990. He is a member of the Compensation Committee. Age 54.
EDWARD Z. SAFADY has been a Vice President of Smith Management Company since
October 1995. He was President and Chief Executive Officer of Liberty National
Bank in Austin, Texas from 1988 until 1995. He currently serves as Chairman of
the Board of Norwest Bank Texas in Austin, Texas. He is also Chairman of the
Board of First National Bank in San Diego, California and a director of U.S.
Medical Products, Inc. He has been a director of Hawaiian since January
31,1996. He is a member of the Audit Committee. Age 38.
Information provided in Item 12. Securities Ownership Of Certain Beneficial
Owners And Management--Changes in Control Arrangements of this Form 10-K is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
The following eleven officers comprise the Executive Officers of the Company.
BRUCE R. NOBLES has been the President and Chief Executive Officer of Hawaiian
since 1993. See description in "Directors of the Company" above for other
principal occupations during the past five years. Age 49.
FRANK L. FORSTER has been the Senior Vice President and Chief Operating Officer
of Hawaiian since 1994. He was a consultant Maintenance Advisor for Hawaiian
from 1991 until 1994 and Vice President- Maintenance and Engineering for
Hawaiian from 1990 until 1991. Age 56.
C.J. DAVID DAVIES has been Senior Vice President-Finance and Chief Financial
Officer for Hawaiian since 1993. From 1976 until 1992, he was Senior Vice
President, Treasurer and Chief Financial Officer of Pan American World Airways,
Inc. in New York, New York. Age 58.
PETER W. JENKINS has been Senior Vice President-Marketing and Sales for Hawaiian
since 1994. He was the Director of Communications at ITT Sheraton Corporation
from 1987 until 1994 in Honolulu, Hawaii. Age 54.
RAE A. CAPPS has been Vice President, General Counsel and Corporate Secretary of
Hawaiian since 1993. She was an attorney at the Law Firm of Goodsill Anderson
Quinn & Stifel in Honolulu, Hawaii from 1990 until 1993. Age 43.
CLARENCE K. LYMAN has been Vice President-Finance, Treasurer and Assistant
Corporate Secretary of Hawaiian since 1991. He was Vice President-Treasurer and
Assistant Corporate Secretary of Hawaiian from 1989 until 1991. Age 49.
ALEXANDER D. JAMILE has been Vice President-Government and Community Affairs of
Hawaiian since 1993. He was Vice President-Administration/Governmental and
Community Affairs of Hawaiian from 1992 until 1993. From 1987 until 1992, he
was Director-Operations at Young Bros., Ltd. in Honolulu, Hawaii. Age 56.
JOHN P. SOLOMITO has been Vice President-Customer Services of Hawaiian since
1992. He was the General Manager of Pan American World Airways, Inc. in Los
Angeles, California from 1988 until 1992. Age 57.
29
<PAGE>
JAMES H. DAVIS, JR. has been Vice President-Flight Operations of Hawaiian since
1995. Prior to that, he was a Partner and Vice President of Operations of
Hawaii Aviation Contract Services, Inc. from 1990 until 1994. He was also the
DC-10 Chief Pilot of Japan Air Charter from 1990 until 1994. He was a Wide Body
Line Captain and Chief Pilot of International Operations of Hawaiian from 1968
until 1990. Age 57.
GLEN L. STEWART has been Vice President-Transpacific and Southpacific Marketing
of Hawaiian since 1993. He was Senior Vice President-Transpacific of Hawaiian
from 1991 to 1993, Senior Vice President-North American Sales of Hawaiian in
1991 and Senior Vice President-Finance and Chief Financial Officer of Hawaiian
from 1989 until 1991. Age 53.
GLENN G. TANIGUCHI has been Vice President-Schedule Planning and Reservations of
Hawaiian since 1995. He was Staff Vice President-Schedule Planning and
Reservations for Hawaiian from 1991 until 1995 and Director-Schedule Planning
and Reservations of Hawaiian from 1986 until 1991. Age 52.
All officers are appointed annually by the Board of Directors at the Board of
Directors' first meeting after the annual meeting of the stockholders at which
the Board of Directors is elected.
No executive officer or director of the Company bears any relationship by blood,
marriage or adoption to any other executive officer or director, except for Mr.
Adams and Mr. Coo, who are related through marriage.
In September 1993, the Company, HAL, INC. and West Maui Airport, Inc. filed a
voluntary petition of relief under Chapter 11. At the time or within two years
before the time of the Chapter 11 filing, the present executive officers of the
Company except Messrs. Forster, Jenkins, Taniguchi and Davis were executive
officers of the Company, HAL, INC. and/or West Maui Airport, Inc. and Messrs.
Nobles and Poomaihealani and Ms. Fukunaga were directors of the Company, HAL,
INC. and/or West Maui Airport, Inc.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors and executive officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file with the SEC and the Company initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Based upon the information supplied to it by such persons, the Company is
required to report any known failure to file these reports within the period
specified by the instructions to the reporting forms. To the knowledge of the
Company, based upon a review of the Section 16(a) reports furnished to the
Company and the written representations of officers and directors, all these
filing requirements were satisfied by the Company's directors and executive
officers with respect to 1995.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The following Summary Compensation Table sets forth certain information
regarding compensation paid for the last three fiscal years to the Company's
Chief Executive Officer and its four other most highly compensated executive
officers of the Company ("Named Executive Officers") whose salary and bonus
exceeded $100,000 in the 1995 fiscal year.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------- ------------
Securities
Name and Principal Salary Bonus Other Annual Underlying
Position Year ($) ($) Compensation Options*
------------------ ---- ------- ------- ------------ ----------
<S> <C> <C> <C> <C>
Bruce R. Nobles 1995 295,000 - 41,200/(1)/ 300,000
President and Chief 1994 199,166 53,106 40,643/(1)/ -
Executive Officer 1993 100,454/(2)/ 50,000/(4)/ 39,590/(1)/ -
Frank L. Forster 1995 187,083 - /(2)/ 60,000
Senior Vice President and 1994 100,250/(3)/ 17,500 /(2)/ -
Chief Operating Officer 1993 - - - -
C.J. David Davies 1995 182,292 - /(2)/ 65,000
Senior Vice President- 1994 120,000 25,000 /(2)/ -
Finance and Chief 1993 50,000 - /(2)/ -
Financial Officer
Peter W. Jenkins 1995 177,500 - /(2)/ 40,000
Senior Vice President- 1994 72,170/(3)/ 5,000 /(2)/ -
Marketing and Sales 1993 - - - -
Clarence K. Lyman 1995 105,625 - - 50,000
Vice President-Finance, 1994 95,000 17,500 - -
Treasurer and Assistant 1993 79,479 - /(2)/ -
Corporate Secretary
</TABLE>
______________
* The options are fully vested and exerciseable. They were granted to
certain key executive officers of the Company on February 2, 1995 pursuant
to the 1994 Stock Option Plan, as amended. See "Option Grants in the Last
Fiscal Year" and "Aggregated Option Exercises in the Last Fiscal Year ("F-
Y"), and F-Y End Option Value."
1 Includes a housing allowance of $36,000 in both 1995 and 1994, $20,000 in
1993 and certain Company or HAL, INC. related club and business expenses.
2 The Company provides various perquisites to its executives which are not
disclosed pursuant to SEC regulations. The value of such perquisites is
less than 10% of the Named Executive Officer's combined salary and bonus.
3 These salaries represent the actual amounts paid to the Named Executive
Officer as the Named Executive Officer was not employed by the Company for
the entire calendar year. Mr. Nobles' reflected compensation is for the
period beginning June 10, 1993 through December 31, 1993. Mr. Davies'
reflected compensation is for the period beginning July 16, 1993 through
December 31, 1993. Mr. Forster's compensation reflects a consulting fee for
the months January and February 1994, as well as Chief Operating Officer
compensation for the period March 1, 1994 through December 31, 1994.
4 This amount represents a signing bonus intended to cover moving expenses.
31
<PAGE>
The following table sets forth the aggregated option exercises in the last
fiscal year and fiscal year end option value for each of the Named Executive
Officers in 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ("F-Y"), AND FY-END OPTION VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised In-
Unexercised Option at the-Money Options at
Shares Acquired FY-End (#) FY-End ($)
Name on Exercise (#) Value Realized ($) Exercisable Exercisable/1/
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce R. Nobles 0 0 300,000 207,750
Frank L. Forster 0 0 60,000 41,550
C.J. David Davies 0 0 65,000 45,013
Peter W. Jenkins 0 0 40,000 27,700
Clarence K. Lyman 0 0 50,000 34,625
</TABLE>
- ----------------
/1/ Based on the market value of the Class A Common Stock of $2.3125 on the
close of business on December 29, 1995, less the exercise price of $1.62.
The following table sets forth the option grants to the Named Executive
Officers under the Hawaiian Airlines, Inc. 1994 Stock Option Plan, as amended
in fiscal year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
% of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Exercise Stock Price Appreciation for
Underlying Employees or Base Option Term/3/
Options in Fiscal Price Expiration
Name Granted (#)/1/ Year ($/Sh)/2/ Date 5% ($) 10% ($)
- ---- -------------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Nobles 300,000 50.6% 1.62 2/2/05 1,292,753 2,356,367
Frank Forster 60,000 10.1% 1.62 2/2/05 258,551 469,273
C.J. David Davies 65,000 11.0% 1.62 2/2/05 280,096 508,379
Peter W. Jenkins 40,000 6.8% 1.62 2/2/05 172,367 312,849
Clarence Lyman 50,000 8.4% 1.62 2/2/05 215,459 391,061
</TABLE>
- ------------------
1 The options are fully vested and currently exerciseable pursuant to the
terms of the 1994 Stock Option Plan, as amended. The Company may withhold
shares to pay the withholding tax or exercise price.
2 The exercise price is $1.62 per share. The Committee administering the
Plan (the "Committee"), with the consent of the optionee, may amend the
terms of any Option to provide that the exercise price of the shares
remaining subject to the option shall be reestablished at an exercise price
determined by the Committee at the date the terms of such options are
amended.
3 Because no shares of Class A Common Stock had been issued upon the date of
grant, the price used for calculating the potential realizable value at
assumed annual rates of stock price appreciation is $3.64, the price at
which each share was valued on the Effective Date prior to the distribution
of the Class A Common Stock following the Reorganization. There can be no
assurance provided to any executive officer or other holder of
32
<PAGE>
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level.
HAWAIIAN AIRLINES, INC. PENSION PLAN FOR SALARIED EMPLOYEES
-----------------------------------------------------------
The Company has several retirement plans covering a substantial number of
its employees. The Hawaiian Airlines, Inc. Pension Plan for Salaried Employees
(the "Salaried Plan") covers those directors and officers who are employees of
the Company hired prior to September 1, 1992. Effective October 1, 1993, the
Salaried Plan was frozen. The Salaried Plan continued after the Effective Date
of the Plan of Reorganization, but credited service is not recognized after
September 1993 and the 1994 calendar year compensation is not taken into
account.
Benefits paid under the Salaried Plan are primarily determined by the number
of years the employee participated in the Salaried Plan through October 1, 1993
and the employee's average compensation for the five consecutive calendar years
through 1993 that results in the highest average. For purposes of the Salaried
Plan, compensation includes only base compensation; overtime, bonuses and other
forms of compensation are not included.
The following table shows the annual amounts payable in the form of a single
life annuity commencing at age 65 under the current provisions of the Salaried
Plan, without regard to any survivor options, based on assumed earnings for
various years of participation, as indicated. The benefits shown in the table
are not subject to a deduction for Social Security payments.
<TABLE>
<CAPTION>
Assumed Average
Annual Earnings for
Highest Five Years of Participation
Consecutive Calendar
Years
- -------------------- ---------------------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 6,000 $ 8,000 $10,000 $12,000 $14,000
50,000 $12,000 $16,000 $20,000 $24,000 $28,000
75,000 $18,000 $24,000 $30,000 $36,000 $42,000
100,000 $24,000 $32,000 $40,000 $48,000 $56,000
125,000 $30,000 $40,000 $50,000 $60,000 $70,000
150,000/(1)/ $36,000 $48,000 $60,000 $72,000 $84,000
</TABLE>
- ------------------
1 Pursuant to Section 401 of the Internal Revenue Code, effective January 1,
1994, no more than $150,000 (as adjusted from time to time by the Internal
Revenue Service) of compensation may be taken into consideration in
calculating benefits payable under the Salaried Plan.
The years of credited service as of October 1, 1993 and the 1995 calendar
year compensation covered by the Salaried Plan for Messrs. Forster and Lyman
are 2.58 years and $0 and 7.17 years and $0, respectively. Compensation earned
in the 1995 calendar year is not taken into account when calculating final
average earnings under the Salaried Plan because the Salaried Plan was frozen
as of October 1, 1993. Messrs. Nobles, Davies and Jenkins are not eligible to
participate under the Salaried Plan.
33
<PAGE>
COMPENSATION OF DIRECTORS
-------------------------
For the portion of 1994 prior to the Effective Date of the Reorganization
Plan, the directors of the Company received no compensation for their service
as directors. From and after the Effective Date, all outside directors of the
Company are entitled to receive a retainer fee of $12,000 per year, an
attendance fee of $1,250 for each meeting of the Board of Directors and an
attendance fee of $500 for each committee meeting (collectively, "Directors'
Fees"). The Company provides travel from the mainland to Hawaii for Board of
Directors meetings, as well as one night hotel and ground transportation as
needed. For their service as directors of the Company from the Effective Date
through December 31, 1994, the outside Directors earned a $4,000 retainer fee,
except for former director Mr. David Urrea who, pursuant to his wishes, only
accepted reimbursement for expenses incurred in attending meetings. For their
service as directors of the Company for fiscal year 1995, the outside directors
earned a $12,000 retainer fee, except for Mr. Urrea who, pursuant to his
wishes, is only accepting reimbursement for expenses incurred in attending
meetings. Mr. Nobles does not receive Directors' Fees. In February 1995, the
Board of Directors resolved to defer payment of their Directors' Fees until
January 1996. In December 1995, the Board of Directors decided to further
defer the directors' fees earned in 1994 and 1995 until consummation of the
Investment. Thus, Directors' Fees earned by the directors in 1994 and 1995
were paid by March 1996.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
---------------------------------------------------
CHANGE-IN-CONTROL ARRANGEMENTS
------------------------------
There are currently no employment contracts between the Company and any of
its executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
During 1995, the Compensation Committee consisted of former directors Messrs.
Martin Anderson and Clifton Kagawa and current director Mr. Todd Cole.
During 1995, the law firm Goodsill Anderson Quinn & Stifel, of which Mr.
Anderson, a member and chairman of the Compensation Committee, is a partner,
billed legal fees to the Company in the amount of $117,479. As of December 31,
1995, $9,836 of fees were outstanding. Goodsill Anderson Quinn & Stifel
received 28,606 shares of Class A Common Stock upon the June 19, 1995 initial
distribution by the Company of shares of Class A Common Stock. Goodsill
Anderson Quinn & Stifel sold all 28,606 shares of Class A Common Stock after
the initial distribution.
In conjunction with obtaining financing under the Plan of Reorganization,
$2.0 million of letters of credit were provided by certain third parties as
additional security for performance of the Company's obligations under the
financing. One such letter of credit in the amount of $1.0 million is
guaranteed by Mr. Anderson. In consideration for the guarantee, Mr. Anderson
received a subordinate security interest in the assets securing the financing
and received warrants to purchase 494,505 shares of the Company's Class A
Common Stock. The warrants have a five-year term, expiring September 12, 1999,
and are exerciseable at a price equal to $2.73 per share, subject to adjustment
pursuant to anti-dilution provisions. As a result of the Investment, pursuant
to the anti-dilution provisions of the warrants, Mr. Anderson received
additional warrants to purchase 293,678 shares of the Company's Class A Common
Stock. These additional warrants expire September 12, 1999 and are
exerciseable at a price equal to $1.71 per share.
Mr. Anderson served as Vice President of the Company from 1976 to 1980, and
Vice President-Legal and Assistant Secretary to the Company from 1980 to 1981.
Mr. Kagawa, a former member of the Compensation Committee, is the President
and Chief Executive Officer of Hill and Knowlton Asia Pacific, and senior
representative in Hawaii for WPP Group plc, the parent company of Hill and
Knowlton, Inc., and advertising agency Ogilvy and Mather Worldwide. Hill and
Knowlton, Inc. is a public relations company which provides services to the
Company. During 1995, this public relations company billed the Company for
services totaling $170,601 and collected net revenue of $170,601. Hill and
Knowlton, Inc. received 1,431 shares of Class A Common Stock upon the June 19,
1995 initial distribution by the Company of shares of Class A Common Stock.
Hill and Knowlton, Inc. sold all 1,431 shares of Class A Common Stock
34
<PAGE>
after the initial distribution. The Company also employs the services of
Ogilvy & Mather Hawaii, which received 20,410 shares of Class A Common Stock
upon the June 19, 1995 initial distribution by the Company of shares of Class
A Common Stock. Ogilvy & Mather Hawaii sold all 20,410 shares of Class A
Common Stock after the initial distribution. During 1995, this advertising
agency billed the Company for services totaling $2,942,574 and collected net
revenue of $2,942,574.
35
<PAGE>
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial
ownership, as of March 15, 1996, of the Company's voting stock of each person
known to the Company to be the beneficial owner of more than five percent of
the outstanding shares of Class A Common Stock, Series B Special Preferred
Stock, Series C Special Preferred Stock, Series D Special Preferred Stock and
Series E Special Preferred Stock. This table also lists the beneficial
ownership, as of March 15, 1996, of the Company's Class A Common Stock by each
of the directors, by each of the Named Executive Officers, and by all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address (1) Number of Shares(2) Percent and Class of Stock
- ----------------------------------- ------------------- -----------------------------
<S> <C> <C>
AIP General Partner, Inc. 18,181,818(3) 67.2% of Class A Common Stock
885 Avenue of the Americas
34th Floor
New York, New York 10022
Airline Investors Partnership, L.P. 18,181,818(3) 67.2% of Class A Common Stock
885 Avenue of the Americas
34th Floor 4 100% of Series B Special
New York, New York 10022 Preferred Stock
Association of Flight Attendants 1 100% of Series C Special
National Office Preferred Stock
1625 Massachusetts Avenue, N.W.
Washington, D.C. 20036
International Association of 1 100% of Series D Special
Machinists and Aerospace Workers Preferred Stock
1001 Dillingham Boulevard, Ste 204
Honolulu, Hawaii 96817
Hawaiian Master Executive Council 1 100% of Series E Special
c/o Airline Pilots Association Preferred Stock
5959 West Century Boulevard, Ste 576
Los Angeles, California 90045
Attn: Master Chairman, Hawaiian MEC
John W. Adams 18,181,818(3) 67.2% of Class A Common Stock
Todd G. Cole -- --
Richard F. Conway -- --
Robert C. Coo -- --
Carol A. Fukunaga -- --
William Boyce Lum -- --
Richard K. Matros -- --
Reno F. Morella 2,150(4) Class A Common Stock*
Bruce R. Nobles 304,342(5) 1.1 % of Class A Common Stock
Samson Poomaihealani -- --
Edward Z. Safady -- --
Peter W. Jenkins 40,000(6) Class A Common Stock*
C.J. David Davies 67,672(7) Class A Common Stock*
Frank L. Forster 60,534(8) Class A Common Stock*
Clarence K. Lyman 51,670(9) Class A Common Stock*
All directors and executive
officers as a group including
those named above (21 persons) 18,788,669(10) 67.9% of Class A Common Stock
</TABLE>
- ------------------
36
<PAGE>
(1) The address of each of the executive officers and directors is 3375
Koapaka Street, Suite G-350, Honolulu, Hawaii 96819.
(2) Each executive officer and director has sole voting and investment power
with respect to the shares listed after his or her name except for shares
issued to the Hawaiian ESOP, as defined below, and the Company's Pilots'
401(k) Plan or as otherwise indicated below. The shares owned by each
person, or by the group, and the shares included in the total number of
shares outstanding have been adjusted, and the percentage owned (where the
percentage exceeds 1%) have been computed in accordance with Rule 13d-
3(d)(1) under the Securities Exchange Act of 1934, as amended. Shares of
the Company's Class A Common Stock allocated to participants' accounts in
the Hawaiian Airlines, Inc. Employee Stock Plan (the "Hawaiian ESOP") are
voted by the Trustee, First Hawaiian Bank, pursuant to written directions
of the participants on matters presented at meetings of shareholders;
shares with respect to which no participant directions are received are
voted according to the direction of the majority of number of shares for
which the Trustee received written directions; and unallocated shares are
voted by fiduciaries designated under the Hawaiian ESOP. Shares of the
Company's Class A Common Stock allocated to participants' accounts in the
Hawaiian Airlines, Inc. Pilots' 401(k) Plan (the "Pilots' 401(k) Plan") are
voted by the Trustee, Vanguard Group, Inc., pursuant to written directions
of the participants on matters presented at meetings of shareholders;
shares with respect to which no participant directions are received are
voted according to the direction of the majority of number of shares for
which the Trustee received written directions; and unallocated shares are
voted by fiduciaries designated under the 401(k) Plan.
(3) The shares reported as owned by Airline Investors Partnership, L.P., of
which AIP General Partner, Inc. is its general partner and John W. Adams is
AIP General Partner, Inc.'s sole shareholder, include the shares reported
as beneficially owned by AIP General Partner, Inc. and John W. Adams.
According to their Schedule 13D dated January 31, 1996, Airline Investors
Partnership, L.P., AIP General Partner, Inc. and John W. Adams exercise
sole voting and dispositive power with respect to all 18,181,818 shares.
(4) Consists entirely of Mr. Morella's account in the Pilots' 401(k) Plan. The
number of shares reported represents the equivalent number of shares held
through the Pilots' 401(k) Plan. The investment is tracked using a unit
value accounting method, similar to a mutual fund. To determine the
equivalent number of whole shares represented by the fund units, the market
value of the shareholder's balance in the Pilots' 401(k) Plan was divided
by the share price of the Company's Class A Common Stock.
(5) Includes fully vested and exerciseable options to purchase 300,000 shares
of Class A Common Stock granted on February 2, 1995 under the 1994 Stock
Option Plan, as amended, expiring ten years from the date of grant; and
4,342 shares issued to the Hawaiian ESOP.
(6) Consists entirely of fully vested and exerciseable options to purchase
40,000 shares of Class A Common Stock granted on February 2, 1995 under the
1994 Stock Option Plan, as amended, expiring ten years from the date of
grant.
(7) Includes fully vested and exerciseable options to purchase 65,000 shares
of Class A Common Stock granted on February 2, 1995 under the 1994 Stock
Option Plan, as amended, expiring ten years from the date of grant; and
2,672 shares issued to the Hawaiian ESOP.
(8) Includes fully vested and exerciseable options to purchase 60,000 shares
of Class A Common Stock granted on February 2, 1995 under the 1994 Stock
Option Plan, as amended, expiring ten years from the date of grant; and 534
shares issued to the Hawaiian ESOP.
(9) Includes fully vested and exerciseable options to purchase 50,000 shares
of Class A Common Stock granted on February 2, 1995 under the 1994 Stock
Option Plan, as amended, expiring ten years from the date of grant; and
1,670 shares issued to the Hawaiian ESOP.
(10) The number of shares reported includes the equivalent number of shares held
by certain directors and officers through the Pilots' 401(k) Plan. The
investment is tracked using a unit value accounting method, similar to a
mutual fund. To determine the equivalent number of whole shares represented
by the fund units, the market value of the shareholder's balance in the
Pilots' 401(k) Plan was divided by the share price of the Company's Class A
Common Stock.
* Less than 1%
37
<PAGE>
CHANGES IN CONTROL
------------------
Pursuant to the Company's Amended and Restated Bylaws, AIP has the right to
nominate six nominees to the Board of Directors for election to the Board of
Directors so long as it owns 35% of the outstanding Common Stock on a fully
diluted basis. AIP's right to nominate directors will be reduced to five so
long as it retains 25% of such Common Stock, reduced to four so long as it
retains 10% of such Common Stock, and reduced to three so long as it retains 5%
of such Common Stock. Thereafter, AIP will not have the right to nominate any
individuals to the Board unless it reacquires at least 5% of such Common Stock
within 365 days. To the extent Board members are not required to be nominated
by AIP because of the reductions in its stock holdings, such Board members are
to be outside directors.
In connection with the Investment, the Company also modified its collective
bargaining agreements with its principal labor unions. Each of the Association
of Flight Attendants ("AFA"), the International Association of Machinists and
Aerospace Workers (AFL-CIO) ("IAM") and the Air Line Pilots Association
International ("ALPA") received one share of Series C Special Preferred Stock,
Series D Special Preferred Stock and Series E Special Preferred Stock,
respectively, which gives each of AFA, IAM and ALPA the right to nominate to
the Board of Directors one nominee for election to the Board. Of the two other
remaining directors, one is required to be an outside director, defined as one
who is not employed by the Company and is not affiliated with the Company's
labor unions, AIP or American Airlines, Inc., and one is required to be a
senior management official of the Company.
AIP has agreed with each of the labor unions that so long as the right to
have a representative on the Board is in the labor union's collective
bargaining agreement, AIP will vote its shares in favor of such union's nominee
for the Board of Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information provided in Item 12. Securities Ownership Of Certain Beneficial
Owners And Management-Compensation Committee Interlocks and Insider
Participation of this Form 10-K is incorporated herein by reference.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements.
Independent Auditors' Report.
Balance Sheets, December 31, 1995 and 1994 (Reorganized Company).
Statements of Operations for the Year ended December 31, 1995
(Reorganized Company), the Period from September 12, 1994 to
December 31, 1994 (Reorganized Company), the Period from January 1,
1994 to September 11, 1994 (Predecessor), and the Year Ended
December 31, 1993 (Predecessor).
Statements of Shareholders' Equity (Deficit) for the Year ended
December 31, 1995 (Reorganized Company), the Period from September
12, 1994 to December 31, 1994 (Reorganized Company), the Period
from January 1, 1994 to September 11, 1994 (Predecessor), and the
Year Ended December 31, 1993 (Predecessor).
Statements of Cash Flows for the Year ended December 31, 1995
(Reorganized Company), the Period from September 12, 1994 to
December 31, 1994 (Reorganized Company), the Period from January 1,
1994 to September 11, 1994 (Predecessor), and the Year Ended
December 31, 1993 (Predecessor).
Notes to Financial Statements.
Quarterly Financial Information (Unaudited).
Selected Financial and Statistical Data.
2. Financial Statement Schedules.
Independent Auditors' Report on Financial Statement Schedule for
the Years Ended December 31, 1995 (Reorganized Company), 1994
(Reorganized Company) and 1993 (Predecessor).
Schedule II Valuation and Qualifying Accounts.
Schedules not listed above are omitted because of the absence of
the conditions under which they are required or because the
required information is included in the financial statements or
notes thereto.
(b) Reports on Form 8-K.
(1) Current Report on Form 8-K dated October 4, 1995 (date of
event-October 4, 1995) reporting Item 5 "Other Events" and Item 7
"Financial Statements, Pro forma Financial Information and
Exhibits."
(2) Current Report on Form 8-K dated November 6, 1995 (date of
event-November 6, 1995) reporting Item 5 "Other Events" and Item
7 "Financial Statements, Pro forma Financial Information and
Exhibits."
(3) Current Report on Form 8-K dated November 15, 1995 (date of
event-November 15, 1995) reporting Item 5 "Other Events" and Item
7 "Financial Statements, Pro forma Financial Information and
Exhibits."
39
<PAGE>
(4) Current Report on Form 8-K dated November 20, 1995 (date of
event-November 20, 1995) reporting Item 5 "Other Events" and Item
7 "Financial Statements, Pro forma Financial Information and
Exhibits."
(5) Current Report on Form 8-K dated November 29, 1995 (date of
event-November 29, 1995) reporting Item 5 "Other Events" and Item
7 "Financial Statements, Pro forma Financial Information and
Exhibits."
(6) Current Report on Form 8-K dated December 8, 1995 (date of
event-December 8, 1995) reporting Item 5 "Other Events" and Item
7 "Financial Statements, Pro forma Financial Information and
Exhibits."
(c) Exhibits.
Exhibit 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession.
(1) Third Amended Consolidated Plan of Reorganization of
HAL, INC., Hawaiian Airlines, Inc. and West Maui
Airport, Inc. dated August 29, 1994 filed as Exhibit
99.1 to HAL, INC.'s Current Report on Form 8-K during
the third quarter of 1994 (date of report - August 30,
1994) is incorporated herein by reference.
(2) Articles of Merger of Hawaiian Airlines, Inc. and
West Maui Airport, Inc. and Articles of Merger of
Hawaiian Airlines, Inc. and HAL, INC. both dated
September 12, 1994, filed as Exhibits 2.1 and 2.2 to
HAL, INC.'s Current Report on Form 8-K during the
third quarter of 1994 (date of report -September 12,
1994) are incorporated herein by reference.
Exhibit 3 Articles of Incorporation, Bylaws
(1) Amended and Restated Articles of Incorporation of
Hawaiian Airlines, Inc., as amended through January
31, 1996.
(2) Amended and Restated Bylaws.
40
<PAGE>
Exhibit 4 Instruments Defining the Rights of Security Holders
Including Indentures
(1) Rights Agreement dated December 23, 1994 filed as
Exhibit (1) to Hawaiian Airlines, Inc. Current Report
on Form 8-K during the fourth quarter of 1994 (date of
report - December 23, 1994) is incorporated herein by
reference.
(2) The following Agreements filed as Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995 are incorporated herein by
reference:
(a) Amendment No. 1 dated as of May 4, 1995 to
Rights Agreement dated as of December 23, 1994
by and between Hawaiian Airlines, Inc. and
Chemical Trust Company of California;
(b) Amendment No. 1 to 1994 Stock Option Plan dated
as of May 4, 1995;
(c) Amendment No. 1 dated as of May 4, 1995 to
Warrants Nos. 1-10.
(3) Rights holders Agreement dated as of January 31,
1996, by and among Hawaiian Airlines, Inc., Airline
Investors Partnership, L.P., AMR Corporation, Martin
Anderson and Robert Midkiff;
(4) Amendment No. 2 to the Rights Agreement, as amended,
dated as of January 31, 1996 by and between Hawaiian
Airlines, Inc. and Chemical Trust Company of
California;
(5) Amendment No. 2 to 1994 Stock Option Plan, as
amended, dated as of December 8, 1995;
(6) The Company agrees to provide the Securities and
Exchange Commission, upon request, copies of
instruments defining the rights of security holders of
long-term debt of the Company.
Exhibit 10 Material Contracts
(a) The following contracts filed as Exhibit 10 to the
Predecessor's Annual Report on Form 10-K for the year
ended December 31, 1993 (date of report -September 29,
1994) are incorporated herein by reference:
(1) First Amended Plan of Reorganization filed as
Exhibit A to the Disclosure Statement filed as
Exhibit 99.1 to the Predecessor's Current
Report on Form 8-K during the first quarter of
1994 (date of report - March 5, 1994);
(2) Engine lease agreement dated as of October 29,
1993 between BA Leasing & Capital Corporation,
as lessor, and Hawaiian Airlines, Inc., as
lessee, for one (1) Pratt & Whitney JT8D-17
engine, bearing manufacturer's serial no. 696699;
(3) Aircraft Purchase Agreement dated as of
November 5, 1993 between GATX Capital
Corporation, as seller, and Hawaiian Airlines,
Inc., as buyer, for one (1) McDonnell Douglas
DC9-51 aircraft, bearing FAA registration no.
N420EA, together with
41
<PAGE>
two (2) Pratt & Whitney JT8D-17 engines bearing
manufacturer's serial no. 688738 and 688739;
(4) Lease agreement dated as of November 3, 1993
between John Hancock Leasing Corporation, as
lessor, and Hawaiian Airlines, Inc., as lessee,
for two (2) Pratt & Whitney JT8D-17 engines
bearing manufacturer's serial no. 708324 and
654028;
(b) Aircraft Lease Agreement dated April 1, 1994 between
Nations Financial Capital Corporation, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft bearing
manufacturer's serial no. 47662, together with two (2)
Pratt & Whitney JT8D-17A engines, bearing
manufacturer's serial no. 696708 and 688758 filed as
Exhibit 99.2 to HAL, INC.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 is
incorporated herein by reference.
(c) The following contracts filed as Exhibit 10 to the
Predecessor's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 are incorporated herein by
reference:
(1) Aircraft Lease Agreement dated May 9, 1994
between BA Leasing & Capital Corporation, as
lessor, and Hawaiian Airlines, Inc., as lessee,
for one (1) McDonnell Douglas DC-9-51 aircraft,
manufacturers serial no. 47764, together with two
(2) Pratt & Whitney JT8D-17A engines, bearing
manufacturer's serial no. 696675 and 696674 and
one (1) spare Pratt & Whitney JT8D-17A engine
bearing manufacturer's serial no. 696699;
(2) Aircraft Lease Agreement dated May 9, 1994
between Security Pacific Equipment Leasing, Inc.,
as lessor, and Hawaiian Airlines, Inc., as
lessee, for one (1) McDonnell Douglas DC-9-51
aircraft, manufacturers serial no. 47735,
together with two (2) Pratt & Whitney JT8D-17A
engines, bearing manufacturer's serial no. 696666
and 688798;
(3) Aircraft Lease Agreement dated May 9, 1994
between Security Pacific Equipment Leasing, Inc.,
as lessor, and Hawaiian Airlines, Inc., as
lessee, for one (1) McDonnell Douglas DC-9-51
aircraft, manufacturers serial no. 47726,
together with two (2) Pratt & Whitney JT8D-17A
engines, bearing manufacturer's serial no. 696656
and 688710;
(4) Merchant Bank Agreement for Visa and Mastercard
dated July 18, 1994 between First Bank National
Association, as Bank, and Hawaiian Airlines,
Inc., as Carrier;
(5) Airframe Lease Agreement dated September 22,
1994 between Bank of Hawaii, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47763, together with two (2) Pratt &
Whitney JT8D-17A engines, bearing manufacturer's
serial no. 696666 and 688798.
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<PAGE>
(d) The following contracts filed as Exhibit 10 to the
Company's Form 8-B dated October 28, 1994 are
incorporated herein by reference:
(1) The following contracts not filed herewith
since confidential treatment has been requested
pursuant to Rule 24b-2:
(i) Multihost Agreement dated September 12,
1994 between SABRE Decision Technologies,
Inc. and Hawaiian Airlines, Inc., as
customer, for certain reservation services;
(ii) Flight Operating System Agreement dated
September 12, 1994 between SABRE Decision
Technologies, Inc. and Hawaiian Airlines,
Inc. as customer, for certain flight
operating system services;
(iii) AAdvantage(R) Participating Carrier
Agreement dated September 12, 1994
between American Airlines, Inc.(R) as
seller, and Hawaiian Airlines, Inc., as
customer, for certain frequent flyer
agreements;
(iv) Master Equipment Lease Agreement dated
September 12, 1994, between SABRE
Decision Technologies, Inc., as lessor,
and Hawaiian Airlines, Inc., as lessee,
for certain computer and reservations
equipment;
(2) Aircraft Lease Agreement dated September 12,
1994 between American Airlines, Inc.(R), as
lessor, and Hawaiian Airlines, Inc., as lessee,
for eight (8) DC-10-10 aircraft each with three
(3) GE CF6-6K engines, FAA registration and
manufacturer's serial no. to be advised filed in
redacted form since confidential treatment has
been requested pursuant to Rule 24b-2 for certain
portions thereof;
(3) Aircraft Lease Amendment dated November 10,
1992 to Aircraft Lease Agreement dated March 31,
1992, between AeroUSA, Inc., as lessor, and
Hawaiian Airlines, Inc. as lessee, for one (1)
McDonnell Douglas DC9-51 aircraft, manufacturers
serial No. 47784;
(4) Aircraft Lease Amendment dated August 23, 1994
to Aircraft Lease Agreement dated March 31, 1992,
between AeroUSA, Inc., as lessor, and Hawaiian
Airlines, Inc. as lessee, for one (1) McDonnell
Douglas DC9-51 aircraft, manufacturers serial No.
47784;
(5) Aircraft Lease Amendment dated April 2, 1990 to
Aircraft Lease Agreement dated as of February 28,
1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47742;
(6) Aircraft Lease Amendment dated October 31, 1990
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for
43
<PAGE>
one (1) McDonnell Douglas DC-9-51 aircraft,
manufacturers serial no. 47742;
(7) Aircraft Lease Amendment dated August 23, 1994
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47742;
(8) Aircraft Lease Amendment dated April 2, 1990 to
Aircraft Lease Agreement dated as of February 28,
1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 48122;
(9) Aircraft Lease Amendment dated October 31, 1990
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 48122;
(10) Aircraft Lease Amendment dated August 23, 1994
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 48122;
(11) Aircraft Lease Amendment dated April 2, 1990 to
Aircraft Lease Agreement dated as of February 28,
1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47796;
(12) Aircraft Lease Amendment dated October 31, 1990
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47796;
(13) Aircraft Lease Amendment dated August 23, 1994
to Aircraft Lease Agreement dated as of February
28, 1990 between GPA Group plc, as lessor, and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 aircraft, manufacturers
serial no. 47796;
(14) Chattel Mortgage dated November 5, 1993 between
GATX Capital Corporation, as Secured Party, and
Hawaiian Airlines, Inc., as Debtor, for one (1)
McDonnell Douglas DC9-51 aircraft, bearing
manufacturer's serial no. 47689, together with
two (2) Pratt & Whitney JT8D-17 engines bearing
manufacturer's serial no. 688738 and 688739;
(15) Mortgage Supplement dated November 5, 1993
between GATX Capital Corporation, as Secured
Party, and Hawaiian Airlines, Inc., as Debtor,
for one (1) McDonnell Douglas DC9-51 aircraft,
44
<PAGE>
bearing manufacturer's serial no. 47689, together
with two (2) Pratt & Whitney JT8D-17 engines
bearing manufacturer's serial no. 688738 and
688739;
(16) Aircraft Lease Agreement dated September 12,
1994 between First Security Bank of Utah, N.A.,
as trustee, and Hawaiian Airlines, Inc., as
lessee, for one (1) McDonnell Douglas DC9-51
aircraft, bearing manufacturer's serial no.
47658, together with two (2) Pratt & Whitney
JT8D-17 engines bearing manufacturer's serial no.
688712 and 688797;
(17) Aircraft Lease Agreement dated September 12,
1994 between Scandinavian Airlines of North
American Inc., as lessor, and Hawaiian Airlines,
Inc., as lessee, for one (1) McDonnell Douglas
DC9-51 aircraft, bearing manufacturer's serial
no. 47654, together with two (2) Pratt & Whitney
JT8D-17 engines bearing manufacturer's serial no.
688834 and 688728;
(18) Engine Lease dated September 12, 1994 between
Aircraft Income Partners II, L.P., as lessor, and
Hawaiian Airlines, Inc., as lessee, for two (2)
Pratt & Whitney JT8D-17A engines, bearing
manufacturer's serial no. 687769B and 688762D;
(19) Aircraft Lease Agreement dated September 22,
1994 between USL Capital Corporation, as lessor,
and Hawaiian Airlines, Inc., as lessee, for one
(1) McDonnell Douglas DC9-51 aircraft, bearing
manufacturer's serial no. 47661, together with
two (2) Pratt & Whitney JT8D-17 engines bearing
manufacturer's serial no. P696707D and P688729D;
(20) Engine Lease Agreement dated September 22, 1994
between Bank of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for two (2) Pratt &
Whitney JT8D-17A engines, bearing manufacturer's
serial no. P696662D and P696667D;
(21) Agreement of Lease dated July 12, 1993 between
Airport Industrial Park Associates, as owner, and
Hawaiian Airlines, Inc., as tenant;
(22) Anchorage International Airport Airline
Operating Agreement and Terminal Building Lease
(International Terminal) dated January 3, 1992
between State of Alaska Department of
Transportation and Public Facilities and Hawaiian
Airlines, Inc.;
(23) Anchorage International Airport Advance Right
of Entry ADA-30426 of State of Alaska Department
of Transportation and Public Facilities dated
December 9, 1991;
(24) Form of Non-Exclusive Operating Permit between
the City of Los Angeles and Hawaiian Airlines,
Inc., a Signatory Carrier, Covering the Use of
Landing Facilities for Air Carrier Aircraft
Operations at Los Angeles International Airport;
45
<PAGE>
(25) Form of Non-Signatory Passenger Airline
Operating and Lease Agreement between The Port of
Portland and Hawaiian Airlines, Inc.;
(26) Airports Commission City and County of San
Francisco Airline Operating Permit Issued to
Hawaiian Airlines, Inc., as Permittee, Director
of Airports Permit Action No. 2003;
(27) Indenture of Lease (Lease No. DOT-78-24) dated
August 21, 1978 between the Department of
Transportation of the State of Hawaii, as lessor,
and Hawaiian Airlines, Inc., as lessee, for use
of airport premises at the Kahului Airport on the
island of Maui;
(28) Addendum No. 1 dated October 9, 1982 to Lease
No. DOT-A-78-24 dated August 21, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Kahului Airport on the island of Maui;
(29) Addendum No. 2 dated August 31, 1983 to Lease
No. DOT-A-78-24 dated August 21, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Kahului Airport on the island of Maui;
(30) Amendment No. 3 dated September 1, 1986 to
Lease No. DOT-A-78-24 dated August 21, 1978
between the Department of Transportation of the
State of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for use of airport
premises at the Kahului Airport on the island of
Maui;
(31) Amendment No. 4 dated October 3, 1988 to Lease
No. DOT-A-78-24 dated August 21, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Kahului Airport on the island of Maui;
(32) Indenture of Lease (Lease No. DOT-A-78-31)
dated August 10, 1978 between the Department of
Transportation of the State of Hawaii, as lessor,
and Hawaiian Airlines, Inc., as lessee, for use
of airport premises at the Lanai Airport on the
island of Lanai;
(33) Addendum No. 1 dated August 31, 1983 to Lease
No. DOT-A-78-31 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Lanai Airport on the island of Lanai;
(34) Amendment No. 2 dated July 22, 1988 to Lease
No. DOT-A-78-31 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Lanai Airport on the island of Lanai;
46
<PAGE>
(35) Indenture of Lease (Lease No. DOT-A-78-22)
dated as of August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Lihue Airport on the island of Kauai;
(36) Addendum No. 1 dated March 1, 1981 to Lease No.
DOT-A-78-22 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Lihue Airport on the island of Kauai;
(37) Addendum No. 2 dated August 31, 1983 to Lease
No. DOT-A-78-22 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Lihue Airport on the island of Kauai;
(38) Addendum No. 3 dated September 14, 1983 to
Lease No. DOT-A-78-22 dated August 10, 1978
between the Department of Transportation of the
State of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for use of airport
premises at the Lihue Airport on the island of
Kauai;
(39) Amendment No. 4 dated December 14, 1987 to
Lease No. DOT-A-78-22 dated August 10, 1978
between the Department of Transportation of the
State of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for use of airport
premises at the Lihue Airport on the island of
Kauai;
(40) Amendment No. 5 dated September 15, 1988 to
Lease No. DOT-A-78-22 dated August 10, 1978
between the Department of Transportation of the
State of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for use of airport
premises at the Lihue Airport on the island of
Kauai;
(41) Indenture of Lease (Lease No. DOT-A-78-27)
dated as of August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Molokai Airport on the island of Molokai;
(42) Addendum No. 1 dated August 31, 1983 to Lease
No. DOT-A-78-27 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Molokai Airport on the island of Molokai;
(43) Addendum No. 2 dated July 1, 1985 to Lease No.
DOT-A-78-27 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Molokai Airport on the island of Molokai;
47
<PAGE>
(44) Amendment No. 3 dated July 29, 1988 to Lease
No. DOT-A-78-27 dated August 10, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at the
Molokai Airport on the island of Molokai;
(45) Indenture of Lease (Lease No. DOT-76-23) dated
as of April 24, 1978 between the Department of
Transportation of the State of Hawaii, as lessor,
and Hawaiian Airlines, Inc., as lessee, for use
of airport premises at General Lyman Field on the
island of Hawaii;
(46) Addendum No. 2 dated April 1, 1983 to Lease No.
DOT-A-76-23 dated April 24, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at General
Lyman Field on the island of Hawaii;
(47) Addendum No. 1 dated August 31, 1983 to Lease
No. DOT-A-76-23 dated April 24, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at General
Lyman Field on the island of Hawaii;
(48) Amendment No. 3 dated July 27, 1988 to Lease No.
DOT-A-76-23 dated April 24, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at General
Lyman Field on the island of Hawaii;
(49) Amendment No. 4 dated December 6, 1989 to Lease
No. DOT-A-76-23 dated April 24, 1978 between the
Department of Transportation of the State of
Hawaii, as lessor, and Hawaiian Airlines, Inc.,
as lessee, for use of airport premises at General
Lyman Field on the island of Hawaii;
(50) Indenture of Lease (Lease No. DOT-A-62-32)
dated as of May 28, 1962 between the Department
of Transportation of the State of Hawaii, as
lessor, and Hawaiian Airlines, Inc., as lessee,
for use of airport premises at the Honolulu
International Airport on the island of Oahu;
(51) Lease Extension Agreement dated September 26,
1994 to Lease No. DOT-A-62-32 dated as of May 28,
1962 between the Department of Transportation of
the State of Hawaii, as lessor, and Hawaiian
Airlines, Inc., as lessee, for use of airport
premises at the Honolulu International Airport on
the island of Oahu;
(52) IATA Interline Traffic Agreement - Passenger
between IATA and Hawaiian Airlines, Inc.;
(53) IATA Interline Traffic Agreement - Cargo
between IATA and Hawaiian Airlines, Inc.;
48
<PAGE>
(54) IATA Interline Traffic Agreement - Baggage
between IATA and Hawaiian Airlines, Inc.;
(55) ATA Airline Freight Procedures Agreement dated
December 16, 1985;
(56) Application and Concurrence for Non-IATA Air
Carrier to participate in Bank Settlement Plan -
Australia dated December 12, 1988;
(57) Application and Concurrence for Non-IATA Air
Carrier to participate in Bank Settlement Plan -
Canada dated May 18, 1983;
(58) Application and Concurrence for Non-IATA Air
Carrier to participate in Bank Settlement Plan -
New Zealand dated September 16, 1987;
(59) Form of Facilities Management and Supplemental
Agreement among Computer Associates
International, Inc. and Litton Computer Services,
as Licensee, and Hawaiian Airlines, Inc., as
Client, dated September 30, 1993;
(60) Master Lease Agreement dated September 30, 1993
between Comdisco, Inc., as lessor, and Hawaiian
Airlines, Inc. as lessee, for computer and
telephone equipment;
(61) Galileo International Global Airline
Distribution Agreement dated as of December 16,
1993 among Galileo International Partnership, and
Hawaiian Airlines, Inc., as Participant;
(62) Loan and Security Agreement dated as of
September 12, 1994 between The CIT Group/Credit
Finance, Inc., as Lender, and Hawaiian Airlines,
Inc., as Borrower;
(63) Letter of Credit Reimbursement and Security
Agreement dated as of September 12, 1994 by
Hawaiian Airlines, Inc. for the benefit of Martin
Anderson;
(64) Letter of Credit Reimbursement and Security
Agreement dated as of September 13, 1994 by
Hawaiian Airlines, Inc. for the benefit of Robert
Midkiff;
(65) Agreement Relating to the Settlement of
Interline Accounts through Airlines Clearing
House Inc. dated July 8, 1981;
(66) Supplementary Agreement to Agreement Relating
to the Settlement of Interline Accounts through
Airlines Clearing House, Inc. and amendments made
thereto through to October 10, 1986;
(67) Supplementary Agreement to Agreement Relating
to the Settlement of Interline Accounts through
Airlines Clearing House, Inc. and amendments made
thereto through to January 30, 1987;
49
<PAGE>
(68) Amendment to the Agreement Relating to the
Settlement of Interline Accounts through Airlines
Clearing House, Inc. and amendments made thereto
through to September 17, 1987;
(69) Amended and Restated Interline Agreement dated
September 1, 1989 by and among LAX TWO CORP. and
certain Air Carriers as "Contracting Airlines",
including Hawaiian Airlines, Inc.;
(70) Airlines Reporting Corporation Carrier Service
Agreement dated November 30, 1984 between the
Airlines Reporting Corporation and Hawaiian
Airlines, Inc.;
(71) Stipulation Respecting Claims of the State of
Hawaii filed with the Bankruptcy Court July 29,
1994;
(72) Stipulation between Hawaiian Airlines, Inc. and
Kawasaki Enterprises Inc. filed with the
Bankruptcy Court March 31, 1994;
(73) Global Settlement Agreement and Adequate
Protection Stipulation with GPA filed with the
Bankruptcy Court August 12, 1994;
(74) Rotable Spare Parts Chattel Mortgage and
Security Agreement dated August 23, 1994, as
amended.
(e) The following contracts filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 are incorporated herein by
reference:
(1) Warrants dated September 12, 1994 granted
Martin Anderson.
(2) Warrants dated September 12, 1994 granted
Robert Midkiff.
(3) Amendment to Lease Agreement, Lease Supplements
and Lease Supplement No. 9, dated November 12,
1994, to original Aircraft Lease Agreement dated
September 12, 1994, between American Airlines,
Inc.(R) as lessor, and Hawaiian Airlines, Inc.,
as lessee, for 1) amendment of Lease Agreement,
2) one (1) airframe, U.S. registration number
N122AA, manufacturer's serial no. 46522 and three
(3) General Electric CF6-6K engines bearing
manufacturer's serial nos. 451391, 451166, and
451141.
(4) Lease Amendment No. 2, dated as of April 13,
1995 between American Airlines, Inc.(R) and
Hawaiian Airlines, Inc. filed in redacted form
since confidential treatment has been requested
pursuant to Rule 24.b-2 for certain portions
thereof.
(5) Aircraft Lease Agreement dated as of November
20, 1994 between American Airlines, Inc.(R), as
lessor, and Hawaiian Airlines, Inc., as lessee,
for one (1) McDonnell Douglas DC-10-10 aircraft,
bearing FAA registration no. N146AA, together
with three (3) GE-CF6-6K engines bearing
manufacturer's serial nos. 451272, 451257 and
451164 filed in redacted form since confidential
treatment has been requested pursuant to Rule
24.b-2 for certain portions thereof.
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<PAGE>
(6) Waiver and Amendment to Loan and Security
Agreement dated as of April 13, 1995 between CIT
Group/Credit Finance, Inc., as Lender, and
Hawaiian Airlines, Inc., as Borrower.
(f) Lease Amendment No. 1 dated as of April 28, 1995 to
original Lease Amendment dated as of November 20,
1994, between American Airlines, Inc.(R), as lessor,
and Hawaiian Airlines, Inc., as lessee, for amendment
of Lease Agreement filed in redacted form since
confidential treatment has been requested pursuant to
Rule 24.b-2 for certain portions thereof as Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 is incorporated herein by
reference.
(g) The following contracts filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 are incorporated herein by
reference:
(1) Lease Amendment No. 3 dated as of June 1, 1995
to Aircraft Lease Agreement dated as of September
12, 1994, between American Airlines, Inc.,
lessor, and Hawaiian Airlines, Inc., lessee, for
amendment of Lease Agreement filed in redacted
form since confidential treatment has been
requested pursuant to Rule 24.b-2 for certain
portions thereof.
(2) Aircraft Lease Agreement dated July 5, 1995
between American Airlines, Inc., lessor and
Hawaiian Airlines, Inc., lessee, for one DC-10-10
aircraft filed in redacted form since
confidential treatment has been requested
pursuant to Rule 24.b-2 for certain portions
thereof.
(h) The following contracts filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 are incorporated
herein by reference:
(1) Lease Amendment No. 2 dated as of September 29,
1995 to Aircraft Lease Agreement dated as of
November 20, 1995, between American Airlines,
Inc., lessor, and Hawaiian Airlines, Inc.,
lessee, for amendment of Lease Agreement filed in
redacted form since confidential treatment has
been requested pursuant to Rule 24.b-2 for
certain portions thereof;
(2) Lease Supplement No. 1 dated as of July 19, 1995
to Aircraft Lease Agreement dated as of July 5,
1995, between American Airlines, Inc., lessor,
and Hawaiian Airlines, Inc., lessee;
(3) Lease Amendment No. 1 dated as of September 29,
1995 to Aircraft Lease Agreement dated as of July
5, 1995, between American Airlines, Inc., lessor,
and Hawaiian Airlines, Inc., lessee, for
amendment of Lease Agreement filed in redacted
form since confidential treatment has been
requested pursuant to Rule 24.b-2 for certain
portions thereof;
(4) Lease Amendment No. 4 dated as of August 22,
1995 to Aircraft Lease Agreement dated as of
September 12, 1994, between
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<PAGE>
American Airlines, Inc., lessor, and Hawaiian
Airlines, Inc., lessee, for amendment of Lease
Agreement filed in redacted form since
confidential treatment has been requested
pursuant to Rule 24.b-2 for certain portions
thereof;
(5) Lease Amendment No. 5 dated as of October 6,
1995 to Aircraft Lease Agreement dated as of
September 12, 1994, between American Airlines,
Inc., lessor, and Hawaiian Airlines, Inc.,
lessee, for amendment of Lease Agreement filed in
redacted form since confidential treatment has
been requested pursuant to Rule 24.b-2 for
certain portions thereof.
(i) Amendment No. 1 dated as of February 28, 1996 to
Chattel Mortgage and Security Agreement dated as of
January 31, 1996 by Hawaiian Airlines, Inc. in favor
of American Airlines, Inc.
(j) Chattel Mortgage and Security Agreement dated as of
January 31, 1996 by Hawaiian Airlines, Inc. in favor
of American Airlines, Inc.
(k) Secured Promissory Note in amount of $10,250,000
made by Hawaiian Airlines, Inc. payable to the order
of American Airlines, Inc. dated January 31, 1996.
(l) Note Repayment and Stock Purchase Agreement dated as
of January 31, 1996 by and among GPA Group plc,
AEROUSA, Inc. and Hawaiian Airlines, Inc.
(m) Stockholders Agreement dated as of January 31, 1996
between Airline Investors Partnership, LP., the
Association of Flight Attendants, the International
Association of Machinists and Aerospace Workers (AFL-
CIO) and the Air Line Pilots Association,
International.
(n) Aircraft Lease Amendment dated as of January 31,
1996 to Aircraft Lease Agreement dated as of March 31,
1992 between AEROUSA, Inc., as lessor and Hawaiian
Airlines, Inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial number
47784.
(o) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial number
47742.
(p) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial number
48122.
(q) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial number
47796
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<PAGE>
(r) Lease Amendment No. 8 dated as of January 31, 1996
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian Airlines,
Inc.
(s) Lease Amendment No. 1 dated as of January 31, 1996
to Aircraft Lease Agreement dated December 15, 1995
between American Airlines, Inc. and Hawaiian Airlines,
Inc.
(t) Lease Amendment No. 1 dated as of January 31, 1996
to Aircraft Lease Agreement dated December 30, 1995
between American Airlines, Inc. and Hawaiian Airlines,
Inc.
(u) Form of Amended and Restated Indemnification
Agreement between Hawaiian Airlines, Inc. and certain
directors and officers of the Company dated as of
January 30, 1996.
(v) Warrant for the Purchase of 948,973 shares of Class
A Common Stock issued to AMR Corporation;
(w) Warrant for the Purchase of 948,973 shares of Class
A Common Stock issued to AMR Corporation;
(x) Form of Warrants for the Purchase of shares of Class
A Common Stock issued to Martin Anderson;
(y) Form of Warrants for the Purchase of shares of Class
A Common Stock issued to Robert Midkiff;
(z) Aircraft Lease Agreement dated as of December 30,
1995 between American Airlines, Inc. and Hawaiian
Airlines, Inc.
(aa) Aircraft Lease Agreement dated as of December 15,
1995 between American Airlines, Inc. and Hawaiian
Airlines, Inc.
(ab) Lease Amendment No. 7 dated as of December 8, 1995
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian Airlines,
Inc.
(ac) Stock Purchase Agreement dated as of December 8,
1995, between Hawaiian Airlines, Inc., and Airline
Investors Partnership, L.P.
(ad) Lease Amendment No. 6 dated as of November 20, 1995,
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian Airlines,
Inc.
Exhibit 21 Subsidiaries of the Registrant.
None.
Exhibit 24 Power of attorney (included on signature page).
Exhibit 27 Financial data schedule.
53
<PAGE>
EXHIBIT INDEX
HAWAIIAN AIRLINES, INC.
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<C> <S> <C>
3(1) Amended and Restated Articles of Incorporation of
Hawaiian Airlines, Inc., as amended through January
31, 1996.
3(2) Amended and Restated Bylaws.
4(3) Rights holders Agreement dated as of January 31,
1996, by and among Hawaiian Airlines, Inc., Airline
Investors Partnership, L.P., AMR Corporation, Martin
Anderson and Robert Midkiff;
4(4) Amendment No. 2 to the Rights Agreement, as amended,
dated as of January 31, 1996 by and between Hawaiian
Airlines, Inc. and Chemical Trust Company of
California;
4(5) Amendment No. 2 to 1994 Stock Option Plan, as
amended, dated as of December 8, 1995;
10(i) Amendment No. 1 dated as of February 28, 1996 to
Chattel Mortgage and Security Agreement dated as of
January 31, 1996 by Hawaiian Airlines, Inc. in favor
of American Airlines, Inc.
10(j) Chattel Mortgage and Security Agreement dated as of
January 31, 1996 by Hawaiian Airlines, Inc. in favor
of American Airlines, Inc.
10(k) Secured Promissory Note in amount of $10,250,000
made by Hawaiian Airlines, Inc. payable to the order
of American Airlines, Inc. dated January 31, 1996.
10(l) Note Repayment and Stock Purchase Agreement dated as
of January 31, 1996 by and among GPA Group plc,
AEROUSA, Inc. and Hawaiian Airlines, Inc.
10(m) Stockholders Agreement dated as of January 31, 1996
between Airline Investors Partnership, LP., the
Association of Flight Attendants, the International
Association of Machinists and Aerospace Workers
(AFL-CIO) and the Air Line Pilots Association,
International.
10(n) Aircraft Lease Amendment dated as of January 31,
1996 to Aircraft Lease Agreement dated as of March
31, 1992 between AEROUSA, Inc., as lessor and
Hawaiian Airlines, Inc., as lessee, for one (1)
McDonnell Douglas DC-9-51 Aircraft, manufacturer's
serial number 47784.
10(o) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial
number 47742.
10(p) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial
number 48122.
10(q) Aircraft Lease Amendment dated as of February 28,
1990 between GPA Group plc, as lessor and Hawaiian
Airlines, inc., as lessee, for one (1) McDonnell
Douglas DC-9-51 Aircraft, manufacturer's serial
number 47796.
10(r) Lease Amendment No. 8 dated as of January 31, 1996
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(s) Lease Amendment No. 1 dated as of January 31, 1996
to Aircraft Lease Agreement dated December 15, 1995
between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(t) Lease Amendment No. 1 dated as of January 31, 1996
to Aircraft Lease Agreement dated December 30, 1995
between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(u) Form of Amended and Restated Indemnification
Agreement between Hawaiian Airlines, Inc. and
certain directors and officers of the Company dated
as of January 30, 1996.
10(v) Warrant for the Purchase of 948,973 shares of Class
A Common Stock issued to AMR Corporation;
10(w) Warrant for the Purchase of 948,973 shares of Class
A Common Stock issued to AMR Corporation;
54
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<C> <S> <C>
10(x) Form of Warrants for the Purchase of shares of Class
A Common Stock issued to Martin Anderson;
10(y) Form of Warrants for the Purchase of shares of Class
A Common Stock issued to Robert Midkiff;
10(z) Aircraft Lease Agreement dated as of December 30,
1995 between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(aa) Aircraft Lease Agreement dated as of December 15,
1995 between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(ab) Lease Amendment No. 7 dated as of December 8, 1995
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian
Airlines, Inc.
10(ac) Stock Purchase Agreement dated as of December 8,
1995, between Hawaiian Airlines, Inc., and Airline
Investors Partnership, L.P.
10(ad) Lease Amendment No. 6 dated as of November 20, 1995,
to Aircraft Lease Agreement dated September 12, 1994
between American Airlines, Inc. and Hawaiian
Airlines, Inc.
27 Exhibit 27 Financial data schedule.
55
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HAWAIIAN AIRLINES, INC.
March 29, 1996 By /s/ Bruce R. Nobles
--------------------
Bruce R. Nobles
President and Chief Executive Officer
(Principal Executive Officer)
March 29, 1996 By /s/ C.J. David Davies
----------------------
C. J. David Davies
Senior Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
56
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints C.J. David
Davies, his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connections therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that all attorney-in-
fact and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John W. Adams Chairman of the March 29, 1996
- ------------------------ Board of Directors
John W. Adams
/s/ Bruce R. Nobles President and March 29, 1996
- ------------------------ Chief Executive Officer
Bruce R. Nobles (Principal Executive Officer)
/s/ C.J. David Davies Senior Vice President- March 29, 1996
- ------------------------ Finance and Chief
C.J. David Davies Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Todd G. Cole Director March 29, 1996
- ------------------------
Todd G. Cole
/s/ Richard F. Conway Director March 29, 1996
- ------------------------
Richard F. Conway
/s/ Robert G. Coo Director March 29, 1996
- ------------------------
Robert G. Coo
/s/ Carol A. Fukunaga Director March 29, 1996
- ------------------------
Carol A. Fukunaga
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ William Boyce Lum Director March 29, 1996
- ----------------------------
William Boyce Lum
/s/ Richard K. Matros Director March 29, 1996
- ----------------------------
Richard K. Matros
/s/ Reno F. Morella Director March 29, 1996
- ----------------------------
Reno Morella
/s/ Samson Po'omaihealani Director March 29, 1996
- ----------------------------
Samson Po'omaihealani
/s/ Edward Z. Safady Director March 29, 1996
- ----------------------------
Edward Z. Safady
</TABLE>
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
Hawaiian Airlines, Inc.:
We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the year ended December 31,
1995, the period September 12, 1994 through December 31, 1994, the period
January 1, 1994 through September 11, 1994, and the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawaiian Airlines, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995, the period September 12, 1994
through December 31, 1994, the period January 1, 1994 through September 11,
1994, and the year ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 2 to the financial statements, on September 12,
1994, Hawaiian Airlines, Inc. emerged from bankruptcy. The financial statements
of the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis than those of the Predecessor Company and, therefore, are not comparable
in all respects.
The accompanying financial statements have been prepared assuming that Hawaiian
Airlines, Inc. will continue as a going concern. As discussed in note 16 to the
financial statements, the Company's recurring losses from operations, deficit
working capital and its limited sources of additional liquidity raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 16. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 15, 1996
F-1
<PAGE>
Hawaiian Airlines, Inc.
Balance Sheets (in thousands)
December 31, 1995 and 1994 (Reorganized Company)
<TABLE>
<CAPTION>
Reorganized Company
- --------------------------------------------------------------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 5,389 $ 3,501
Accounts receivable, net of allowance for
doubtful accounts of $800 in 1995 and $500
in 1994....................................... 18,178 16,275
Inventories, net of allowances for obsolescence
of $315 in 1995 and 1994...................... 7,648 6,234
Assets held for sale........................... 1,344 1,594
Prepaid expenses............................... 5,804 6,079
-------- --------
Total current assets......................... 38,363 33,683
-------- --------
Property and Equipment
Flight equipment............................... 40,659 34,702
Ground equipment, buildings and leasehold
improvements.................................. 5,775 3,976
-------- --------
Total........................................ 46,434 38,678
Accumulated depreciation and amortization...... (5,043) (922)
-------- --------
Property and equipment, net.................. 41,391 37,756
-------- --------
Other Assets:
Assets held for sale........................... 8,336 11,789
Lease security and other deposits.............. 1,053 603
Long-term prepayments and other................ 5,164 8,536
Reorganization value in excess of amounts
allocable to identifiable assets, net......... 67,333 70,934
-------- --------
Total other assets........................... 81,886 91,862
-------- --------
Total Assets................................. $161,640 $163,301
======== ========
</TABLE>
(continued)
See accompanying Notes to Financial Statements
F-2
<PAGE>
Hawaiian Airlines, Inc.
Balance Sheets (in thousands, except per share data)
December 31, 1995 and 1994 (Reorganized Company)
<TABLE>
<CAPTION>
Reorganized Company
- --------------------------------------------------------------------------
1995 1994
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $ 6,027 $ 6,394
Current portion of capital lease obligations... 2,662 2,907
Accounts payable............................... 35,182 17,529
Air traffic liability.......................... 30,461 40,382
Other accrued liabilities...................... 8,293 4,916
Current portion of accrued vacation liability.. 5,052 5,040
Accrued salaries and wages..................... 2,385 2,342
-------- --------
Total current liabilities.................... 90,062 79,510
-------- --------
Long-Term Debt................................... 5,523 14,152
-------- --------
Capital Lease Obligations........................ 10,102 12,764
-------- --------
Other Liabilities and Deferred Credits:
Noncurrent portion of accrued vacation liability 425 485
Accumulated pension and other postretirement
benefit obligations........................... 25,259 22,013
Other.......................................... 1,091 528
-------- --------
Total other liabilities and deferred credits. 26,775 23,026
-------- --------
Shareholders' Equity:
Class A Common Stock-$.01 par value, 40,000,000
and 20,000,000 shares authorized in 1995 and
1994, respectively, 6,845,105 and no shares
issued and outstanding in 1995 and 1994,
respectively (636,247 shares issuable in
1996)......................................... 75 --
Class B Common Stock-$.01 par value, 3,050,000
and no shares authorized in 1995 and 1994,
respectively, 1,894,955 shares and no shares
issued and outstanding in 1995 and 1994,
respectively.................................. 19 --
Capital in excess of par value................. 41,193 --
Warrants....................................... 900 --
Unearned compensation.......................... (182) --
Minimum pension liability...................... (1,170) --
Common Stock, warrants and options issuable.... -- 40,000
Accumulated deficit............................ (11,657) (6,151)
-------- --------
Shareholders' equity......................... 29,178 33,849
-------- --------
Commitments and Contingent Liabilities
(Notes 6, 7, 8, 10, 11, 13 and 15)
Subsequent Events (Notes 1 and 16)
Total Liabilities and Shareholders' Equity... $161,640 $163,301
======== ========
</TABLE>
See accompanying Notes to Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Statements of Operations (in thousands, except per share data)
For the Year ended December 31, 1995 (Reorganized Company), the Period from September 12, 1994 to December 31, 1994
(Reorganized Company), the Period from January 1, 1994 to September 11, 1994 (Predecessor) and the Year ended
December 31, 1993 (Predecessor)
Reorganized Company Predecessor
---------------------------- -----------------------
Period from Period from
September 12, January 1,
1994 to 1994 to
December 31, September 11,
1995 1994 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues:
Passenger................................ $297,527 $80,675 $199,502 $273,386
Charter.................................. 22,200 536 135 7,169
Cargo.................................... 18,169 5,300 11,039 15,000
Other.................................... 9,008 2,646 6,147 8,554
-------- ------- -------- --------
Total.................................. 346,904 89,157 216,823 304,109
-------- ------- -------- --------
Operations Expenses:
Flying operations........................ 104,847 28,650 71,768 107,959
Maintenance.............................. 79,156 21,547 47,281 65,963
Passenger service........................ 39,210 10,647 25,224 33,748
Aircraft and traffic servicing........... 54,616 16,720 34,324 44,135
Promotion and sales...................... 43,162 10,892 28,499 35,563
General and administrative............... 18,377 4,696 12,063 21,610
Depreciation and amortization............ 7,437 2,273 4,085 5,969
Early retirement provision............... 2,000 -- -- --
Restructuring charges.................... -- -- -- 14,000
-------- ------- -------- --------
Total.................................. 348,805 95,425 223,244 328,947
-------- ------- -------- --------
Operating Loss......................... (1,901) (6,268) (6,421) (24,838)
-------- ------- -------- --------
Nonoperating Income (Expense):
Interest and amortization of debt expense (4,341) (1,286) (1,150) (5,066)
Interest income.......................... 762 318 300 360
Gain (loss) on disposition of equipment.. (233) 558 45 (659)
Other, net............................... 207 527 502 1,312
Reorganization expenses.................. -- -- (13,950) (52,637)
-------- ------- -------- --------
Total.................................. (3,605) 117 (14,253) (56,690)
-------- ------- -------- --------
Loss Before Extraordinary Income........... (5,506) (6,151) (20,674) (81,528)
Extraordinary gain, net.................... -- -- 190,063 12,104
-------- ------- -------- --------
Net Income (Loss).......................... $ (5,506) $(6,151) $169,389 $(69,424)
======== ======= ======== ========
Pro Forma Loss Per Common Share (Unaudited):
Before extraordinary items................. $ (0.59)** $ (0.65)** $ N/M* $ N/M*
Extraordinary gain, net.................... -- ** -- ** N/M* N/M*
-------- ------- -------- --------
Net Income (Loss).......................... $ (0.59)** $ (0.65)** $ N/M $ N/M
======== ======= ======== ========
Weighted Average Number of Common Shares
Outstanding............................... 9,400** 9,400** 7,137 6,170
======== ======= ======== ========
</TABLE>
* Not Meaningful - Per share data is not meaningful as the Predecessor was
recapitalized and adopted fresh start reporting as of September 12, 1994
** Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of Common Stock
See accompanying Notes to Financial Statements
F-4
<PAGE>
Hawaiian Airlines, Inc.
Statements of Shareholders' Equity (Deficit) (in thousands)
For the Year ended December 31, 1995 (Reorganized Company), the Period from
September 12, 1994 to December 31, 1994 (Reorganized Company), the Period from
January 1, 1994 to September 11, 1994 (Predecessor) and the Year ended
December 31, 1993 (Predecessor)
<TABLE>
<CAPTION>
Common
stock,
Class A Class B Capital in Minimum warrants and
Common Common Common excess of Unearned pension options Accumulated
Stock Stock Stock par value Warrants compensation liability issuable deficit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor
Balance, December 31, 1992.. $37,622 $-- $-- $12,479 $ -- $ -- $ -- $ -- $(192,822)
Net loss.................... -- -- -- -- -- -- -- -- (69,424)
Exercise of warrants for
1,075,268 shares of Common
Stock...................... 11 -- -- -- -- -- -- -- --
Issuance of 348,038 shares of
Common Stock to the Employee
Stock Ownership Plans...... 2,871 -- -- -- -- -- -- -- --
Accretion in value of Class B
Preference Stock........... -- -- -- -- -- -- -- -- (619)
------- --- --- ------- ---- ------- ------- -------- ---------
Balance, December 31, 1993.. 40,504 -- -- 12,479 -- -- -- -- (262,865)
Net income.................. -- 169,389
Fresh start adjustments, net (40,504) -- -- (12,479) -- -- -- 40,000 93,476
------- --- --- ------- ---- ------- ------- -------- ---------
Reorganized Company
Balance, September 12,1994.. -- -- -- -- -- -- -- 40,000 --
Net loss.................... -- -- -- -- -- -- -- -- (6,151)
------- --- --- ------- ---- ------- ------- -------- ---------
Balance, December 31, 1994.. -- -- -- -- -- -- -- 40,000 (6,151)
Net loss.................... -- -- -- -- -- -- -- -- (5,506)
Issuance of 6,845,105 shares
of Class A Common Stock and
1,894,955 shares of Class B
Common Stock (636,247
shares of Class A Common
Stock issuable)............ -- 75 19 39,006 -- -- -- (39,100) --
Issuance of warrants to
acquire 989,011 shares of
Class A Common Stock....... -- -- -- -- 900 -- -- (900) --
Grant of options to acquire
592,500 shares of Class A
Common Stock............... -- -- -- 2,187 -- (2,187) -- -- --
Amortization of Unearned
Compensation on options to
acquire 592,500 shares of
Class A Common Stock....... -- -- -- -- -- 2,005 -- -- --
Recordation of minimum
pension liability.......... -- -- -- -- -- -- (1,170) -- --
------- --- --- ------- ---- ------- ------- -------- ---------
Balance, December 31, 1995.. $ -- $75 $19 $41,193 $900 $ (182) $(1,170) $ -- $ (11,657)
======= === === ======= ==== ======= ======= ======== =========
</TABLE>
See accompanying Notes to Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Statements of Cash Flows (in thousands)
For the Year ended December 31, 1995 (Reorganized Company), the Period from September 12, 1994 to December 31, 1994
(Reorganized Company), the Period from January 1, 1994 to September 11, 1994 (Predecessor) and the Year ended
December 31, 1993 (Predecessor)
Reorganized Company Predecessor
-------------------------------------------------------
Period from Period from
September 12, January 1,
1994 to 1994 to
December 31, September 11,
1995 1994 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).............................. $ (5,506) $ (6,151) $ 169,389 $(69,424)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 3,836 1,183 4,085 5,969
Amortization of reorganization value in
excess of identifiable assets............... 3,601 1,090 -- --
Amortization of debt discount................ 557 136 -- --
Allowance for doubtful accounts.............. 719 -- 422 4,811
Net periodic postretirement benefit cost..... 3,309 903 1,988 2,916
Stock option compensation.................... 2,005 -- -- --
Early retirement provision................... 2,000 -- -- --
(Gain) loss from disposition of equipment.... 233 (558) (45) 659
Extraordinary items.......................... -- -- (190,063) (12,104)
(Increase) decrease in accounts receivable... (2,622) 3,401 (6,223) 44
(Increase) decrease in inventories........... (1,414) 220 497 (419)
(Increase) decrease in prepaid expenses...... 275 (2,233) (1,133) (406)
(Decrease) increase in accounts payable...... 17,653 (1,966) 5,774 (22,923)
(Decrease) increase air traffic liability.... (9,921) (319) 10,602 (14,319)
(Decrease) increase in accrued liabilities... 3,432 (1,323) (734) 66,408
Other, net................................... 631 352 738 60
-------- -------- --------- --------
Net cash provided (used in) operations
before reorganization expenses............ 18,788 (5,265) (4,703) (38,728)
Reorganization expenses...................... -- -- 10,799 52,637
-------- -------- --------- --------
Net cash provided by (used in) operating
activities................................ 18,788 (5,265) 6,096 13,909
-------- -------- --------- --------
Cash Flows From Inventing Activities:
Return (issuance) of security deposits......... -- 6,979 (3,007) (3,800)
Additions to property and equipment............ (9,165) (3,603) (3,682) (7,037)
Net proceeds from disposition of equipment..... 4,225 673 817 992
-------- -------- --------- --------
Net cash provided by (used in) investing
activities................................ (4,940) 4,049 (5,872) (9,845)
-------- -------- --------- --------
Cash Flows From Financing Activities:
Issuance of long-term debt..................... 1,591 5,393 -- --
Repayment of long-term debt.................... (10,644) (2,095) (689) (1,730)
Repayment of capital lease obligations......... (2,907) (1,044) (1,345) --
Issuance of Common Stock....................... -- -- -- 11
-------- -------- --------- --------
Net cash provided by (used in)
financing activities...................... (11,960) 2,254 (2,034) (1,719)
-------- -------- --------- --------
Net increase (decrease) in cash and cash
equivalents............................... 1,888 1,038 (1,810) 2,345
Cash and cash equivalents-Beginning of Year or
Period.......................................... 3,501 2,463 4,273 1,928
-------- -------- --------- --------
Cash and cash equivalents-End of year or Period.. $ 5,389 $ 3,501 $ 2,463 $ 4,273
======== ======== ========= ========
</TABLE>
See accompanying Notes to Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Statements of Cash Flows (in thousands)
For the Year ended December 31, 1995 (Reorganized Company), the Period from September 12, 1994 to December 31, 1994
(Reorganized Company), the Period from January 1, 1994 to September 11, 1994 (Predecessor) and the Year ended
December 31, 1993 (Predecessor)
Reorganized Company Predecessor
-------------------------------------------------------
Period from Period from
September 12, January 1,
1994 to 1994 to
December 31, September 11,
1995 1994 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................. $ 3,824 $ 988 $ 1,009 $ 1,584
Reorganization expenses paid................... -- -- 3,151 535
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Reclassification of liabilities subject to
compromise.................................... -- -- -- 161,039
Reclassification of redeemable Preferred and
Preference Stock subject to compromise.......... -- -- -- 5,973
Other capital transactions:
Reclassification of Common Stock, warrants and
options issuable to Class A Common Stock...... 75 -- -- --
Reclassification of Common Stock, warrants and
options issuable to Class B Common Stock...... 19 -- -- --
Reclassification of Common Stock, warrants and
options issuable to Capital in excess of par
value......................................... 39,006 -- -- --
Reclassification of Common Stock, warrants and
options issuable to Warrants.................. 900 -- -- --
Grant of options to acquire 592,500 shares of
Class A Common Stock.......................... 2,187 -- -- --
Recordation of minimum pension liability....... 1,170 -- -- --
Exercise of warrants for Common Stock.......... -- -- -- 8,000
Issuance of 348,038 shares of Common Stock to
the Employee Stock Ownership Plans............ -- -- -- 2,871
Class B Preference Stock accretion............. -- -- -- 619
</TABLE>
See accompanying Notes to Financial Statements
F-7
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Hawaiian Airlines, Inc. was incorporated in January 1929 under the laws of the
Territory of Hawaii and maintains its principal offices in Honolulu, Hawaii.
Based on operating revenues, Hawaiian Airlines, Inc. is the largest airline
headquartered in Hawaii and is engaged primarily in the scheduled transportation
of passengers, cargo and mail over a route system which services the six major
islands of the State of Hawaii, several cities primarily in the U.S. West Coast
region and certain destinations in the South Pacific.
The Company's passenger airline business is its chief source of revenue.
Scheduled passenger service consists of, on average, approximately 150 flights
per day among the six major islands of the State of Hawaii ("Interisland"),
daily service to four U.S. West Coast cities and Las Vegas ("Transpac"), and two
flights per week to Pago Pago, American Samoa and one flight per week to
Papeete, Tahiti in the South Pacific ("Southpac"). The Company also provides
charter service to Las Vegas.
On September 21, 1993, Hawaiian Airlines together with HAL, INC., Hawaiian
Airlines' parent company, and West Maui Airport, Inc., another wholly owned
subsidiary of HAL, INC. (collectively the "Predecessor"), commenced
reorganization cases by filing voluntary petitions for relief under Chapter 11,
Title 11 of the United States Code in the U.S. Bankruptcy Court for the District
of Hawaii. Concurrently therewith, the Debtors filed a Consolidated Plan of
Reorganization dated September 21, 1993 (as amended through the most recent
amendment dated April 20, 1995, the "Reorganization Plan"). The Company emerged
from the Chapter 11 process less than a year later with the Reorganization Plan
becoming effective on September 12, 1994 (the "Effective Date"). The Chapter 11
process resulted in the Company recognizing an extraordinary gain of $190.1
million, representing the relief of $204.7 million of liabilities net of offsets
and certain liabilities that survived the reorganization. Further, pursuant to
the Reorganization Plan, on the Effective Date, first West Maui Airport, Inc.
and then HAL, INC. were merged with and into Hawaiian Airlines with Hawaiian
Airlines being the sole surviving corporation. Upon the effectiveness of the
mergers, all of the outstanding equity securities of the Company, HAL, INC., and
West Maui Airport, Inc. were canceled.
Under the Plan, the Company will issue and distribute approximately 9,400,000
shares of its common stock to all of the unsecured creditors with claims allowed
under the Plan. At December 31, 1995, the Company's common stock consisted of
two classes, one with full voting rights, Class A Common Stock, and the other
with limited voting rights, Class B Common Stock. On June 19, 1995, the Company
commenced distribution of its Class A and Class B Common Stock and as of
December 31, 1995, 6,845,105 shares of Class A Common Stock and 1,894,955 shares
of Class B Common Stock were issued and outstanding. The Company anticipates
issuing 636,247 shares of Class A Common Stock under the Plan by late 1996 in
satisfaction of disputed claims outstanding as of December 31, 1995. Any shares
withheld in excess of the amount distributed to the holders of such claims will
be held until all disputed claims have been resolved. The disputed claims
consist of an aggregate $534,000 for alleged prepetition violations and various
other claims asserted by various governmental agencies and $5.2 million for
damages arising from the return of aircraft asserted by the Federal Deposit
Insurance Corporation, as receiver. Upon resolution of all disputed claims,
there will be a final distribution of any remaining withheld shares to all
general unsecured creditors on a pro rata basis.
Following the consummation of the AIP Investment, as defined below, each share
of the Class B Common Stock issued pursuant to the Reorganization Plan was
converted into one share of Class A Common Stock.
Pursuant to the Reorganization Plan, the Company (1) granted warrants to
purchase an additional 989,011 shares of its Class A Common Stock (the "Existing
Warrants"), none of which have been exercised, and (2) reserved 600,000 shares
of the Class A Common Stock for issuance to certain employees under the
Company's 1994 Stock Option Plan, as amended. The Class A Common Stock began
trading on the American Stock Exchange (the "AMEX") and the Pacific Stock
Exchange on June 21, 1995.
In February 1995, the Company's Board of Directors began to explore options to
supplement the Company's capital base, reduce its reliance on short-term bank
debt and promotional coupon sales and increase the Company's financial
flexibility. The Company, with the assistance of its outside financial advisor,
identified and met with potential investors, including Airline Investors
Partnership, L.P. ("AIP"), regarding a possible equity
F-8
<PAGE>
investment in the Company. AIP ultimately agreed to make a $20.0 million cash
investment in the Company through the purchase of 18,181,818 shares of Class A
Common Stock, par value $.01 per share, and four shares of the Company's Series
B Special Preferred Stock, par value $.01 per share (the "AIP Investment"). On
January 31, 1996, the AIP Investment and a series of related transactions, which
were dependent and effective upon one another, were consummated. Among other
things, the related transactions included:
. Certain agreements and arrangements with American Airlines, Inc.
("American"), including amendment to the long-term aircraft lease agreement
pursuant to which American leases DC-10-10 aircraft to the Company, (the
"Aircraft Lease Agreement"), which provide for, among other things, the
making of $10.0 million of previously deferred rent and maintenance payments
and interest thereon with a secured promissory note, rent reduction and the
release of a $2.0 million security deposit in the form of a letter of credit.
In addition, the Company issued to AMR Corporation, American's parent company
("AMR"), Warrants (the "AMR Warrants") to acquire up to 1,897,946 shares of
the Class A Common Stock at $1.10 per share. One-half of the AMR Warrants are
immediately exercisable but the balance will only be exercisable if American
and the Company enter into a code sharing agreement by January 1, 1997
regarding the placement of the two letter flight designator code for
American's flights on the Company's Interisland flights. The AMR Warrants
expire on September 11, 2001; and
. Agreements with each of the Company's labor unions regarding certain
modifications to their respective collective bargaining unit agreements.
These modifications include certain wage concessions, which will generate
significant annual cost savings to the Company.
See Note 16.
F-9
<PAGE>
2. FRESH START REPORTING
The fresh start reporting common equity value of approximately $40.0 million
was determined by the Reorganized Company's management and was calculated by
employing a methodology based on a multiple of earnings before interest and
taxes. Analyses of publicly available information of other companies believed to
be comparable to the Reorganized Company were used in determining a multiple
which was then applied to financial projections of the Reorganized Company.
Management's estimate of common equity value considered a number of factors
including relevant industry and economic conditions, expected future
performance, and the amount of available cash and current market conditions.
Under fresh start reporting, the reorganization value of the entity was
allocated to the Reorganized Company's assets and liabilities on a basis
substantially consistent with the purchase method of accounting. The portion of
reorganization value not attributable to specific tangible or identifiable
intangible assets of the Reorganized Company is reflected as "Reorganization
value in excess of amounts allocable to identifiable assets" in the accompanying
balance sheets.
The effects of the Plan and fresh start reporting in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position (the "SOP") 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" on the Reorganized Company's balance sheet as of the
Effective Date are as follows, in thousands:
<TABLE>
<CAPTION>
Reorganized
Predecessor Company's
Balance Sheet Fresh Start Balance Sheet
September 11, Debt Discharge Adjustments September 11,
1994 (a) (b) 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 2,463 $ -- $ -- $ 2,463
Accounts receivable, net.............................. 20,052 -- (376) 19,676
Inventories, net...................................... 10,714 -- (4,260) 6,454
Assets held for sale.................................. -- -- 1,594 1,594
Prepaid expenses and other............................ 5,048 (549) (653) 3,846
-------- -------- -------- --------
Total current assets................................ 38,277 (549) (3,695) 34,033
Property and equipment, net............................. 48,516 -- (15,204) 33,312
Nonoperating assets..................................... 25,818 (20,968) (4,850) --
Assets held for sale.................................... -- -- 11,925 11,925
Reoganization value in excess of amounts allocable
to identifiable assets................................. -- -- 72,024 72,024
Other assets............................................ 15,172 (882) 1,627 15,917
-------- -------- -------- --------
Total assets........................................ $127,783 $(22,399) $ 61,827 $167,211
======== ======== ======== ========
</TABLE>
F-10
<PAGE>
FRESH START REPORTING (CONTINUED)
<TABLE>
<CAPTION>
Reorganized
Predecessor Company's
Balance Sheet Fresh Start Balance Sheet
September 11, Debt Discharge Adjustments September 11,
1994 (a) (b) 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt..................... $ 1,416 $ 4,418 $ (145) $ 5,689
Currrent portion of capital lease obligations......... 2,121 -- -- 2,121
Accounts payable...................................... 34,787 (14,789) (504) 19,494
Accrued liabilities................................... 12,774 (129) 439 13,084
Air traffic liability................................. 40,639 -- 61 40,700
--------- -------- -------- --------
Total current liabilities........................... 91,737 (10,500) (149) 81,088
Long-term debt.......................................... 2,684 8,737 -- 11,421
Capital lease obligations............................... 12,591 -- -- 12,591
Other liabilities and deferred credits.................. 31,789 -- (9,678) 22,111
--------- -------- --------- --------
Total liabilities not subject to compromise......... 138,801 (1,763) (9,827) 127,211
Total liabilities subject to compromise................. 204,726 (204,726) -- --
--------- -------- --------- --------
Total liabilities................................. 343,527 (206,489) (9,827) 127,211
--------- -------- --------- --------
Redeemable Preferred and Preference Stock Subject
to Compromise.......................................... 5,973 (5,973) -- --
Shareholders' Equity (Deficit):
Common stock.......................................... 40,504 -- (40,504) --
Capital in excess of par value........................ 12,479 -- (12,479) --
Common stock, warrants and options issuable........... -- -- 40,000 40,000
Accumulated deficit................................... (274,700) 190,063 84,637 --
--------- -------- -------- --------
Shareholders' equity (deficit).................... (221,717) 190,063 71,654 40,000
--------- -------- -------- --------
Total liabilities and shareholders' equity
(deficit)........................................ $ 127,783 $(22,399) $ 61,827 $167,211
========= ======== ======== ========
</TABLE>
- -------------------
(a) To record the discharge or reclassification of obligations pursuant to
the Plan. Substantially all of these obligations are only entitled to
receive such distributions of Common Stock as provided under the Plan.
Portions of these obligations were restructured and will continue, as
restructured, to be liabilities of the Reorganized Company.
(b) To record adjustments to reflect assets and liabilities at estimated fair
value (including the establishment of Reorganization value in excess of
amounts allocable to identifiable assets), the establishment of the
Reorganized Company's equity value of $40.0 million and the cancellation
of the Predecessor's equity.
F-11
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
- ---------------------
The Company's financial statements, up to and including the Effective Date,
included herein have been prepared in accordance with SOP 90-7. For accounting
purposes, the Effective Date of the Plan and inception date for the Reorganized
Company is deemed to be September 12, 1994. Under fresh start reporting, the
reorganization value of the entity has been allocated to the Reorganized
Company's assets and liabilities on a basis substantially consistent with the
purchase method of accounting. The portion of reorganization value not
attributable to specific tangible or identifiable intangible assets of the
Company is reflected as "Reorganization value in excess of amounts allocable to
identifiable assets" in the accompanying balance sheets.
Because of the application of fresh start reporting, the financial statements
for periods after reorganization are not comparable to the financial statements
for periods prior to the reorganization.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Short-term cash investments at
December 31, 1995 and 1994 were valued at cost and amounted to $2.5 and $2.6
million, respectively.
INVENTORIES
- -----------
Inventories consisting of flight equipment expendable parts and supplies are
stated at average cost, less an allowance for obsolescence.
ASSETS HELD FOR SALE
- --------------------
Assets held for sale consisting of expendable inventory parts and rotable flight
equipment are stated at the lower of average cost or net realizable value. As
of December 31, 1995 and 1994, the Company had approximately $9.7 million and
$13.4 million, respectively, of expendable inventory parts and rotable flight
equipment held for sale internally or on a consignment basis with a third party.
PROPERTY AND EQUIPMENT
- ----------------------
Owned property and equipment are stated at cost. Costs of major improvements
are capitalized. Depreciation and amortization are provided on a straight-line
basis over the following estimated useful lives:
Flight equipment............... 12-15 years, 15% residual value
Ground equipment............... 5-15 years
Airport terminal facility...... 30 years
Buildings...................... 15-20 years
Leasehold improvements......... Shorter of lease term or useful life
Maintenance and repairs are charged to operations as incurred, except that (1)
costs of overhauling engines are charged to operations in the year the engines
are removed for overhaul and (2) scheduled heavy airframe overhauls on DC-9-50
aircraft are recorded under the deferral method whereby the cost of overhaul is
capitalized and amortized over the shorter of the period benefited or the lease
term. Additionally, provision is made for the estimated cost of scheduled heavy
airframe overhauls required to be performed on leased DC-9-50 aircraft prior to
their return to lessors. Maintenance and repairs on DC-10-10 aircraft are
charged to operations on a flight hour basis.
F-12
<PAGE>
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
- --------------------------------------------------------------------------
Reorganization value in excess of amounts allocable to identifiable assets is
amortized on a straight-line basis over 20 years. Accumulated amortization at
December 31, 1995 and 1994 totaled approximately $4.7 and $1.1 million,
respectively. The Company will continue to assess and evaluate whether the
remaining useful life of the asset requires revision or, through the use of
estimated future undiscounted cash flows over the remaining life of the asset,
whether the remaining balance of the asset may not be recoverable. The
assessment of the recoverability of the unamortized amount will be impacted if
estimated future operating cash flows are not achieved.
OTHER ASSETS
- ------------
Material preoperating costs associated with the introduction of new flight
equipment are amortized on a straight-line basis over the shorter of the lease
period or five years.
ACCRUED VACATION LIABILITY
- --------------------------
Accrued vacation in excess of the amount expected to be taken by employees
during the following year are classified as a noncurrent liability.
FREQUENT FLYER AWARDS
- ---------------------
A liability for frequent flyer awards is recognized on the incremental cost
basis in the period during which passengers have accumulated sufficient mileage
for award redemption. Incremental costs primarily include fuel and catering.
PASSENGER REVENUES
- -------------------
Passenger fares are recorded as operating revenues when the transportation is
provided. The value of unused passenger tickets is included as Air traffic
liability.
INCOME TAXES
- ------------
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
INCOME (LOSS) PER SHARE
- -----------------------
Income (loss) per share is based on the weighted average number of common stock
shares and, if dilutive, common stock equivalents outstanding during each year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of Air traffic liability and the amounts reported
for Accumulated pension and other postretirement benefit obligations.
F-13
<PAGE>
Management believes that such estimates have been appropriately established in
accordance with generally accepted accounting principles.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards (the "SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of." This Statement is effective for years beginning after December 15, 1995
and applies to long-lived assets and certain identifiable intangible assets
whether held and used or to be disposed of, and goodwill.
SFAS No. 121 requires that a review be made of long-lived assets and certain
identifiable intangible assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the future cash flows expected to result from use of
the asset (undiscounted and without interest charges) are less than the carrying
amount of the asset, an impairment loss is recognized. Such impairment loss is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. In instances where goodwill is identified with assets
that are subject to an impairment loss, such goodwill should be allocated to the
assets tested for recoverability on a pro rata basis using the relative fair
values of the assets acquired in the transaction generating the goodwill.
SFAS No. 121 also requires that long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of the asset
carrying amount or fair value, less cost to sell.
The Company plans to adopt SFAS No. 121 in 1996. Restatement of previously
issued financial statements is not permitted. The Company does not believe
that adoption of SFAS No. 121 will have a material impact on its financial
condition or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a new, fair value based method of
accounting for stock-based compensation, but does not require an entity to adopt
the new method for purposes of preparing its basic financial statements. For
entities not adopting the new method, SFAS No. 123 requires footnote disclosure
of pro forma net income and earnings per share information as if the fair value
based method had been adopted. The disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company will comply with the disclosure requirements of SFAS No. 123
in its 1996 financial statements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of Cash and cash equivalents, Accounts receivable, Lease
security and other deposits, Accounts payable, Other accrued liabilities,
Accrued vacation liability and Accrued salaries and wages approximate fair value
due to the short maturity of those instruments.
The estimated fair values of Long-term debt amounted to $11.4 million and $20.5
million at December 31, 1995 and 1994, respectively, and Capital lease
obligations amounted to $12.2 million and $14.9 million at December 31, 1995 and
1994, respectively. These fair values were estimated by discounting the future
cash flow requirements of each instrument at rates currently offered at the
respective year-end dates to the Company for similar debt and lease instruments
of comparable maturities.
F-14
<PAGE>
5. FLIGHT EQUIPMENT
All of the Company's aircraft are leased except for two DC-9-50s. At December
31, 1995 and 1994, the composition of the Company's aircraft fleet is as
follows:
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
Aircraft Type Leased Owned Leased Owned
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
DC-10-10 8 -- 7 --
DC-9-50 11 2 12 1
-------------------------------------
Total 19 2 19 1
=====================================
</TABLE>
6. LEASES
AIRCRAFT LEASES
- ----------------
Six DC-10-10 aircraft are leased under operating leases which expire in 2001.
Two DC-10-10 aircraft are leased under short term operating leases which expire
in 1996. Seven and four DC-9-50 aircraft and related flight equipment are
leased under operating and capital leases, respectively, for various periods
ranging through the year 2004.
Most of the aircraft under operating leases include renewal options and fair
market value purchase options at the end of the lease period.
OTHER LEASES
- ------------
The Company leases office space for its headquarters, airport facilities, ticket
offices and certain ground equipment in varying terms to 2008.
GENERAL
- -------
Rent expense for aircraft, office space, real property and other equipment
during 1995, 1994 and 1993 was $25.5 million, $33.6 million and $36.6 million,
respectively, net of sublease rental income from operating leases of $75,000,
$368,000 and $48,000, respectively.
F-15
<PAGE>
Scheduled future minimum lease commitments under operating and capital leases
for the Company as of December 31, 1995, in thousands, are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
- ---------------------------------------------------------------
<S> <C> <C>
1996................................... $17,414 $ 3,715
1997................................... 16,405 3,643
1998................................... 15,786 3,281
1999................................... 15,215 3,281
2000................................... 12,302 1,501
Thereafter............................. 19,095 --
------- -------
Total minimum lease payments......... $96,217 $15,421
=======
Less amount representing interest.... 2,657
-------
Present value of capital lease
obligations......................... 12,764
Less current portion of capital lease
obligations......................... 2,662
-------
Capital lease obligations, excluding
current position.................... $10,102
=======
</TABLE>
In addition to scheduled future minimum lease payments, the Company is required
to pay for, under agreement with American, monthly DC-10-10 maintenance charges.
These charges are based on estimated flight hours for the month and are expensed
as incurred. For the years ended December 31, 1995 and 1994, the Company
incurred $37.6 million and $8.9 million, respectively, in maintenance charges
under such agreement.
Commencing October 1994 and throughout 1995, the Company was delinquent in
making certain payments due American under the Aircraft Lease Agreement. As of
December 31, 1995, the Company was delinquent on scheduled payments amounting to
approximately $9.7 million under this lease arrangement. Although American
notified the Company that the failure to make these certain rent and prepaid
maintenance payments constituted an event of default under the lease agreement,
it did not declare the lease agreement in default or exercise any remedies
available to it. Certain additional payments were made by the Company to
American and amendments to the Aircraft Lease Agreement providing for deferrals
of payment of any remaining delinquent amounts owed by the Company over
scheduled dates were effected throughout 1995. Effective January 31, 1996, the
Company and American agreed to terms for the satisfaction of these delinquent
amounts. In addition, effective January 31, 1996, the Company and American
agreed to a reduction in basic rents due on DC-10-10 operating leases. The
above schedule of future minimum lease commitments does not reflect such
reduction. See Notes 12 and 16.
The net book value of property held under capital leases as of December 31, 1995
and 1994 totaled $15.5 million and $17.3 million, respectively.
F-16
<PAGE>
7. DEBT
At December 31, 1995 and 1994, the Company's long-term debt, including
obligations under capital leases, consists of the following, in thousands:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Secured oblitations due 1996-1999......... $ 8,542 $13,537
Tax obligations due 1996-2000............. 158 668
Unsecured obligations due 1996-1997....... 2,850 6,341
Capital lease obligations due 1996-2000... 12,764 15,671
------- -------
24,314 36,217
Current portion........................... (8,689) (9,301)
------- -------
Long-term debt and capital lease
obligations, excluding current
portion................................ $15,625 $26,916
======= =======
</TABLE>
Secured obligations due 1996-1999 are as follows:
. A note payable executed in 1994 in settlement of $6.0 million of
administrative claims related to unpaid prepetition L-1011 and DC-9-50 aircraft
rents. The note is due in 1999, bears interest at 8.0% per annum and is payable
in monthly installments of principal and interest of $121,658. At December 31,
1995 and 1994, $4.7 million and $5.8 million were outstanding, respectively;
. A secured note payable executed in 1992 pursuant to a settlement
agreement with the Government of Canada related to two DHC-7 aircraft and
related flight equipment. The note is due in 1996 and is payable in
installments of $50,000 per month. As the note bears no interest, interest has
been imputed as of the Effective Date at 10.0% per annum. As of December 31,
1995 and 1994, $569,000 and $1.0 million were outstanding, respectively. In
January 1996, the note was paid in full;
. A secured note executed in 1993 for the purchase of a DC-9-50 aircraft
from a lessor. The mortgage note is due in 1999 and is payable in monthly
installments of principal and interest of $59,876. Interest accrues at 10.315%
per annum. At December 31, 1995 and 1994, $2.1 million and $2.6 million were
outstanding, respectively; and
. The Company has available a credit facility provided by CIT Group/Credit
Finance, Inc. (the "Credit Facility"). The Credit Facility consists of an $8.15
million secured revolving line of credit including up to $3.0 million of letters
of credit. Borrowings under the revolving line of credit have been recorded net
of discount representing the fair value of the Existing Warrants as discussed in
Note 11. Available credit is subject to reduction determined by recalculation
of the borrowing base and repayments arising from disposition of collateral. As
of December 31, 1995, the total availability under the Credit Facility amounted
to approximately $3.4 million, which amount was fully drawn in the form of $1.3
million in borrowings and $2.1 million in letters of credit. At December 31,
1994, $4.1 million and $2.1 million of borrowings and letters of credit,
respectively, were outstanding. As of March 15, 1996, $2.0 million of
additional borrowing capacity was available due to American's release of $2.0
million in letters of credit in conjunction with the consummation of the AIP
Investment and its related transactions. See Note 16.
F-17
<PAGE>
Tax obligations due 1996-2000 represent allowed priority tax claims for various
taxing jurisdictions, which in accordance with the provisions of the Plan, bear
interest at 7.0% per annum and are payable in 24 quarterly installments
commencing on the first through sixth anniversaries of the Effective Date. The
Company is currently in negotiations with respective tax jurisdictions regarding
approximately $500,000 of tax obligations. At December 31, 1995, the $500,000
is included in Accounts payable in the accompanying balance sheets.
Unsecured obligations due 1996-1997 are as follows:
. A note executed in 1994 in settlement of $4.7 million of administrative
claims related to unpaid postpetition L-1011 aircraft rents. The note is due in
1996, bears interest at prime plus 3.0% (11.5% at December 31, 1995) and is
payable in monthly installments of principal and interest of $194,010. At
December 31, 1995 and 1994, $1.6 million and $3.9 million were outstanding,
respectively;
. A note executed in 1994 in settlement of $2.8 million of administrative
claims related to unpaid prepetition airport use and occupancy fees to the State
of Hawaii. The note is due in 1997 and is payable in monthly installments of
$100,000. The note bears no interest; however, interest has been imputed at
10.0% per annum. As of December 31, 1995 and 1994, $1.2 million and $2.2
million were outstanding, respectively; and
. A note executed in 1994 in settlement of $276,000 of administrative
claims related to unpaid L-1011 aircraft rents. The note is due in 1996,
accrues interest at prime plus 3.0% per annum (11.5% at December 31, 1995) and
is payable in monthly principal installments of $11,518. At December 31, 1995
and 1994, $115,000 and $254,000 were outstanding, respectively.
Obligations under capital leases represent the present value of aggregate future
minimum lease payments discounted using interest rates ranging from 8.5% to
9.0%. See Note 6.
The following table represents a summary of the Company's assets which are
pledged as security for the indicated obligations as of December 31, 1995:
<TABLE>
<CAPTION>
Net Book Value Balance of
of Security as Obligation
of as of
December 31, December 31,
Asset/Nature of Security 1995 Creditor 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Security interest in $6.1 million GPA Group PLC and $4.7 million
certain DC-9 rotable parts AEROUSA, INC. note due 1999
Security interest in $1.0 million Canadian $569,000 note
certain ground and flight Government due 1996
equipment, $15.0 million
stipulated judgment to be
filed upon default of
payments due
Mortgage interest in $2.7 million GATX Capital $2.1 million
DC-9-50 aircraft Corporation mortgage note
due 1999
First priority security Unspecified CIT Group/Credit $1.3 million
interest in substantially Finance, Inc. revolving
all assets, with certain credit
limited exceptions facility
including prior liens obligation
contemplated by the Plan, due 1996,
$2.0 million letters of $2.1 million
credit (See Note 11) letters of
credit
</TABLE>
F-18
<PAGE>
8. REORGANIZATION AND NONRECURRING OPERATING ITEMS
Operating expenses in 1995 were reduced by the reversal of $1.8 million in
preconfirmation contingency accruals initially provided for on the Effective
Date.
The following reorganization and other items associated with the bankruptcy
proceeding were incurred by the Predecessor during the period from January 1,
1994 to September 11, 1994, in thousands:
<TABLE>
<S> <C>
Reorganization Items:
Professional fees.................................... $ 5,744
Employee share of common stock distribution.......... 7,568
Other................................................ 268
Revaluation of assets and liabilities.................. 370
-------
$13,950
=======
</TABLE>
In 1993, the Predecessor entered into new collective bargaining agreements with
the International Association of Machinists and Aerospace Workers (AFL-CIO")
("IAM"), the Air Line Pilots Association, International ("ALPA"), Association of
Flight Attendants ("AFA") and Transport Workers Union ("TWU") and made certain
changes to the compensation and benefits of salaried employees. These new
agreements contemplated that employees would have claims relating to ratified
concessions which would be satisfied through the issuance of the new Common
Stock of the Reorganized Company. A charge of $7.6 million in 1994 was included
as a reorganization item in satisfaction of these claims.
During 1993, the Predecessor returned or terminated the respective leases under
five of its DC-9-50 aircraft. As a result, the Company provided for $14.0
million in anticipated aircraft rental and return costs. In accordance with SOP
90-7, the Predecessor classified reorganization and other costs associated with
the bankruptcy proceeding as nonoperating reorganization expenses. The balance
for the period from September 22, 1993 through December 31, 1993 includes the
following, in thousands:
<TABLE>
<S> <C>
Provisions for claims related to rejection of L-1011
and DHC-7 aircraft leases................................. $51,456
Provisions for claims related to various contract
disputes, litigation and other matters.................... 346
Professional fees and expenses related to
reorganization proceedings................................ 835
-------
$52,637
=======
</TABLE>
Charter revenues in 1993 include $3.9 million received from the Military Airlift
Command in May 1993 following a settlement with the Predecessor on its claim for
additional compensation for charter operations during Operations Desert Shield
and Desert Storm in 1991 and 1990.
F-19
<PAGE>
9. INCOME TAXES
As a result of net operating losses ("NOLs") in the current year and NOLs
carried forward from prior years, the Company and the Predecessor were not
required to provide for federal and state income taxes for 1995, 1994 and 1993.
The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are presented below, in thousands:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, princially due to
allowance for doubtful accounts............. $ 320 $ 198
Accrued pension and post-retirement
benefits.................................... 10,104 10,448
Accrued vacation............................. 1,646 1,644
Net operating loss carryforwards............. 20,115 34,181
Investment tax credit carryforwards.......... 2,569 2,569
Airframe return provision.................... 964 76
Other........................................ 4,564 3,813
-------- --------
Total gross deferred tax assets............ 40,282 52,929
Less valuation allowance................... (34,167) (47,086)
-------- --------
Net deferred tax assets.................... 6,115 5,843
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation................ (6,115) (5,843)
Other....................................... -- --
------- -------
Total gross deferred tax liability......... (6,115) (5,843)
------- -------
Net deferred taxes......................... $ -- $ --
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 and 1994
was $47.1 million and $66.4 million, respectively. The net change in the total
valuation allowance for the years ended December 31, 1995 and 1994 was a
decrease of $12.9 million and a decrease of $19.3 million, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
The Chapter 11 reorganization of the Company resulted in an "ownership change"
of the Company under Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), which resulted in a limitation on the use of its NOL
carryforwards. In order to preserve a portion of the Company's NOLs in the event
of an ownership change within two years of its bankruptcy reorganization, the
Company made a special election in its 1994 federal income tax return to have
its NOLs be subject to Section 382 of the Code following its bankruptcy
reorganization (the "Section 382(l)(6) election"). The purpose of the Section
382(l)(6) election was to preserve the Company's ability to utilize a portion of
its NOLs even if it underwent an ownership change within two years from the
ownership change resulting from its bankruptcy reorganization. Absent that
election, if the Company underwent an ownership change within two years
following the ownership change resulting from its bankruptcy reorganization, it
would have been precluded from using any NOLs incurred prior to that second
ownership change to offset taxable income for periods following that ownership
change.
F-20
<PAGE>
As a result of the Section 382(l)(6) election, the Company's NOLs attributable
to the period prior to the ownership change resulting from its bankruptcy
reorganization, as computed for federal and state income tax purposes, available
to be used to offset future taxable income generally was limited to an annual
amount (the "Section 382 Limitation") equal to the value of the Company's equity
immediately after that ownership change multiplied by the then "long-term tax-
exempt rate". The Section 382 Limitation may also be increased by certain
"built-in" income items recognized following an ownership change. Based on
values used by the Company in preparing its 1994 federal income tax return, the
Company's Section 382 Limitation that generally applied to all NOLs attributable
to the period prior to the ownership change that resulted from the Company's
bankruptcy reorganization was approximately $2.4 million, plus any "built-in"
income items as previously discussed. NOLs incurred following that time were
not subject to that limitation. In general, to the extent taxable income for a
year is less than the Section 382 Limitation applicable to that year, the excess
Section 382 Limitation increases the Section 382 Limitation available for the
immediately succeeding year. To the extent the Company's taxable income for a
year exceeds the Section 382 Limitation applicable to that year, plus the amount
of any unused NOLs not subject to the Section 382 Limitation (e.g., because they
are Post-Change NOLs), the Company will have federal taxable income subject to
tax at a maximum rate of 35.0% (plus any applicable state taxes). Unused NOLs
generally expire 15 years after they are incurred.
At December 31, 1995, the Company has approximately $50.3 million of NOLs (and
equivalent tax credit carryforwards) available to offset future federal and
state taxable income, subject to the application of Section 382 of the Code, as
discussed above. If the Company, in future tax periods, were to recognize tax
benefits attributable to tax attributes of the Predecessor (such as net
operating loss and other carryforwards), any such benefit would first be applied
to reduce the balance of Reorganization value in excess of amounts allocable to
identifiable assets.
Subsequent to December 31, 1995, a series of transactions were consummated which
may have affected the Company's NOLs. See Note 16.
10. BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
- -----------------------------
The Company sponsors several defined benefit pension plans covering
substantially all of its employees hired prior to September 1, 1992. Pilots and
ground personnel are covered under three defined benefit pension plans which
provide benefits based primarily on years of service and employee compensation
near retirement. The IAM and salaried defined benefit pension plans were
frozen effective October 1, 1993. Funding for the ground personnel plans is
based on minimum Employee Retirement Income Security Act of 1974 requirements.
Pension cost for the ALPA plan is funded on a current basis based on the
amortization of prior service cost over 20 years. Plan assets consist primarily
of common stocks, government securities, insurance contract deposits and cash
management funds.
F-21
<PAGE>
The following table summarizes the funded status of the defined benefit plans of
the Company as of December 31, 1995, in thousands:
<TABLE>
<CAPTION>
1995
------------------------------------------
Plans for which Plans for which
accumulated assets exceed
benefits accumulated
exceed assets benefits
- ---------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plans assets............ $ 88,877 $ 50,736
--------- --------
Accummulated benefit obligation:
Vested.............................. (86,807) (42,160)
Non-vested.......................... (7,803) (2,174)
--------- --------
(94,610) (44,334)
Additional benefits based on future
salary levels........................ (13,860) --
--------- --------
Projected benefit obligation.......... (108,470) (44,334)
--------- --------
Plan assets in excess of (less than)
projected benefit obligation......... (19,593) 6,402
Unrecognized actuarial net loss....... 8,149 3,435
Amount reflected as minimum pension
liability............................ (1,170) --
--------- --------
Prepaid (accrued) pension cost...... $ (12,614) $ 9,837
========= ========
</TABLE>
The projected benefit obligation was determined using an assumed weighted-
average discount rate of 7.25% for 1995. At December 31, 1995, the assumed
weighted-average rate of compensation increase was 4.50% for pilots and 0.00%
for ground personnel. The assumed weighted-average expected long-term rate of
return on plan assets was 9.0% for 1995.
The provisions of SFAS No. 87, "Employers' Accounting for Pensions," require the
recognition of an additional minimum liability for each defined benefit plan for
which the accumulated benefit obligation exceeds plan assets. This amount is
recorded as a long-term liability in Accumulated pension and other
postretirement benefits obligations and a separate reduction of Shareholders'
Equity in the accompanying balance sheets.
F-22
<PAGE>
The following table summarizes the funded status of the defined benefit plans of
the Company as of December 31, 1994, in thousands:
<TABLE>
<CAPTION>
1994
- ---------------------------------------------------------------
<S> <C>
Fair value of plans assets...................... $ 122,625
---------
Accumulated benefit obligations:
Vested........................................ (108,119)
Non-vested.................................... (7,991)
---------
$(116,110)
Additional benefits based on future salary
level.......................................... (10,244)
---------
Projected benefit obligation.................... (126,354)
---------
Projected benefit obligation in excess of plan
assets......................................... (3,729)
Unrecognized actuarial net loss................. 5,956
---------
Prepaid pension cost.......................... $ 2,227
=========
</TABLE>
The projected benefit obligation was determined using an assumed weighted-
average discount rate of 8.25% for 1994. The assumed weighted-average rate of
compensation increase was 4.25% for pilots and 0.00% for ground personnel at
December 31, 1994. The assumed weighted-average expected long-term rate of
return on plan assets was 9.0% for 1994.
Net periodic pension cost for 1995 included the following components, in
thousands:
<TABLE>
<CAPTION>
Reorganized
Company
-----------
1995
- -------------------------------------------------------------
<S> <C>
Service cost-benefits earned during the
year......................................... $ 3,248
Interest cost on projected benefit
obligation................................... 10,411
Actual return on plan assets.................. (24,180)
Net amortization and deferral................. 12,868
Early retirement provision.................... 1,496
--------
Net periodic pension cost................... $ 3,843
========
</TABLE>
The net periodic pension cost in 1995 was determined using an assumed weighted-
average discount rate of 8.25%.
In the first quarter of 1995, an early retirement program was offered by the
Company to qualified participants of the IAM and salaried defined benefit plans.
The Company recognized a $2.0 million charge to operations in 1995 which amount
includes the impact of the early retirement program on the estimated accumulated
benefit obligations of the IAM and salaried defined benefit plans.
F-23
<PAGE>
Net periodic pension (gain) cost for 1994 included the following components, in
thousands:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor
--------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to to
December 31, 1994 September 11, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned during
the period............................ $ 818 $ 2,326
Interest cost on projected benefit
obligation............................ 2,831 6,828
Actual return on plan assets........... 3,109 (2,244)
Net amortization and deferral.......... (6,366) (5,515)
Fresh start adjustment................. -- (8,284)
------- -------
Net periodic pension (gain) cost..... $ 392 $(6,889)
======= =======
</TABLE>
The net periodic pension cost in 1994 was determined using an assumed weighted-
average discount rate of 8.25% and 7.25% for the period from September 12, 1994
to December 31, 1994 and the period from January 1, 1994 to September 11, 1994,
respectively.
In the third quarter of 1994, ALPA further ratified certain funding assumption
changes to its defined benefit pension plan which resulted in decreased required
cash contributions to the plan. The changes were ratified by ALPA in exchange
for 1) an additional allowed general unsecured claim under the Predecessor's
Chapter 11 process; 2) payment by the Reorganized Company of the pilots' pension
plan investment and advisory fees and administrative expenses in 1994 and 1995,
with payments being limited to $100,000 in 1994; 3) if applicable, future
payment directly by the Reorganized Company for retirement benefits accrued in
excess of statutory compensation limits; and 4) forgiveness of certain
immaterial fees due from ALPA.
Fresh start adjustment of $8.3 million represents the net effect of fresh start
accounting, as applied by the Company in accordance with SOP 90-7, on the
pension benefit obligation as of September 12, 1994.
Net periodic pension gain for 1993 included the following components, in
thousands:
<TABLE>
<CAPTION>
Predecessor
---------------
1993
- -------------------------------------------------------------------------
<S> <C>
Service cost-benefits earned during the year........... $ 5,740
Interest cost on projected benefit obligation.......... 9,919
Actual return on plan assets........................... (11,455)
Net amortization and deferral.......................... 645
Curtailment gain....................................... (12,104)
--------
Net periodic pension gain............................ $ (7,255)
========
</TABLE>
The net periodic pension cost in 1993 was determined using an assumed weighted-
average discount rate of 7.25%.
Curtailment gain of $12.1 million represents the actuarial equivalent of the
reduction in the net accrued pension benefit obligation as of September 30, 1993
and is reflected in the accompanying financial statements as an
F-24
<PAGE>
extraordinary item. The gain results from the cessation of future pay and
credited service increases due to the aforementioned freezing of the IAM and
salaried employee defined benefit pension plans as of October 1, 1993.
POSTRETIREMENT PLANS
- --------------------
In addition to providing pension benefits, the Company sponsors two defined
benefit postretirement plans. Employees in the Company's non-pilot group are
eligible for certain medical benefits under one plan if they meet certain age
and service requirements at the time of retirement. Employees in the Company's
pilot group are eligible for certain medical and life insurance benefits under
another plan if they become disabled or reach normal retirement age while
working for the Company. The Company continues to fund the cost of medical and
life insurance benefits in the year incurred.
The Company's postretirement benefit plans' combined benefit obligations as of
December 31, 1995 and 1994 are as follows, in thousands:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Retirees and dependents.................. $ (5,848) $ (5,278)
Fully eligible active plan participants.. (341) (346)
Other active plan participants........... (12,735) (16,391)
-------- --------
Unfunded accumulated postretirement benefit
obligation................................ (18,924) (22,015)
Unrecognized net (gain) loss............... (6,398) 2
-------- --------
Accrued postretirement benefit
obligation.............................. $(25,322) $(22,013)
======== ========
</TABLE>
The accumulated postretirement benefit obligation was determined using an
assumed weighted-average discount rate of 7.25% and 8.25% for 1995 and 1994,
respectively.
Net periodic postretirement benefit cost in 1995 included the following
components, in thousands:
<TABLE>
<CAPTION>
Reorganized
Company
---------------
1995
- -------------------------------------------------------------------------
<S> <C>
Service cost-benefits attributed to service
during the year....................................... $1,593
Interest cost on accumlated postretirement
benefit obligation.................................... 1,785
Early retirement provision............................. 411
------
Net periodic postretirement benefit cost............. $3,789
======
</TABLE>
A weighted average discount rate of 8.25% was used for the year ended December
31, 1995.
As noted above, in the first quarter of 1995, an early retirement program was
offered by the Company to qualified participants of the IAM and salaried defined
benefit pension plans. The Company recognized a $2.0 million charge to
operations in 1995 for the combined effects of the early retirement program on
the estimated accumulated pension and postretirement benefit obligations.
F-25
<PAGE>
Net periodic postretirement benefit cost in 1994 included the following
components, in thousands:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor
--------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to to
December 31, 1994 September 11, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed to
service during the period.......... $444 $1,074
Interest cost on accumulated
postretirement benefit
obligations........................ 459 986
Net amortization and deferral....... -- (72)
---- ------
Net periodic postretirement
benefit cost..................... $903 $1,988
==== ======
</TABLE>
A weighted average discount rate of 8.25% and 7.25% was used for the period from
September 12, 1994 to December 31, 1994 and the period from January 1, 1994 to
September 11, 1994, respectively.
Net periodic postretirement benefit cost in 1993 included the following
components, in thousands:
<TABLE>
<CAPTION>
Predecessor
---------------
1993
- -------------------------------------------------------------------------
<S> <C>
Service cost-benefits attributed to service
during the year...................................... $1,480
Interest cost on accumulated postretirement benefit
obligation........................................... 1,479
Net amortization and deferral......................... (43)
------
Net periodic postretirement benefit cost............ $2,916
======
</TABLE>
Net periodic postretirement benefit cost in 1993 was determined using an assumed
weighted-average discount rate of 7.25%.
For measurement purposes, the following ranges of graded rates were used in the
per capita cost of covered medical benefits:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor
------------------------------------ --------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to to
1995 December 31, 1994 September 11, 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial rates.......................... 14.0% 15.0% 14.0% 14.0%
Termination rates...................... 5.0% 6.0% 5.0% 5.0%
</TABLE>
F-26
<PAGE>
The medical cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed medical cost trend rates by
1.0% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, 1994 and 1993 by $2.9 million, $3.7 million
and $3.5 million, respectively, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the years then
ended by $632,000, $584,000 and $593,000, respectively.
OTHER
- -----
The Company also sponsors separate deferred compensation plans (401(k)) for its
pilots, flight attendants and ground and salaried personnel. Participating
employer cash contributions are not required under the terms of the pilots'
plan. However, the Company made contributions of 5.0% in 1995, 5.0% in 1994 and
7.0% in 1993, of defined compensation pursuant to the terms of the flight
attendants' plan. Effective January 1, 1994, the Company is required to
contribute an additional 2.0% to participants in the flight attendants' plan.
Contributions to the flight attendants' plan are funded currently and totaled
approximately $555,000, $889,000 and $868,000 in 1995, 1994 and 1993,
respectively.
Effective September 1, 1993, the Company was required to contribute 2.0% of
eligible earnings to the 401(k) plan for IAM and salaried personnel. Effective
September 1, 1994, the Company is required to contribute 4.0% of eligible
earnings to the IAM and salaried personnel plan. Contributions from the Company
are required only for those employees who were participants in the plan as of
September 1, 1993. Contributions to the IAM and salaried 401(k) plan totaled
$1.6 million, $1.1 million and $288,000 in 1995, 1994 and 1993, respectively.
11. COMMON STOCK WARRANTS, RIGHTS AND OPTIONS
EXISTING WARRANTS
- -----------------
In conjunction with the Credit Facility, $2.0 million of letters of credit
were provided by certain third parties as additional security for performance of
the Company's obligations under the Credit Facility. One such letter of credit
in the amount of $1.0 million is guaranteed by Mr. Martin Anderson, a member of
the Board of Directors for fiscal year 1995. The persons providing the letters
of credit received a subordinated security interest in the assets securing the
Financing and received warrants to purchase 989,011 shares of the Reorganized
Company's Class A Common Stock. The warrants have a five-year term, expiring
September 12, 1999, and are exercisable at a price equal to $2.73 per common
share, subject to adjustment pursuant to anti-dilution provisions. No warrants
had been exercised as of December 31, 1995.
SHAREHOLDER RIGHTS PLAN
- -----------------------
On December 1, 1994, the Board of Directors of the Company authorized adoption
of a shareholder rights plan (the "Rights Plan") pursuant to which there would
be attached to each share of common stock of the Reorganized Company one
preferred stock purchase right (a "PSP Right"). The Rights Plan provides that
in the event any person becomes the beneficial owner of 10.0% or more of the
outstanding common shares, each PSP Right (other than a PSP Right held by the
10.0% shareholder) will be exercisable, on and after the close of business on
the tenth business day following such event, to purchase Hawaiian Airlines
Series A Preferred Stock having a market value equal to two times the then
current exercise price (initially $8.00). The Rights Plan further provides
that if, on or after the occurrence of such event, the Company is merged into
any other corporation or 50.0% or more of the Company's assets or earning power
are sold, each PSP Right (other than a PSP Right held by the 10.0% shareholder)
will be exercisable to purchase common shares of the acquiring corporation
having a market value equal to $16.00. The PSP Rights expire on December 1,
2004 (unless previously triggered) and are subject to redemption by the Company
at $0.01 per PSP Right at any time prior to the first date upon which they
become exercisable.
F-27
<PAGE>
1994 STOCK OPTION PLAN
- ----------------------
Pursuant to the terms of the Plan of Reorganization, 600,000 shares of the
Company's Class A Common Stock have been reserved for issuance under a 1994
Stock Option Plan. The 1994 Stock Option Plan provides for issuance of options
to officers and key employees of the Company, with the terms of such options and
the recipients of such options to be determined by a committee. In February
1995, the Compensation Committee of the Board of Directors approved a form of
nonqualified stock option agreement and granted options to acquire 592,500
shares of the Company's Class A Common Stock. The Compensation Committee
established the exercise price of the options granted as 25.0% of the average of
the closing prices of the Class A Common Stock reported on the AMEX for the 10
consecutive days of trading beginning on June 26, 1995. The application of the
aforementioned formula resulted in an option exercise price of $1.62 per share.
The options vest and are exercisable upon the earlier of February 2, 1996 or
upon a change of control, as described in the 1994 Stock Option Plan. If the
options vest through lapse of time, they may be exercised at any time prior to
February 2, 2005; however, if the options vest due to a change of control, they
may be exercised immediately prior to such change of control, after which any
unexercised options lapse. Noncash compensation expense of approximately $2.0
million for the granted options has been recognized during the year ended
December 31, 1995. The remaining $182,000 of compensation cost has been
reflected as Unearned compensation in the Shareholders' Equity section in the
accompanying balance sheets and will be recognized in January 1996. No options
had been exercised as of December 31, 1995 (options to acquire 592,500 shares
are outstanding).
In January 1996, the AIP Investment and a series of related transactions were
consummated. The AIP Investment and its related transactions resulted in the
immediate vesting of the aforementioned stock options, the Company issuing
additional warrants to AMR and the holders of the Existing Warrants and changes
to the provisions of the Rights Plan and 1994 Stock Option Plan. See Note 16.
12. TRANSACTIONS WITH AMERICAN AND CERTAIN OF ITS AFFILIATES
A variety of agreements exist between the Company and American and AMR Training
& Consulting Group, Inc. and its affiliates for certain services, including data
processing, licensing of reservations system, leasing of DC-10-10 aircraft,
maintenance services on such DC-10-10 aircraft and participation in the
AAdvantage(R) frequent flyer program. At December 31, 1995, the obligations of
the Company under these agreements were secured by a $2.0 million letter of
credit issued under the Company's working capital line of credit. See Note 7.
On October 31, 1994, the Company failed to make certain payments due to American
pursuant to the Aircraft Lease Agreement pursuant to which American leases six
DC-10s to the Company. American sent the Company notice of the failure to make
rent and prepaid maintenance payments and noted that such failure constituted an
event of default under the Aircraft Lease Agreement, but did not declare the
Aircraft Lease Agreement in default or exercise any of the remedies available to
it, which include, but are not limited to, termination of the Aircraft Lease
Agreement, repossession of certain aircraft and engines, recovery of damages and
drawings under letters of credit then in place in the amount of $2.0 million
posted by the Company as required by the Aircraft Lease Agreement. The Company
subsequently made the rent and prepaid maintenance payments due American in
November 1994.
On several occasions during 1995, the Company again failed to timely make
certain rent and prepaid maintenance payments in full due pursuant to the
Aircraft Lease Agreement. Again, while American sent the Company notice of the
failure to make such payments in full, American did not declare the Aircraft
Lease Agreement in default or exercise any of the remedies available to it. On
several occasions during the year, American deferred the payment of the
delinquent amounts. As of December 9, 1995, the Company owed American $7.1
million in deferred payments and accrued interest. American agreed to permit
the deferral of the payment of this $7.1 million (plus interest thereon) and the
periodic payments of lease rents and maintenance payments that would become due
on or after December 8, 1995, up to a maximum of an additional $2.9 million
(including interest), until the earlier of the consummation of the AIP
Investment or February 7, 1996. As of January 4, 1996, the Company had deferred
the maximum deferrable amount of lease rents and maintenance payments under the
Aircraft Lease Agreement.
F-28
<PAGE>
On January 31, 1996, establishment of terms for the repayment of these
delinquencies and certain other agreements and arrangements with American and
AMR were effected upon consummation of the AIP Investment. See Note 16.
13. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
- ----------
The Company is party to a small number of lawsuits. Four claims were asserted
against the Reorganized Company for alleged prepetition and/or administrative
claims on or before the Effective Date of the Plan. Management believes that
the Reorganized Company has established adequate reserves for these bankruptcy
related claims.
In addition, the Company is a party to several other claims and legal actions.
In the opinion of management, and after consultation with legal counsel, the
Company believes that the ultimate disposition of these matters will not have a
material adverse effect on the Company's operations or financial condition.
AIRCRAFT MAINTENANCE
- --------------------
Maintenance on the Company's DC-10-10 aircraft fleet is being performed by
American in accordance with FAA regulations and Hawaiian Airlines' approved
maintenance program. Commencing October 1994 and throughout 1995, the Company
was delinquent in making certain payments due American under its lease
arrangement. Establishment of terms for the repayment of these delinquencies and
certain other arrangements with American were effected subsequent to December
31, 1995 upon consummation of the AIP Investment and its related transactions.
See Notes 6, 12 and 16.
Due to the U.S. Government's decision to phase out the VLF/Omega stations, the
Omega navigation system aboard the DC-10-10 aircraft must be updated to continue
overseas operations. The current plan is to change to a dual Global Positioning
System during the heavy phase checks scheduled for 1996. The estimated cost is
$125,000 per aircraft.
Hawaiian Airlines anticipates that in the period 1996 through 1999, five of its
13 DC-9-50 aircraft will require a heavy airframe overhaul check (the "D
Check"). The D Check for a DC-9-50 requires more than 10,000 man-hours of
maintenance work and includes stripping the airframe, extensively testing the
airframe structure and a large number of parts and components, and reassembling
the overhauled airframe with new or rebuilt components. The Company anticipates
each D Check to cost approximately $1,200,000.
As a result of certain incidents in 1989 and 1988 involving structural damage to
aircraft in flight operated by carriers other than the Company, the Federal
Aviation Administration (the "FAA") is requiring or is expected to require
structural modifications and the replacement of certain parts, as well as the
implementation of additional maintenance programs or changes to current
programs, with respect to various types of aircraft over a certain age. These
requirements vary, depending on the type of aircraft covered. Based on
information currently available, the Company estimates that the total cost of
complying with the aging aircraft requirements over the 1996 through 2000 period
will approximate $600,000 per DC-9-50 aircraft.
In addition, the Company expects to incur approximately $100,000 per DC-9-50
aircraft per year, for maintenance required under a corrosion prevention and
control program. This program is anticipated to continue indefinitely in the
future.
During the period from 1996 through 2000, the Company anticipates implementing
its supplemental inspection document program for certain of its DC-9-50 aircraft
which is estimated to range up to $50,000 per aircraft.
The estimated future cost of complying with FAA regulations as discussed in the
preceding paragraphs will be in addition to the costs of the Company's current
DC-10-10 and DC-9-50 fleet maintenance programs.
F-29
<PAGE>
LOS ANGELES AIRPORT OPERATING TERMINAL
- --------------------------------------
On December 1, 1985, the Company entered into an Interline Agreement with other
airlines for, among other things, the sharing of costs, expenses and certain
liabilities related to the acquisition, construction and renovation of certain
passenger terminal facilities at the Los Angeles International Airport
("Facilities"). Current tenants and participating members of LAX Two
Corporation (the "Corporation"), a mutual benefit corporation, are jointly and
severally obligated to pay their share of debt service payments related to
Facilities Sublease Revenue Bonds issued to finance the acquisition,
construction and renovation of the Facilities which totaled $111.9 million at
completion. The Corporation leases the Facilities from the Regional Airports
Improvement Corporation under a lease agreement. In addition, the Corporation
is also obligated to make annual payments to the city of Los Angeles for charges
related to its terminal ground rental. All leases of the Corporation are
accounted for as operating leases with related future commitments as of December
31, 1995 amounting to approximately $201.7 million. Rent expense relating to
these operating leases totaled $5.9 million, $4.4 million and $3.6 million in
1995, 1994 and 1993, respectively.
Member airlines pay the expenses associated with the Facilities on a prorata
share basis calculated primarily upon their respective numbers of passengers
utilizing the Facilities. The Company accounts for its obligation under this
agreement as an operating lease and incurred $842,000, $737,000 and $672,000 of
rent expense in 1995, 1994 and 1993, respectively.
FREQUENT FLYER PROGRAM
- ----------------------
The Company's Gold Plus frequent flyer program offers a variety of awards based
on accumulated mileage. The Company recognizes a liability in the period in
which members have accumulated sufficient mileage points to allow for award
redemption. The incremental cost method is used, computed primarily on the
basis of fuel and catering costs, exclusive of any overhead or profit margin.
Non-travel awards are valued at the incremental cost of tickets exchanged for
such awards.
As of December 31, 1995 and 1994, Gold Plus members had accumulated
approximately 3.3 billion and 3.0 billion miles, respectively, representing
liabilities totaling approximately $489,000 at the end of each year. The
Company's accruals assume full redemption of mileage points. During the years
ended December 31, 1995, 1994 and 1993, 581.0 million, 636.0 million and 493.0
million award miles were redeemed, respectively.
The Company believes that the usage of free travel awards will not result in the
displacement of revenue customers and, therefore, such usage will not materially
affect the Company's liquidity or operating results. The use of free travel
awards is subject to effective capacity control/yield management programs
maintained by the Company to limit the possibility of displacing revenue
passengers. Usage of Gold Plus travel redemption accounted for approximately
2.2%, 2.7% and 2.1% of Interisland traffic and an insignificant percentage of
Transpac and Southpac traffic in 1995, 1994 and 1993, respectively.
14. CONCENTRATION OF BUSINESS RISK
The Company's scheduled service operations are primarily focused on providing
air transportation service to, from, or throughout the Hawaiian Islands.
Therefore, the Company's operations, including its ability to collect its
outstanding receivables, are significantly affected by economic conditions in
the State of Hawaii and by other factors affecting the level of tourism in
Hawaii.
The Company's Interisland, Transpac and Southpac scheduled service is marketed
through a number of wholesalers. No wholesaler accounted for more than 10.0% of
total passenger revenues in 1995 or 1994. In 1993, one wholesaler accounted for
approximately 11.0% of total passenger revenues. The wholesaler purchased
approximately $31.0 million of tickets in 1993, primarily in the Interisland and
Transpac markets.
F-30
<PAGE>
15. RELATED PARTY TRANSACTIONS
During 1995, the law firm Goodsill Anderson Quinn & Stifel, of which Mr. Martin
Anderson, a member of the Board of Directors and chairman of the Compensation
Committee during fiscal year 1995, is a partner, billed legal fees to the
Company in the amount of $117,479. As of December 31, 1995, $9,836 of fees were
outstanding. In addition, Goodsill Anderson Quinn & Stifel received 28,606
shares of Class A Common Stock upon the June 19, 1995 initial distribution by
the Company of shares of Class A Common Stock. Goodsill Anderson Quinn & Stifel
sold all 28,606 shares of Class A Common Stock after the initial distribution.
In conjunction with obtaining financing under the Plan of Reorganization, $2.0
million of letters of credit were provided by certain third parties as
additional security for performance of the Company's obligations under the
Credit Facility. One such letter of credit in the amount of $1.0 million is
guaranteed by Mr. Anderson. In consideration for the guarantee, Mr. Anderson
received a subordinate security interest in the assets securing the Credit
Facility and received warrants to purchase 494,505 shares of the Company's Class
A Common Stock. The warrants have a five-year term, expiring September 12,
1999, and are exercisable at a price equal to $2.73 per share, subject to
adjustment pursuant to anti-dilution provisions. See Note 11.
Mr. Clifton Kagawa, a member of the Board of Directors and the Compensation
Committee during fiscal year 1995, is the President and Chief Executive Officer
of Hill and Knowlton Asia Pacific, and senior representative in Hawaii for WPP
Group plc, the parent company of Hill and Knowlton, Inc., and advertising agency
Ogilvy and Mather Worldwide. Hill and Knowlton, Inc. is a public relations
company which provides services to the Company. During 1995, this public
relations company billed the Company for services totaling $170,601. Hill and
Knowlton, Inc. received 1,431 shares of Class A Common Stock upon the June 19,
1995 initial distribution by the Company of shares of Class A Common Stock. Hill
and Knowlton, Inc. sold all 1,431 shares of Class A Common Stock after the
initial distribution. The Company also employs the services of Ogilvy & Mather
Hawaii, which received 20,410 shares of Class A Common Stock upon the June 19,
1995 initial distribution by the Company of shares of Class A Common Stock.
Ogilvy & Mather sold all 20,410 shares of Class A Common Stock after the initial
distribution. During 1995, this advertising agency billed the Company for
services totaling $2,942,574.
Upon consummation of the AIP Investment and its related transactions in January
1996, both Mr. Anderson and Mr. Kagawa agreed not to stand for reelection to the
Board of Directors and effectively resigned upon the election of the new Board
of Directors at the special meeting of shareholders. Also, the shares and the
exercise price on such shares associated with Mr. Anderson's warrants were
adjusted pursuant to the anti-dilution provisions of the warrants. See Note 16.
F-31
<PAGE>
16. FINANCIAL CONDITION AND LIQUIDITY AND
SUBSEQUENT INVESTMENT AND FINANCIAL TRANSACTIONS
As discussed in Note 1, the Company's Plan became effective in September 1994,
representing the completion of its Chapter 11 reorganization process within one
year and the avoidance of additional costs primarily related to the transition
of its aircraft fleet. Thereafter, the Company financed its operations through
operating cash flow, borrowings under the Credit Facility, a series of
promotional fare ticket sale activities and payment deferrals from existing
creditors, one of which was American. During this period, the Company also
operated with a cash balance equivalent to less than one week's worth of
operating expenses. Operating at that level of liquidity placed the Company's
existence at risk; there was no cushion to respond to unexpected operational
upheavals that have periodically affected the airline industry or to cover the
seasonal downturns typically experienced by the Company.
Due to its working capital shortage, the Company deferred certain discretionary
capital expenditures that management believes may improve profitability. One
example is a series of investments in improved software that are expected to
improve operating efficiency. Another is the outlay required to consolidate
operations into one terminal at Honolulu International Airport. The working
capital shortage also had an unfavorable effect on yield, which, although
difficult to quantify, is believed to be significant. The Company found it
necessary to offer its products to wholesalers and to the public at reduced
rates in order to enhance cash flow. The uncertain financial situation also
limited the availability of trade credit and at times necessitated the use of
cash or equivalent security to obtain services. Finally, potential partners in
the airline industry have been reluctant to enter into business arrangements
with the Company until its financial difficulties have been overcome.
This situation led the Company during 1995 to seek a possible equity investor.
As a result of its efforts, on November 6, 1995, the Company executed a letter
of intent with AIP, which was followed by the execution on December 8, 1995 of
the definitive Stock Purchase Agreement (the "Investment Agreement") setting
forth the terms of the AIP Investment. As of December 31, 1995, the Company had
aggregated a net working capital deficit of $51.7 million, representing a $5.9
million increase from the net working capital deficit of $45.8 million at
December 31, 1994. Principally, the increase in the working capital deficit
resulted from the net of (1) an increase in accounts payable of $17.7 million
primarily due to deferred aircraft lease rents and maintenance payments due
American; (2) a decrease in air traffic liability of $9.9 million due to the
burnoff throughout 1995 of promotional fare ticket sales held in the second and
last quarters of 1994; and (3) miscellaneous changes in other working capital
accounts resulting in a $1.9 million decrease in the working capital deficit
from that of 1994.
The Board of Directors unanimously approved the AIP Investment and believes that
the AIP Investment is in the best interests of the Company and its shareholders.
A special shareholders meeting was held on January 30, 1996 at which the
shareholders approved the series of transactions described below. On January
31, 1996, the AIP Investment and certain other transactions described below were
consummated, which when considered in combination, are anticipated to (1)
improve the Company's liquidity; (2) reduce operating costs; (3) enable the
Company to make necessary capital expenditures; (4) allow the Company to take
advantage of prompt payment discounts; (5) avoid the need to provide early
payment incentives to wholesalers and become less dependent on promotional fare
ticket sales to the traveling public; and (6) provide coverage for seasonal
working capital needs.
AIP
- ---
The AIP Investment consisted of the issuance and sale to AIP of 18,181,818
shares of the Company's Class A Common Stock (the "Shares"), par value $.01 per
share, and four shares of the Company's Class B Special Preferred Stock, par
value $.01 per share, for an aggregate cash purchase price of $20.0 million
under the Investment Agreement. Upon consummation of the AIP Investment, AIP
owns approximately 67.0% of the Company's common equity. As a result, AIP
currently controls substantially all actions to be taken by the shareholders of
the Company. After giving effect to the issuance of shares of Class A Common
Stock upon the exercise of rights proposed to be offered after the consummation
of the AIP Investment as described below (the agreement with AIP requires AIP to
use its best efforts to cause the Company to make such offering), the issuance
of shares of Class A Common Stock upon the exercise of the AMR warrants and
certain other issuances of Class A Common Stock, AIP would own approximately
44.0% of the outstanding common equity of the Company
F-32
<PAGE>
(assuming that the rights referred to above are exercised by persons other than
AIP). Until such time as AIP ceases to own at least 35.0% of the common equity,
it would have the right to nominate six of the 11 nominees to stand from time to
time for election as directors of the Company. Thereafter, AIP would have the
right to nominate five, four or three directors so long as it owned at least
25.0%, 10.0% or 5.0%, respectively, of the common equity. On January 30, 1996,
six of AIP's director nominees were elected to the Board of Directors.
AIP and the Company have entered into a registration rights agreement pursuant
to which AIP would have the right to require the Company, on two occasions, to
use its best efforts to register, at the Company's expense, some or all of the
Shares under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, AIP would have the right to have the Shares included in any other
registered offering of shares of Class A Common Stock made within ten years
after consummation of the AIP Investment.
Rights Offering
- ---------------
The Investment Agreement requires AIP to use its best efforts to cause the
Company, as soon as practicable after the consummation of the AIP Investment, to
make a rights offering (the "Rights Offering") pursuant to which the Company
would offer to such persons as the Board of Directors shall determine at the
time of the Rights Offering (which would not initially include AIP (except
possibly with respect to Rights not exercised during the allotted time) but
would include, among others, shareholders who hold shares at the record date for
the Rights Offering and holders of options granted under the 1994 Stock Option
Plan) rights to purchase shares of Class A Common Stock (the "Rights"), during a
20-day period after the issuance of the Rights, at a discount equal to at least
30.0% of the trading price of the Class A Common Stock measured over a period of
time to be designated by the Board of Directors after the consummation of the
AIP Investment and prior to the Rights Offering, subject to a minimum exercise
price of $1.10 per Right. Unexercised Rights would be offered to certain
employees, as provided in the modifications to the collective bargaining
agreements described below, and possibly to AIP. The other terms and conditions
of the Rights Offering, including the number of Rights to be offered, the record
date for the Rights Offering and whether the Rights would be transferable, would
be established by the Board of Directors at the time of the Rights Offering. It
is currently expected that Rights with respect to approximately 10,000,000
shares of Class A Common Stock would be offered, subject to the Board's
determination at the time of the Rights Offering. The Rights Offering would be
made only by means of a separate prospectus constituting a part of a
registration statement to be filed by the Company with the Securities and
Exchange Commission.
The Company has agreed with GPA Group plc and its affiliate AEROUSA, Inc. (the
"GPA Companies") that, if the closing of the Rights Offering shall have occurred
by September 30, 1996, the Company shall repurchase all of the shares of Class A
Common Stock owned by the GPA Companies and repay certain secured and unsecured
promissory notes held by the GPA Companies. The stock repurchase price would be
$1.10 per share and the promissory notes would be repaid at approximately 85.0%
of the then carrying value of the notes, including any deferred costs and other
expenses owed. Based on the number of shares owned by the GPA Companies as of
January 31, 1996 and the carrying value of the notes as of such date, the
Company would pay approximately $4.91 million to the GPA Companies. The Company
has the option at any time prior to the Rights Offering to repurchase the GPA
Companies' shares and repay their notes on the above terms.
AMR and American
- -----------------
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, the Company entered into certain arrangements with AMR and American
pursuant to which, AMR and American accepted the following:
. The payment of up to $10.0 million of deferred lease rents and maintenance
payments (and accrued interest thereon) under the Aircraft Lease Agreement and
the reimbursement of American's fees and expenses in connection with the
transaction through the issuance by the Company to American of a $10.25
million promissory note secured by certain assets of the Company (the
"American Note"). The American Note bears interest at 10.0% per annum, payable
quarterly in arrears, and has a final maturity date of September 11, 2001. The
American Note requires repayment of principal equal to one-sixth of the
original principal amount on each anniversary of its date of issuance (January
31). The Company has the option to prepay the American Note for $9.15 million
at any time before January 31, 1997, or at any time thereafter, in whole or in
part, at its remaining principal
F-33
<PAGE>
balance, without premium. The American Note is prepayable in full, at the
option of the holder, in the event and at the time that any person or group
(other than AIP) acquires more than 30.0% of the voting interest in the
Company;
The American Note is secured by a lien on substantially all of the personal
property of the Company through December 31, 1997. This lien is a first
priority lien except that it is junior to (1) liens of security deposits held
by credit card processors and (2) liens securing up to $15.0 million in
obligations of the Company consisting of (x) secured obligations of the
Company (other than credit card processor security deposit liens) existing on
the date of issuance of the American Note, and (y) additional secured
obligations of the Company incurred after such issuance. As of January 31,
1996, in addition to its credit card deposits, the Company had $7.6 million in
secured obligations (including all amounts under the Credit Facility), the
liens of which are prior to the lien of the American Note. On and after
January 1, 1998, the Company is obligated to secure the American Note and the
other obligations of the Company to American with a first priority lien on
identified assets with a fair market value (supported by an appraisal) of at
least 125.0% of the remaining outstanding principal balance of the American
Note from time to time;
. Basic rents under the Aircraft Lease Agreement have been reduced by
approximately 28.0% for a period of three years, at which time basic rents
would revert back to 1995 levels. The Company has agreed to pay a minimum
monthly charge for maintenance services and basic rents and maintenance
charges are payable monthly in arrears rather than weekly in advance. American
has the right to terminate its obligation to provide aircraft maintenance
services on and after January 1, 1999 upon 180 days prior notice;
. American's relinquishment of $2.0 million of letters of credit which secured
the Company's obligations to American under the Aircraft Lease Agreement. The
termination of these letters of credit increased the Company's borrowing
capacity under the Credit Facility;
. Issuance of the AMR Warrants to AMR, which entitle the holder to acquire up to
1,897,946 shares of the Class A Common Stock (the "AMR Warrant Shares")
exercisable at $1.10 per share. One half of the AMR Warrants are immediately
exercisable but the balance of the AMR Warrants are only exercisable if
American and the Company enter into a code sharing arrangement by January 1,
1997 regarding the placement of the two letter flight designator code for
American's flights on the Company's Interisland flights. If not exercised,
the AMR Warrants expire on September 11, 2001; and
. American's right to require the Company, on two occasions, to use its best
efforts to register, at the Company's expense, some or all of the AMR Warrant
Shares under the Securities Act. In addition, AMR has the right to have the
AMR Warrant Shares included in any other registered offering of shares of
Class A Common Stock made before September 11, 2001. If any person or entity
acquires a majority of the outstanding Common Stock before September 11, 2001,
the Company is required to use its best efforts to cause the seller or sellers
of such Common Stock to permit AMR to include AMR Warrant Shares in such sale
on the same terms as those available to such seller. AIP has agreed that, if
it were one of the sellers in such a sale, it would permit AMR to participate
in such sale.
The arrangements with American have provided the Company with substantial
benefits. The payment through the American Note of $10.0 million of deferred
rents and maintenance payments otherwise due on February 7, 1996 will
effectively permit the Company to make such payments in installments over the
period from January 1997 to September 2001, thereby freeing up working capital
for other purposes. In addition, basic rents under the Aircraft Lease Agreement
have been reduced by approximately 28.0% for three years, resulting in lower
operating costs. Furthermore, the release by American of the security deposit
letters of credit resulted in $2.0 million of borrowing capacity becoming
available to the Company under the Credit Facility. In total, these
arrangements with American would further improve the Company's liquidity and
will result in the reduction of cash operating expenses by approximately $3.0
million per year for three years.
F-34
<PAGE>
Unions and Labor Agreements
- ---------------------------
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, amendments to the labor agreements for each of the Company's labor
unions became effective.
The amendments to the agreements extend the amendable date of all five
contracts from February 28, 1997 to February 28, 2000. Each of the five unions
agreed to certain economic concessions, which include cancellation of certain
scheduled pay increases, with new pay increases to be effective December 1, 1998
and January 1, 2000. Management expects that these concessions will reduce cash
operating expenses which would have been incurred during the two-year period
ending December 1997. In exchange for the wage concessions, the Company has
agreed to negotiate a gain-sharing program to provide employees the opportunity
to receive wage rate increases resulting from work rule and productivity
modifications, which would produce cost savings to the Company. In addition,
the Company has agreed to establish a profit bonus plan, which would provide all
employees (other than senior management) with cash bonuses if the Company
achieves certain pre-tax profit targets. The contracts as modified provide
additional furlough protection to employees under certain specified
circumstances. The Company and unions also have agreed to include certain
additional low-cost or no-cost provisions that are specific to each of the
respective union contracts. Management cannot presently determine the estimated
costs associated with these gain sharing and profit bonus plan initiatives.
Pursuant to their collective bargaining agreements, AFA, IAM and ALPA each have
the right to nominate one of the nominees to stand from time to time for
election as directors of the Company. On January 30, 1996, each of the IAM,
ALPA and AFA director nominees were elected to the Board of Directors.
Special Preferred Stock
- -----------------------
As part of the AIP Investment, AIP received four shares of Series B Special
Preferred Stock, which entitle AIP to nominate directors as described above.
AFA, IAM and ALPA each received one share of Series C Special Preferred Stock,
Series D Special Preferred Stock and Series E Special Preferred Stock,
respectively, (collectively the "Special Preferred Stock") which entitle each
union to nominate one director. The holders of each series of the Special
Preferred Stock are entitled to fill a vacancy on the Board of Directors caused
by the removal, resignation or death of a director nominated by that series if
the Board fails to fill such vacancy within 30 days. AIP has agreed with each
of IAM, ALPA and AFA that so long as the right to have a representative on the
Board is in its respective collective bargaining agreement, AIP will vote its
shares in favor of such union's nominee for the Board of Directors. In addition
to the rights of the Special Preferred Stock described above, the Special
Preferred Stock is 1) senior to Common Stock and each series is pari passu with
each other with respect to rights on liquidation, dissolution and winding up and
will be entitled to receive $.01 per share, and no more, before any payments are
made to holders of any stock ranking junior to the Special Preferred Stock; 2)
has no dividend rights other than at any time that a dividend is declared and
paid on the Common Stock dividends in an amount per share equal to twice the
dividend per share paid on the Common Stock will be paid on the Special
Preferred Stock; 3) is entitled to one vote per share and votes with the Class A
Common Stock as a single class on all matters submitted to the shareholders of
the Company; 4) automatically converts into one share of Class A Common Stock
upon the transfer of such share from the person to whom originally issued to any
person that is not an affiliate of such person; and 5) does not have preemptive
rights in connection with future issuances of the Company's capital stock.
Authorized Capital Stock
- ------------------------
The Amended Articles of Incorporation of the Company, as amended were further
amended to increase the authorized number of shares of Class A Common Stock from
40,000,000 shares to 60,000,000 shares. The increase in the number of authorized
shares allows the Company to have a sufficient number of authorized and unissued
shares of Class A Common Stock to permit the exercise of Rights under the Rights
Offering and ensures that the Company will have, from time to time, an adequate
number of authorized and unissued shares available for corporate purposes, such
as future public and private equity offerings, to raise working capital. As a
result of the amendment, the authorized capital stock of the Company consists of
60,000,000 shares of Class A Common Stock, par value $.01 per share, 3,050,000
shares of Class B Common Stock, par value $.01 per share, and 2,000,000 shares
of Preferred Stock, $.01 par value per share.
F-35
<PAGE>
Except for shares of Class A Common Stock that have been reserved in connection
with the Existing Warrants, the 1994 Stock Option Plan, the Plan, the AMR
Warrants and the Rights Offering, the Company has no present agreements or
commitments to issue any additional shares of Class A Common Stock.
Existing Warrants
- -----------------
Pursuant to the anti-dilution provisions of the Existing Warrants, upon the
consummation of the AIP Investment, the holders of the Existing Warrants
received warrants to purchase an additional 587,356 shares of Class A Common
Stock exercisable at $1.71 per share. The holders of the Existing Warrants have
agreed that the anti-dilution provisions will not apply in connection with the
AMR Warrants and the Rights.
1994 Stock Option Plan
- ----------------------
As discussed in Note 11, options to acquire 592,500 shares of Class A Common
Stock were granted in 1995 pursuant to the terms of the 1994 Stock Option Plan.
The AIP Investment constituted a change of control for purposes of the 1994
Stock Option Plan, thereby accelerating both the vesting and expiration of the
options. In connection with the AIP Investment, the 1994 Stock Option Plan was
amended to extend the option exercise period to February 2, 2005. This
amendment resulted in a new measurement date for the awarded options and
approximately $782,000 of related noncash compensation expense was recorded in
January 1996.
Rights Plan
- -----------
AIP's acquisition of the Shares would have rendered AIP a "10% Shareholder," as
that term is defined in the Rights Plan (see Note 11), thereby triggering the
distribution of preferred stock purchase rights to the Company's shareholders.
Pursuant to the Rights Plan, the Board has the power to determine whether any
person, including AIP, is or is not a "10% Shareholder," whether or not such a
determination is adverse to any holder of PSP rights. The Board determined that
AIP's acquisition of the Shares shall not render AIP a "10% Shareholder" and in
anticipation of the AIP Investment, amended the Rights Plan to exclude AIP's
acquisition of the Shares from triggering the distribution of the PSP rights.
Tax and Net Operating Loss Considerations
- -----------------------------------------
The Company believes that the transactions with respect to its equity following
its bankruptcy reorganization, including those pertaining to the AIP Investment,
issuance of the AMR Warrants, consummation of the Rights Offering, and possible
purchases or sales of its stock by significant shareholders or exercises of
options to acquire equity in the Company, has resulted in or has significantly
increased the likelihood of an "ownership change" of the Company for purposes of
Section 382 of the Internal Revenue Code. An ownership change under Section 382
results in an annual limitation on the amount of pre-ownership change NOLs of
the Company that can be used to offset the Company's taxable income for periods
following the ownership change.
Based on values used by the Company in preparing its 1994 federal income tax
return, the Company's Section 382 Limitation that generally applied to all NOLs
attributable to the period prior to the ownership change that resulted from the
Company's bankruptcy reorganization was approximately $2.4 million, plus certain
"built-in" income items that increase the Section 382 Limitation. While the
Company anticipates that any ownership change resulting from the AIP Investment
and its related transactions would result in a new Section 382 Limitation which
is lower than the Section 382 Limitation in effect previously, the amount of
such reduction and its effect on the Company (as well as the effect on the
Company of subjecting NOLs incurred following the Company's bankruptcy
reorganization to the Section 382 Limitation) depend on numerous issues,
including but not limited to the value of the Company's equity at certain dates,
the amount and timing of future taxable income and loss, and the amount of
"built-in" income items of the Company. Therefore, while the effect of an
ownership change resulting from the AIP Investment and its related transactions
could be to increase the future tax liabilities of the Company, the precise
effect of such an ownership change of the Company resulting from the Investment
and its related transactions is unclear.
F-36
<PAGE>
Current Status
- --------------
The Company's capital resources have been increased substantially due to the AIP
Investment and the arrangements with American. It is anticipated that the
combination of the Company's improved liquidity and reduced operating costs will
enable the Company to make necessary capital expenditures, take advantage of
prompt payment discounts, avoid the need to provide early payment incentives to
wholesalers and become less dependent on promotional fare ticket sales to the
traveling public, thereby further improving liquidity.
In addition, the Company is anticipating the consummation of the Rights Offering
and is currently negotiating to increase the capacity of the Credit Facility to
$15.0 million. No assurance can be given that the Company will be successful in
either of these efforts. If the Company is unsuccessful, it will seek other
sources of financing. However, because the Company has no remaining
unencumbered assets, its access to additional sources of liquidity remains
limited. If the Company is unsuccessful in obtaining additional sources of
liquidity, an adverse change in events and circumstances could result in the
Company being unable to meet its financial obligations after it exhausts its
current and foreseeable capital resources.
The financial statements at December 31, 1995, have been prepared on a going
concern basis which assumes continuity of operations and realization of assets
and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary as a result of the outcome
of future uncertainties. Management recognizes that the continuation of the
Company as a going concern is dependent upon a return to profitable, positive
cash flow operations and the generation of adequate funds to meet its ongoing
obligations.
F-37
<PAGE>
HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
<TABLE>
<CAPTION>
Reorganized Company
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
Operating revenues....................... $75,508 $85,464 $ 93,355 $92,577
Operating income (loss).................. (7,427) 431 4,436 659
Net income (loss)........................ (8,294) (451) 3,363 (124)
Proforma income (loss) per share......... (0.88)* (0.05)* 0.33* (0.01)*
</TABLE>
<TABLE>
<CAPTION>
Predecessor Reorganized Company
---------------------------------------------------------------------------------
First Second Fourth
Quarter Quarter (a) (b) Quarter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Operating revenues....................... $70,977 $72,515 $ 73,331 $13,171 $75,986
Operating income (loss).................. (6,456) (6,683) 6,718 (3,114) (3,154)
Loss before income taxes................. (7,351) (8,765) (4,558) (3,179) (2,972)
Net income (loss)........................ (7,351) (8,765) 185,505 (3,179) (2,972)
Proforma loss per share.................. N/M ** N/M ** N/M ** (0.34)* (0.31)*
</TABLE>
The results of operations for the first three quarters of 1994 were adjusted for
the impact of certain significant fourth quarter adjustments which related to
the prior quarters. These adjustments were corrections of errors which resulted
from mathematical mistakes, mistakes in the application of accounting principles
or oversight or misuse of facts that existed at the time the financial
statements were prepared.
(a) Period from July 1, 1994 to September 11, 1994
(b) Period from September 12, 1994 to December 31, 1994
* Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of Common Stock
** Not Meaningful - per share data is not meaningful as the Predecessor was
recapitalized and adopted fresh start reporting as of September 12, 1994
F-38
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------
Reorganized Company Predecessor
------------------------ ------------------------------------------
Period from Period from
September 12, January 1,
1994 to 1994 to
December 31, September 11,
1995 1994 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Operating revenues........................ $346,904 $89,157 $216,823 $304,109 $ 395,076 $365,042
Operating expenses........................ 348,805 95,425 223,244 328,947 506,117 460,036
-------- ------- -------- -------- --------- --------
Operating loss............................ (1,901) (6,268) (6,421) (24,838) (111,041) (94,994)
Interest expense, net..................... (3,579) (968) (850) (4,706) (11,217) (12,493)
Gain (loss) on disposition of equipment... (233) 558 45 (659) (1,075) (3,888)
Gain on sale of routes.................... __ __ __ __ 41,702 9,000
Other, net................................ 207 527 502 1,312 (321) 1,217
Reorganization expenses................... -- -- (13,950) (52,637) -- --
-------- ------- -------- -------- --------- --------
Loss before income taxes, extraordinary
items and cumulative effect of change in
accounting principle..................... (5,506) (6,151) (20,674) (81,528) (81,952) (101,158)
Income taxes.............................. -- -- -- -- -- 2,610
-------- ------- -------- -------- --------- --------
Loss before extraordinary items and
cumulative effect of change in
accounting principle..................... (5,506) (6,151) (20,674) (81,528) (81,952) (98,548)
Extraordinary items, net.................. -- -- 190,063 12,104 108,722 --
-------- ------- -------- -------- --------- --------
Income (loss) before cumulative effect of
change in accounting principle........... (5,506) (6,151) 169,389 (69,424) 26,770 (98,548)
Cumulative effect of change in accounting
principle................................ -- -- -- -- 2,192 --
-------- ------- -------- -------- --------- --------
Net income (loss)......................... $ (5,506) $(6,151) $169,389 $(69,424) $ 28,962 $(98,548)
======== ======= ======== ======== ========= ========
Pro forma loss per share:**
Before extraordinary items and cumulative
effect of change in accounting
principle............................... $ (0.59)** $ (0.65)** $ N/M* N/M* N/M* N/M*
Extraordinary items, net................. -- ** -- ** N/M* N/M* N/M* N/M*
Cumulative effect of change in accounting
principle............................... -- ** -- ** N/M* N/M* N/M* N/M*
-------- ------- -------- -------- --------- --------
Net loss................................. $ (0.59)** $ (0.65)** $ N/M* N/M* N/M* N/M*
======== ======= ======== ======== ========= ========
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands, except per share data) (continued)
- ------------------------------------------------------------------------------------------------------------------------------
Reorganized Company Predecessor
------------------------ ------------------------------------------------
December 31, December 31,
------------------------ September 11, ---------------------------------
1995 1994 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Shares Outstanding......... $ 9,400** 9,400** 7,137 6,170 5,123 2,777
Shareholders' Equity Per Share.............. 3.10** 3.60** N/M* N/M* N/M* N/M*
Shares Outstanding at Year End.............. 9,400** 9,400** 7,137 7,136 5,713 3,110
Balance Sheet Items:
Total assets.............................. $161,640 $163,301 $167,211 $105,540 $105,743 $133,758
Property and equipment, net............... 41,391 37,756 33,312 36,558 38,956 65,317
Long-term debt, excluding current portion. 5,523 14,152 11,421 2,615 1,800 75,958
Capital lease obligations, excluding
current portion.......................... 10,102 12,764 12,591 -- -- --
Redeemable Preferred Stock and Preference
Stock.................................... -- -- -- -- 5,354 79,276
Redeemable warrants to purchase Common
Stock.................................... -- -- -- -- -- 2,900
Shareholders' equity (deficit)............ 29,178 33,849 40,000 (209,882) (142,720) (206,467)
</TABLE>
* Not Meaningful - Per share data is not meaningful as the Predecessor was
recapitalized and adopted fresh start reporting as of September 12, 1994
** Proforma per share data has been calculated assuming that the Reorganized
Company will issue approximately 9.4 million shares of Common Stock
F-40
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Selected Financial and Statistical Data (in thousands, except per share data) (continued)
- ------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Statistics:
Revenue passengers*................................... 4,781 4,584 4,337 4,647 3,765
Revenue passenger miles*.............................. 3,171,366 2,880,339 2,870,713 3,322,045 2,021,698
Available seat miles*................................. 4,238,319 3,995,649 3,850,133 4,710,795 3,203,842
Passenger load factor................................. 74.8% 72.1% 74.6% 70.5% 63.1%
Cargo tons............................................ 28,637 22,740 19,669 15,694 12,003
Revenue ton miles*.................................... 365,320 324,096 314,725 353,067 211,070
Revenue plane miles*.................................. 17,619 16,243 15,256 20,909 14,702
Passenger revenue per passenger mile.................. 9.4c 9.7c 9.5c 10.3c 12.7c
</TABLE>
* In thousands
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Hawaiian Airlines, Inc.:
Under date of March 15, 1996, we reported on the balance sheets of Hawaiian
Airlines, Inc. as of December 31, 1995 and 1994, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
December 31, 1995, the period September 12, 1994 through December 31, 1994, the
period January 1, 1994 through September 11, 1994, and the year ended December
31, 1993, which are included herein. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule as listed in item 14(a)(2). The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The independent auditors' report on the financial statements of Hawaiian
Airlines, Inc. referred to above contains an explanatory paragraph that states
that as discussed in notes 1 and 2 to the financial statements, on September 12,
1994, Hawaiian Airlines, Inc. emerged from bankruptcy. The financial statements
of the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis than those of the Predecessor Company and, therefore, are not comparable
in all respects.
The independent auditors' report on the financial statements of Hawaiian
Airlines, Inc. referred to above also contains an explanatory paragraph that
states that the Company's recurring losses from operations, deficit working
capital and its limited sources of additional liquidity raise substantial doubt
about its ability to continue as a going concern. The aforementioned financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 15, 1996
S-1
<PAGE>
<TABLE>
<CAPTION>
Hawaiian Airlines, Inc.
Valuation and Qualifying Accounts (in thousands)
Years Ended December 31, 1995 (Reorganized Company), 1994 (Reorganized Company) and 1993 (Predecessor)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
----------------------
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1995............................... $ 500 719 -- 419(b) $ 800
====================================================================================================================
1994............................... $ 800 422 326(a) 1,048(b) $ 500
====================================================================================================================
1993............................... $3,293 4,811 -- 7,304(b) $ 800
====================================================================================================================
Allowance for Obsolescence of Flight
Equipment Expendable Parts and
Supplies:
1995............................... $ 315 -- -- -- $ 315
====================================================================================================================
1994............................... $1,212 -- -- 897(a) $ 315
====================================================================================================================
1993............................... $1,152 60 -- -- $1,212
====================================================================================================================
</TABLE>
(a) Fresh start adjustment due to the adoption of SOP 90-7 on September 12,
1994
(b) Doubtful accounts written off, net of recoveries
S-2
<PAGE>
AMENDED
ARTICLES OF INCORPORATION EXHIBIT 3 (1)
OF
HAWAIIAN AIRLINES, INC.
ARTICLE I
NAME
The name of the Corporation shall be
HAWAIIAN AIRLINES, INC.
ARTICLE II
OFFICES
The location of the principal office of the Corporation shall be in the City of
Honolulu, Island of Oahu, State of Hawaii, and the mailing address of the
principal office of the Corporation shall be 531 Ohohia Street, Honolulu, Hawaii
96819. The Corporation may have such other offices within and without the State
of Hawaii as its business may from time to time require.
ARTICLE III
PURPOSES AND POWERS
The purpose of the Corporation is to engage in commercial air transportation and
any lawful act or activity for which Corporation may be organized under the law
of Hawaii.
ARTICLE IV
CAPITAL STOCK
A. The Corporation is authorized to issue three classes of shares of capital
stock, which shall be designated Class A Common Stock, Class B Common Stock and
Preferred Stock, respectively. The total number of shares of capital stock which
the Corporation is authorized to issue is sixty-five million fifty thousand
(65,050,000) shares.
B. (i) The total number of shares of Common Stock which the Corporation
shall have authority to issue is sixty three million fifty thousand
(63,050,000), and all such shares shall have a par value of $.01. The
Corporation shall be authorized to issue three million fifty thousand
(3,050,000) shares of Class B Common Stock and sixty million (60,000,000) shares
of Class A Common Stock. Notwithstanding the foregoing, the Corporation shall
not be authorized to have more than sixty million (60,000,000) shares of Common
Stock outstanding at any one time. Upon conversion of shares of Class B Common
Stock into Class A Common Stock, the shares of Class B Common Stock acquired by
the Corporation shall be canceled and shall not be reissued.
(ii) No dividend shall be declared and paid with respect to Class A
Common Stock unless concurrently an equal and identical dividend is declared and
paid with respect to each share of Class B Common Stock, and no dividend shall
be declared and paid with respect to the Class B Common Stock
1
<PAGE>
unless concurrently an equal and identical dividend is declared and paid with
respect to each share of Class A Common Stock.
(iii) The Class A Common Stock shall have all the voting rights
provided under the Hawaii Business Corporation Act for voting common stock
except as otherwise provided in these Articles of Incorporation.
(iv) The Class B Common Stock shall have no right to vote on any
matter at any meeting of shareholders except (a) as required under the Hawaii
Business Corporation Act; and (b) if, notwithstanding the prohibition contained
in paragraph B(ii) of this Article IV, a dividend is declared and paid with
respect to the Class A Common Stock and an equal and identical dividend is not
declared and paid concurrently with respect to the Class B Common Stock, each
share of Class B Common Stock shall thereafter be entitled to vote in the
election of directors as if it were a share of Class A Common Stock. The
foregoing clause (b) shall not be deemed to limit the remedies available to a
holder of Class B Common Stock for a violation of the provisions of paragraph
B(ii) of this Article IV.
(v) The ownership or control of more than twenty-five percent (25%)
of the issued and outstanding voting capital stock of the Corporation by persons
who are not "citizens of the United States" as defined in Section 102(a)(15) of
the Transportation Act (49 U.S.C. 40101, et seq., the "Act") is prohibited;
-------
provided, however, that such percentage shall be deemed to be automatically
increased or decreased from time to time to that percentage of ownership which
is then permissible by persons who are not "citizens of the United States" under
the Act or under any successor or other law of the United States of America
which provides for the regulation of, or is otherwise applicable to, the
Corporation or its subsidiaries in their business activities. As used in the
preceding sentence, capital stock of the Corporation means the Class A Common
Stock and any other shares of stock of the Corporation entitled to vote on
matters generally referred to the shareholders for a vote.
(vi) A share of Class B Common Stock will automatically be converted
into a share of Class A Common Stock, on a share-for-share basis, upon
registration of transfer of such share of Class B Common Stock to a "citizen of
the United States" as defined in the Act. In addition, a Conversion Event shall
be deemed to occur if at any time after all distributions have been made
pursuant to the Corporation's Third Amended Plan of Reorganization dated August
29, 1994, as amended, the Corporation determines that the amount of Class A
Common Stock held by persons who are not "citizens of the United States" as
defined in the Act has decreased sufficiently to allow all then outstanding
shares of Class B Common Stock to convert into Class A Common Stock with the
result that all holders of Class A Common Stock and holders of rights, warrants,
options or convertible securities of the Corporation (other than Class B Common
Stock) exercisable to acquire, or convertible into, Class A Common Stock
(collectively, "Rights") who are not "citizens of the United States" as defined
in the Act will not own, in the aggregate, more than 24 percent of the
outstanding shares of Class A Common Stock, assuming full exercise of all
outstanding Rights. Upon the occurrence of a Conversion Event, the Corporation
shall send a written notice of such occurrence to the holders of Class B Common
Stock at their addresses as they appear on the records of the Corporation's
stock transfer agent and each outstanding share of Class B Common Stock shall
automatically be deemed to represent one share of Class A Common Stock. After
the occurrence of a Conversion Event, each holder of a certificate which
theretofore represented Class B Common Stock shall be entitled upon surrender of
such certificate to receive one or more certificates representing the same
aggregate number of shares of Class A Common Stock as the number of shares of
Class B Common Stock represented by the surrendered certificate.
(vii) All shares of Common Stock, whether Class A Common Stock or Class
B Common Stock, shall rank equally in the event of liquidation of the
Corporation and shall be entitled to any assets of the Corporation available for
distribution to shareholders after payment in full of any preferential amount to
which holders of Preferred Stock may be entitled. For purposes of Section
1129(b)(2)(c)(ii) of Title 11 of the United States Code, neither the Class A
Common Stock nor the Class B Common Stock shall be deemed a class junior to the
other.
2
<PAGE>
C. The total number of shares of Preferred Stock which this Corporation is
authorized to issue is two million (2,000,000) shares having a par value of $.01
each and which may be issued from time to time in one or more series. Prior to
or simultaneously with the creation and/or issuance of any such series, the
Board of Directors is hereby authorized, subject to the Plan of Reorganization
and section 1123 of the United States Bankruptcy Code, to fix the voting powers,
designations, preferences and participating, optional, relative or other special
rights, and qualifications, limitations or restrictions thereof to the full
extent permitted by the laws of the State of Hawaii, unless such voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions thereof are otherwise established by these Amended Articles of
Incorporation. Unless otherwise provided in the resolution creating a series,
all shares of that series redeemed, repurchased or otherwise reacquired, as well
as shares of a series authorized but not yet issued, shall thereupon, without
further action by the Board of Directors, be or become authorized but unissued
shares subject to all of the authority of the Board of Directors in this Article
IV provided.
D. No holder of the shares of Common Stock shall have any preemptive or
preferential right of subscription for or to purchase any shares of any class of
stock or other securities of the Corporation, whether now or hereafter
authorized, other than such right or rights, if any, and upon such terms and at
such prices as the Board of Directors, in its discretion from time to time may
determine. The Board of Directors may issue shares of Common Stock or other
securities without offering the same in whole or in part to the stockholders of
the Corporation.
E. Sections 415-171 and 415-172 of the Hawaii Revised Statutes, as amended,
relating to control share acquisitions, shall not apply to any acquisition of
shares of capital stock of the Corporation.
F. No nonvoting equity securities of the Corporation shall be issued, subject
to further amendment of these Articles as permitted by the laws of the State of
Hawaii. This provision is included in these Articles in compliance with section
1123 of the United States Bankruptcy Code and shall have no further force and
effect beyond that required by said section and for so long as said section is
in effect and applicable to the Corporation.
ARTICLE V
BOARD OF DIRECTORS
If the Corporation has only one stockholder, the Board of Directors shall have
one or more directors. If the Corporation has two stockholders, the Board of
Directors shall have two or more directors. If the Corporation has three or
more stockholders, the Board of Directors shall have a minimum of three
directors. Not less than one member of the Board of Directors shall be a
resident of the State of Hawaii, and in the absence of such one member, the
Board of Directors shall not function. The number of directors shall be fixed
by, and the members of the Board of Directors shall be elected or appointed at
such times, in such manner and for such terms as may be prescribed by the Bylaws
which also may provide for the removal of directors and filling of vacancies and
may provide that the remaining members of the Board of Directors, although less
than a majority thereof, may by the affirmative vote of the majority of such
remaining members fill vacancies in the Board of Directors. The directors need
not be stockholders of the Corporation. The Board of Directors shall have full
power to control and direct the business and affairs of the Corporation,
subject, however, to any limitations which may be set forth in the Hawaii
Business Corporation Act, in these Articles or in the Bylaws. The Board of
Directors, without the approval of the stockholders of the Corporation, or of
any percentage thereof, may authorize the borrowing of money or the incurring of
debts even though, as a result thereof, the amount of the Corporation's
indebtedness may exceed its capital stock.
3
<PAGE>
ARTICLE VI
OFFICERS
The officers of the Corporation shall consist of a Chairman of the Board, a
President, one or more Vice Presidents as may be prescribed by the Bylaws, a
Corporate Secretary, a Treasurer and such other officers and assistant officers
and agents as may be prescribed by the Bylaws. The officers shall be elected or
appointed, hold office and may be removed as may be prescribed by the Bylaws.
The Chairman of the Board shall be a director of the Corporation. No other
officer and no subordinate officer need be a director of the Corporation. No
officer need be a stockholder of the Corporation. Any two or more offices may
be held by the same person, provided, however, that not less than two (2)
persons shall be officers.
All officers and agents of the Corporation, as between themselves and the
Corporation, shall have such authority and perform such duties in the management
of the Corporation as may be prescribed by the Bylaws, or as may be determined
by resolution of the Board of Directors not inconsistent with the Bylaws.
ARTICLE VII
INDEMNITY AND LIMIT ON LIABILITY
A. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or officer of
another Corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
this Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea or nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of this Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
B. The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation or any subsidiary of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, including any subsidiary
of the Corporation against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of this
Corporation and, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
this Corporation unless and only to the extent that the court in which such
action or suit was brought or in any other court having jurisdiction in the
premises shall determine upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
C. To the extent that a director or officer of the Corporation or a person
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other
4
<PAGE>
enterprise has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (A) or paragraph (B) of this
Article VII, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
D. Any indemnification under paragraph A or paragraph B of this Article VII
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
paragraph A or paragraph B. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable by independent legal counsel in a written opinion to the Corporation,
or (3) by a majority vote of the stockholders, or (4) by the court in which the
proceeding is or was pending upon application made by the Corporation or such
person or the attorney or other person rendering services in connection with the
defense, whether or not the application by such person, attorney, or other
person is opposed by the Corporation.
E. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in a
particular case upon receipt of an undertaking by or on behalf of the director
or officer to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the Corporation as authorized in this Article
Vll.
F. Any indemnification pursuant to this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, argument or otherwise and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
G. The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article VII.
H. To the fullest extent permitted by the Hawaii Business Corporation Act as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. If the Hawaii Business Corporation Act
is amended after the date of the filing of these Articles of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Hawaii
Business Corporation Act, as so amended from time to time. No repeal or
modification of this Article VII by the stockholders shall adversely affect any
right or protection of a director of the Corporation existing by virtue of this
Article VII at the time of such repeal or modification.
ARTICLE VIII
LIMITED LIABILITY
No stockholder of the Corporation shall be liable for any debt of the
Corporation beyond any amount which may be due and unpaid upon the par value of
the share or shares held by such stockholder.
5
<PAGE>
ARTICLE IX
BYLAWS
In furtherance and not in limitation of the powers conferred by statute, the
power to alter, amend or repeal the Bylaws or adopt new Bylaws, subject to
repeal or change by action of the stockholders, shall be vested in the Board of
Directors.
ARTICLE X
SERVICE OF PROCESS
Service of process may be made upon any officer of the Corporation.
ARTICLE XI
AMENDMENT
These Articles may be amended by the affirmative vote of the holders of not less
than two-thirds (2/3) of all the stock of the Corporation issued and outstanding
and having voting power, at a meeting duly called for such purpose, hereafter
prescribed by statute, and all rights conferred on stockholders herein are
granted subject to this reservation.
ARTICLE XII
DURATION
The Corporation shall exist in Perpetuity.
6
<PAGE>
DESIGNATION OF PREFERRED STOCK
------------------------------
Section 1. Designation and Amount. The shares of such series shall be
--------- ----------------------
designated as Series A Junior Participating Cumulative Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), and the number of shares
constituting such series shall be 20,000 (twenty thousand).
Section 2. Dividends and Distributions.
--------- ---------------------------
(a) The holders of shares of Series A Preferred Stock, in preference to
the holders of shares of Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") and of any other junior stock of the
Corporation that may be outstanding, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the [tenth day of January,
April, July and October] in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (i) $.25 per share ($1.00 per annum), or (ii)
subject to the provision for adjustment hereinafter set forth, 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock, or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event that the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then and in each such event, the amount
to which the holder of each share of Series A Preferred Stock was entitled
immediately prior to such event under clause (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event, and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per
share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which cases such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
cumulate but shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
7
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A
--------- -------------
Preferred Stock shall have the following voting rights:
(a) Each share of Series A Preferred Stock shall entitle the holder
thereof to 1000 votes (and each one one-thousandth of a share of Series A
Preferred Stock shall entitle the holder thereof to one vote) on all matters
submitted to a vote of the shareholders of the Corporation. In the event that
the Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then and in each such event,
the number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided in the Amended Articles of
Incorporation of the Corporation or herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
(c) In addition, the holders of shares of Series A Preferred Stock
shall have the following special voting rights:
(i) In the event that at any time dividends on Series A
Preferred Stock, whenever accrued and whether or not consecutive, shall not have
been paid or declared and a sum sufficient for the payment thereof set aside, in
an amount equivalent to six quarterly dividends on all shares of Series A
Preferred Stock at the time outstanding, then and in each such event, the
holders of shares of Series A Preferred Stock and each other series of preferred
stock now or hereafter issued that shall be accorded such class voting right by
the Board of Directors and that shall have the right to elect one director (or,
in the event any such other series is entitled to a greater number of directors,
such number of directors, which shall be cumulative with and not in addition to
the director provided for herein, such director or directors being hereinafter
referred to as "Special Directors") as the result of a prior or subsequent
default in payment of dividends on such series (each such other series being
hereinafter called "Other Series of Preferred Stock"), voting separately as a
class without regard to series, shall be entitled to elect the Special Director
at the next annual meeting of shareholders of the Corporation, in addition to
the directors to be elected by the holders of all shares of the Corporation
entitled to vote for the election of directors, and the holders of all shares
(including the Series A Preferred Stock) otherwise entitled to vote for
directors, voting separately as a class, shall be entitled to elect the
remaining members of the Board of Directors, provided that the Series A
Preferred Stock and each Other Series of Preferred Stock, voting as a class,
shall not have the right to elect more than one Special Director (in addition to
any Special Director to which the holders of any Other Series of Preferred Stock
are then entitled). Such special voting right of the holders of shares of Series
A Preferred Stock may be exercised until all dividends in default on the Series
A Preferred Stock shall have been paid in full or declared and funds sufficient
therefor set aside, and when so paid or provided for, such special voting right
of the holders of shares of Series A Preferred Stock shall cease, but subject
always to the same provisions for the vesting of such special voting rights in
the event of any such future dividend default or defaults.
(ii) At any time after such special voting rights shall have so
vested in the holders of shares of Series A Preferred Stock, the Secretary of
the Corporation may, and upon the written request of the holders of record of
10% or more in number of the shares of Series A Preferred Stock and each Other
Series of Preferred Stock then outstanding addressed to the Secretary at the
principal executive office of the Corporation shall, call a special meeting of
the holders of shares of Preferred Stock so entitled to vote, for the election
of the Special Directors to be elected by them as
8
<PAGE>
herein provided, to be held within 60 days after such call and at the place and
upon the notice provided by law and in the Bylaws for the holding of meetings of
shareholders; provided, however, that the Secretary shall not be required to
call such special meeting in the case of any such request received less than 90
days before the date fixed for any annual meeting of shareholders, and if in
such case such special meeting is not called or held, the holders of shares of
Preferred Stock so entitled to vote shall be entitled to exercise the special
voting rights provided in this paragraph at such annual meeting. If any such
special meeting required to be called as above provided shall not be called by
the Secretary within 30 days after receipt of any such request, then the holders
of record of 10% or more in number of the shares of Series A Preferred Stock and
each Other Series of Preferred Stock then outstanding may designate in writing
one of their number to call such meeting, and the person so designated may, at
the expense of the Corporation, call such meeting to be held at the place and
upon the notice given by such person, and for that sole purpose shall have
access to the stock books of the Corporation. No such special meeting and no
adjournment thereof shall be held on a date later than 60 days before the annual
meeting of shareholders. If, at any meeting so called or at any annual meeting
held while the holders of shares of Series A Preferred Stock have the special
voting rights provided for in this paragraph, the holders of not less than 40%
of the aggregate voting power of Series A Preferred Stock and each Other Series
of Preferred Stock then outstanding are present in person or by proxy, which
percentage shall be sufficient to constitute a quorum for the election of
additional directors as herein provided, the then authorized number of directors
of the Corporation shall be increased by the number of Special Directors to be
elected, as of the time of such special meeting or the time of the first such
annual meeting held while such holders have special voting rights and such
quorum is present, and the holders of shares of Series A Preferred Stock and
each Other Series of Preferred Stock, voting as a class, shall be entitled to
elect the Special Director or Directors so provided for. If the directors of the
Corporation are then divided into classes under provisions of the Amended
Articles of Incorporation of the Corporation or the Bylaws, the Special Director
or Directors shall belong to each class of directors in which a vacancy is
created as a result of such increase in the authorized number of directors. If
the foregoing expansion of the size of the Board of Directors shall not be valid
under applicable law, then the holders of shares of Series A Preferred Stock and
of each Other Series of Preferred Stock, voting as a class, shall be entitled,
at the meeting of shareholders at which they would otherwise have voted, to
elect a Special Director or Directors to fill any then existing vacancies on the
Board of Directors, and shall additionally be entitled, at such meeting and each
subsequent meeting of shareholders at which directors are elected, to elect all
of the directors then being elected until by such class vote the appropriate
number of Special Directors has been so elected.
(iii) Upon the election-at such meeting by the holders of shares
of Series A Preferred Stock and each Other Series of Preferred Stock, voting as
a class, of the Special Director or Directors they are entitled so to elect, the
persons so elected, together with such persons as may be directors or as may
have been elected as directors by the holders of all shares (including Series A
Preferred Stock) otherwise entitled to vote for directors, shall constitute the
duly elected directors of the Corporation. Each Special Director so elected by
holders of shares of Series A Preferred Stock and each Other Series of Preferred
Stock, voting as a class, shall serve until the next annual meeting or until
their respective successors shall be elected and qualified, or if any such
Special Director is a member of a class of directors under provisions dividing
the directors into classes, each such Special Director shall serve until the
annual meeting at which the term of office of such Special Director's class
shall expire or until such Special Director's successor shall be elected and
shall qualify, and at each subsequent meeting of shareholders at which the
directorship of any Special Director is up for election, said special class
voting rights shall apply in the reelection of such Special Director or in the
election of such Special Director's successor; provided, however, that whenever
the holders of shares of Series A Preferred Stock and each Other Series of
Preferred Stock shall be divested of the special rights to elect one or more
Special Directors as above provided, the terms of office of all persons elected
as Special Directors, or elected to fill any vacancies resulting from the death,
resignation, or removal of Special Directors shall forthwith terminate (and the
number of directors shall be reduced accordingly).
(iv) If, at any time after a special meeting of shareholders or
an annual meeting of shareholders at which the holders of shares of Series A
Preferred Stock and each Other Series of Preferred Stock, voting as a class,
have elected one or more Special Directors as provided
9
<PAGE>
above, and while the holders of shares of Series A Preferred Stock and each
Other Series of Preferred Stock shall be entitled so to elect one or more
Special Directors, the number of Special Directors who have been so elected (or
who by reason of one or more resignations, deaths or removals have succeeded any
Special Directors so elected) shall by reason of resignation, death or removal
be reduced the vacancy in the Special Directors may be filled by any one or more
remaining Special Director or Special Directors. In the event that such election
shall not occur within 30 days after such vacancy arises, or in the event that
there shall not be incumbent at least one Special Director, the Secretary of the
Corporation may, and upon the written request of the holders of record of 10% or
more in number of the shares of Series A Preferred Stock and each Other Series
of Preferred Stock then outstanding addressed to the Secretary at the principal
office of the Corporation shall, call a special meeting of the holders of shares
of Series A Preferred Stock and each Other Series of Preferred Stock so entitled
to vote, for an election to fill such vacancy or vacancies, to be held within 60
days after such call and at the place and upon the notice provided by law and in
the Bylaws for the holding of meetings of shareholders; provided, however, that
the Secretary shall not be required to call such special meeting in the case of
any such request received less than 90 days before the date fixed for any annual
meeting of shareholders, and if in such case such special meeting is not called,
the holders of shares of Preferred Stock so entitled to vote shall be entitled
to fill such vacancy or vacancies at such annual meeting. If any such special
meeting required to be called as above provided shall not be called by the
Secretary within 30 days after receipt of any such request, then the holders of
record of 10% or more in number of the shares of Series A Preferred Stock and
each Other Series of Preferred Stock then outstanding may designate in writing
one of their number to call such meeting, and the person so designated may, at
the expense of the Corporation, call such meeting to be held at the place and
upon the notice above provided, and for that purpose shall have access to the
stock books of the Corporation; no such special meeting and no adjournment
thereof shall be held on a date later than 60 days before the annual meeting of
shareholders.
(d) Nothing herein shall prevent the directors or shareholders from
taking any action to increase the number of authorized shares of Series A
Preferred Stock, or increasing the number of authorized shares of Preferred
Stock of the same class as the Series A Preferred Stock or the number of
authorized shares of Common Stock, or changing the par value of the Common Stock
or Preferred Stock, or issuing options, warrants or rights to any class of stock
of the Corporation as authorized by the Amended Articles of Incorporation of the
Corporation, as it may hereafter be amended.
(e) Except as set forth herein, holders of shares of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote as set forth in the
Amended Articles of Incorporation of the Corporation or herein or by law) for
taking any corporate action.
Section 4. Certain Restrictions.
--------- --------------------
(a) Whenever any dividends or other distributions payable on the
Series A Preferred Stock as provided in Section 2 hereof are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, an shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not, directly or indirectly:
(i) declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
A Preferred Stock, except dividends paid ratably on shares of the Series A
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
10
<PAGE>
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration, directly or
indirectly, any shares of stock of the Corporation unless the Corporation could,
under paragraph (a) of this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
--------- -----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of preferred stock, without designation as to series, and may be reissued
as part of any series of preferred stock created by resolution or resolutions of
the Board of Directors (including Series A Preferred Stock), subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
--------- --------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made to:
(a) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (i) $1.00 per share ($.001
per one one-thousandth of a share), plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 1000 times the aggregate amount
to be distributed per share to holders of shares of Common Stock; or
(b) the holders of shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up.
In the event that the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then and in each such event, the aggregate amount to
which the holder of each share of Series A Preferred Stock was entitled
immediately prior to such event under the proviso in clause (a) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In the event that the
--------- --------------------------
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, or otherwise
changed, then and in each such event, the shares of Series A Preferred Stock
shall at the same time
11
<PAGE>
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. In the event that the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then and in each such event, the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event, and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Preferred Stock
--------- -------------
shall not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Series A Preferred Stock in any other manner permitted by law,
the Amended Articles of Incorporation of the Corporation or herein.
Section 9. Rank. Unless otherwise provided in the Amended Articles
--------- ----
of Incorporation of the Corporation, including any amendment relating to a
subsequent series of preferred stock of the Corporation, the Series A Preferred
Stock shall rank junior to all other series of the Corporation's preferred stock
as to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding up, and senior to the Common Stock of the Corporation.
Section 10. Amendment. The Amended Articles of Incorporation of the
---------- ---------
Corporation shall not be amended in any manner that would materially and
adversely alter or change the powers, preferences or special rights of the
Series A Preferred Stock without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single series.
Section 11. Fractional Shares. Series A Preferred Stock may be
---------- -----------------
issued in fractions of a share (in one one-thousandths (1/1000) of a share and
integral multiples thereof) that shall entitle the holder thereof, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and have the benefit of all other rights
of holders of shares of Series A Preferred Stock.
DESIGNATION OF SPECIAL PREFERRED STOCK
--------------------------------------
Section 1. Designation and Amount. The designation of the four
--------- ----------------------
series so created shall be (a) Series B Special Preferred Stock, par value $.01
per share (the "Series B Special Preferred Stock"), (b) Series C Special
Preferred Stock, par value $.01 per share (the "Series C Special Preferred
Stock"), (c) Series D Special Preferred Stock, par value $.01 per share (the
"Series D Special Preferred Stock") and (d) Series E Special Preferred Stock,
par value $.01 per share (the "Series E Special Preferred Stock") (collectively,
the "Special Preferred Stock"). The Series B Special Preferred Stock shall
consist of four (4) shares. The Series C Special Preferred Stock shall consist
of one (1) share. The Series D Special Preferred Stock shall consist of one (1)
share. The Series E Special Preferred Stock shall consist of one (1) share.
Section 2. Dividends and Distributions. At any time that a
--------- ---------------------------
dividend or distribution is declared and paid with respect to Common Stock, a
dividend shall be paid on the Special Preferred Stock in an amount per share
equal to twice the dividend per share paid on the Common Stock, and, except as
provided in Sections 6 and 7 hereof, the Special Preferred Stock shall not be
entitled to receive any other dividends or distributions thereon.
12
<PAGE>
Section 3. Voting Rights.
--------- -------------
(a) Voting Rights of the Special Preferred Stock. The Special
--------------------------------------------
Preferred Stock shall have the right to vote: (i) as required by the Hawaii
Business Corporation Act and (ii) together with Class A Common Stock as a single
class with respect to any matters submitted to the shareholders of the Class A
Common Stock of the Corporation. The holder of each share of Special Preferred
Stock shall be entitled to vote each share of the Special Preferred Stock of the
Corporation which shall have been held by such holder and registered in the name
of such holder on the books of the Corporation.
(b) Notice. So long as any shares of the Special Preferred Stock
------
remain outstanding, the Corporation will provide the holders of the Special
Preferred Stock with notice of each annual and special meeting of stockholders,
including without limitation any meeting at which matters on which the Special
Preferred Stock is entitled to vote, to the same extent as the holders of the
Common Stock.
(c) Conditional Right to Elect Directors to Fill Vacancies.
------------------------------------------------------
(i) Series B Special Preferred Stock. In the event of a
--------------------------------
vacancy or vacancies on the Board of Directors of the Corporation caused by the
removal, resignation or death of one or more directors whom the holders of
Series B Special Preferred Stock are entitled to identify to the Board of
Directors for nomination to the Board of Directors pursuant to the Bylaws of the
Corporation, and unless such vacancy is filled by the Board of Directors in
accordance with the Bylaws within 30 days, such vacancy or vacancies may be
filled by the affirmative vote of a majority of the holders of the Series B
Special Preferred Stock at a special meeting of holders of Series B Special
Preferred Stock called for such purpose, or by the unanimous written consent in
lieu of meeting of all holders of Series B Special Preferred Stock, such
director or directors to hold office until the next election of directors.
(ii) Series C Special Preferred Stock. In the event of a
--------------------------------
vacancy on the Board of Directors of the Corporation caused by the removal,
resignation or death of a director whom the holders of Series C Special
Preferred Stock are entitled to identify to the Board of Directors for
nomination pursuant to the Bylaws of the Corporation, and unless such vacancy is
filled by the Board of Directors in accordance with the Bylaws within 30 days,
such vacancy may be filled by the affirmative vote of a majority of the holders
of the Series C Special Preferred Stock at a special meeting of holders of the
Series C Special Preferred Stock called for such purpose, or by the unanimous
written consent in lieu of meeting of all holders of Series C Special Preferred
Stock, such director to hold office until the next election of directors.
(iii) Series D Special Preferred Stock. In the event of a
--------------------------------
vacancy on the Board of Directors of the Corporation caused by the removal,
resignation or death of a director whom the holders of Series D Special
Preferred Stock are entitled to identify to the Board of Directors for
nomination pursuant to the Bylaws of the Corporation, unless such vacancy is
filled by the Board of Directors in accordance with the Bylaws within 30 days,
such vacancy may be filled by the affirmative vote of a majority of the holders
of the Series D Special Preferred Stock at a special meeting of holders of
Series D Special Preferred Stock of called for such purpose, or by the unanimous
written consent in lieu of meeting of all holders of Series D Special Preferred
Stock, such director to hold office until the next election of directors.
(iv) Series E Special Preferred Stock. In the event of a
--------------------------------
vacancy on the Board of Directors of the Corporation caused by the removal,
resignation or death of a director whom the holders of Series E Special
Preferred Stock are entitled to identify to the Board of Directors for
nomination pursuant to the Bylaws of the Corporation, unless such vacancy is
filled by the Board of Directors in accordance with the Bylaws within 30 days,
such vacancy may be filled by the affirmative vote of a majority of the holders
of the Series E Special Preferred Stock at a special meeting of holders of
Series E Special Preferred Stock called for such purpose, or by the unanimous
written consent in lieu
13
<PAGE>
of meeting of all holders of Series E Special Preferred Stock, such director to
hold office until the next election of directors.
(d) Except as otherwise expressly provided herein or otherwise
expressly required by law, the Special Preferred Stock shall not have any other
voting rights with respect to the affairs of the Corporation.
Section 4. Conversion.
--------- ----------
(a) Convertible into Class A Common Stock.
-------------------------------------
(i) Series B Special Preferred Stock.
--------------------------------
a) Transfer. A share of Series B Special Preferred
--------
Stock shall be converted into one share of Class A Common Stock automatically
upon transfer of such share to any person (a "Transferee") who is not an
"affiliate" of the initial holder of such share of Series B Special Preferred
Stock. "Affiliate" shall mean any corporation, partnership, limited liability
company, trust or other entity or an individual, which is, or is at least 50%
owned, directly or indirectly, by, one or more of the stockholders of the
general partners and/or the stockholders of the limited partners of the holder
of the Series B Special Preferred Stock as of the date of issuance thereof.
b) Less than 5%. Each share of Series B Special
-------------
Preferred Stock shall be converted into one share of Class A Common Stock
automatically if the holder of Series B Special Preferred Stock is the holder of
record of less than 5% of the "outstanding common equity interest" of the stock
of the Corporation for a period of 365 consecutive days. "Outstanding common
equity interest" shall mean outstanding Class A Common Stock, outstanding Class
B Common Stock, Class A Common Stock to be issued upon exercise, conversion or
exchange of outstanding warrants, stock options, or convertible stock, or other
securities exerciseable, convertible or exchangeable into Class A Common Stock
(without taking into effect any anti-dilution provisions in such securities).
(ii) Series C Special Preferred Stock. A share of Series C
--------------------------------
Special Preferred Stock shall be converted into one share of Class A Common
Stock automatically upon transfer of such share to any Transferee. In addition
to the foregoing, each share of the Series C Special Preferred Stock shall be
converted into one share of Class A Common Stock automatically if the collective
bargaining agreement by and between the holders of such share and the
Corporation is amended through collective bargaining pursuant to the Railway
Labor Act, 45 U.S.C. (S) 156, so that the collective bargaining agreement no
longer entitles such holders to nominate a representative on the Board of
Directors.
(iii) Series D Special Preferred Stock. A share of Series D
--------------------------------
Special Preferred Stock shall be converted into one share of Class A Common
Stock automatically upon transfer of such share to any Transferee. In addition
to the foregoing, each share of the Series D Special Preferred Stock shall be
converted into one share of Class A Common Stock automatically if the collective
bargaining agreement by and between the holders of such share and the
Corporation is amended through collective bargaining pursuant to the Railway
Labor Act, 45 U.S.C. (S) 156, so that the collective bargaining agreement no
longer entitles such holders to nominate a representative on the Board of
Directors.
(iv) Series E Special Preferred Stock. A share of Series E
--------------------------------
Special Preferred Stock shall be converted into one share of Class A Common
Stock automatically upon transfer of such share to any Transferee. In addition
to the foregoing, each share of the Series E Special Preferred Stock shall be
converted into one share of Class A Common Stock automatically if the collective
bargaining agreement by and between the holders of such share and the
Corporation is amended through collective bargaining pursuant to the Railway
Labor Act, 45 U.S.C. (S) 156, so that the collective bargaining agreement no
longer entitles such holders to nominate a representative on the Board of
Directors.
14
<PAGE>
(b) Time of Conversion and Surrender of Shares. Conversion shall be
------------------------------------------
deemed to have been effected on the date that, as the case may be, (i) the share
of Special Preferred Stock is transferred to the Transferee, (ii) is the 365th
consecutive day after the holder of Series B Special Preferred Stock is the
holder of record of less than 5% of the outstanding common equity interest of
the stock of the Corporation, and (iii) the related collective bargaining
agreement is amended, and each such date is referred to herein as the
"Conversion Date." The Transferee or the other holder of the converted Special
Preferred Stock shall be deemed to have become a stockholder of record of the
Class A Common Stock on the applicable Conversion Date. On the applicable
Conversion Date or as soon as practicable thereafter, any holder of a converted
share of Special Preferred Stock must deliver the certificate representing such
share to the Corporation during regular business hours at the principal office
of the Corporation or at such other place as may be designated in writing
delivered to the holder of such certificate by the Corporation, duly endorsed
for transfer to the Corporation (if required by it), accompanied by written
notice identifying the Transferee or other holder, as the case may be. As
promptly as practicable thereafter, the Corporation shall issue and deliver at
such office to such Transferee or other holder a certificate for the shares of
Class A Common Stock issuable upon conversion.
(c) Issuance of Class A Common Stock. All shares of Class A
--------------------------------
Common Stock that may be issued upon conversion of the Special Preferred Stock
shall be issued for consideration that the Board of Directors hereby determines
to be adequate, and upon issuance, such shares of Class A Common Stock will be
validly issued, fully paid and nonassessable. The Corporation will pay any and
all documentary and other taxes that may be payable in respect of any issue or
delivery of shares of Class A Common Stock on conversion of the Special
Preferred Stock pursuant hereto. The Corporation shall not, however, be required
to pay any tax that may be payable in respect of any transfer involved in the
issue and delivery of shares of Class A Common Stock in a name other than that
in which the shares of the Special Preferred Stock so converted were registered,
and no such issue or delivery shall be made unless and until the person
requesting such transfer has paid to the Corporation the amount of any such tax
or has established to the satisfaction of the Corporation that such tax has been
paid.
(d) Adjustments. The number of shares of Class A Common Stock
-----------
issuable upon the conversion of each share of the Special Preferred Stock shall
not be subject to adjustment.
Section 5. Reacquired Shares. Any shares of Special Preferred
--------- -----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever (including upon conversion into Class A Common Stock) shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of preferred
stock, without designation as to series, and may be reissued as part of any
series of preferred stock subsequently created by resolution or resolutions of
the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. In the event of
--------- --------------------------------------
the liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, the holders of the Special Preferred Stock shall be entitled to
receive, out of the assets of the Corporation, whether such assets are capital
or surplus of any nature, $.01 per share of Special Preferred Stock before any
payment shall be made or any assets distributed to the holders of the Common
Stock or the holders of any other class of stock junior in respect of
liquidation rights to the Special Preferred Stock; and the holders of the
Special Preferred Stock shall not be entitled to any further payments. If upon
such liquidation, dissolution or winding up, whether voluntary or involuntary,
the assets of the Corporation or proceeds thereof shall be insufficient to make
the full liquidating payment of $.01 per share of the Special Preferred Stock
and the full liquidating payment due to any holder of Preferred Stock of any
series ranking pari passu with the Special Preferred Stock, then such assets and
proceeds shall be distributed among the holders of the Special Preferred Stock,
ratably on a share for share basis in accordance with the respective amounts
which would be payable on all such series of Preferred Stock, if all remaining
liquidating amounts payable were paid in full and nothing shall be paid to the
holders of any other class of stock junior to the Special Preferred Stock.
Neither a consolidation nor merger of the Corporation with or into one or more
corporations, nor a sale of all or a substantial part of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 6 unless such consolidation,
15
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merger or sale shall be in connection with a plan of liquidation, dissolution or
winding up of the business of the Corporation.
Section 7. Consolidation, Merger, etc. In the event that the
--------- ---------------------------
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, or otherwise
changed, then and in each such event, all shares of Special Preferred Stock
shall at the same time be similarly exchanged or changed in an amount per share
equal to the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
Section 8. No Redemption. The shares of Special Preferred Stock
--------- -------------
shall not be redeemable. Notwithstanding the foregoing, the Corporation may
acquire shares of Special Preferred Stock in any other manner permitted by law,
the Amended Articles of Incorporation of the Corporation or herein.
Section 9. Rank. With regard to rights to receive distributions
--------- ----
upon liquidation, dissolution or winding up of the Corporation, the Special
Preferred Stock shall rank (i) senior to the Common Stock of the Corporation,
(ii) senior to any series of Preferred Stock of the Corporation the terms of
which specifically provide that such series shall rank junior to the Special
Preferred Stock, (iii) junior to any series of Preferred Stock of the
Corporation the terms of which specifically provide that such series shall rank
senior to the Special Preferred Stock, and (iv) pari passu with each other and
with any series of Preferred Stock of the Corporation the terms of which do not
specifically provide that such series shall rank junior or senior to the Special
Preferred Stock.
Section 10. Preemptive Rights. No holder of the shares of Special
---------- -----------------
Preferred Stock shall have any preemptive or preferential rights of subscription
for or to purchase any shares of any class of stock or other securities of the
Corporation, whether now or hereafter authorized, other than such right or
rights, if any, and upon such terms and at such prices as the Board of
Directors, in its discretion from time to time may determine. The Board of
Directors may issue shares of Special Preferred Stock or other securities
without offering the same in whole or in part to the stockholders of the
Corporation.
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EXHIBIT 3(2)
AMENDED BYLAWS
OF
HAWAIIAN AIRLINES, INC.
ARTICLE I
OFFICES AND SEAL
Section 1.01. Principal Office. The principal office of Hawaiian
------------ ----------------
Airlines, Inc. (the "Corporation") shall be at 3375 Koapaka Street, Suite G-350,
Honolulu, Island of Oahu, State of Hawaii.
Section 1.02. Other Offices. In addition to its principal office at
------------ -------------
Honolulu, Hawaii, the Corporation may also have an office or offices in such
other place or places, either within or without the State of Hawaii, as the
Board of Directors (the "Board") may from time to time determine or as the
business of the corporation may require.
Section 1.03. Corporate Seal. The Corporation shall have a corporate
------------ --------------
seal in such form as shall be determined by the Board.
ARTICLE II
STOCKHOLDERS' MEETINGS
Section 2.01. Annual Meeting. Annual meetings of the stockholders of
------------ --------------
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution. At the annual
meeting, the stockholders entitled to vote for the election of directors shall
elect the directors to hold office until the next annual meeting and thereafter
until their successors shall be duly elected and qualified and, subject to any
requirements of law or of the Articles of Incorporation or of these Bylaws with
respect to notice, may transact any other business which may be brought before
the meeting and take any other corporate action.
Section 2.02 Special Meetings. Special meetings of the stockholders
------------ ----------------
shall be called by the Corporate Secretary upon written request of the holders
of not less than one-tenth (1/10) of the then issued and outstanding common
stock of the Corporation entitled to vote at such meeting filed with the
Corporate Secretary of the Corporation, or upon the resolution of the Board.
At any special meeting, such business shall be brought before the stockholders
and may be transacted as shall have been specified in the notice of such
meeting, but any other business may be transacted subject to any requirements of
law or of the Articles of Incorporation or of these Bylaws with respect to
notice.
Section 2.03. Place of Meetings. All meetings of the stockholders
------------ -----------------
shall be held at such places, within or without the State of Hawaii, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
Section 2.04. Notice of Meetings. Written notice specifying the time
------------ ------------------
and place of the stockholders' meeting, whether annual or special and, if a
special meeting, the nature of the business to be considered, shall be given to
each stockholder entitled to vote at such meeting not less than ten (10) nor
more than seventy (70) days prior to the date set for such meeting, either by
serving the same upon
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the stockholder personally or by mailing the same to the stockholder at his last
known address as shown on the records of the Corporation. Nonreceipt of such
notice by any stockholder shall not invalidate any business done at any meeting,
either annual or special, at which a quorum is present. Any stockholder may,
prior to, at the meeting or subsequent thereto, waive notice of any meeting in
writing signed by himself or his duly authorized attorney-in-fact. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken.
Section 2.05. Quorum. The holders of record of a majority in voting
------------ ------
interest of the shares of stock of the Corporation entitled to be voted thereat,
present in person or by proxy, shall constitute a quorum for the transaction of
business at any meeting of the stockholders of the Corporation or any
adjournment thereof. Any decision of a majority of such quorum shall be valid
and binding upon the Corporation, except as otherwise specifically provided by
law, the Articles of Incorporation, or these Bylaws.
Section 2.06. Voting. The holders of Class A Common Stock shall have
------------ ------
all the voting rights provided under the Hawaii Business Corporation Act for
voting common stock and the holders of Class B Common stock shall have no right
to vote on any matter at any meeting of shareholders, except: (a) as required
under the Hawaii Business Corporation Act; and (b) if, notwithstanding the
prohibition contained in the Articles of Incorporation, a dividend is declared
and paid with respect to the Class A Common Stock and an equal and identical
dividend is not declared and paid concurrently with respect to the Class B
Common Stock, each share of Class B Common Stock shall thereafter be entitled to
vote in the election of directors as if it were a share of Class A Common Stock.
Each stockholder shall, at each meeting of the stockholders, be entitled to vote
in person or by proxy each share of the stock of the Corporation having voting
rights on the matter in question and which shall have been held by him and
registered in his name on the books of the Corporation. All proxies shall be in
writing, and any telegraphic, photographic, photostatic or equivalent
reproduction or telecopier copy shall constitute for all purposes a sufficient
writing appointing a proxy.
Section 2.07. Conduct of Meetings of Stockholders by Presiding
------------ ------------------------------------------------
Officer. Subject to applicable law, the Articles of Incorporation or these
- -------
Bylaws, the officer of the Corporation who is the presiding officer at any
meeting of the stockholders of the Corporation shall have the power (A) to
determine the procedure to be following in presenting and voting upon all
business that may be transacted at the meeting and (B) to adjourn a meeting,
duly called and noticed, at which a quorum is present in person or by proxy if a
matter to be considered and acted upon at the meeting requires the affirmative
vote of more than a majority of shares represented at the meeting voting in
person or by proxy and at the meeting as originally duly called and noticed (i)
the number of shares voted in person or by proxy in favor of such matter is
insufficient to approve it and (ii) the number of shares voted in person or by
proxy against such matter is insufficient to disapprove it. Shares which are
voted in person or by proxy as abstaining from voting on any such matter shall
be deemed not to have voted on such matter for the purposes of this section. At
any adjourned meeting which has been adjourned by the presiding officer as
provided in this section, any business may be transacted which could have been
transacted at the meeting as originally called if a quorum is present.
Section 2.08. No Cumulative Voting. Whenever the Corporation shall
------------ --------------------
have a class of equity securities registered pursuant to the Securities Exchange
Act of 1934, as amended, which are either listed on a national securities
exchange or traded over-the-counter on the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System, no
holders of shares of any class of capital stock of the Corporation shall be
entitled to cumulate votes in the election of directors.
Section 2.09. Action Without Meeting. Whenever the vote of
------------ ----------------------
stockholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action permitted by any section of Chapter 415,
Hawaii Revised Statutes, as the same now exists or may be amended from
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<PAGE>
time to time, the meeting and vote of stockholders may be dispensed with if all
of the stockholders who would have been entitled to vote upon the action, if the
meeting were held, consent in writing to the corporate action being taken.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Subject to instructions by the
------------ --------------
stockholders and to any limitations provided by law or set forth in the Articles
of Incorporation or in these Bylaws, the Board shall have full power to control
and direct the business and affairs of the Corporation and to exercise all the
powers and perform all the acts which the Corporation may legally exercise and
perform. The Board may appoint committees as deemed appropriate in carrying out
its purposes.
Section 3.02. Number and Qualifications. The number of directors
------------- -------------------------
shall be eleven (11). The qualifications of directors shall be as set forth in
Clauses (A) through (G) of this Section 3.02.
(A) At any time that there is a holder of record of one (1) or more
shares of Series B Special Preferred Stock (the "Nominating Stockholder")
and the Nominating Stockholder is the holder of record of at least 35% of
the outstanding common equity interest of the stock of the Corporation, six
(6) directors (the "Nominated Directors") shall have been identified to the
Board by the Nominating Stockholder for nomination to the Board. If the
Nominating Stockholder is the holder of record of at least 25% but less
than 35% of the outstanding common equity interest of the stock of the
Corporation, five (5) Nominated Directors shall have been identified to the
Board by the Nominating Stockholder for nomination to the Board and one (1)
director who is not (a) employed by the Corporation, (b) affiliated with
the Nominating Stockholder, (c) affiliated with the Corporation's labor
unions and (d) affiliated with AMR Corporation (the "Outside Director")
shall have been nominated by the Board. If the Nominating Stockholder is
the holder of record of at least 10% but less than 25% of the outstanding
common equity interest of the stock of the Corporation, four (4) Nominated
Directors shall have been identified to the Board by the Nominating
Stockholder for nomination to the Board and two (2) Outside Directors shall
have been nominated by the Board. If the Nominating Stockholder is the
holder of record of at least 5% but less than 10% of the outstanding common
equity interest of the stock of the Corporation, three (3) Nominated
Directors shall have been identified to the Board by the Nominating
Stockholder for nomination to the Board and three (3) Outside Directors
shall have been nominated by the Board. If the Nominating Stockholder is
the holder of record of less than 5% of the outstanding common equity
interest of the stock of the Corporation, no Nominated Directors shall have
been identified to the Board by the Nominating Stockholder for nomination
to the Board and six (6) Outside Directors shall have been nominated by the
Board. The "outstanding common equity interest" shall mean outstanding
Class A Common Stock, outstanding Class B Common Stock, Class A Common
Stock to be issued upon exercise, conversion or exchange of outstanding
warrants, stock options or convertible stock, or other securities
exercisable, convertible or exchangeable into Class A Common Stock (without
taking into effect of any anti-dilution provisions in such securities).
(B) At any time there is a holder of record of one (1) share of
Series C Special Preferred Stock, one director shall have been identified
to the Board by such holder for nomination to the Board (the "Series C
Director").
(C) At any time there is a holder of record of one (1) share of
Series D Special Preferred Stock, one director shall have been identified
to the Board by such holder for nomination to the Board (the "Series D
Director").
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(D) At any time there is a holder of record of one (1) share of
Series E Special Preferred Stock, one director shall have been identified
to the Board by such holder for nomination to the Board (the "Series E
Director" and together with the Series C Director and the Series D
Director, the "Series Nominated Directors").
(E) At all times, one Outside Director shall have been nominated by
the Board, such Outside Director to be in addition to any Outside Directors
referred to above.
(F) At all times, one director who is a senior management official of
the Corporation shall have been nominated by the Board.
(G) Directors need not be stockholders.
Each of the directors of the Corporation shall hold office until his
or her successor shall have been duly elected and shall qualify or until he or
she shall resign or shall have been removed in the manner hereinafter provided.
Section 3.03. Election of Directors. The directors shall be elected
------------ ---------------------
annually by the stockholders of the Corporation at the annual meeting of
stockholders.
Section 3.04. Resignations. Any director of the Corporation may
------------ ------------
resign at any time by giving written notice to the Board, the Chairman of the
Board, or to the Corporate Secretary of the Corporation. Any such resignation
shall take effect at the time specified therein, or, if the time be not
specified, it shall take effect immediately upon its receipt; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.05. Vacancies. Any vacancy in the Board, whether because
------------ ---------
of death, resignation, disqualification, an increase in the number of directors
or any other cause may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided, except that a director chosen by reason of an increase in
the number of directors may serve a term of office continuing only until the
next election of directors by stockholders.
Section 3.06. Place of Meetings. etc. The Board may hold any of its
------------ -----------------------
meetings at such place or places within or without the State of Hawaii as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special
meeting of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
Section 3.07. First Meeting. The Board shall meet as soon as
------------ -------------
practicable after each annual election of directors and notice of such first
meeting shall not be required.
Section 3.08. Regular Meetings. Regular meetings of the Board may be
------------ ----------------
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.09. Special Meetings. Special meetings of the Board shall
------------ -----------------
be held whenever called by the President, the Chairman of the Board or a
majority of the authorized number of directors. Special meetings of the Board
shall be held whenever called by the holder of the Series B
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<PAGE>
Special Preferred Stock if necessary under the Articles of Incorporation or
Section 3.12 of these Bylaws to fill the vacancy of a Nominated Director.
Special meetings of the Board shall be held whenever called by the holder of the
Series C Special Preferred Stock if necessary under the Articles of
Incorporation or Section 3.12 of these Bylaws to fill the vacancy of the Series
C Director. Special meetings of the Board shall be held whenever called by the
holder of the Series D Special Preferred Stock if necessary under the Articles
of Incorporation or Section 3.12 of these Bylaws to fill the vacancy of the
Series D Director. Special meetings of the Board shall be held whenever called
by the holder of the Series E Special Preferred Stock if necessary under the
Articles of Incorporation or Section 3.12 of these Bylaws to fill the vacancy of
the Series E Director. Except as otherwise provided by law or by these Bylaws,
notice of the time and place of each such special meeting shall be mailed to
each director, addressed to each director at such director's residence or usual
place of business, at least five (5) days before the day on which the meeting is
to be held, or shall be sent to each director at such place by telecopier or be
delivered personally not less than twenty-four (24) hours before the time at
which the meeting is to be held. Except where otherwise required by law or by
these Bylaws, notice of the purpose of a special meeting need not be given.
Notice of any meeting of the Board shall not be required to be given to any
director who is present at such meeting, except a director who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 3.10. Quorum. Except as otherwise provided in these Bylaws
------------ ------
or by law, the presence of a majority of the authorized number of directors,
which, so long as there is a Designating Stockholder, must include at least
three (3) Designated Directors, shall be required to constitute a quorum for the
transaction of business at any meeting of the Board, and all matters shall be
decided at any such meeting, a quorum being present, by the affirmative votes of
a majority of the directors present. In the absence of a quorum, a majority of
directors present at any meeting may adjourn the same from time to time until a
quorum shall be present. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board, and the individual directors shall have
no power as such.
Section 3.11. Action by Consent. Any action required or permitted to
------------ -----------------
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee .
Section 3.12. Removal of Directors and Filling of Vacancies. Any
------------ ----------------------------------------------
director (including a Nominated Director and the Series Nominated Directors) may
be removed at any time, to the extent permitted under the Hawaii Business
Corporation Act, by the affirmative vote of the stockholders having a majority
of the voting power of the Corporation given at a special meeting called for
such purpose. The Board may fill vacancies caused by the removal, resignation or
death of any director, provided that, so long as there is a Nominating
Stockholder, the Board may fill a Nominated Director vacancy only with a person
nominated to the Board by the Nominating Stockholder (which person will
thereafter be deemed a Nominated Director); and, provided that, so long as there
is a holder of Series C Special Preferred Stock, the Board may fill a Series C
Director vacancy only with a person nominated to the Board by such holder; and,
provided that, so long as there is a holder of Series D Special Preferred Stock,
the Board may fill a Series D Director vacancy only with a person nominated to
the Board by such holder; and, provided that, so long as there is a holder of
Series E Special Preferred Stock, the Board may fill a Series E Director vacancy
only with a person nominated to the Board by such holder. If a vacancy is not
filled as provided in the preceding sentence within 30 days, such vacancy may be
filled by the affirmative vote of the holders of a majority of the Series B
Special Preferred Stock given at a special meeting of the holders of Series B
Special Preferred Stock called for such purpose in the case of a vacancy of a
Nominated Director, the holders of a majority of the Series C Special Preferred
Stock given at a special meeting of the holders of Series C Special Preferred
Stock called for such purpose in the case of a vacancy of a Series C Director,
the holders of a majority of the Series D Special Preferred Stock given at a
special meeting of the holders of Series D Special Preferred Stock called for
such purpose in the case of a vacancy of a Series D Director, and the holders of
a majority of the Series E
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Special Preferred Stock given at a special meeting of the holders of Series E
Special Preferred Stock called for such purpose in the case of a vacancy of a
Series E Director.
Section 3.13. Compensation. The directors shall receive only such
------------ ------------
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
Section 3.14. Committees. There shall be such standing, special and
------------ ----------
ad hoc committees of the Board, consisting of such directors of the Corporation,
as shall be designated from time to time by resolution adopted by a majority of
the full Board of Directors. Each committee created by resolution of the Board
shall have such duties, powers and authority as may be delegated to such
committee by the Board, except as may be limited by law or by the Corporation's
Articles of Incorporation or Bylaws. Any such committee shall keep written
minutes of its meetings and report the same to the Board at the next regular
meeting of the Board.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation
------------ ------
shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Treasurer and a Corporate Secretary. Not less than two
(2) persons shall be officers of the Corporation.
Section 4.02. Election, Term of Office and Qualifications. The
------------ -------------------------------------------
officers shall be appointed annually by the Board at its first meeting after the
annual or special meeting of the stockholders at which the Board is elected and
shall hold office until the next annual meeting and thereafter until their
successors shall be duly appointed and qualified or until their resignation or
removal in the manner hereinafter provided. The number of Vice Presidents may be
changed from time to time by the Board at any meeting or meetings thereof and,
if increased at any time, the additional Vice President or Vice Presidents shall
be appointed by the Board.
Section 4.03. Assistants, Agents and Employees, etc. There may also
------------ --------------------------------------
be one or more Assistant Vice Presidents, Assistant Treasurers, Assistant
Secretaries and other subordinate officers who shall be appointed by the Board,
each of whom shall hold office for such period, have such authority, and perform
such duties as the Board may from time to time determine.
Section 4.04. Removals. The Board of the Corporation may at any time
------------ --------
remove from office or discharge from employment any officer, subordinate officer
agent, or employee appointed by the Board or by any person under authority
delegated by the Board.
Section 4.05. Resignations. Any officer or assistant may resign at
------------ ------------
any time by giving written notice of his resignation to the Board or the
Corporate Secretary of the Corporation. Any such resignation shall take effect
at the time specified therein, or, if the time be not specified, upon receipt
thereof by the Board or the Corporate Secretary, as the case may be; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.06. Vacancies. A vacancy in any office because of death,
------------ ---------
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
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Section 4.07. Chairman of the Board. The Chairman shall preside at
------------ ---------------------
all meetings of the stockholders and Board at which he is present, and shall
perform such other duties and have such other powers as the Board may prescribe.
Section 4.08. President. The President shall preside at all meetings
------------ ---------
of the Board and of the stockholders at which the Chairman is absent. Subject
to the control of the Board, the President shall have general charge and care of
the business and property of the Corporation, shall appoint and discharge
employees and agents of the Corporation and determine their compensation, shall
vote the stock of other companies which is owned by the corporation and shall do
and perform such additional duties as shall be prescribed by the Board. When
authorized by the Board so to do, he may delegate to one of the Vice Presidents
the whole or any part of the general management and care of the business and
property of the Corporation, including the employment and discharge of agents
and employees.
Section 4.09. Vice Presidents. It shall be the duty of the Vice
------------ ---------------
Presidents to assume and perform the duties of the President in the absence or
disability of the President or whenever the office of President is vacant. Each
Vice President shall do and perform such additional duties as shall be
prescribed by the Board.
Section 4.10. Treasurer. The Treasurer shall be the financial and
------------ ---------
accounting officer of the Corporation. The Treasurer shall have custody of all
moneys, valuable papers and documents of the Corporation, shall keep the same
for safekeeping in such depositories as may be designated by the Board and shall
expend the funds of the Corporation as directed by the Board. The Treasurer
shall register and transfer stock of the Corporation under such regulations as
may be prescribed by the Board and required by law. The Treasurer shall keep or
cause to be kept a book or books setting forth a true record of the receipts and
expenditures, assets and liabilities, losses and gains of the Corporation and
shall, when and as required by the Board, render a statement of the financial
condition of the Corporation. If required to do so by the Board, the Treasurer
shall give a bond in such amount and such surety as may be prescribed by the
Board for the faithful discharge of the Treasurer's duties. The Treasurer shall
also do and perform such additional duties as shall be prescribed by the Board.
In the absence or disability of the Treasurer, his duties shall be performed by
the Corporate Secretary or by an Assistant Treasurer
Section 4.11. Corporate Secretary. The Corporate Secretary shall be
------------ -------------------
ex officio secretary of the Board, shall give or cause to be given all required
notices of meetings of the stockholders and the Board, shall record the
proceedings of meetings of the stockholders and the Board in a book or books to
be kept for that purpose, and shall perform such other duties as may be assigned
to the Corporate Secretary from time to time by the Board or by the President.
The Corporate Secretary shall have custody of the seal of the Corporation. In
the absence or disability of the Corporate Secretary, the Corporate Secretary's
duties shall be performed by the Treasurer or by an Assistant Corporate
Secretary.
Section 4.12. Subordinate Officers. The powers and duties of the
------------ --------------------
subordinate officers shall be as prescribed by the Board. In the absence or
disability of the Treasurer and Corporate Secretary, the Assistant Treasurer or
the Assistant Corporate Secretary may register and transfer stock of the
Corporation under such regulations as may be prescribed by the Board.
Section 4.13. Compensation. The compensation of the officers of the
------------ ------------
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that such officer is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving such compensation by
reason of the fact that such officer is also a director of the Corporation.
Nothing contained herein shall preclude any officer from serving the
Corporation, or any subsidiary corporation, in any other capacity and receiving
proper compensation therefor.
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ARTICLE V
EXECUTION OF INSTRUMENTS
Section 5.01. Instruments in General. All contracts, deeds, leases,
------------ ----------------------
mortgages, agreements of sale, bills of lading, agreements and understandings to
do or perform public or private work, and all bids, tenders or proposals to
enter into any contracts, agreements or understandings with respect thereto, and
all bid or contract bonds accompanying and guaranteeing the same or any of them,
and all other instruments except as otherwise provided in these Bylaws, shall be
signed by such person or persons as shall be provided by general or special
resolution of the Board and in the absence of any such general or special
resolution applicable to any instrument, then such instrument shall be signed by
the President or any Vice President and by the Treasurer or the Corporate
Secretary.
Section 5.02. Checks, Drafts, etc. All checks, drafts or other
------------ --------------------
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board, and in the absence of such resolution, then such
instrument shall be signed by the President or any Vice President and by the
Treasurer or the Secretary. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
Section 5.03. Deposits. All funds of the Corporation not otherwise
------------ --------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
Section 5.04. General and Special Bank Accounts. The Board may from
------------ ---------------------------------
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
Section 5.05. Facsimile Signatures. The Board may provide for the
------------ --------------------
execution of checks, stock certificates and other written instruments by the
printed, lithographed or engraved facsimile signature or signatures.
Section 5.06. Seal. Any officer or subordinate officer of the
------------ ----
Corporation and any other person authorized to do so by the Board, may affix the
seal of the Corporation to any instrument and may attest the same.
ARTICLE VI
CAPITAL STOCK
Section 6.01. Certificates for Stock. Every owner of stock of the
------------- ----------------------
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe and as may be required by law, certifying
the number and class of shares of the stock of the Corporation owned by him. The
certificates representing shares of such stock shall be numbered in the order in
which they
8
<PAGE>
shall be issued and shall be signed in the name of the Corporation by the
Chairman or Vice Chairman of the Board or the President or a Vice President, and
by the Treasurer or an Assistant Treasurer, or the Corporate Secretary or an
Assistant Corporate Secretary of the Corporation. Any of or all of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon, any such certificate, shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 6.04.
-------------
Section 6.02. Transfers. Transfers of shares of stock of the
------------- ---------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Corporate Secretary, or with a transfer clerk
or a transfer agent appointed as provided in Section 6.03, and upon surrender of
------------
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so. Each transfer shall be recorded and the original record
or duplicate thereof shall be kept at the principal office of the Corporation in
Honolulu, Hawaii as set forth above.
Section 6.03. Regulations. The Board may make such rules and
------------ -----------
regulations as it may deem expedient, not inconsistent with these Bylaws, the
Articles of Incorporation or applicable law concerning the issue, transfer and
registration of certificates for shares of the stock of the Corporation. It may
appoint, or authorize any officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars, and may
require ail certificates for stock to bear the signature or signatures of any of
them.
Section 6.04. Lost, Stolen, Destroyed and Mutilated Certificates. In
------------ --------------------------------------------------
any case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
Section 6.05. Fixing Date for Determination of Stockholders of
------------ ------------------------------------------------
Record. The books for the transfer of shares of the capital stock of the
Corporation or any class thereof may be closed as the Board may from time to
time determine for a period not exceeding seventy (70) days before any meeting
of stockholders, or before the day appointed for the payment of any dividend, or
before any date on which rights of any kind in or in connection with the shares
of the capital stock of the Corporation or of any class thereof are to be
determined or exercised; provided, however, that in lieu of closing the books
for the transfer of shares of the capital stock of the Corporation or of any
class thereof the Board may fix in advance a date not exceeding seventy (70)
days before any such meeting, any such payment date or any such date for the
determination or exercise of rights, as a record date for the determination of
the stockholders of the Corporation or of such class thereof entitled to notice
of and to vote at any such meeting, or entitled to receive any such dividend, or
entitled to receive or exercise any such rights. In
9
<PAGE>
the event that the books for the transfer of shares of the capital stock of the
Corporation or of any class thereof are to be closed, the Corporate Secretary
may be directed by the Board to give notice of such closing to the holders of
such shares.
Section 6.06. Foreign Stock Record. A transfer of shares of voting
------------ --------------------
stock of the Corporation to a Foreigner shall not be valid, except between the
parties to the transfer, until the transfer shall have been (1) recorded on the
books of the Corporation as provided in Section 6.02 of Article VI of these
------------
Bylaws and (2) recorded on the Foreign Stock Record of the Corporation as
provided in this Section 6.06. The Foreign Stock Record shall mean a record
------------
maintained by the Corporate Secretary of the Corporation which shall record the
date of a transfer to a Foreigner, the parties to the transfer and the number
and description of the shares of voting stock transferred to a Foreigner. At no
time shall ownership or control of shares representing more than 25% of the
Corporation's voting shares be registered on the Foreign Stock Record. If at any
time the Corporation shall determine that voting shares are owned or controlled
by Foreigners who are not registered on the Foreign Stock Record, the
registration of such shares shall, subject to the limitation in the preceding
sentence, be made in chronological order in the Foreign Stock Record, based on
the date of the Corporation's finding of ownership or control of such shares by
a Foreigner. If at any time the Corporation shall determine that the number of
voting shares registered on the Foreign Stock Record exceeds 25% of the total
number of voting shares, sufficient shares shall be removed from the Foreign
Stock Record in reverse chronological order so that the number of voting shares
registered on the Foreign Stock Record does not exceed 25% of the total number
of voting shares. At no time shall shares of voting stock known by the
Corporation to be owned or controlled by Foreigners and not registered on the
Foreign Stock Record be entitled to vote until so registered. All shares of
voting stock known to the Corporation to be owned by Foreigners as of the date
of the adoption of this Section 6.06 shall be registered on the Foreign Stock
------------
Record. The shares registered on the Foreign Stock Record pursuant to the
preceding sentence have chronological priority over any subsequent request for
the registration of additional shares of voting stock on the Foreign Stock
Record. As used in this Section 6.06, "Foreigner" means any person who is not a
Citizen of the United States as defined in Section 101(15) of the Transportation
Act, and "voting stock" means collectively the Corporation's Class A Common
Stock and any future shares of stock of the Corporation entitled to vote on
matters generally referred to the stockholders for a vote.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Adjournment. Whenever at any meeting provided for in
------------ -----------
these Bylaws less than a quorum shall be present or represented, such meeting
may thereupon be adjourned without notice from time to time by a majority vote
of those present or represented until a quorum shall be present or represented.
Any meeting at which a quorum is present or represented may be adjourned in the
same manner for such time as may be fixed by a majority vote at such meeting.
Whenever a quorum is present at any adjourned meeting, any business may be
transacted which could have been done at the meeting originally called.
Section 7.02. Fiscal Year. The fiscal year of the Corporation shall
------------ -----------
be as determined from time to time by the Board.
Section 7.03. Waiver of Notices. Whenever notice is required to be
------------ -----------------
given by these Bylaws or the Articles of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 7.04. Amendments. These Bylaws, or any of them, may be
------------ -----------
amended, altered or repealed and new Bylaws may be adopted by the affirmative
vote of a majority of the members of the Board of the Corporation, subject to
repeal or change by action of the stockholders; provided however,
10
<PAGE>
any amendment to Section 3.02 to change the number of directors or the
qualifications of such directors, Section 3.09 to change the special meetings
provisions, Section 3.12 to change the removal of directors and filling of
vacancies, Section 7.04 to amend the Bylaws and any other provision of these
Bylaws which would, by amendment, be inconsistent with the aforesaid Sections
shall require the affirmative vote of a majority of the directors then in
office, and, so long as there is a Nominating Stockholder, such majority must
include at least one (1 ) Nominated Director, and, so long as there are holders
of Series C Special Preferred Stock, Series D Special Preferred Stock and Series
E Special Preferred Stock, such majority must include at least two (2) Series
Nominated Directors.
11
<PAGE>
EXHIBIT 4(3)
RIGHTSHOLDERS AGREEMENT
-----------------------
RIGHTSHOLDERS AGREEMENT, dated as of January 31, 1996 (this "AGREEMENT"),
BY AND AMONG HAWAIIAN AIRLINES, INC., A HAWAII CORPORATION (THE "COMPANY"),
AIRLINE INVESTORS PARTNERSHIP, L.P., A DELAWARE LIMITED PARTNERSHIP ("AIP"), AMR
CORPORATION, A DELAWARE CORPORATION ("AMR"), MARTIN ANDERSON ("ANDERSON") AND
ROBERT MIDKIFF ("MIDKIFF" AND, TOGETHER WITH AIP, AMR AND ANDERSON, THE
"RIGHTSHOLDERS").
WHEREAS, the Company issued to Anderson Warrant Nos. 01 through 05, each
dated as of September 12, 1994 (the "ANDERSON WARRANTS"), PURSUANT TO WHICH
ANDERSON IS ENTITLED TO ACQUIRE, ON THE TERMS AND SUBJECT TO THE CONDITIONS SET
FORTH THEREIN, AN AGGREGATE OF 494,505 SHARES (SUBJECT TO ADJUSTMENT AS SET
FORTH THEREIN) OF THE COMPANY'S CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
(THE "COMMON STOCK");
WHEREAS, the Company issued to Midkiff Warrant Nos. 06 through 10, each
dated as of September 12, 1994 (the "MIDKIFF WARRANTS"), PURSUANT TO WHICH
MIDKIFF IS ENTITLED TO ACQUIRE, ON THE TERMS AND SUBJECT TO THE CONDITIONS SET
FORTH THEREIN, AN AGGREGATE OF 494,505 SHARES (SUBJECT TO ADJUSTMENT AS SET
FORTH THEREIN) OF COMMON STOCK;
WHEREAS, the Company issued to AMR Warrant Nos. 11 and 12, each dated as of
January 31, 1996 (the "AMR WARRANTS" AND, TOGETHER WITH THE ANDERSON WARRANTS
AND THE MIDKIFF WARRANTS, THE "WARRANTS"), PURSUANT TO WHICH AMR IS ENTITLED TO
ACQUIRE, ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH THEREIN, AN
AGGREGATE OF 1,897,946 SHARES (SUBJECT TO ADJUSTMENT AS SET FORTH THEREIN) OF
COMMON STOCK;
WHEREAS, each of the Anderson Warrants, the Midkiff Warrants and the AMR
Warrants contains provisions pursuant to which the holder thereof has the right
(such rights, "REGISTRATION RIGHTS"), SUBJECT TO THE TERMS AND CONDITIONS SET
FORTH IN THE WARRANTS, TO CAUSE THE COMPANY TO USE ITS BEST EFFORTS TO CAUSE THE
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH WARRANTS TO BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT");
WHEREAS, the Company and AIP are parties to that certain Registration
Rights Agreement, dated as of January 31, 1996 (the "REGISTRATION RIGHTS
AGREEMENT"), PURSUANT TO WHICH THE COMPANY HAS GRANTED TO AIP REGISTRATION
RIGHTS, SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE REGISTRATION RIGHTS
AGREEMENT, WITH RESPECT TO CERTAIN SHARES OF COMMON STOCK OWNED BY AIP;
<PAGE>
WHEREAS, the Registration Rights of the holders of the Anderson Warrants,
the Midkiff Warrants and the AMR Warrants as set forth in such Warrants, and the
Registration Rights of AIP as set forth in the Registration Rights Agreement are
inconsistent;
WHEREAS, the parties hereto desire to correct the inconsistencies in the
several agreements, the Company desires to extend the time in which Anderson and
Midkiff may request a registration of the shares of Common Stock issuable under
the Anderson Warrants and the Midkiff Warrants;
WHEREAS, AIP and the Company entered into the Stock Purchase Agreement,
dated as of December 8, 1995 (the "STOCK PURCHASE AGREEMENT"), PURSUANT TO WHICH
AIP HAS AGREED TO PURCHASE FROM THE COMPANY, AND THE COMPANY HAS AGREED TO ISSUE
AND SELL TO AIP AT THE CLOSING (AS DEFINED IN THE STOCK PURCHASE AGREEMENT), AN
AGGREGATE OF 18,181,818 SHARES OF COMMON STOCK;
WHEREAS, it is a condition to AIP's purchase of the Common Stock that
Anderson and Midkiff agree to waive the application of the antidilution
provisions of the Anderson Warrants and the Midkiff Warrants, respectively, with
respect to certain specified transactions; and
WHEREAS, Anderson and Midkiff are willing to waive such provisions as
herein provided.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Registration Rights. Notwithstanding anything to the contrary in the
Warrants or the Registration Rights Agreement;
1.1 Incidental Registration Rights. (a) If the Company at any time
proposes to register any of its Common Stock under the Securities Act by
registration on any form other than Forms S-4 or S-8 (or successor forms) and
other than in connection with an exchange offer or an offering of securities to
the Company's existing security holders, whether or not for sale for its own
account, it will each such time give prompt written notice to all Rightsholders
of its intention to do so and of such holders' rights, if any, under the
Warrants or the Registration Rights Agreement, as applicable.
(b) In the event that pursuant to the Warrants or the Registration Rights
Agreement, as the case
<PAGE>
may be, a Rightsholder has incidental registration rights at the time the notice
referred to in clause (a) above is delivered, then such Rightsholder shall have
the right, in accordance with the terms and conditions and subject to the
procedures of the Warrant or the Registration Rights Agreement, as the case may
be, to cause the Company to use its best efforts to effect the registration
under the Securities Act of all securities which the Company has been so
requested to register by such Rightsholder.
1.2 Priority in Incidental and Demand Registrations. If the managing
underwriter of any underwritten offering shall inform the Company by letter of
its opinion that the number or type of securities requested to be included in
such registration would materially adversely affect such offering, and the
Company has so advised the Rightsholders that have requested pursuant to rights
granted in such Rightsholder's Warrant or the Registration Rights Agreement, as
the case may be, to have securities registered in such offering, in writing,
then the Company will include in such registration, to the extent of the number
and type which the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, second, all securities proposed to be sold for the account of the
Rightsholder (the "INITIATING RIGHTSHOLDER"), IF ANY, THAT, PURSUANT TO RIGHTS
GRANTED IN THE WARRANTS OR THE REGISTRATION RIGHTS AGREEMENT, AS THE CASE MAY
BE, INITIALLY REQUESTED THE COMPANY TO REGISTER SUCH SECURITIES, AND THIRD, SUCH
SECURITIES REQUESTED BY RIGHTSHOLDERS (OTHER THAN THE INITIATING RIGHTSHOLDER,
IF ANY) TO BE INCLUDED IN SUCH REGISTRATION PURSUANT TO RIGHTS GRANTED IN THE
WARRANTS AND/OR THE REGISTRATION RIGHTS AGREEMENT, AS THE CASE MAY BE, PRO RATA
(BASED ON THE NUMBER OF SECURITIES REQUESTED TO BE INCLUDED THEREIN BY EACH
RIGHTSHOLDER (OTHER THAN THE INITIATING RIGHTSHOLDER)) AMONG SUCH RIGHTSHOLDERS.
2. Waiver of Anti-Dilution Provisions. Each of Anderson and Midkiff hereby
agrees that notwihtstanding Sections 3 and 4 of the Anderson Warrants and the
Midkiff Warrants, supplementing Section 4(b) of such Warrants, neither the
Current Warrant Price (as defined in such Warrants) nor the number of shares of
Common Stock issuable upon exercise of such Warrants shall be adjusted as a
result of (i) the issuance of the AMR Warrants, (ii) the issuance and sale of
shares of Common Stock from time to time upon the exercise, in whole or in part,
of the AMR Warrants, or (iii) the issuance and sale of shares of Common Equity
(as defined in such Warrants) in connection with an offering of rights to
purchase Common Stock in 1996.
<PAGE>
3. Extension of Demand Registration. The Company hereby agrees that Section
8 of each of the Anderson Warrants and the Midkiff Warrants shall be amended to
delete the date "December 31, 1997" in the fifth line thereof and substitute in
lieu thereof the date "December 31, 1998."
4. No Inconsistent Agreements. The Company hereby agrees that it will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Rightsholders hereunder, under the
Warrants or under the Registration Rights Agreement. Without limiting the
generality of the foregoing, the Company will not hereafter enter into any
agreement with respect to its securities which grants, or modify any existing
agreement with respect to its securities to grant, to the holder of its
securities in connection with a registration of such securities equal or higher
priority to the rights granted to the Rightsholders under this Agreement.
5. Restriction on Transfer of Warrants. (a) Anderson, Midkiff and AMR
hereby agree that they shall not sell, give, assign or otherwise dispose of
(whether by operation of law or otherwise) (each a "TRANSFER") any Warrants or
any right, title or interest therein or thereto to any Person unless such Person
agrees in writing to be bound by this Agreement. Any attempt to transfer any
Warrants or any such rights in violation of the preceding sentence shall be null
and void ab initio.
6. Warrant Certificate Legend. A copy of this Agreement shall be filed with
the Corporate Secretary of the Company and kept with the records of the Company.
Each Warrant now held or hereafter acquired by Anderson, Midkiff and AMR shall
for as long as this Agreement is effective bear a legend substantially in the
following form:
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") OF THIS
WARRANT IS RESTRICTED BY THE TERMS OF THE RIGHTSHOLDERS AGREEMENT, DATED AS
OF JANUARY 31, 1996, BY AND AMONG THE COMPANY, AIRLINE INVESTORS
PARTNERSHIP, L.P. AND THE HOLDERS OF WARRANTS OF THE COMPANY, A COPY OF
WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL
NOT REGISTER ON THE BOOKS OF THE COMPANY OR OTHERWISE EFFECT THE TRANSFER
OF THIS WARRANT IF THE TRANSFER HAS NOT BEEN MADE IN COMPLIANCE WITH THE
RIGHTSHOLDERS AGREEMENT.
Anderson and Midkiff hereby agree that as soon as practicable after the
date hereof they shall present each
<PAGE>
existing Warrant to the Corporate Secretary of the Company at the Company's
principal office for the purpose of having the legend set forth in this Section
6 affixed thereto.
7. Representations of Anderson and Midkiff.
7.1 Anderson hereby represents and warrants to the other Rightsholders and
the Company that he has neither Transferred nor agreed to Transfer the Anderson
Warrants or any of them, in whole or in part, to any other person.
7.2 Midkiff hereby represents and warrants to the other Rightsholders and
the Company that he has neither Transferred nor agreed to Transfer the Midkiff
Warrants or any of them, in whole or in part, to any other person.
8. Miscellaneous.
8.1 Notices. All notices or other communications given or made hereunder
shall be validly given or made if made in accordance with the notice provisions
of the relevant Warrant or the Registration Rights Agreement, as the case may
be.
8.2 Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the parties hereto at law, in equity or
otherwise.
(b) This Agreement may be amended, supplemented or modified only with the
written consent of all parties hereto.
8.3 Entire Agreement; No Expansion of Rights. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. Section 1 of
this Agreement is not intended to, and shall not, confer upon any Rightsholder
any Registration Rights that are not expressly contained in such Rightsholder's
Warrants or in the Registration Rights Agreement, as the case may be.
<PAGE>
8.4 Continuing Effect of Agreements. This Agreement shall not constitute a
waiver, amendment or modification of any other provisions of the Warrants or the
Registration Right Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Company or the Rightsholders that would require a waiver or consent. Except
as expressly amended or modified herein, the provisions of the Warrants and the
provisions of the Registration Rights Agreement are and shall remain in full
force and effect.
8.5 Term of Agreement. Section 1 of this Agreement shall terminate and be of
no further force or effect with respect to each Rightsholder at the first date
on which such Rightsholder shall no longer have any Registration Rights. The
remainder of this Agreement shall terminate and be of no further force and
effect at such time as no Rightsholder owns any Warrants or shares of Common
Stock.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.
8.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and with respect to the
Company, its successors and permitted assigns and, with respect to the
Rightsholder, any transferee of the Warrants as permitted hereunder and the
holder of any securities registrable pursuant to the AMR Warrants or the
Registration Rights Agreement. This Agreement may not be assigned by the Company
without the prior written consent of the other parties hereto.
8.8 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
[The remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have cause to be
executed, this Agreement on the date first written above.
/s/ Martin Andersen
___________________________
Martin Anderson
/s/ Robert Midkiff
___________________________
Robert Midkiff
AMR CORPORATION
By: /s/ Gerald J. Arpey
___________________________
Name: Gerald J. Arpey
Title: Senior Vice President Finance
and Planning/Chief Financial Officer
AIRLINE INVESTORS PARTNERSHIP, L.P.
By: AIP GENERAL PARTNER, INC.,
Its General Partner
By: /s/ John W. Adams
________________________________
Name: John W. Adams
Title: President
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
________________________________
Name: Bruce R. Nobles
Title: President
By: /s/ Rae A. Capps
________________________________
Name: Rae A. Capps
Title: Vice President
<PAGE>
EXHIBIT 4(4)
AMENDMENT NO. 2
TO
RIGHTS AGREEMENT
DATED AS OF DECEMBER 23, 1994
BY AND BETWEEN
HAWAIIAN AIRLINES, INC.
AND
CHEMICAL TRUST COMPANY OF CALIFORNIA
AS RIGHTS AGENT
This Amendment No. 2 to the Rights Agreement (the "Amendment") entered
into as of January __, 1996 by and between Hawaiian Airlines, Inc. (the
"Company") and Chemical Trust Company of California as Rights Agent (the "Rights
Agent").
RECITALS
--------
A. The Board of Directors of the Company has determined that the
issuance of shares to Airline Investors Partnership, L.P. ("AIP") pursuant to
the terms of the Stock Purchase Agreement dated as of December 8, 1995 by and
between the Company and AIP shall not render AIP a "10% Shareholder" under
Section 1(hh) of the Rights Agreement dated as of December 23, 1994 by and
between the Company and the Rights Agent; and
B. The Company and the Rights Agent wish to amend the Agreement to
reflect the foregoing.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements set forth herein, the parties hereby agree as follows:
1. Amendment to Section 1(hh). Section 1(hh) of the Agreement is
-------------------------
amended by adding the following subsection (iv):
"(iv) Airline Investors Partnership, L.P., a Delaware
limited partnership ("AIP"), as a result of its purchase of
shares of Class A Common Stock pursuant to a Stock Purchase
Agreement by and between the Company and AIP, dated as of
December 8, 1995"
2. Revision to Exhibit C. Exhibit C to the Agreement shall be
---------------------
revised to make it consistent with the foregoing changes.
3. No Impairment. In all other respects, the provisions of the
-------------
Agreement remain unchanged and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
2 to be duly executed as the date above first written.
HAWAIIAN AIRLINES, INC.
By: Bruce R. Nobles
------------------------------------
Bruce R. Nobles
Chairman, President, and Chief
Executive Officer
By: Rae A. Capps
------------------------------------
Rae A. Capps
Vice President, General Counsel and
Corporate Secretary
CHEMICAL TRUST COMPANY OF
CALIFORNIA, as Rights Agent
By: Ian D. Gass
-----------------------------------
Name Ian D. Gass
Assistant Vice President
-----------------------------------
Title
2
LT953320.057/5+
<PAGE>
Exhibit 4 (5)
--------
HAWAIIAN AIRLINES, INC.
AMENDMENT NO. 2
TO
HAWAIIAN AIRLINES, INC.
1994 STOCK OPTION PLAN
This Amendment No. 2 ("this Amendment") to the Hawaiian Airlines, Inc.
(the "Company") 1994 Stock Option Plan (the "Plan") amends the Plan as follows,
effective as of December 8, 1995:
1. All terms used herein and not defined shall have the same meanings
assigned to them in the Plan.
2. The first paragraph of Section 4.03 is amended as follows:
"4.03 CORPORATE TRANSACTIONS. If the Company shall be the
surviving corporation in any merger or consolidation, each outstanding
Option shall pertain and apply to the securities to which a holder of
the same number of shares of Class A Common Stock that are subject to
the Option would have been entitled. A Change in Control of the
Company shall cause each outstanding Option to vest immediately and
thereafter remain subject to all the terms and conditions of this
Plan, following such Change of Control. For purposes hereof, a "Change
in Control" means the following and shall be deemed to occur if any of
the following events occur:"
3. In all other respects, the provisions of the Plan remain unchanged
and in full force and effect.
4. Pursuant to Section 2.06 of the Plan, this Amendment has been duly
approved by the Board of Directors of the Company at a meeting of the Board of
Directors on December 7, 1995.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
as of January __, 1996.
/s/ Bruce R. Nobles
-------------------
Bruce R. Nobles
/s/ Frank L. Forster
--------------------
Frank L. Forster
/s/ C.J. David Davies
---------------------
C.J. David Davies
/s/ Clarence K. Lyman
---------------------
Clarence K. Lyman
/s/ Peter W. Jenkins
--------------------
Peter W. Jenkins
/s/ Rae A. Capps
----------------
Rae A. Capps
/s/ John P. Solomito
--------------------
John P. Solomito
/s/ Alexander D. Jamile
-----------------------
Alexander D. Jamile
/s/ Glen L. Stewart
-------------------
Glen L. Stewart
/s/ Glenn G. Taniguchi
----------------------
Glenn G. Taniguchi
/s/ Michael P. Loo
------------------
Michael P. Loo
2
<PAGE>
EXHIBIT 10(i)
AMENDMENT NO. 1
TO
CHATTEL MORTGAGE AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO CHATTEL MORTGAGE AND SECURITY AGREEMENT (the
"Amendment"), dated as of February 28, 1996, is made by HAWAIIAN AIRLINES, INC.,
- ----------
a Hawaii corporation (the "Grantor"), as debtor, in favor of American Airlines,
-------
Inc. ("American"), a Delaware corporation, as collateral agent (the "Secured
-------- -------
Party").
- -----
WHEREAS, Secured Party and Grantor have heretofore entered into that
certain Chattel Mortgage and Security Agreement, dated as of January 31, 1996
(the "Mortgage"), defined terms used herein as therein defined); and
--------
WHEREAS, the Mortgage was recorded with the Federal Aviation Administration
(the "FAA") on __________,as Conveyance No.____________; and
WHEREAS, Secured Party and Grantor have agreed to amend certain terms of
the Mortgage as noted herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to the Mortgage, the Secured Party and Grantor hereby
amend the Mortgage as follows:
SECTION 1. AMENDMENTS.
----------
1.1 Effective as of January 31,1996, Section 1.1 of the Mortgage is
amended by deleting the definition of "Tangible Net Worth" and adding the
following definition:
"Net Worth" means Grantor's shareholder's equity determined according to
---------
GAAP.
1.2 Effective as of January 31,1996, Section 4.12 (b) is rewritten in its
entirety as follows:
"(B) As of the end of each fiscal year, based on the audited financial
statements of Grantor for such fiscal year, Grantor shall have a Net Worth
of not less than $20,000,000."
SECTION 2. MISCELLANEOUS.
-------------
2.1. Except as set forth herein, all terms and provisions contained in the
Mortgage shall remain in full force and effect.
2.2 This Amendment is being delivered in the State of New York and shall
in all respects be governed by, and construed in accordance with, the laws of
the State of New York, including all matters of construction, validity and
performance.
<PAGE>
2.3 This Amendment may be executed in several counterparts, each fully-
executed counterparts all of which shall be deemed an original, and all such
counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, Secured Party and Grantor have caused this Amendment to
be duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: /s/ JEFFREY M. JACKSON
---------------------------
Jeffrey M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By: /s/ BRUCE R. NOBLES
---------------------------
Bruce R. Nobles
President and Chief Executive Officer
By: /s/ RAE A. CAPPS
---------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
2
<PAGE>
NOTICE: EXHIBIT 10(j)
COPY
CHATTEL MORTGAGE
AND
SECURITY AGREEMENT
BETWEEN
HAWAIIAN AIRLINES, INC.
(GRANTOR)
AND
AMERICAN AIRLINES, INC.
(SECURED PARTY)
DATED AS OF JANUARY 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
PRELIMINARY STATEMENTS............................................... 1
SECTION 1. DEFINITIONS.............................................. 1
1.1 Definitions.............................................. 1
1.2 Usage.................................................... 6
SECTION 2. GRANT OF SECURITY INTEREST............................... 7
2.1 Mortgage and Grant of Security Interest.................. 7
2.2 Obligations.............................................. 7
2.3 Collateral............................................... 8
2.4 Priority of Collateral................................... 11
2.5 Additional Collateral.................................... 12
2.6 Release of Collateral.................................... 12
SECTION 3. CERTAIN REPRESENTATIONS AND WARRANTIES................... 12
3.1 Ownership and Liens...................................... 12
3.2 Valid Security Interest.................................. 12
3.3 Authorizations, Filings, etc............................. 12
3.4 Status as Air Carrier.................................... 13
3.5 Principal Office......................................... 13
3.6 Organization; Trade Names................................ 13
3.7 Title.................................................... 14
3.8 Compliance With Laws..................................... 14
SECTION 4. CERTAIN COVENANTS........................................ 14
4.1 Reports.................................................. 14
4.2 Insurance................................................ 15
i
<PAGE>
4.3 Maintenance of Collateral................................ 16
4.4 Books and Records........................................ 17
4.5 Attorney-in-fact......................................... 17
4.6 Liability................................................ 18
4.7 Fees and Expenses........................................ 18
4.8 Further Assurances....................................... 19
4.9 Recordation and Filing; Opinions of Counsel.............. 20
4.10 Collateral Coverage...................................... 21
4.11 Disposition of Collateral................................ 21
4.12 Financial Covenants...................................... 21
SECTION 5. EVENTS OF DEFAULT AND REMEDIES........................... 23
5.1 Events of Default........................................ 23
5.2 Remedies................................................. 24
5.3 Application of Proceeds.................................. 25
5.4 Secured Party's Cure of Third Party Agreement Default.... 26
5.5 Secured Party's Right to Perform for the Grantor......... 26
SECTION 6. JURY TRIAL WAIVER: CERTAIN OTHER WAIVERS AND CONSENTS... 26
6.1 Jury Trial Waiver........................................ 26
6.2 Counterclaims............................................ 27
6.3 Jurisdiction............................................. 27
6.4 No Waiver by Secured Party............................... 28
SECTION 7. MISCELLANEOUS............................................ 28
7.1 Notices.................................................. 28
7.2 Severability............................................. 29
ii
NA953340.086/36
<PAGE>
7.3 Amendments; Assignments.................................. 29
7.4 Continuing Lien and Security Interest; Transfers......... 29
7.5 Governing Law............................................ 30
7.6 Counterparts............................................. 30
SCHEDULE "A" Long Term Agreements
SCHEDULE "B" Engines
SCHEDULE "C" Specified Collateral
SCHEDULE "D" Assets Excluded from Collateral
SCHEDULE "E" Rotables
SCHEDULE "F" Uniform Commercial Code Jurisdictions
SCHEDULE "G" Exceptions to Representations
SCHEDULE "H" Locations of Collateral
SCHEDULE "I" Additional Locations of Collateral
SCHEDULE "J" Index of Definitions
SCHEDULE "K" Trademarks
iii
NA953340.086/36
<PAGE>
CHATTEL MORTGAGE AND SECURITY AGREEMENT
THIS CHATTEL MORTGAGE AND SECURITY AGREEMENT (the "Mortgage"), dated
--------
as of January 31, 1996 is made by HAWAIIAN AIRLINES, INC., a Hawaii corporation
(the "Grantor"), as debtor, in favor of American Airlines, Inc. ("American"), a
------- --------
Delaware corporation, as collateral agent (the "Secured Party") for the benefit
-------------
of itself and as collateral agent and for the benefit of certain affiliates of
American and the holder from time to time of the Note (as defined below).
PRELIMINARY STATEMENTS:
WHEREAS, the Grantor and American and one or more affiliates of
American (each an "American Entity") have entered into the agreements (the "Long
Term Agreements") described in Schedule "A" hereto and may from time to time
------------
enter into one or more additional agreements (as amended, modified or
supplemented from time to time, collectively, the "American Agreements");
WHEREAS, the Grantor has issued to American that certain Secured
Promissory Note (as reissued, amended, modified or supplemented from time to
time, the "Note"), dated the date hereof, and it is a condition to American's
acceptance of the Note that the Grantor shall have granted a security interest
in and lien on certain Collateral (as defined below) and the proceeds thereof to
secure the obligations of the Grantor under the Note and its obligations to the
American Entities under the American Agreements; and
WHEREAS, the parties hereto desire to provide for such grant of a
security interest and lien and to more fully set forth their respective rights
in connection with such security interest and lien;
NOW, THEREFORE, in consideration of the benefits accruing to the
Grantor, the receipt and sufficiency of which are hereby acknowledged, the
Grantor hereby makes, for the benefit of the Secured Party and for the benefit
of the American Entities and the holder from time to time of the Note, the
following representations and warranties to the Secured Party and hereby
covenants and agrees with the Secured Party as follows:
SECTION 1. DEFINITIONS
-----------
1.1 DEFINITIONS. Except as otherwise defined herein, terms used
-----------
herein and defined in the Long Term Agreements or the
1
<PAGE>
Note, are used as so defined in the Long Term Agreements or the Note. The
following terms shall have the meanings herein specified unless the context
otherwise requires.
"Affiliate" of any Person means any other Person directly or
---------
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, "control" when used with respect to any
-------
specified Person means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
- ------------ ----------
"Anderson Security Agreement" means the Letter of Credit Reimbursement
---------------------------
and Security Agreement, dated as of September 12, 1994, between Grantor and
Martin Anderson.
"Appraised Value" means, for any item of Collateral, the value agreed
---------------
between Grantor and Secured Party, and failing such agreement, the value
determined, at Grantor's expense, by a Qualified Appraiser.
"Approval Tag" means the authorized Release Certificate Airworthiness
------------
Tag on FAA Form 8130-3 (or successor form) associated with any item of
Collateral.
"Aviation Act" shall mean the Federal Aviation Act of 1958, as amended
------------
form time to time, or any similar legislation of the United States enacted in
substitution or replacement thereof.
"Beneficiaries" shall mean American, each American Entity and the
-------------
holder from time to time of the Note and their respective successors and
assigns.
"Business Day" means any day other than any Saturday, Sunday or other
------------
day on which commercial banking institutions in New York, New York, Fort Worth,
Texas or Honolulu, Hawaii are authorized or required by law, regulation or
executive order to be closed.
"Change in Control" means the acquisition by any Person or 13D Group
-----------------
(other than Airline Investors Partnership, L.P. or its Affiliates) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of Voting
Securities after which such Person or Group owns Voting Securities representing
30% or more of the outstanding Voting Securities.
"CIT Collateral" means the items of the Collateral that are subject to
--------------
the lien of the CIT Security Agreement.
2
<PAGE>
"CIT Security Agreement" means the Loan and Security Agreement, dated
----------------------
as of September 12, 1994, as amended, supplemented or modified from time to
time, between Grantor and The CIT Group/Credit Finance, Inc.
"Consolidated Net Income" means the net income (loss) of Grantor and
-----------------------
its Subsidiaries on a consolidated basis, adjusted by excluding (i) net
extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) net gains or losses (less all fees and expenses relating thereto) in
respect of dispositions of assets other than in the ordinary course of business,
(iii) income (or loss) of any person (other than a Subsidiary) in which any
other person has an ownership interest, except to the extent of dividends
actually paid, (iv) net income of any person combined with Grantor or any of its
Subsidiaries in a "pooling of interests" transaction for periods prior to the
date of combination and (v) net income of any Subsidiary to the extent the
declaration or payment of dividends by that Subsidiary of income is not
permitted except to the extent of dividends actually paid.
"Credit Card Agreement" means the Agreement, dated July 18, 1994, by
---------------------
and between Grantor and First Bank National Association and any successor
agreement between Grantor and a credit card processor.
"Credit Card Deposit" means all security deposits held by or for the
-------------------
benefit of First Bank National Association as credit card processor under the
Credit Card Agreement and any security deposit held by a successor credit card
processor for the Grantor.
"Engines" means each of the aircraft engines described on Schedule
------- --------
"B".
- ---
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"GAAP" means generally accepted accounting principles as applied in
----
the United States.
"Governmental Entity" means any governmental department, court,
-------------------
bureau, commission, agency or other entity, whether of the United States
(including any state or subdivision thereof) or any other country (including any
political subdivision thereof).
"GPA Collateral" means the items of the Collateral that are subject to
--------------
the lien of the GPA Mortgage.
"GPA Mortgage" means the Rotable Spare Parts Chattel Mortgage and
------------
Security Agreement dated as of October 30, 1992, as
3
<PAGE>
amended, supplemented or modified from time to time, between the Grantor and
AEROUSA, Inc.
"Indebtedness" shall mean, for any Person: (a) obligations created,
------------
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business; (c) Indebtedness of others secured
by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person as account party in respect of letters of credit or similar instruments
issued or accepted by banks and other financial institutions for account of such
Person; (e) capital lease obligations of such Person; and (f) Indebtedness of
others guaranteed by such Person; provided, however, that in no event shall
-------- -------
"Indebtedness" of any Person mean or include deferred taxes of such Person.
"Investments" means all investments by a Person in other Persons
-----------
(including Affiliates) in the forms of loans (including guarantees), advances or
capital contributions (excluding commission, travel, housing, moving and similar
advances to officers and employees made in the ordinary course of business and
excluding loans or advances to employees for the exercise of options issued
pursuant to a management stock option, the proceeds of which are substantially
contemporaneously used to purchase equity interests in Grantor or its
Subsidiaries), purchases or other acquisitions for consideration of
Indebtedness, equity interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Law" shall mean and include (i) any statute, regulation, rule,
---
decree, constitution, regulation, order, judgment or other directive of any
Governmental Entity; (ii) any treaty, pact, compact or other agreement to which
any Governmental Entity is a signatory or party; (iii) any judicial or
administrative interpretations of the application of any Law described in (i) or
(ii) above; and (iv) except where expressly excluded herein, any amendment or
revision of any Law described in (i), (ii), or (iii) above.
"Lien" shall means any mortgage, pledge, lien, charge, encumbrance,
----
lease, exercise of rights, security interest or actual or threatened claim,
demand or suit.
4
<PAGE>
"Midkiff Security Agreement" means the Letter of Credit Reimbursement
--------------------------
and Security Agreement, dated as of September 12, 1994, between Grantor and
Robert Midkiff.
"Permitted Investments" means (a) any Investments in Grantor or in a
---------------------
wholly-owned subsidiary of Grantor; (b) any Investments in cash equivalents; (c)
Investments by Grantor or any Subsidiary of Grantor in a Person, if as a result
of such investment (i) such person becomes a wholly-owned Subsidiary of Grantor
or (ii) such person is merged, or consolidated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, Grantor or a
wholly-owned Subsidiary of Grantor; and (d) other Investments that do not exceed
$40,000,000 for each year commencing on January 1, 1996.
"Permitted Lien" shall mean the existence or giving of, and any
--------------
financing statements related to, (a) purchase money liens securing obligations
incurred in connection with purchases of assets or capital leases, provided,
--------
however, that such liens shall be limited to the item or items being so
- -------
purchased or leased; (b) liens securing taxes, assessments or governmental
charges or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons not yet delinquent; (c)
attachment, judgment or other similar liens arising in connection with court
proceedings that are discharged or stayed within thirty (30) days of attachment
or levy, or payment of which is covered in full (subject to customary and
reasonable deductibles) by insurance or a surety bond; (d) easements, rights of
way, restrictions and other similar charges or encumbrances on real property
that do not interfere with the orderly conduct of Grantor's business or
materially detract from the value of the affected real property; (e) minor
defects and irregularities in title to real property existing on the date of
this Mortgage that do not materially detract from the value or impair the use of
such property for the purposes for which it is held; (f) liens existing or
arising by virtue of the leasing or rental of Grantor's assets, whether the same
are capital leases or operating leases or rentals; (g) any lien arising as a
matter of law as a result of referral of an account to a collection agent; (h)
any lien in favor of a credit card processor with respect to accounts processed
by it; (i) performance, appeal, or security bonds or deposits; (j) any lien of
Airlines Reporting Corporation or Scheduled Airlines Traffic Offices, Inc. or
other similar entity performing clearing house functions, against amounts
payable by it to Grantor; (k) any lien on prepaid insurance assets to secure
insurance premium financings; (l) Superior Liens (as defined below); and (m) any
extension, renewal or replacement of any of the foregoing.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company,
5
<PAGE>
trust, unincorporated organization or other form of entity or any Governmental
Entity.
"Qualified Appraiser" for any item of Collateral, means an appraiser,
-------------------
consultant, investment banker or other Person, in each case, with at least five
years of experience in valuing property similar to such item of Collateral,
selected by Grantor and reasonably satisfactory to Secured Party.
"Restricted Investment" means any Investment other than a Permitted
---------------------
Investment.
"Rotable Equipment" means the Rotables and those accessories,
-----------------
appurtenances, and parts of aircraft (except aircraft engines or propellers),
aircraft engines (except propellers), propellers, or appliances, that are to be
installed at a later time in an aircraft, aircraft engine, propeller or
appliance, and which parts are not expendable parts (i.e., parts and supplies
----
such as aircraft wheels and brakes, oxygen, food and beverages that can only be
used once), including, but not limited to, all such equipment maintained by or
on behalf of Grantor at the locations set forth on Schedules "E" and "I" and
---------------------
Annex A to Schedule "C".
------------
"Subsidiary" means a Person controlled by Grantor directly, or
----------
indirectly through one or more intermediaries.
"Tangible Net Worth" means Grantor's shareholder's equity less the
------------------
amount of all intangible assets, each determined according to GAAP.
"13D Group" means any partnership, limited partnership, syndicate or
---------
other "group" (as such term is used in Section 13(d)(3) of the Exchange Act).
"Voting Securities" means any securities of Grantor entitled to vote
-----------------
generally in the election of directors, or securities convertible into or
exercisable or exchangeable for such securities.
1.2 USAGE. All terms used herein which are defined in the Uniform
-----
Commercial Code shall have the meanings given therein unless otherwise defined
in this Mortgage and all references to the singular or plural herein shall also
mean the plural or singular, respectively. The following rules of
interpretation apply to this Mortgage:
(a) "or" is not exclusive and "include" and "including" are not
limiting;
(b) "hereby", "herein", "hereof", "hereunder", "this Mortgage" or
other like words refer to this Mortgage;
6
<PAGE>
(c) a reference to any agreement or other contract includes
permitted supplements and amendments;
(d) a reference to a Law includes any amendment or modification
to such law and any rules or regulations issued thereunder or any law enacted in
substitution or replacement therefor;
(e) a reference to a Person includes its permitted successors and
assigns;
(f) a reference herein to a Section or Schedule is to the
relevant Section or Schedule of this Mortgage;
(g) any right may be exercised at any time and from time to time;
(h) all obligations are continuing obligations;
(i) time shall be of the essence in the performance of all
payment obligations; and
(j) the heading of the Sections, Schedules and subsections are
for the convenience of reference only and shall not affect the meaning of this
Mortgage.
SECTION 2. GRANT OF SECURITY INTEREST
--------------------------
2.1 MORTGAGE AND GRANT OF SECURITY INTEREST. The Grantor hereby
---------------------------------------
mortgages, pledges and assigns to the Secured Party, for its benefit and the
benefit of the Beneficiaries, and hereby grants to and creates in the Secured
Party, for its benefit and the benefit of the Beneficiaries, pursuant to this
Mortgage, a continuing perfected first priority security interest, except as
expressly provided herein, superior and prior to the rights of all other Persons
therein and subject to no other Liens, in all right, title and interest of the
Grantor in, to and under the Collateral, as security for the full and timely
payment and performance of the Obligations.
2.2 OBLIGATIONS. "Obligations" shall mean (i) all the obligations,
----------- -----------
liabilities and indebtedness (including, without limitation, for rent,
supplemental rent, maintenance reserves or accruals, return condition
noncompliance damages or return condition adjustment amounts payable, liquidated
damages, indemnities, fees and interest thereon) of the Grantor, now existing or
hereafter incurred under, arising out of or in connection with the American
Agreements, the Note, including principal, interest, charges, fees and expenses,
however evidenced,, this Mortgage and any and all letter or other agreements or
documents executed by the Grantor entered into in
7
<PAGE>
connection therewith or related thereto (the "Related Documents") (including,
-----------------
without limitation, with respect to the performance and compliance with the
terms of the American Agreements, the Note, this Mortgage and the Related
Documents), (ii) any and all sums advanced or paid by the Secured Party in order
to preserve the Collateral or preserve its security interest in the Collateral
as provided in this Mortgage, and (iii) in the event of any proceeding for the
collection or enforcement of any indebtedness, obligations, or liabilities of
the Grantor referred to in clause (i) or (ii) all reasonable expenses of re-
taking, holding, preparing for sale or lease, selling or otherwise disposing of
or realizing on the Collateral, or of any exercise by the Secured Party of its
rights hereunder, or under the American Agreements, the Note or the Related
Documents, together with reasonable attorneys' fees and court costs incurred in
connection therewith, as provided in this Mortgage; including without
limitation, in each case described in clause (i), (ii) and (iii) above, any and
all of the foregoing whether arising before, during or after the commencement of
any case with respect to Grantor under the United States Bankruptcy Code or any
similar statute whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended and shall also include all
amounts chargeable to Grantor under this Mortgage or in connection with any of
the foregoing.
2.3 COLLATERAL. "Collateral" shall mean all of the following
----------
property of Grantor, except as set forth on Schedule "D":
------------
(a) All now owned and hereafter acquired right, title and interest of
Grantor in, to and in respect of all: accounts, including without limitation
all interests in goods represented by accounts, returned, reclaimed or
repossessed goods with respect thereto and rights as an unpaid vendor; contract
rights (including, but not limited to, Grantor's rights under its contracts with
the United States Postal Service and the United States Military Airlift
Command); chattel paper; general intangibles (including, but not limited to, all
rights under certificates of operating authority issued pursuant to the Aviation
Act, all rights to air routes and any licenses, authorizations, titles,
approvals, or other interests related thereto, tax and duty claims and refunds,
registered and unregistered patents, trademarks, service marks, copyrights,
trade names, business names, trade styles, logos, designs, and general
intangibles of a like nature, all registrations and recordings thereof and all
applications for the foregoing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States or any State thereof, a complete list of
which is set forth in Schedule "K" hereto, trade secrets, goodwill, processes,
------------
drawings, blueprints, customer
8
<PAGE>
lists, license agreements and licenses, whether as licensor or licensee, choses
in action and other claims, including any claims of Grantor against any third
party for past, present or future infringement or dilution of any of the
foregoing, and existing and future leasehold interests in equipment (other than
aircraft and aircraft parts), real estate and fixtures); documents; instruments;
letters of credit, bankers' acceptances or guaranties; cash monies, deposits,
securities, bank accounts, deposit accounts, certificates of deposits and
similar accounts, credits and other property now or hereafter held in any
capacity by Secured Party, its affiliates or any entity which, at any time,
participates in Secured Party's financing of Grantor or at any other depository
or other institution; and agreements or property securing or relating to any of
the items referred to above;
(b) All now owned and hereafter acquired right, title and interest of
Grantor in, to and in respect of goods, including, but not limited to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods and materials to be
used or consumed in Grantor's business; and all names or marks affixed
to or to be affixed thereto for purposes of selling same by the
seller, manufacturer, lessor or licensor thereof;
(ii) All (A) equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without
limitation, all Engines, Rotable Equipment, the equipment (the
"Specified Collateral") described on Schedule "C" and other spare
--------------------- ------------
parts, machinery, aircraft equipment, radio, radar, navigation
systems, or other avionics or electronics equipment installed in or
appurtenant to aircraft or airframes (but excluding any aircraft,
aircraft engines, or aircraft component avionics leased to Grantor),
motor vehicles, furniture, and any and all additions, substitutions,
replacements, and accessions thereof and thereto, and (B) without
limiting the foregoing clause (A), all spare parts, assemblies,
equipment, accessories, appliances, goods and other items, whether now
owned or hereafter acquired by the Grantor, which are rotable in
nature and which are appropriate for installation or use on, in or
with any McDonnell Douglas DC-9 series, including, without limitation,
any MD-80 series, Model Aircraft, including any replacements,
substitutions or renewals therefor and accessories thereto and
including but not limited to: (i) any fans, valves, sensors,
communications,
9
<PAGE>
navigation and radar spare parts, interior components,
landing gear, brakes, wheels, flight control items, avionic parts,
avionic spare parts, computers, panel assemblies, amplifiers,
circuits, transformers, seats, windows, storage bins, bulkhead
assemblies, passenger service units, generators, evacuation slides and
covers, fire detectors, circuit cards, fire extinguishers, drum
assemblies, transmitters, jackshaft assemblies, locks, start
assemblies, doors and door assemblies, light assemblies, alternators,
compasses, antennas, ducts, joints, gauges, fans, windshields,
nozzles, ignitions, engine nose cones, cable assemblies secondary
equipment, PCU rudders, engine indication and gas panels, MLG trucks,
transceivers, mounts, turbine wheels, rudders, crank and shaft
assemblies, motors, transmissions and transmission assemblies,
instrumentation, gearboxes, gear assemblies, stick assemblies, pumps,
clocks, flight data recorders, regulators, transducers, toilets and
lavatory spare parts, ice and rain protection equipment, auxiliary
power units and related equipment and all other spare rotable parts
and other equipment; and (ii) by way of illustration and not
limitation, any specific items or types of such parts, appliances and
other items described on Schedule "E" attached hereto and incorporated
------------
herein by reference or any supplement or amendment thereto supplied
hereunder; and (iii) all substitutions, replacements or renewals
thereof and accessions thereto; (any and all such parts, appliances,
goods or other items and all such parts, replacements, substitutions
and renewals and accessions described in this clause (B) being
referred to herein as the "Rotables");
--------
(c) All now owned and hereafter acquired right, title and interest of
Grantor in, to and in respect of any other personal property or fixtures in or
upon which Secured Party has or may hereafter have a security interest, lien or
right of setoff;
(d) All present and future books and records relating to any of the
above, including, without limitation, all Approval Tags, all service records for
the foregoing, all computer programs (other than programs subject to
confidentiality restrictions), printed output and computer readable data, in any
media, in the possession or control of Grantor, any computer service bureau or
other third party;
(e) All notes, security interests and deeds of trusts or
mortgages in favor of Grantor; and
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(f) All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing and all proceeds (including, without limitation, all proceeds as
defined in the Uniform Commercial Code as adopted in the State of New York),
products, revenue, income, accessions of and to any of the Rotables (including,
without limitation, proceeds of insurance or of any condemnation, confiscation
or requisition with respect to Rotables and any goods (including without
limitation, Rotables and other inventory and equipment), accounts, chattel
paper, general intangibles, money and instruments acquired with proceeds of any
Rotables); any payments under any indemnity, warranty or guaranty payable by
reason of malfunction of, loss or damage to or otherwise with respect to any of
the Rotables and all other amounts from time to time paid or payable with
respect to the Collateral; and, to the extent related to the Rotables, all
Approval Tags, books, logs, records (including, without limitation, computer
programs and computerized records), correspondence, invoices and other materials
in the possession of the Grantor or under the control of the Grantor or any
service company or vendor from time to time having possession thereof or acting
on behalf of the Grantor with respect thereto.
2.4 PRIORITY OF COLLATERAL. The Lien granted on the Collateral
----------------------
pursuant to this Mortgage shall be a first perfected priority security interest,
superior and prior to the rights of all other Persons therein, subject only
until December 31, 1997, to Permitted Liens, including Superior Liens.
"Superior Liens" shall mean the liens of the CIT Security Agreement, the
- ---------------
Anderson Security Agreement and the Midkiff Security Agreement on the CIT
Collateral, the lien of the GPA Mortgage on the GPA Collateral, the lien of the
Credit Card Agreement on the Credit Card Deposit and such other Liens on the
Collateral that by their express terms are superior to the lien of this Mortgage
which Grantor may grant to others from time to time after the date hereof;
provided that at no time shall the outstanding principal amount of the
obligations secured by Superior Liens (other than the lien of the Credit Card
Agreement on the Credit Card Deposit) exceed $15,000,000. On or after January
1, 1998, the Lien granted by this Mortgage shall be a first priority perfected
security interest in the Collateral then subject to this Mortgage superior and
prior to the rights of all the persons therein subject only to Permitted Liens
other than Superior Liens. Secured Party shall, at Grantor's expense, enter
into such inter-creditor agreements as Grantor shall request in order to reflect
the relative interests of Secured Party and the holders of Superior Liens in and
to the Collateral.
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2.5 ADDITIONAL COLLATERAL. Grantor may by written notice to the
---------------------
Secured Party subject additional collateral ("Additional Collateral") to the
Lien of this Mortgage.
2.6 RELEASE OF COLLATERAL. Upon the payment in full of the Note, the
---------------------
mortgage and security interest granted hereby shall terminate and be released
and Secured Party agrees promptly to take any and all actions reasonably
requested by Grantor to terminate its security interests in the Collateral and
return to Grantor all Collateral in Secured Party's possession. On or after
January 1, 1998, the Secured Party shall at Grantor's request release from the
Lien of this Mortgage the items of Collateral specified in a notice (a "Release
-------
Notice") delivered to Secured Party by Grantor; provided that the Collateral
- ------
remaining subject to the Lien of this Mortgage, including any Additional
Collateral subjected to the Mortgage on or prior to the date of such Release
Notice, shall satisfy the requirements of Section 4.10 hereof. In addition, the
Secured Party may at its option release from the Lien of this Mortgage items of
Collateral specified by the Grantor in order to permit the Grantor to obtain
additional financing and the percentage set forth in Section 4.10 shall be
appropriately reduced.
SECTION 3. CERTAIN REPRESENTATIONS AND WARRANTIES
--------------------------------------
Grantor hereby represents and warrants, except as set forth in
Schedule "G" hereto, to Secured Party the following:
- ------------
3.1 OWNERSHIP AND LIENS. The Grantor has full power, authority and
-------------------
legal right to assign, grant a security interest in and mortgage all of the
Collateral as provided by this Mortgage and the Grantor owns all legal and
beneficial right, title and interest in and to the Collateral, free and clear of
any Liens, except Permitted Liens and the Lien of this Mortgage.
3.2 VALID SECURITY INTEREST. This Mortgage has been duly authorized,
-----------------------
executed and delivered by the Grantor and shall be duly filed for recording in
accordance with the Aviation Act against the Rotable Equipment; and, this
Mortgage shall constitute the legal, valid and binding obligation of the Grantor
enforceable against and in accordance with its terms and shall constitute a duly
perfected first priority mortgage on and security interest in the Collateral in
favor of the Secured Party free and clear of all Liens (except Permitted Liens
and the Lien of this Mortgage).
3.3 AUTHORIZATIONS, FILINGS, ETC. Except for (i) the filing for
-----------------------------
recordation pursuant to the Aviation Act of this Mortgage, (ii) the filing
and/or recording of UCC-1 financing statements in the jurisdictions set forth on
Schedule "F", (iii) the taking by the Secured Party of possession to items of
- ------------
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the Collateral, the perfection of a security interest in which can only be
obtained through possession and (iv) filings with the U.S. Patent and Trademark
Office to Grantor's knowledge no authorization, consent, approval or other
action by, and no notice to or filing with, any Governmental Entity or any other
Person is necessary (a) for the grant by Grantor of a perfected security
interest in the Collateral, (b) for the execution, delivery or performance of
this Mortgage by Grantor, (c) to establish and perfect Secured Party's security
interest in and lien on the Collateral, or (d) for the perfection of or the
exercise by Secured Party of its rights and remedies hereunder. To its
knowledge, Grantor's execution, delivery and performance of this Mortgage, and
the grant of the security interest in the Collateral contemplated hereby, do not
and will not: (i) conflict with any material Laws applicable to Grantor, (ii)
conflict with the articles or bylaws of Grantor, or (iii) conflict with or
result in a breach of or default under any material indenture, mortgage,
security agreement, deed of trust, conditional sale agreement, loan or credit
agreement or other agreement which is binding on Grantor or any of its assets or
result in a lien on any of the Grantor's assets except as granted to Secured
Party herein.
3.4 STATUS AS AIR CARRIER. The Grantor is a "citizen of the United
---------------------
States" as defined in the Aviation Act and an air carrier certificated under
Sections 41102 (former Section 401) and 44705 (former Section 604(b)) of the
Aviation Act.
3.5 PRINCIPAL OFFICE. The Grantor's principal place of business and
----------------
chief executive office (as such terms are defined in the Uniform Commercial Code
as adopted in the State of Hawaii) is 3375 Koapaka Street, Suite G350, Honolulu,
Hawaii 96819, and the office where the Grantor keeps its books and records with
respect to the Collateral is located at 3375 Koapaka Street, Suite G350,
Honolulu, Hawaii 96819.
3.6 ORGANIZATION; TRADE NAMES.
-------------------------
(a) Grantor (i) is a corporation duly organized under the laws of the
Territory of Hawaii and is validly existing and in good standing under the laws
of the State of Hawaii, (ii) has complied with all conditions prerequisite to
its lawfully doing business in the states where the Collateral is situated,
(iii) has all requisite corporate power and all material licenses or permits
required by any governmental authority having jurisdiction over Grantor or its
assets and properties to permit Grantor to engage in the businesses in which it
is engaged and to perform and comply with its obligation hereunder, and (iv) has
the authority to execute, deliver and perform this Mortgage.
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(b) Grantor does not own or use any tradename(s) other than Hawaiian
Airlines. Such tradename is owned exclusively by Grantor.
3.7 TITLE. Grantor has and at all times will continue to have good
-----
and marketable title, free from material defects, to all of the Collateral, free
and clear of all Liens except in favor of Secured Party and except, prior to
January 1, 1998 Permitted Liens and except, on or after January 1, 1998,
Permitted Liens other than Superior Liens.
3.8 COMPLIANCE WITH LAWS. Grantor is and at all times will continue
--------------------
to be in compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to its business
(including the Aviation Act and any regulations of the Federal Aviation
Administration ("FAA") promulgated thereunder, and any laws, rules, regulations
and orders relating to taxes, payment and withholding of payroll taxes, employer
and employee contributions and similar items, securities, employee retirement
and welfare benefits, employee health and safety or environmental matters) and
all material agreements or other instruments binding on Grantor or its property,
in each case except to the extent that any noncompliance would not have a
material adverse effect on the business operations or financial condition of
Grantor.
SECTION 4. CERTAIN COVENANTS
-----------------
4.1 REPORTS. Grantor shall keep and maintain its books and records
-------
in accordance with generally accepted accounting principles, consistently
applied. Grantor shall, at its sole expense, deliver to Secured Party:
(a) as soon as possible and in any event within ten (10) days after
the occurrence of an Event of Default (as defined below) or an event that with
notice or the passage of time, or both, would constitute an Event of Default, a
certificate of Grantor, signed by a vice president of Grantor, setting forth in
detail the nature of such event or Event of Default and the action which the
Grantor proposes to take with respect thereto;
(b) from time to time, such information as Secured Party may
reasonably request with respect to the operations of Grantor in order to
determine whether the covenants, terms and provisions of this Mortgage have been
complied with by Grantor;
(c) such information as may be required to enable Secured Party to
file any reports required to be filed with any
14
<PAGE>
Governmental Entity because of Secured Party's interest in the Collateral;
(d) as soon as available, and in any event within sixty (60) days
after the end of each of the first three fiscal quarters, an unaudited balance
sheet of the Grantor and its consolidated subsidiaries, as of the end of such
quarter and related unaudited statements of income and retained earnings of the
Grantor and its consolidated subsidiaries, setting forth in each case in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year;
(e) as soon as available, and in any event within 120 days after the
end of each fiscal year of Grantor, a financial report for the Grantor for such
year, including therein a balance sheet of Grantor as of the end of such fiscal
year and related statements of income and retained earnings and changes in
financial position of the Grantor for such fiscal year, setting forth in each
case in comparative form corresponding figures for the preceding fiscal year,
all in reasonable detail and as certified by the Grantor's public accountants,
including their certificate and accompanying comments; and
(f) promptly upon their becoming available, one copy of each financial
statement, report, notice or proxy statement sent by Grantor to stockholders
generally and of each regular or periodic report, registration statement or
prospectus filed by Grantor with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order issued by any
Governmental Entity in any proceeding in which Grantor is a party.
4.2 INSURANCE. Grantor shall at all times maintain, with financially
---------
sound and reputable insurers, casualty insurance with respect to the Collateral
and Grantor's other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Secured Party and
shall provide for thirty (30) days' prior written notice to Secured Party of
cancellation or reduction of coverage. Grantor hereby irrevocably appoints
Secured Party and any designee of Secured Party as attorney-in-fact for Grantor
to obtain such insurance at Grantor's expense if Grantor does not do so after
demand by Secured Party, and, after an Event of Default, to adjust or settle any
claim or other matter under or arising pursuant to such insurance or to amend or
replace such insurance. Grantor shall deliver to Secured Party evidence of such
insurance and a lender's loss payable endorsement satisfactory to Secured Party
as to all existing and future insurance policies with respect to the Collateral
(other than until July 1, 1998, the CIT Collateral and the GPA Collateral).
15
<PAGE>
4.3 MAINTENANCE OF COLLATERAL.
-------------------------
(a) At Grantor's expense, Grantor shall:
(i) cause the Collateral to be maintained and preserved in good
working order and to the extent applicable, in accordance with an FAA approved
maintenance program and any applicable manufacturer's manual and all
manufacturer recommendations and FAA standards and requirements (including,
without limitation, in compliance with Part 121 of the regulations under the
Aviation Act and all FAA airworthiness directives) and in connection therewith
shall forthwith make or cause to be made such repairs, overhauls replacements
and other improvements in connection therewith which are necessary or desirable
to such end;
(ii) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Collateral,
except as permitted under the definition of Permitted Liens;
(iii) maintain and preserve accurate, complete and current
Approval Tags, records, logs, documents and other materials required to be
maintained in respect of the Rotable Equipment or the Engines by the FAA or
under any other applicable law and in the event Secured Party or a third party
demands possession of any Rotable Equipment or Engine pursuant to Section 5.2
hereof, Grantor will promptly deliver to Secured Party or such third person
copies of all such Approval Tags, records, logs, documents and other materials;
and
(iv) not permit any item of Collateral to be maintained, used or
operated in violation of any law or in violation of any airworthiness
certificate, license or registration issued by any Governmental Entity.
(b) At such times as Secured Party may reasonably request and in the
manner specified by Secured Party, Grantor shall deliver to Secured Party or
Secured Party's representative, as Secured Party shall designate, copies of
invoices, agreements, proofs of rendition of services and delivery of goods and
other documents evidencing or relating to the transactions which gave rise to
accounts constituting a part of the Collateral or other Collateral, together
with customer statements, schedules describing the accounts constituting a part
of the Collateral or other Collateral and/or statements of account and
confirmatory assignments to Secured Party of the accounts constituting a part
of the Collateral or other Collateral, in form and substance satisfactory to
Secured Party and duly executed by Grantor. In no event shall any such schedule
or confirmatory assignment (or the absence thereof or omission of any of the
accounts
16
<PAGE>
constituting a part of the Collateral or other Collateral
therefrom) limit or in any way be construed as a waiver, limitation or
modification of the security interests or rights of Secured Party or the
warranties, representations and covenants of Grantor under this Mortgage. Any
documents, schedules, invoices or other paper delivered to Secured Party by
Grantor may be destroyed or otherwise disposed of by Secured Party six (6)
months after receipt by Secured Party, unless Grantor requests their return in
writing in advance and makes prior arrangements for their return, at Grantor's
expense.
(c) From time to time as reasonably requested by Secured Party, at the
sole expense of Grantor, Secured Party or its designee shall have complete
access to all of the premises where Collateral is located for the purposes of
inspecting the Collateral, including Grantor's books and records with respect to
the Collateral and the Obligations, and Grantor shall permit Secured Party or
its designee to make such copies of such books and records or extracts therefrom
as Secured Party may request. To the extent that any such Collateral is located
at premises within the control of third parties, Grantor shall use its best
efforts to cause Secured Party to have reasonable access to such premises of
such third persons and to such Collateral located thereon.
4.4 BOOKS AND RECORDS. Grantor's books and records concerning
-----------------
accounts constituting a part of the Collateral and its chief executive office
are and shall be maintained only at the address set forth in Section 7.1.
Grantor's only other places of business and the only other locations of
Collateral, if any, are and shall be the addresses set forth in Schedules
---------
"E","H" and "I" and Annex A to Schedule "C", respectively, except Grantor may
- ------- --- -------------
change such locations or open a new place of business after thirty (30) days'
prior written notice to Secured Party. Prior to any change in location or
opening of any new place of business, Grantor shall execute and deliver or cause
to be executed and delivered to Secured Party such financing statements,
financing documents and security and other agreements as Secured Party may
require.
4.5 ATTORNEY-IN-FACT. Grantor hereby appoints Secured Party and any
----------------
designee of Secured Party as Grantor's attorney-in-fact and authorizes Secured
Party or such designee, at Grantor's sole expense, to exercise at any time
during the continuance of an Event of Default in Secured Party's or such
designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) receive, take, endorse, assign,
deliver, accept and deposit, in the name of Secured Party or Grantor, any and
all cash, checks, commercial paper, drafts, remittances and other instruments
and documents relating to the Collateral or the proceeds thereof;(b) transmit
17
<PAGE>
to account debtors, other obligors or any bailee's notice of the interest of
Secured Party in the Collateral or request from account debtors or such other
obligors or bailees at any time, in the name of Grantor or Secured Party or any
designee of Secured Party, information concerning the Collateral and any amounts
owing with respect thereto; (c) notify account debtors or other obligors to make
payment directly to Secured Party, or notify bailees as to the disposition of
Collateral; (d) take or bring, in the name of Secured Party or Grantor, all
steps, actions, suits or proceedings deemed by Secured Party necessary or
desirable to effect collection of or other realization upon the accounts
constituting a part of the Collateral and other Collateral; (e) change the
address for delivery of mail to Grantor and to receive and open mail addressed
to Grantor (except mail from Grantor's counsel); (f) extend the time of payment
of, compromise or settle for cash, credit, return of merchandise, and upon any
terms or conditions, any and all accounts constituting a part of the Collateral
or other Collateral which includes a monetary obligation and discharge or
release the account debtor or other obligor, without affecting any of the
Obligations; and (g) execute in the name of Grantor and file against Grantor in
favor of Secured Party financing statements or amendments with respect to the
Collateral.
4.6 LIABILITY. Grantor hereby releases and exculpates Secured Party,
---------
its officers, employees and designees, from any liability arising from any acts
under this Mortgage or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for liability arising from Secured
Party's gross negligence, bad faith or willful misconduct. In no event will
Secured Party have any liability to Grantor for lost profits or other special or
consequential damages.
4.7 FEES AND EXPENSES. Grantor shall pay, on Secured Party's demand,
-----------------
all costs, expenses, fees, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Secured Party's rights
in the Collateral, this Mortgage and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims by or against Secured Party
directly or indirectly arising out of or related to the relationship between
Grantor and Secured Party, including, but not limited to, the following, whether
incurred before, during or after the initial or any renewal Term or after the
commencement of any case with respect to Grantor under the United States
Bankruptcy Code or any similar statute: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement
18
<PAGE>
filing taxes and fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title insurance and other
insurance premiums, appraisal fees, search fees and fees incurred in connection
with any environmental report, audit, survey, or remediation; and (c) the costs,
fees and disbursements of in-house and outside counsel to Secured Party,
including but not limited to such fees and disbursements incurred as a result of
litigation between the parties hereto, any third party and in any appeals
arising therefrom.
4.8 FURTHER ASSURANCES.
------------------
(a) At the reasonable request of Secured Party, at any time and from
time to time, at Grantor's sole expense, Grantor shall execute and deliver or
cause to be executed and delivered to Secured Party, such agreements, documents
and instruments, including waivers, consents and subordination agreements from
landlords, bailees, mortgagees or other holders of loans due from Grantor or
security interests or liens in the Collateral, and do or cause to be done such
further acts as Secured Party, in its discretion, deems necessary or desirable
to create, preserve, perfect or validate any security interest of Secured Party
or the priority thereof in the Collateral and otherwise to effectuate the
provisions and purposes of this Mortgage.
(b) The Grantor agrees that it will promptly correct any defect or
error that may be discovered in any document delivered in connection with this
Mortgage to which it is a party or in the execution, acknowledgment or
recordation thereof.
(c) The Grantor agrees that from time to time, at its own expense,
promptly upon request by the Secured Party, it also will do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and re-
register, any and all such further acts, deeds, conveyances, mortgages, deeds of
trust, trust deeds, assignments, estoppel certificates, financing statements and
continuations thereof, notices of assignment, transfers, certificates,
assurances and other instruments as the Secured Party may reasonably require
from time to time in order (i) to carry out more effectively the purposes of
this Mortgage, (ii) to subject to the Lien created by this Mortgage any of its
properties, rights or interests covered or now or hereafter intended to be
covered by this Mortgage, (iii) to perfect and maintain the validity,
effectiveness and priority of this Mortgage and the Lien intended to be created
hereby, (iv) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm unto the Secured Party the rights granted or now or
hereafter intended to be granted to the Secured Party under this Mortgage or
under any other instrument executed in connection with this Mortgage, and (v) to
enable the Secured Party to
19
<PAGE>
exercise and enforce its rights and remedies hereunder with respect to any
Collateral.
(d) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A carbon, photographic or other reproduction of this Mortgage
or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. The Secured Party
shall promptly notify the Grantor of any such filings.
(e) The Grantor shall not change its name or do business under any
other name, shall not change the location of its principal place of business,
chief executive office and the office where it keeps its books and records as
set forth in Section 3.5 hereof except after at least 30 days prior written
notice thereof to the Secured Party and with respect to such location if the
Grantor shall have taken all action in a manner reasonably satisfactory to the
Secured Party to maintain the security interest intended to be granted hereunder
in the Collateral fully perfected as a first-priority security interest and in
full force and effect, and shall at all times maintain its status as an air
carrier certificated under Sections 41102 (former Section 401) and 44705 (former
Section 604(b)) of the Aviation Act.
(f) The Grantor shall make appropriate entries in its financial
statements and in its books and records disclosing the Secured Party's security
interest in the Collateral.
4.9 RECORDATION AND FILING; OPINIONS OF COUNSEL.
-------------------------------------------
(a) The Grantor will, at its own cost and expense, cause this Mortgage
and any and all additional instruments which shall be executed pursuant to the
terms hereof, so far as permitted by applicable Law, to be kept, filed and
recorded and to be re-executed, refiled and re-recorded at all times in the
office of the FAA, pursuant to the Aviation Act and the regulations thereunder,
and in such other places in the United States and elsewhere as is necessary or
as the Secured Party may reasonably request, in order to perfect and preserve
the Lien of this Mortgage in the priority contemplated hereunder and to protect
the security and the rights of the Secured Party, and will furnish to the
Secured Party opinions of FAA counsel and local counsel reasonably satisfactory
to the Secured Party or other evidence reasonably satisfactory to the Secured
Party of such perfection, priority, filing or refiling, recordation or re-
recordation as necessary or as the Secured Party may reasonably request
hereunder.
20
<PAGE>
(b) Without limitation of the foregoing, the Grantor will execute and
file such financing statements in each jurisdiction listed on Schedule "F"
------------
hereto and any other jurisdiction as may be necessary or, in the reasonable
opinion of the Secured Party, desirable or required to perfect the Lien
hereunder in favor of the Secured Party and will conduct a search of such
financing statements previously on file to ensure priority of such security
interest and lien. The Grantor will execute and file such financing or
continuation statements, or amendments thereto, as may be required with respect
to any financing statements as have been filed.
4.10 COLLATERAL COVERAGE. Subject to the last sentence of Section
-------------------
2.6, on the date of each Release Notice and on January 1, 1998 and each January
31 commencing on January 31, 1998, the Appraised Value of the Collateral shall
be equal to or greater than 125% of the outstanding principal amount of the Note
on such date.
4.11 DISPOSITION OF COLLATERAL. Without the prior written consent of
-------------------------
the Secured Party, not to be unreasonably withheld, Grantor shall not directly
or indirectly sell, lease, transfer, assign, abandon or otherwise dispose
(collectively, a "disposition") of any part of the Collateral other than (i)
-----------
dispositions of inventory and equipment in the ordinary course of business, (ii)
prior to January 1, 1998, dispositions of the CIT Collateral permitted by, and
made in compliance with, the CIT Security Agreement, (iii) prior to January 1,
1998, sales of the GPA Collateral permitted by, and made in compliance with, the
GPA Mortgage and (iv) after January 1, 1998, dispositions of items of the
Collateral, provided that Grantor shall have, prior to such disposition,
subjected to the Lien of this Mortgage, Additional Collateral, the Appraised
Value of which has an Appraised Value together with the Appraised Value of all
other Collateral then subject to this Mortgage equal to or greater than 125% of
the outstanding principal amount of the Note on the date of such disposition.
4.12 FINANCIAL COVENANTS
-------------------
(a) Grantor will not permit any Subsidiary to issue capital stock to
any person (other than to Grantor or a wholly-owned Subsidiary) or to declare or
pay dividends or distributions on or repurchase or redeem any capital stock of
any Subsidiary (other than to declare and pay dividends or distributions on or
repurchase or redeem capital stock owned by Grantor or a wholly-owned
Subsidiary).
(b) As of the end of each fiscal year, based on the audited financial
statements of Grantor for such fiscal year, Grantor shall have a Tangible Net
Worth of not less than $20,000,000.
21
<PAGE>
(c) Grantor will not, and will not permit any Subsidiary to, directly
or indirectly, (i) declare or pay any dividend on, or make any distribution on
account of, any shares of capital stock of Grantor (other than those payable in
shares of capital stock of, or rights, warrants or options to purchase capital
stock of Grantor), (ii) purchase, redeem or otherwise acquire or retire for
value any shares of capital stock of Grantor or any option, warrant or other
right to acquire any such capital stock (other than shares of Class A Common
Stock of Grantor or Class B Common Stock of Grantor purchased, redeemed or
otherwise acquired from shareholders of record on the date hereof (except
Airline Investors Partnerhip, L.P.) that are also creditors of Grantor on the
date hereof for a consideration not to exceed $5,000,000 in the aggregate during
the period from the date hereof to December 31, 1997), (iii) make any principal
payment on, or redeem, repurchase, defease or otherwise acquire or retire for
value subordinated Indebtedness, other than scheduled maturity, sinking fund or
mandatory redemption payments on subordinated Indebtedness (or other
acquisitions of such Indebtedness in anticipation thereof), or (iv) make any
Restricted Investments (collectively "Restricted Payments"), unless at the time
thereof and after giving effect thereto no Event of Default shall have occurred
and be continuing, and the aggregate amount of all Restricted Payments (without
duplication) subsequent to the Closing Date does not exceed the sum of:
(i) 50% of cumulative Consolidated Net Income from December 31, 1995
(or, if a loss, minus 100% of such loss), plus
(ii) the aggregate net cash proceeds and the fair market value of
property other than cash received by Grantor from the issuance and sale (other
than to a Subsidiary) of capital stock or warrants, rights or options to
purchase such capital stock (other than redeemable capital stock), plus
(iii) the aggregate net cash proceeds and the fair market
value of property other than cash received by Grantor from the issuance and sale
(other than to a Subsidiary) of capital stock upon the conversion of, or
exchange for, Indebtedness or redeemable capital stock of Grantor or a
Subsidiary or from the exercise of any options, warrants or other rights to
acquire capital stock of Grantor. Restricted Payments shall not include the
purchase by Grantor of capital stock under options where the proceeds are used
by the optionee to purchase additional capital stock pursuant to other options.
(d) Grantor will not, and will not permit any Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
or enter into any agreement with any person to restrict the ability of any such
Subsidiary to (a) pay dividends, (b) pay indebtedness owed to Grantor or any
other Subsidiary, (c) make loans or advances to
22
<PAGE>
Grantor or any other Subsidiary, (d) transfer property or assets to Grantor or
any other Subsidiary or (e) guarantee the Note or any renewals, extensions,
refinancing or refundings thereof.
(e) Grantor will not, and will not permit or cause any Subsidiary to,
enter into transactions with Affiliates of Grantor (other than Subsidiaries)
unless: (i) such transaction is on terms no less favorable than would be
available in a comparable transaction with an unrelated third party; (ii) such
transaction relates to and is in the furtherance of Grantor's then existing line
of business or is in the ordinary course of business; and (iii) (A) with respect
to transactions involving aggregate payments in excess of $1,000,000, Grantor or
its Subsidiary receive the approval by a majority of the Board of Directors of
Grantor; and (B) with respect to transactions in excess of $20,000,000 Grantor
or its Subsidiary also receives an opinion from a nationally recognized
investment banking firm (which shall include Jefferies & Company, Inc.) that
such transaction is fair to Grantor or such Subsidiary from a financial point of
view.
(f) Grantor will not, and will not permit or cause any Subsidiary to
make any payment or transfer any of its assets to an Affilliate if such payments
or assets have an aggregate value in excess of $1,000,000 in any consecutive
twelve month period (other than the repayment of principal of, or interest on,
Indebtedness of Grantor, or a Subsidiary to such Affiliate) unless Grantor also
receives an opinion from a nationally recognized investment banking firm (which
shall include Jefferies & Company, Inc.) that such payment or transfer is fair
to Grantor or such Subsidiary from a financial point of view .
SECTION 5. EVENTS OF DEFAULT AND REMEDIES
------------------------------
5.1 EVENTS OF DEFAULT. All Obligations shall be immediately due and
-----------------
payable, without notice or demand, at Secured Party's option, upon or at any
time after the occurrence or existence of any one or more of the following
(each, an "Event of Default"):
(a) Grantor fails (i) to pay any of the Obligations prior to the
expiration of any grace period therefor or (i) to perform any of the terms of
this Mortgage or any other existing or future agreement or document executed by
Grantor in favor of Secured Party in connection with this Mortgage and such
failure to perform shall continue unremedied for a period of thirty (30)
Business Days after written notice thereof to Grantor by the Secured Party or
any Beneficiary;
(b) Any material representation, warranty or statement of fact made by
Grantor in this Mortgage, the Note or
23
<PAGE>
any American Agreement shall prove to have been materially inaccurate or
misleading when made;
(c) Grantor shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Grantor shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Grantor shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Grantor in any such proceeding,
or Grantor by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Grantor shall take any corporate action to authorize any of the foregoing; or
(d) A petition against Grantor in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and any
decree or order adjudging Grantor a bankrupt or insolvent in such proceeding
shall remain in force undismissed and unstayed for a period of sixty (60) days
after such adjudication or, in the case the approval of such petition by a court
of competent jurisdiction is required, the petition as filed or amended shall be
approved by such a court as properly filed and such approval shall not be
withdrawn and the proceeding shall not be dismissed within sixty (60) days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to Grantor, any court of competent
jurisdiction shall enter an order or decree assuming custody or control of
Grantor or of any substantial part of its property and such custody or control
remains in force unrelinquished, unstayed and unterminated for a period of
thirty (30) days; or
(e) The Secured Party's Lien, mortgage or security interest in
any of the Collateral should become unenforceable; or
(f) An Event of Default occurs and is continuing under the Note
or any of the Long Term Agreements.
5.2 REMEDIES. Upon the occurrence of an Event of Default and at any
--------
time thereafter, Secured Party shall have all rights and remedies provided in
this Mortgage, any other agreements between Grantor and Secured Party, the
Uniform Commercial Code or other applicable law, all of which rights and
remedies may be exercised without notice to Grantor, all such
24
<PAGE>
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under applicable law. All rights and remedies of
Secured Party are cumulative and not exclusive and are enforceable, in Secured
Party's discretion, alternatively, successively or concurrently on any one or
more occasions and in any order Secured Party may determine. Without limiting
the foregoing, Secured Party may (a) accelerate the payment of all Obligations
and demand immediate payment thereof to Secured Party; (b) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral; (c) require Grantor, at Grantor's expense, to
assemble and make available to Secured Party any part or all of the Collateral
at any place and time designated by Secured Party; (d) collect, foreclose,
receive, appropriate, set off and realize upon any and all Collateral; (e)
extend the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts constituting
a part of the Collateral or other Collateral which includes a monetary
obligation and discharge or release the account debtor or other obligor, without
affecting any of the Obligations; and (f) sell, lease, transfer, assign, deliver
or otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, by public or private sales at any
exchange, broker's board, any office of Secured Party or elsewhere) at such
prices or terms as Secured Party may deem reasonable, for cash, upon credit or
for future delivery, with the Secured Party having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Grantor, which
right or equity of redemption is hereby expressly waived and released by
Grantor. If any of the Collateral is sold or leased by Secured Party upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Secured Party. If notice
of disposition of Collateral is required by law, five (5) days' prior notice by
Secured Party to Grantor designating the time and place of any public sale or
the time after which any private sale or other intended disposition of
Collateral is to be made shall be deemed to be reasonable notice thereof and
Grantor waives any other notice. If Secured Party institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Grantor waives the posting of any bond which might otherwise be
required.
5.3 APPLICATION OF PROCEEDS. During the continuance of an Event of
-----------------------
Default, Secured Party may apply the cash proceeds of Collateral actually
received by Secured Party from any sale, lease, foreclosure or other disposition
of the Collateral to payment of any of the Obligations, in whole or in part
(including
25
<PAGE>
reasonable attorneys' fees and legal expenses incurred by Secured Party with
respect thereto or otherwise chargeable to Grantor) and in such order as Secured
Party may elect, whether or not then due. Grantor shall remain liable to Secured
Party for the payment of any deficiency together with interest at the highest
rate provided for in the Note and all costs and expenses of collection or
enforcement, including reasonable attorneys' fees and legal expenses.
5.4 SECURED PARTY'S CURE OF THIRD PARTY AGREEMENT DEFAULT. During
-----------------------------------------------------
the continuance of an Event of Default, Secured Party may, at its option, cure
any default by Grantor under any agreement with a third party or pay or bond on
appeal any judgment entered against Grantor, discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and pay any amount incur any expense or perform any act which,
in Secured Party's sole judgment, is necessary or appropriate to preserve,
protect, insure, maintain or realize upon the Collateral. Such amounts to be
Obligations secured hereby and repayable by Grantor on demand. Secured Party
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Grantor under such third party agreement.
5.5 SECURED PARTY'S RIGHT TO PERFORM FOR THE GRANTOR. If the Grantor
------------------------------------------------
fails to perform or comply with any of its agreements contained herein, the
Secured Party may perform or comply with such agreement, and the amount of the
costs and expenses actually incurred in connection with the performance of or
compliance with such agreement shall be payable by the Grantor on demand and
shall be secured by the Lien of this Mortgage. The Secured Party agrees to
provide the Grantor with notice of any performance by the Secured Party taken
pursuant to this Section 5.5; provided, that the failure to give such notice
--------
shall not affect the validity or effectiveness of such performance nor create
any liability on the part of the Secured Party.
SECTION 6. JURY TRIAL WAIVER: CERTAIN OTHER WAIVERS AND CONSENTS
------------------------------------------------------
6.1 JURY TRIAL WAIVER. GRANTOR AND SECURED PARTY EACH IRREVOCABLY
-----------------
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY
EITHER OF THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
MORTGAGE, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTUOUS CONDUCT BY
GRANTOR OR SECURED PARTY, OR IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF
OR RELATES TO THE RELATIONSHIP BETWEEN GRANTOR AND SECURED PARTY AND IN NO EVENT
WILL SECURED PARTY BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL
DAMAGES.
26
<PAGE>
6.2 COUNTERCLAIMS. Grantor waives all rights to interpose any
-------------
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Secured Party with respect to this
Mortgage, the Obligations, the Collateral or any matter arising therefrom or
relating thereto, except compulsory counterclaims.
6.3 JURISDICTION.
------------
(a) Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of: (i) the United States District Court for the Northern District
of Texas, and of the courts of the State of Texas in Tarrant County, and (ii) to
the United States District Court for the District of Hawaii, and of the courts
of the State of Hawaii in Honolulu County, for the purposes of any suit, action
or other proceeding arising out of this Mortgage or the subject matter hereof
brought by any other party, and (iii) any federal, state or foreign court of
competent jurisdiction where the Collateral may be located from time to time for
the purpose of Secured Party exercising any rights and remedies under this
Mortgage, including, without limitation, repossession of the Collateral.
Secured Party and Grantor each agrees that neither of them will bring any suit,
action or other proceeding arising out of this Mortgage, the subject matter
herein, or any of the transactions described herein, in any jurisdiction other
than the jurisdictions described above.
(b) To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or otherwise, in
any such suit, action or proceeding, any claim (i) that it is not personally
subject to the jurisdiction of the above-named courts, (ii) that the suit,
action or proceeding is brought in an inconvenient forum, (iii) that it is
immune from any legal process with respect to itself or its property, (iv) that
the venue of the suit, action or proceeding is improper, or (v) that this
Mortgage or the subject matter hereof may not be enforced in or by such courts;
(c) Grantor hereby designates CT Corporation in Texas as its
agent for service of process in Texas, and Secured Party hereby designates CT
Corporation in Hawaii as its agent for service of process in Hawaii. Secured
Party and Grantor each agrees that submission to jurisdiction and designation of
an agent for service of process set forth above is made solely for the express
benefit of the other party and is effective solely for purposes of this
Mortgage;
(d) Final judgment against a party in any suit in any court of
competent jurisdiction shall be conclusive, and may be enforced in other
jurisdictions, to the extent permitted by applicable law, by suit on the
judgment, a certified and true copy of which, to the extent permitted by
applicable law, shall
27
<PAGE>
be conclusive evidence of the fact and the amount of any indebtedness or
liability of the party therein described; and
(e) To the extent that any party or any of its property is or
becomes entitled at any time to any immunity on the grounds of sovereignty or
otherwise, from any legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of execution,
or from jurisdiction, that party for itself and its property does hereby
irrevocably and unconditionally waive, and agrees not to plead or claim any such
immunity with respect to its obligations, liabilities or any other matter
arising hereof. Such agreement shall be irrevocable and not subject to
withdrawal in any and all jurisdictions including under the Foreign Sovereign
Immunities Act of 1976 of the United States of America.
6.4 NO WAIVER BY SECURED PARTY. Secured Party shall not, by any act,
--------------------------
delay, omission or otherwise be deemed to have expressly or impliedly waived any
of its rights or remedies unless such waiver shall be in writing and signed by
an authorized officer of Secured Party. A waiver by Secured Party of any right
or remedy on any one occasion shall not be construed as a bar to or waiver of
any such right or remedy which Secured Party would otherwise have on any future
occasion, whether similar in kind or otherwise.
SECTION 7. MISCELLANEOUS
-------------
7.1 NOTICES. All notices, offers, acceptances, approvals, waivers,
-------
requests, demands and other communications hereunder or under any instrument,
certificate or other instrument delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (a) if delivered in person, (b) if sent by
overnight delivery service (including, without limitation, Federal Express, UPS,
Emery, Purolator, DHL, Air Borne, and other similar overnight delivery
services), (c) if sent by telecopier (upon receipt by the sender thereof of
evidence that a clean transmission of such telecopy was made to the recipient
thereof) and, in such case, dispatching a copy of such notice by the methods
described in clause (a) or (b) above. All notices shall be effective upon
delivery; provided that if any notice is tendered to an addressee, such notice
--------
shall be effective upon tender. For the purposes of notice the addresses shall
be as set forth below; provided, that any party shall have the right to change
--------
its address for notice hereunder to any other location by giving thirty (30)
days' notice to the other parties in the manner set forth hereinabove. The
initial addresses of the parties hereto are as follows:
28
<PAGE>
If to Secured Party: American Airlines, Inc.
- ------------------- 4333 Amon Carter Boulevard
MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate
Development and Treasurer
Telecopier: (817) 967-2199
Telephone: (817) 967-1227
With copies to: American Airlines, Inc.
- -------------- 4333 Amon Carter Boulevard
MD 5675
Ft. Worth, Texas 76155
Attention: Corporate Secretary
Telecopier: (817) 967-4313
Telephone: (817) 967-1254
If to Grantor: Hawaiian Airlines, Inc.
- ------------- 3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-Finance
Telecopier: (808) 836-4795
Telephone: (808) 835-3075
With Copies to: Hawaiian Airlines, Inc.
______________ 3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-General Counsel
Telecopier: (808) 835-3690
Telephone: (808) 835-3610
7.2 SEVERABILITY. If any provision of this Mortgage is held to be
------------
invalid or unenforceable, such provision shall not affect this Mortgage as a
whole, but this Mortgage shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
7.3 AMENDMENTS; ASSIGNMENTS. Neither this Mortgage nor any provision
-----------------------
hereof shall be amended, modified or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer of Secured
Party. This Mortgage shall be binding upon and inure to the benefit of each of
the parties hereto and their respective successors and assigns.
7.4 CONTINUING LIEN AND SECURITY INTEREST; TRANSFERS. This Mortgage
------------------------------------------------
shall create a continuing lien and security interest in the Collateral and shall
(a) remain in full force and effect until the occurrence of the full release of
the Collateral to the Grantor, (b) be binding upon the Grantor, its successors
and assigns, and (c) inure, together with the rights and remedies
29
<PAGE>
of the Secured Party and the Beneficiaries hereunder, to the benefit of the
Secured Party and the Beneficiaries and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), the
Beneficiaries may assign or otherwise transfer one or more of the Note or the
American Agreements as and to the extent provided therein to any other Person,
and such other Person shall thereupon become vested with all or part of the
benefits in respect thereof granted to Secured Party and the Beneficiaries
herein or otherwise, to the extent such benefits are transferred to such
transferee. Upon any such release or transfer, the Secured Party will, at the
Grantor's expense, promptly execute and deliver to the Grantor such documents as
the Grantor shall reasonably request to evidence such release or transfer.
7.5 GOVERNING LAW. This Mortgage shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
7.6 COUNTERPARTS. This Mortgage may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Mortgage.
30
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have duly executed this Mortgage
as of the date first set forth above.
SECURED PARTY: GRANTOR:
- ------------- -------
AMERICAN AIRLINES, INC., a HAWAIIAN AIRLINES, INC.,
Delaware corporation a Hawaii corporation
By:_________________________ By:______________________________
Title:______________________ Title:___________________________
By:______________________________
Title:___________________________
31
<PAGE>
SCHEDULE "A"
LONG TERM AGREEMENTS
--------------------
(i) the Aircraft Lease Agreement (the "Aircraft Lease"), dated as of
September 12, 1994, as amended, with American Airlines, Inc. ("American"),
(ii) the AAdvantage/(R)/ Participating Carrier Agreement (the
"AAdvantage Agreement"), dated as of September 12, 1994, with American, as
amended,
(iii) the Flight Operating System Agreement (the "FOS Agreement"),
dated as of September 12, 1994, with Sabre Decision Technologies, a Division of
The Sabre Group, Inc. ("SDT"), as amended,
(iv) the Master Equipment Lease Agreement (the "Equipment Lease"),
dated as of September 12, 1994, with SDT, as amended,
(v) the Confidential Multihost Agreement (the "Multihost Agreement"),
dated as of September 12, 1994, with SDT, as amended,
(vi) the Aircraft Lease Agreement (the "151 Lease"), dated as of
December 15, 1995, with American, as amended,
(vii) the Aircraft Lease Agreement (the "161 Lease"), dated as of
December 30, 1995, with American, as amended, and
(viii) the Ancillary Agreements (as defined in the Aircraft Lease).
<PAGE>
SCHEDULE "B"
ENGINES
-------
Pratt & Whitney JT8D-17 Aircraft Engine Manufacturer's Serial No. 688408
Pratt & Whitney JT8D Aircraft Engine Manufacturer's Serial No. P702758
Pratt & Whitney JT3D Aircraft Engine Manufacturer's Serial No. 671254
Pratt & Whitney JT3D Aircraft Engine Manufacturer's Serial No. 671326
Each of which aircraft engines has 750 or more rated takeoff horsepower or the
equivalent.
NA960250.041/14 D-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE "C"
SPECIFIED COLLATERAL
--------------------
ASSET ID # CAB # DESCRIPTION CCN S/N LOCATION/1/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
00R12951 1608110 Integrated Driver Generator 2402060 0623 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R11323 1608110 Integrated Driver Generator 2402060 144 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R11324 1608110 Integrated Driver Generator 2402060 5084 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R09788 1608110 Auxiliary Power Unit (A.P.U.) 4900897 55080 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R11449 1608110 Auxiliary Power Unit (A.P.U.) 4900897 JJ55273 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R11053 1608110 Integrated Drive Generator 2402060 5133 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R10743 1608110 A.P.U. Generator 4900967 163DL *
- ------------------------------------------------------------------------------------------------------------------------------------
00R12997 1608110 Auxiliary Power Unit (A.P.U.) 4900897 55107 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R14898 1608160 Auxiliary Power Unit (A.P.U.) 4990891 P607 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R14899 1608160 Auxiliary Power Unit (A.P.U.) 4990891 P859 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU057 1632000 Aircraft Air Conditioner 91AX2031115 *
20DE171520D
E
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0215 163200 1973 Ford & Ground Power Unit F602330V8 *
- ------------------------------------------------------------------------------------------------------------------------------------
00RT0022 163200 1985 Ford F350 Truck Y8FNA56842 *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Specified Collateral, is maintained at the locations set forth in Annex
A to this Schedule "C" and at the locations specified in Schedule "I"
hereto.
<PAGE>
<TABLE>
<CAPTION>
ASSET ID # CAB # DESCRIPTION CCN S/N LOCATION/1/
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
00FB0026 163200 Cochran Belt Loader S-25-10047 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0027 163200 Belt Loader TC886G-459 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0025 163200 Cochran Belt Loader 3-25-100 *
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0113 163200 GPU mounted on 1975 Chevy M6CV101774 *
- ------------------------------------------------------------------------------------------------------------------------------------
000LB001 163200 Utility Vehicle 3745 *
- ------------------------------------------------------------------------------------------------------------------------------------
00TO0092 163200 Clark CTA6 Tractor N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
00OLB012 163200 FMC JCPL Loader N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0029 163200 Belt Loader NBC887-197 *
- ------------------------------------------------------------------------------------------------------------------------------------
00LB0008 163200 JCPL FMC Loader H1620010 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU059 163200 Aircraft Air Conditioner 91AX19792152 *
ODE28152ODE
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0034 163200 Model 4009 Belt Loader 6154 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0031 163200 Nordco MDL 4009 Belt Loader 6082 *
- ------------------------------------------------------------------------------------------------------------------------------------
00TO0082 163200 Tow Tractor 389-402-00609 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0032 163200 Nordco MDL 4009 Belt Loader 6083 *
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0118 1632000 1986 Nordco Lav Truck 2GKA64468 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0033 1632000 Nordco MDL 4009 Belt Loader 6084 *
- ------------------------------------------------------------------------------------------------------------------------------------
00LB0004 1632000 1979 Intl Harv Lift Bed JHB33642 *
- ------------------------------------------------------------------------------------------------------------------------------------
00OT0101 1632000 T-400 Tow Tractor T400-1017 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU0052 1632000 Engine Start Unit 447 *
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0101 1632000 110-Ton Air Condition Truck N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ASSET ID # CAB # DESCRIPTION CCN S/N LOCATION/1/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
00PT0097 1632000 1962 Ford Air Starter E1HTH265619 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0030 1632000 Belt Loader NBC887-198 *
- ------------------------------------------------------------------------------------------------------------------------------------
00TO0064 1632000 4669 Tow Tractor 3890402U000
806 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU058 1632000 Aircraft Air Conditioner 91AX1979215
2ODE281520D
E *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0035 1632000 1976 Wollard Belt Loader 344 *
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0068 1632000 4009 MOD 72 FMC Sweeper 1FDJF37Z5LR *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0035 1632000 1984 Wollard TC 886 Belt Loader N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU051 1632000 Engine Start Unit 446 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FB0028 1632000 Belt Loader TC886G-460 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU038 1632000 Deutz Ground Power Unit 5558-9002915 *
- ------------------------------------------------------------------------------------------------------------------------------------
00FO0051 1632000 1986 Yale Forklift L-429345 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU054 1632000 44 Ton Ground Power Unit 90AX1891-1-
4490-14490 *
- ------------------------------------------------------------------------------------------------------------------------------------
00PT0205 1632000 Columbia Shuttle (SB P96) 2M1002809 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU047 1632000 Trailer Mounted Ground Power Unit 9-108 *
- ------------------------------------------------------------------------------------------------------------------------------------
00LB0003 1632000 FMC Loader PL284176 *
- ------------------------------------------------------------------------------------------------------------------------------------
00GPU062 1632000 1991 Air-a-Plane model 15/20 Air Conditioning 91AX1986-1-
unit trailer mounted 1520DE-38 *
- ------------------------------------------------------------------------------------------------------------------------------------
12909 1633000 Smart works Trunking Radio System N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ASSET ID # CAB # DESCRIPTION CCN S/N LOCATION/1/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GPU-63 1632000 Air Conditioner unit trailer mounted 91AX1986-3-
15-20DE-40 *
- ------------------------------------------------------------------------------------------------------------------------------------
00R15422 1608560 DC-9 Thrust Reverser N/A *
- ------------------------------------------------------------------------------------------------------------------------------------
Tug MC18 Pushback Tractor *
- ------------------------------------------------------------------------------------------------------------------------------------
Tug MC18 Pushback Tractor *
- ------------------------------------------------------------------------------------------------------------------------------------
Int'l Harvester Tow Tractor *
- ------------------------------------------------------------------------------------------------------------------------------------
Lavatory Truck *
- ------------------------------------------------------------------------------------------------------------------------------------
1990 Dodge Van 2B7FK113XLR
641623 *
- ------------------------------------------------------------------------------------------------------------------------------------
1987 GMC Van 1GTDM15Z8HB
507036 *
- ------------------------------------------------------------------------------------------------------------------------------------
JCPL Loader *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
ANNEX A
TO
SCHEDULE "C"
The Specified Collateral is maintained at the following locations:
Turbopower, Inc.
14620 N.W. 60th Avenue
Miami Lake, Florida 33014
Spectrum Aerospace, Inc.
1917 West 3rd Street
Building 101
Tempe, Arizona 85281
Pacific Airmotive Corporation
2940 North Hollywood Way
Burbank, California 91503
San Francisco International Airport
San Francisco, California
391 Aokea Street
Honolulu International Airport
Honolulu, Hawaii
200 World Way
Los Angeles International Airport
Los Angeles, California
Pan Am Annex
Room 104
San Francisco International Airport
San Francisco, California
Sun Strand Aviation Operations
4950 American Road
Rockford, Illinois 91125-7002
Garrett Airline Services Division
2617 South 46th Street
Phoenix, Arizona 85034
Hilo International Airport
Hilo, Hawaii
1
<PAGE>
Kahului Airport
Kahului, Maui, Hawaii
Keahole Airport
Kona, Hawaii
Lihue Airport
Lihue, Kauai, Hawaii
Molokai Airport
Molokai, Hawaii
Kapalua-West Maui Airport
Mahinahina, Maui, Hawaii
Honolulu International Airport
Honolulu, Hawaii
Los Angeles International Airport
Los Angeles, California
Lanai Airport
Lanai, Hawaii
Seattle-Tacoma International
Seattle, Washington
Pago-Pago International
1164 Bishop Street
Pago-Pago, American Samoa
Greenwich Aerospace, Inc.
P.O. Box 522187
4590 N.W. 36th Street
Miami, Florida 33166
Aviation Composites
7869 N.W. 76th Avenue
Miami, Florida 33166
Airmotive Inc.
3400 Winona Avenue
Burbank, California 91510
2
<PAGE>
SCHEDULE "D"
ASSETS OF GRANTOR EXCLUDED FROM COLLATERAL
------------------------------------------
(i) Grantor's improvements at, on, or to any airport property or
facility in the State of Hawaii and any of Grantor's use and occupancy rights
respecting such property, improvements, or facilities, all pursuant to that
certain Settlement and Stipulation Respecting Claims of the State of Hawaii
filed on June 8, 1994 with the United States Bankruptcy Court for the District
of Hawaii;
(ii) all equipment (including rotable equipment) subject to now
existing or hereafter created (y) leases under which Grantor is the lessee and
Grantor's rights under such leases, or (z) conditional sale or title retention
agreements or purchase money security interests, in each case to the extent that
the Lien of the Mortgage is prohibited by the express terms of such lease,
agreement or security interest;
(iii) all general intangibles of Grantor (including rights, licenses
or franchises) the encumbrance or transfer of which (x) is not permitted by law,
(y) would constitute a breach of or default under or is prohibited by any
agreement or instrument to which Grantor is a party or which it or any of its
assets is bound, or (z) would materially and adversely affect or impair the
existence or enforceability of Grantor's rights or interests therein; and
(iv) all security deposits held by or for the benefit of (v) airport
authorities, equipment or real property lessors (x) the State of Hawaii, (y)
Grantor's workers compensation insurance carrier, and (z) Grantor's medical and
dental care providers; but in all such cases under this paragraph (iv) no more
than the minimum amount required to be held by such entity under the relevant
contract.
1
<PAGE>
SCHEDULE "E"
ROTABLES
--------
<TABLE>
<CAPTION>
PART # DESCRIPTION SERIAL # LOCATION
- ----------------------------------------------------------
<C> <S> <C> <C>
204950-5-4 TURBINE 20172 HNL/2/
- ---------------------------------------------------------
204950-5-4 TURBINE 28172 HNL
- ---------------------------------------------------------
204950-5-4 TURBINE 60211 HNL
- ---------------------------------------------------------
204950-5-4 TURBINE 79269 HNL
- ---------------------------------------------------------
1603-3 AMPLIFR 194 HNL
- ---------------------------------------------------------
1603-3 AMPLIFR 794 HNL
- ---------------------------------------------------------
1603-3 AMPLIFR 905 HNL
- ---------------------------------------------------------
2586686-50 COMPUTER 771764 HNL
- ---------------------------------------------------------
2586687-50 COMPUTER 051588 HNL
- ---------------------------------------------------------
2586689-11 CONTROLR 351636 HNL
- ---------------------------------------------------------
2586689-11 CONTROLR 461746 HNL
- ---------------------------------------------------------
2586689-11 CONTROLR 851693 HNL
- ---------------------------------------------------------
2586689-11 CONTROLR 870498 HNL
- ---------------------------------------------------------
4024354-901 AMPLIFR 050200 HNL
- ---------------------------------------------------------
4024354-901 AMPLIFR 800672 HNL
- ---------------------------------------------------------
696233B CSD 2763 64R/3/
- ---------------------------------------------------------
</TABLE>
/2/ Honolulu International Airport, Honolulu, Hawaii
/3/ Lamar Electro-Air Corp., Wellington Airport, Wellington, KS 67162
1
<PAGE>
- ------------------------------------------------------------------
696233B CSD 70 64R/3/
- ------------------------------------------------------------------
5910045-501 AILERONA 47161 HNL
- ------------------------------------------------------------------
5910045-508 AILERON 47763 HNL
- ------------------------------------------------------------------
5910412-531 ELEV ASY FC9039 HNL
- ------------------------------------------------------------------
5910412-532 ELEV ASY FC9040 HNL
- ------------------------------------------------------------------
5922535-501 SLAT A HAL002 HNL
- ------------------------------------------------------------------
5930495-504 VANE A F10747 HNL
- ------------------------------------------------------------------
5930976-508 SPOILER HAL57 HNL
- ------------------------------------------------------------------
5930976-508 SPOILER NP1997 HNL
- ------------------------------------------------------------------
33-019 VALVE 203 HNL
- -------------------------------------------------------------------
5910783-89N DOOR HAL005 HNL
- -------------------------------------------------------------------
5910783-90 DOOR HAL003 HNL
- -------------------------------------------------------------------
5930315-503 STRUT A R3921 05R/4/
- -------------------------------------------------------------------
5930315-504 STRUT R3920 05R/4/
- -------------------------------------------------------------------
1312-50 COMPUTER 1439 HNL
- -------------------------------------------------------------------
/3/ Lamar Electro-Air Corp., Wellington Airport, Wellington, KS
67162
/4/ Sun Valley Machine Works, Inc., Sunvair Overhaul, 28079
Stanford Ave., Valencia, CA 91355
2
<PAGE>
- -------------------------------------------------------------------
1312-50 COMPUTER 500 HNL
- -------------------------------------------------------------------
2041217-0413 XCEIVER 1199 HNL
- -------------------------------------------------------------------
2587400-436 COMPUTER 222114 33R/5/
- -------------------------------------------------------------------
2587400-436 COMPUTER 981212 HNL
- -------------------------------------------------------------------
4013243-901 COMPUTER 020195 HNL
- -------------------------------------------------------------------
4013243-901 COMPUTER 030163 HNL
- -------------------------------------------------------------------
4013243-901 COMPUTER 040169 HNL
- -------------------------------------------------------------------
4013243-901 COMPUTER 040352 HNL
- -------------------------------------------------------------------
4013243-901 COMPUTER 060205 HNL
- -------------------------------------------------------------------
463001-02-04 INU 0125 HNL
- -------------------------------------------------------------------
463001-02-04 INU 0140 HNL
- -------------------------------------------------------------------
463001-02-04 INU 0147 HNL
- -------------------------------------------------------------------
463001-02-04 INU 0151 HNL
- -------------------------------------------------------------------
463001-02-04 INU 0250 HNL
- -------------------------------------------------------------------
622-5132-101 REC/TRAN 3490 HNL
- -------------------------------------------------------------------
- ----------------
/5/ Honeywell, Inc., Sperry Commercial Avionics Division, 1830 Industrial
Avenue, Wichita, KS 67216
3
<PAGE>
622-5132-101 REC/TRAN 4147 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 1315 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 1520 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 1617 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 1922 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 269 HNL
- -------------------------------------------------------------------
622-8971-020 TCAS R/T 621 HNL
- -------------------------------------------------------------------
3603701-1 GEARBOX SETF64 HNL
- -------------------------------------------------------------------
3603701-5 GEARBOX 936 HNL
- -------------------------------------------------------------------
5915793-175 EXHAUST EAL107 HNL
- -------------------------------------------------------------------
5915793-175 EXHAUST HAL010 HNL
- -------------------------------------------------------------------
5910081-131 DOOR ASY HA060 HNL
- -------------------------------------------------------------------
5910382-11 DOOR A HAL006 HNL
- -------------------------------------------------------------------
5910382-11 DOOR A 47726 HNL0562
- -------------------------------------------------------------------
5915901-553 STAIR A HAL1 HNL
- -------------------------------------------------------------------
- -------------------------------------------------------------------
5910091-27 RADOME 669 HNL0562
- -------------------------------------------------------------------
5910255-507 R& T AY 47747 HNL0562
- -------------------------------------------------------------------
5910402-591N STABIL A 47726 HNL
- -------------------------------------------------------------------
4
<PAGE>
5910625-51 STABLIZR HAL001 HNL0562
- -------------------------------------------------------------------
5910625-52 STABLIZR HAL002 HNL0562
- -------------------------------------------------------------------
5918007-34 L/EDGE HAL001 HNL0562
- -------------------------------------------------------------------
5
<PAGE>
SCHEDULE "F"
------------
UNIFORM COMMERCIAL CODE JURISDICTIONS
-------------------------------------
------------------------------------------------------------------
HAWAIIAN AIRLINES, INC.
DEBTOR
AMERICAN AIRLINES, INC.
SECURED PARTY
UCC-1 FILINGS
------------------------------------------------------------------
JURISDICTION FILE # FILE DATE TAB #
ALABAMA
Secretary of State
- ------------------------------------------------------------------
ALASKA
Secretary of State
- ------------------------------------------------------------------
ARIZONA
Secretary of State
- ------------------------------------------------------------------
ARKANSAS
Secretary of State
County - Garland
- ------------------------------------------------------------------
CALIFORNIA
Secretary of State
County - Los Angeles
County - San Francisco
- ------------------------------------------------------------------
COLORADO
Secretary of State
- ------------------------------------------------------------------
CONNECTICUT
Secretary of State
- ------------------------------------------------------------------
DELAWARE
Secretary of State
- ------------------------------------------------------------------
GEORGIA
County - Troup
- ------------------------------------------------------------------
HAWAII
Dept. of Commerce &
Consumer Affairs
- ------------------------------------------------------------------
ILLINOIS
Secretary of State
- ------------------------------------------------------------------
INDIANA
Secretary of State
- ------------------------------------------------------------------
IOWA
Secretary of State
- ------------------------------------------------------------------
KANSAS
Secretary of State
6
<PAGE>
- ------------------------------------------------------------------
MICHIGAN
Secretary of State
- ------------------------------------------------------------------
MINNESOTA
Secretary of State
- ------------------------------------------------------------------
NEVADA
Secretary of State
- ------------------------------------------------------------------
NEW HAMPSHIRE *
Secretary of State
Town - Laconia
- ------------------------------------------------------------------
NEW JERSEY
Secretary of State
- ------------------------------------------------------------------
NEW YORK *
Secretary of State
County - Nassau
County - Niagara
County - Suffolk
County - Westchester
County - Erie
County - Queens
- -----------------------------------------------------------------
NORTH CAROLINA *
Secretary of State
County - Durham
County - Wilson
- ------------------------------------------------------------------
OHIO *
Secretary of State
County - Lake
County - Lorain
County - Summit
- ------------------------------------------------------------------
OKLAHOMA
Oklahoma County (central filing)
- ------------------------------------------------------------------
OREGON
Secretary of State
- ------------------------------------------------------------------
TEXAS
Secretary of State
- ------------------------------------------------------------------
UTAH
Secretary of State
- ------------------------------------------------------------------
WASHINGTON
Secretary of State
- ------------------------------------------------------------------
7
<PAGE>
SCHEDULE G
EXCEPTIONS FROM REPRESENTATIONS
-------------------------------
Refer to the Letter from Grantor to Secured Party, dated
December 15, 1995.
8
<PAGE>
SCHEDULE H
LOCATIONS OF COLLATERAL
-----------------------
Hilo International Airport Maui Sales Office
Hilo, Hawaii Kahului Airport
Kahului, HI 96732
Kahului Airport
Kahului, Maui, Hawaii Kapalua-West Maui Airport
Mahinahina, Maui, HI
Keahole Airport
Kona, Hawaii Kauai Sales Office
3901 Mokulele L.p., #7
Lihue Airport Lihue, HI 96766
Lihue, Kauai, Hawaii
LAX Sales Office
Molokai Airport 6033 West Century
Molokai, Hawaii Suite 810
Los Angeles, CA 90045
Kapalua-West Maui Airport
Mahinahina, Maui, Hawaii SFO Sales Office
875 Mahler Rd., #104
Honolulu International Airport Burlingame, CA 94010
Honolulu, Hawaii
SEA Sales Office
Los Angeles International Airport 16150 N.E. 85th St.
Los Angeles, California Suite 205
Redmond, WA 98052
Lanai Airport Pago Pago (HA)
Lanai, Hawaii Pago Pago International Airport
Pago Pago
Seattle-Tacoma International American Samoa 96799
Seattle, Washington
Papeete (HA)
Pago-Pago International P.O. Box 20702
1164 Bishop Street Papeete, Tahiti
Pago-Pago, American Samoa
Tokyo Sales (HA)
3375 Koapaka St. 141, 3-Chone
Suite G-350 Marunouchi
Honolulu, HI 96189 Chiyoda-ku, Tokyo
100, Japan
Hilo Sales Office
120 Kamehameha Ave. BANK OF HAWAII
Hilo, HI 96720 P.O. Box 2900
Honolulu, Hawaii 96846
Kona Sales Office ABA No. 1213-01028
P.O. Box 221
Kailua-Kona, HI 96745
<PAGE>
BANK OF HAWAII
American Samoa Branch
P.O. Box 69
Pago Pago, AM Samoa 96799
CITY NATIONAL BANK
6033 West Century Blvd.
Los Angeles, CA 90045
WELLS FARGO BANK
490 Broadway
Millbrae, CA 94163
THE SEAFIRST BANK
Main Office of Columbia
P.O. Box 3586
Seattle, WA 98124
WESTPAC BANKING CORP.
Wales House 21004
GPO Box 1
Sydney, NSW 2000, Aust.
THE SUMITOMO BANK
Marunouchi Branch
4-1, Marunouchi, 3-Chome
Chiyoda-ku, Tokyo, Japan
BANK OF AMERICA
1850 Gateway Blvd.
Concord, CA 94520
FIRST INTERSTATE BANK
OF NEVADA
4720 South Eastern
Las Vegas, NV 89119
BANK OF AMERICA - OREGON
10120 NE Sandy Blvd.
Portland, OR 97220
BANQUE DE TAHITI
P.O. Box 1602
Papeete, Tahiti
French Polynesia
WESTPAC BANKING CORP.
79 Queen Street
Auckland, New Zealand
2
<PAGE>
BANK OF MONTREAL
Broadway & Yew Street Br.
2190 West Broadway
Vancouver, BC, Canada V8K 3E3
ROYAL BANK OF CANADA
1025 West George Street
Vancouver, B.C. V6K 3N9
FIRST HAWAIIAN BANK
P.O. Box 3200
Honolulu, HI 96847
THE CHASE MANHATTAN BANK
Aerospace Division
#4 Chase Metrotech Center, 20th Floor
Brooklyn, New York 11245
BANK OF TONGA
P.O. Box 924
Nuku'alofa, Tonga
PACIFIC COMMERCIAL BANK
P.O. Box 1860
Apia, Western Samoa
3
<PAGE>
SCHEDULE "I"
ADDITIONAL LOCATIONS OF COLLATERAL
AAR Engine Component Services Aircraft Belts Inc.
21 Thompson Road P.O. Box 845
East Windsor, CT 06088 2020 Anders Lane
Kamah, TX 77565
AAR Technical Service Center
Aviation Services Division Aircraft Braking Systems Corporation
747 Zeckendorf Blvd. 1204 Massillon Road
Garden City, NY 11530 Akron, OH 44306
Adams Rite Sabre Aircraft Instrument & Radio Service
540 West Chevy Chase 1851 South Eisenhower Court
Glendale, CA 91204 Wichita, KS 67209
Aero Instruments & Avionics Aircraft Repair/Overhaul Service
7290 Nash Road 1186 N. Grove Street
North Tonawanda, NY 14120 Anaheim, CA 92806
Aero Systems Aviation Corporation Aircraft Systems
5415 N.W. 36th Street Div. of COM-Jet Corporation
Miami, FL 33166 8235 N.W. 56th Street
Miami, FL 33166
Aero-Craft Hydraulics, Inc.
392 North Smith Avenue Airline Interiors
Corona, CA 91720 9940 Mesa Rim Road
San Diego, CA 92121
Aerocell Structures, Inc.
115 Centennial Drive Airmark Components, Inc.
Hot Springs, AR 71913 2701 S.W. 2nd Avenue
Fort Lauderdale, FL 33315
Aerotec International Inc.
2949 E. Washington Street Airmotive, Inc.
Phoenix, AZ 85034 3400 Winona Avenue
P.O. Box 6579
Aerotron Air Power Inc. Burbank, California 19510
456 Aerotron Parkway
La Grange, GA 30240 Airtreads, Kingman Division
4105 Mohave Airport Drive
Air Cargo Equipment Corporation Kingman, AZ 86401
17923 South Santa Fe Avenue
Rancho Dominguez, CA 90220 Allied-Signal Aerospace Company
Garret Airline Repair
Aircraft Armature, Inc. One Cliff Garrett
490 West 84th Street Anniston, AL 36201
Hialeah, FL 33014
<PAGE>
Allied-Signal Aerospace Company Aviation Equipment, Inc.
Guidance & Control System 7230 Fulton Avenue
375 N. Lake Street North Hollywood, CA 91605
Boyne City, MI 49712
Aviation Fuel System Repair
Allied-Signal Aerospace Company 13352 Elliot Avenue
Bendix/King AIP Xport Avionics Chino, CA 91710
2100 N.W. 62nd Street
Fort Lauderdale, FL 33310 Aviation Inspection & Services
2510 Kirby Ave., Unit 105
Allied-Signal Aerospace Repair Service Palm Bay, FL 32905
Garret Airlines Service Div.
1944 East Sky Harbor Circle Barfield Instrument Corp.
Phoenix, AZ 85034 4101 N.W. 29th Street
Miami, FL 33142
Allied-Signal Commercial Avionics
Repair Center Barry Controls
8747 148th Avenue - Building C A Unit of Applied Power Inc.
Redmond, WA 98052 2323 Valley Street
Burbank, CA 91505
Ametek
Seattle Support Center Bearing Inspection Inc.
4560 150th Avenue, N.E. 10041 Shoemaker Avenue
Redmond, WA 98052 Santa Fe Springs, CA 90670
Argo-Tech Corporation Belt Makers, Inc.
204 Hindry Avenue 1815 West 205th Street
Inglewood, CA 90301 Torrance, CA 90508
Astrodyne International, Inc. BF Goodrich Aercor
4640 Ironton Street Component Overhaul and Repair
Denver, CO 80239 5250 N.W. 33rd Avenue
Fort Lauderdale, FL 33309
AV-OX, Inc.
15746 Stagg Street Brice Manufacturing Co.
Van Nuys, CA 91406 10262 Norris Avenue
Pacoima, CA 91331
Aviation Accessory Service, Inc.
6971 N.W. 53rd Terrace Canadian Airlines International
Miami, FL 33166 6001 Grant McConachie Way
Richmond, BC V7B 1K3
Aviation Composites Services, Inc. Canada
7860 N.W. 76th Avenue
Miami, FL 33166 Canadian Marconi Company-Avionics Div.
Commercial Aviation Group
2442 Trenton Avenue
Montreal, Quebec H3P 1Y9
Canada
2
<PAGE>
Castle Precision Industries Dynair Tech of Arizona, Inc.
15148 Bledsoe Street 3737 East Bonanza Way
Sylmar, CA 91342 Sky Harbor Int'l Airport
Phoenix, AZ 85034
Chromalloy Southwest
1150 McCullom Drive Dynamic Controls Corporation
El Centro, CA 92243 888 Nutmet Road South
South Windsor, CT 06074
Chromizing Company
Div. of Chromalloy AM Corp. E. D. N. Aviation, Inc.
2100 West 139th Street 8585 Canoga Avenue
Gardena, GA 90049 Canoga Park, CA 91304
Collins Avionics Division Eastern Aero Marine
Rockwell International Corp. 3850 N.W. 25th Street
400 Collins Road, N.E. Miami, FL 33159
M/S 112-101
Cedar Rapids, IA 52498 Electrofilm, Inc.
25395 Rye Cannon Road
Collins Avionics Service Center Valencia, CA 91355
Rockwell International Corp.
865 East Sepulveda Blvd. Electron Beam Development
Carson, CA 90745 3591 S.W. Deggeller Ct.
Palm City, FL 34990
Collins Avionics Service Center
Rockwell International Electronic Balancing Company
620 Naches Avenue, S.W. 660 East "D" Street
Renton, WA 98055 Wilmington, DE 90744
Component Repair Technologies, Inc. Finlay Testing Laboratories, Inc.
8507 Tyler Boulevard 99-940 Iwaena Street
Mentor, OH 44060 Aiea, HI 96701
Crane Company Flightways Manufacturing Inc.
Hydro-Aire Division 7660 Densmore Avenue
3000 Winona Avenue Van Nuys, CA 91406
Burbank, CA 91504
Fortner Engineering & Manufacturing
D M E Corporation 918 Thompson Avenue
6830 N.W. 16th Terrace Glendale, CA 91201
Fort Lauderdale, FL 33309
Four Star Accessory Overhaul, Inc.
Dorne & Margolin, Inc. 7711 New Market Street S.W.
2950 Veterans Memorial Highway Tumwater, WA 98501
Bohemia, NY 11716
Frontier Aero Structures, Inc.
4300 Monaco St. Pkwy.
Denver, CO 80216
3
<PAGE>
Gas Turbine Corporation Honeywell, Inc.
51 Bradley Park Road Commercial Flight Systems Grp.
East Granby, CT 06026 Air Transport Systems Division
21111 North 19th Avenue
Greenwich Air Service Phoenix, AZ 85036
4590 N.W. 36th Street
Building 21 and 23 Honeywell, Inc.
Miami International Airport Commercial Flight Systems Group
Miami, FL 33152 645 Hawaii Street
El Segundo, CA 90245
HAC Corporation
537 Camden Drive Honeywell, Inc.
Grand Prairie, TX 75051 Dallas Support Center
7825 Ridgepoint Drive
Hamilton Standard Irving, TX 75063
United Technologies Corp.
4401 Donald Douglas Drive HRD Aero Systems, Inc.
Long Beach, CA 90803 24895 New Rockefeller
Valencia, CA 91355
Hamilton Standard Div.
United Technologies Corp. Hughes-Avicom
97 Newberry Road 544 Ohohia Street, Rm. 5
East Windsor, CT 06088 Honolulu, HI 96819
Hawker Pacific Inc. Inair Aviation Services Company
11310 Sherman Way 8225 Country Club Place
Sun Valley, CA 91352 Indianapolis, IN 46214
Helicomb International, Inc. International Aircraft Tank Services
1402 South 69th East Avenue 9317 Hindry Place
Tulsa, OK 74112 Los Angeles, CA 90045
Honeywell, Inc. Interturbine
Minneapolis Support Center 2800 Avenue E East
8840 Evergreen Boulevard Arlington, TX 76011
Minneapolis, MN 55433
Jet Avion Heat Treat
Honeywell, Inc. 3000 Taft Street
Sperry Commercial Avionics Div. Hollywood, FL 33021
1830 Industrial Avenue
Wichita, KS 67216 Kidde, Walter & Company, Inc.
Aerospace Operations
Honeywell, Inc. 4200 Airport Road N.W.
Space and Aviation Control Wilson, NC 27896
Electro Components
Holloway and Calvin Streets Kollsman
Durham, NC 27702 4729 Palisade
Wichita, KS 67217
4
<PAGE>
Kollsman Instrument Co. Michelin Aircraft Tire Company
Div. of Sun Chemical Corp. 13031 East Temple Avenue
11 Fairchild Avenue City of Industry, CA 91746
Plainview, NY 11803
Michelin Aircraft Tire Corporation
L. J. Walch Company 8121 NW 97th Terrace
844 Doolittle Drive Kansas City, MI 64153
San Leandro, CA 94577
Monogram Sanitation
Lamar Electro-Air Corporation A Nortek Company
Wellington Airport 800 W. Artesia Boulevard
Wellington, KS 67152 Compton, CA 90224-905
Las Composites Nordham Division
871 Park Street R. H. Siegfried, Inc.
Building 01 510 South Lansing
Perris, CA 92570 Tulsa, OK 74120
Lear Romec Corp. Nordham Division
Subs of Crane Co. 11200 East Pine
241 South Abbe Road Tulsa, OK 74116
Elyria, OH 44035
Nordam Group
Lewis and Saunders Inc. Transparency Division
93 Lexington Drive 7018 North Lakewood
Laconia, NH 03247 Tulsa, OK 74117
Litton Aero Products Paramount Panels
21050 Burbank Blvd. 1531 E. Cedar Street
Woodland Hills, CA 91367 Ontario, CA 91761
Litton Instruments & Life Support Parker Hanifin Corporation
2734 Hickory Grove Road Gull Electronic Systems Div.
Davenport, IA 52804 300 Marcus Street
Smithtown, NY 11787
LORI
6930 North Lakewood Blvd. Perkins Aircraft Services, Inc.
Tulsa, OK 74101 2300 W. 6th Street
Fort Worth, TX 76107
Lucas Aerospace
Product Support Division Pneudraulics, Inc.
30 Van Nostrand Avenue 8575 Helms Avenue
Englewood, NJ 07631 Rancho Cucamonga, CA 91730
McDonnell Douglas PPG Industries, Inc.
3855 Lakewood Blvd. 1719 Hwy. 72 East
Long Beach, CA 90846 Huntsville, AL 35811
Miami Field Services
7321 N.W. 46th Street
Miami, FL 33166
5
<PAGE>
Pratt & Whitney Sochata
Overhaul & Repair Center 1 Rue Des Freres Farman
400 Main Street 78114 Magny-Les-Hameaux
Receiving Well #5 France
East Hartford, CT 06108
Southwest Cooler Service, Inc.
Pratt & Whitney 3939 Platinum Way
Overhaul & Repair Center Dallas, TX 75214
500 Knotter Drive
Cheshire, CT 06410 Sun Valley Machine Works, Inc.
Sunvair Overhaul
Pryomet Industries Incorporated 28079 Ave. Stanford
10325 East 58th Street Valencia, CA 91355
Tulsa, OK 74146
Sundstrand Aerospace
Quality Air Services Rockford Repair Station
Instrument Overhaul 4747 Harrison Avenue
5301 Longley Lane Building B P.O. Box 7002
Suite 40 Rockford, IL 61125
Reno, NV 89511
Systron-Donner Corp.
Ryder Inertial Division
Aviall Accessory Services 2700 Systron Drive
3950 N.W. 28th Street Concord, CA 94518
Miami, FL 33142
Teleflex Control Systems
Safe Flight Instrument Corp. 1950 Williams Drive
20 New King Street Oxnard, CA 93030
North Castle, NY 10602
The Glass Doctor
Santa Barbara Aerospace 2390 25th Avenue North
495 South Fairview Avenue St. Petersburg, FL 33713
Santa Barbara, CA 93117
Thrustair, Inc.
Scott Aviation 12300 Gladstone Avenue
Div. of A-T-D, Inc. Sylmar, CA 91342
225 Erie Street
Lancaster, NY 14086 Tramco Inc.
Subsidiary of Goodrich
Sextant Avionique, Inc. 11323 30th Avenue W.
Beacon Center Everett, WA 98204
1924 NW 84th Avenue
Miami, FL 33126 Turbine Controls, Inc.
#5 Old Windsor Road
Smiths Industries Bloomfield, CT 06002
Aerospace & Defense Systems
St. Petersburg/Clearwater Airport Turbine Engine Services
14180 Roosevelt Blvd. 523 Halfway House Road
Clearwater, FL 34622 Windsor Locks, CT 06096
6
<PAGE>
Tym's
414 West Arbor Vitae Street
Inglewood, CA 90301
UNC Accessory Service
1030 Santerre Drive
Grand Prairie, TX 75050
UNC Accessory Service
AVMAR
1038 Santerre Drive
Grand Prairie, TX 75050
UNC The Aviation Company
UNC Accessory Service New York
86 Cleveland Avenue
Bayshore, NY 11706
Unipak Aviation Corporation
24-68 47th Street
Long Island City, NY 11103
W.H. Brennan Inc.
17122 Marquardt Avenue
Cerritos, CA 90703
Weber Aircraft
Division of Kidde Intl.
1300 E. Valencia Drive
Fullerton, CA 92631
Wencor West, Inc.
1675 N. Mountain Springs Parkway
Springville, UT 84663
Whittaker Controls
Product Support Division
12838 Saticoy Street
North Hollywood, CA 91605
Woodward Governor Company
Aircraft Prod Svc Ctr (APSC)
One Woodward Way
Rockton, IL 61072
7
<PAGE>
SCHEDULE "J"
INDEX OF DEFINITIONS
Defined Term Section
- ------------ --------
"Additional Collateral" Section 2.5
"American" Recital
"American Agreements" Preliminary Statements
"American Entity" Preliminary Statements
"Anderson Security Agreement" Section 1.1
"Appraised Value" Section 1.1
"Approval Tag" Section 1.1
"Aviation Act" Section 1.1
"Benecificiaries" Section 1.1
"Business Day" Section 1.1
"Change in Control" Section 1.1
"CIT Collateral" Section 1.1
"CIT Security Agreement" Section 1.1
"Collateral" Section 2.3
"Consolidated Net Income" Section 1.1
"Credit Card Agreement" Section 1.1
"Credit Card Deposit" Section 1.1
"disposition Section 4.11
"Engines" Section 1.1
"Event of Default" Section 5.1(a)
1
<PAGE>
"Exchange Act" Section 1.1
"FAA" Section 3.8
"GAAP" Section 1.1
"Governmental Entity" Section 1.1
"GPA Collateral" Section 1.1
"GPA Mortgage" Section 1.1
"Grantor" Recital
"Indebtedness" Section 1.1
"Investments" Section 1.1
"Law" Section 1.1
"Lien" Section 1.1
"Long Term Agreements" Preliminary Statements
"Midkiff Security Agreement" Section 1.1
"Mortgage" Recital
"Note" Preliminary Statements
"Obligations" Section 2.2
"Permitted Investments Section 1.1
"Permitted Lien" Section 1.1
"Person" Section 1.1
"Qualified Appraiser" Section 1.1
"Related Documents" Section 2.2
"Release Notice" Section 2.6
"Restricted Investment" Section 1.1
"Restricted Payments" Section 4.12
"Rotable Equipment" Section 1.1
"Rotables" Section 2.3
2
<PAGE>
"Subsidiary" Section 1.1
"Secured Party" Recital
"Specified Collateral" Section 2.3
"Superior Liens" Section 2.4
"Tangible Net Worth" Section 1.1
"Voting Securities" Section 1.1
"13D Group" Section 1.1
3
<PAGE>
SCHEDULE "I"
ADDITIONAL LOCATIONS OF COLLATERAL
SCHEDULE "K"
------------
TRADEMARKS
----------
DESCRIPTION REG NO. REG. DATE
- ---------------------------------------- --------- ----------
FEDERALLY REGISTERED
- --------------------
Proud To Be Hawaiian 1,811,311 12/14/93
Hawaiian Air (Service Mark) 1,311,493 12/25/84
Hawaiian Airlines (Service Mark) 1,312,666 01/01/85
Hawaiian Airlines, Inc. (Trademark) 1,458,293 09/22/87
(Pualani)
The Pualani Symbol(Service Mark) 1,458,733 09/22/87
The Colors Of Paradise (Service 1,459,590 09/22/87
Mark)
The Pualani Symbol(Service 1,460,129 10/06/87
Mark)
Hawaiian Premier Club (Service 1,544,887 06/20/89
Mark)
STATE REGISTERED
- ----------------
Premier Pacific 080643 04/08/86
Hawaiian Airlines (Stylized 169930 08/22/95
Format)
Flag Carrier of Hawaii 180789 04/29/95
Hawaii's Flagship Airline 159828 09/17/94
Hawaiian Air 159902 11/13/93
Island Shuttle 170014 07/28/95
Hawaiian Airlines Vacations 170083 08/01/95
Corporate Express 175430 12/08/94
Hawaiian Hotpac 180788 04/26/95
Hawaiian Dash 182541 06/09/95
Hawaiian Airlines 124502 10/02/90
<PAGE>
Exhibit 10(k)
COPY
SECURED PROMISSORY NOTE
$10,250,000.00 January 31 ,1996
FOR VALUE RECEIVED, the undersigned HAWAIIAN AIRLINES, INC., a Hawaii
corporation (the "Maker") hereby promises to pay to the order of AMERICAN
AIRLINES, INC., ("American"), or its assigns (the "Payee") at Payee's address
set forth in the Mortgage referred to below, or at such other place as the
holder (the "Holder") of this Promissory Note (the "Note") may from time to time
designate in writing, in lawful money of the United States and in immediately
available funds, at the times and in the manner provided hereinbelow, the
principal sum of TEN MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($10,250,000.00), together with interest on the balance of principal outstanding
from time to time from the date hereof until the said principal sum or the
unpaid portion thereof shall have become due and payable as hereinafter
provided.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings assigned thereto in that certain Chattel Mortgage
and Security Agreement dated as of January ,1996, between the Maker and
American (the "Mortgage").
Maker shall pay principal under this Note, together with interest
accruing thereon, as follows:
1. Calculations of Interest. Interest shall accrue and be paid from
------------------------
the date hereof on the outstanding principal balance of this Note at a fixed
rate per annum of ten percent (10.0%) until such principal amount shall be paid.
Interest hereunder shall be calculated (but not compounded) on the basis of a
360-day year, at the rate aforesaid, and shall accrue on balances of principal
outstanding from time to time from and after the date hereof.
2. Time for Payment. Interest shall be paid quarterly in arrears on
----------------
each April 30, July 31, October 31 and January 31 (each called an "Interest
Payment Date"), commencing on April 30,1996, until the balance of the principal
shall have been paid in full. Payments of principal shall be made in the amount
of ONE MILLION, SEVEN HUNDRED AND EIGHT THOUSAND, THREE HUNDRED THIRTY THREE and
34/100's Dollars ($1,708,333.34) on each January 31, commencing January 31,
1997. If the balance of the principal shall not have been previously paid in
full as provided herein, on September 11, 2001, all accrued and unpaid interest
and all other charges hereunder, if any, shall be due and payable along with the
balance of the principal then outstanding. On the occurrence of a Change in
Control (as such term is defined in the Mortgage), Maker shall promptly notify
the Holder in writting and the Holder shall have the option to declare, by a
written notice to the Maker at its address set forth in the Mortgage, the
principal sum hereof, together with all accrued but unpaid interest due and
payable on the date specified by the Holder in such notice (which date may be
the date of such
<PAGE>
notice by the Maker). The principal sum hereof, together with all accrued
but unpaid interest, may be prepaid at any time in whole or in part
without premium or penalty. In addition the principal sum hereof may be prepaid
in full at any time on or prior to January 31, 1997 for an amount equal to NINE
MILLION, ONE HUNDRED NINETY FIVE THOUSAND, FORTY TWO and 8/100's DOLLARS
($9,195,042.08), together with all accrued but unpaid interest to the date of
payment. All prepayments hereunder shall be applied as follows: first, to any
and all costs, fees or expenses due and owing hereunder and/or under the
Mortgage (if any); second, to any and all accrued and unpaid interest hereunder;
and third, to outstanding principal hereunder in inverse order of maturity.
From and after maturity (whether by acceleration or otherwise), the
entire principal balance and (to the extent permitted by law) all accrued and
unpaid interest and all other sums (if any) due and owing hereunder shall be
payable on demand and shall bear interest until paid at the fixed rate aforesaid
plus two percent per annum.
If any payment of principal, interest or other charges is stated
hereunder to be due and payable on a day which is not a Business Day (as defined
hereinbelow), then the due date for such payment shall be extended to the next
succeeding Business Day, provided that, in any such event, such payment shall
include interest accruing during such extension in accordance with the terms of
this Note. As used herein, the term "Business Day" means means any day other
than any Saturday, Sunday or other day on which commercial banking institutions
in New York, New York, Fort Worth, Texas or Honolulu, Hawaii are authorized or
required by law, regulation or executive order to be closed.
All agreements between the undersigned and the Holder hereof are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of deferment, acceleration of maturity of the principal amount
evidenced hereby, payment of interest, fees or other charges hereunder, or
otherwise, shall the amount paid or agreed to be paid to the Holder hereunder
and/or under the Mortgage exceed the maximum permissible under applicable law.
If, from any circumstance whatsoever, fulfillment of any provision hereof or of
any other agreement between the undersigned and the Holder, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, ipso facto, the obligation to be fulfilled
---- -----
shall be reduced to the limit of such validity. If, notwithstanding the
foregoing limitations, any excess interest shall be determined to have been
received, the same shall be deemed to have been held as additional security for
repayment of the indebtedness evidenced hereby. This provision shall never be
superseded or waived and shall control every other provision of this Note and
all agreements between the undersigned and the Holder.
3. Supporting Documents. This promissory note is the "Secured
--------------------
Promissory Note" referred to in the Mortgage. This Note is secured by certain
property of Maker pursuant to the Mortgage and incorporated herein by reference.
THE LIEN CREATED BY THE MORTGAGE IS SUBORDINATE TO (I) THE LIEN CREATED BY THAT
CERTAIN LOAN AND SECURITY AGREEMENT, DATED AS OF
2
<PAGE>
SEPTEMBER 12, 1994, BETWEEN MAKER AND THE CIT GROUP/CREDIT FINANCE, INC.
("CIT") PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED
AS OF JANUARY 31, 1996, BETWEEN CIT AND AMERICAN AND (II) THE LIEN CREATED
BY THAT CERTAIN ROTABLE SPARE PARTS CHATTEL MORTGAGE AND SECURITY AGREEMENT,
DATED AS OF OCTOBER 30, 1992, BETWEEN MAKER AND AEROUSA, INC. ("AEROUSA")
PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED AS OF
JANUARY 31, 1996, BETWEEN AEROUSA AND AMERICAN.
4. Acceleration. In the event that an Event of Default (as defined
------------
hereinbelow) shall occur and be continuing, then, and in any such event and at
any time thereafter, so long as such Event of Default shall then be continuing,
all amounts of principal, interest and other sums and charges hereunder and
under the Mortgage may, at the option of the Holder, be declared (by written
notice to the Maker at its address set forth in the Mortgage but without
presentment, demand, protest, notice or any other formality, all of which are
hereby waived; provided , that if an Event of Default referred to in Section
5(e) or (f) shall have occurred, then in every such case, all amounts of
principal, interest, and other charges hereunder and under the Mortgage shall
immediately, and without further act, become due and payable) to be, whereupon
the same shall henceforth become, immediately due and payable, anything herein
to the contrary notwithstanding.
If the Maker shall default in any of its payment obligations
hereunder, the undersigned further promises to pay (to the extent permitted by
law) reasonable attorneys' fees and costs and expenses incurred by the Holder in
connection with any such default or in any action or other proceeding brought to
enforce any of the provisions of this Note and/or the Mortgage.
5. Events of Default. As used herein, the term "Event of Default"
-----------------
shall mean each and any of the following events:
(a) Maker shall fail to make any payment under this Note on the date
when due; or
(b) Maker shall default in any of its other obligations under the Note
or under the Mortgage, and such default shall continue for a period of thirty
(30) Business Days after notice from Payee to Maker specifying such default and
requiring that the same be remedied; or
(c) Any material representation or warranty made by Maker in or
pursuant to this Note or the Mortgage shall prove to have been incorrect in any
material respect when made; or
(d) All or substantially all of Maker's airline operations are
suspended for more than two days; or
(e) Maker shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Maker shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Maker shall file a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization in a proceeding under any
3
<PAGE>
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Maker in any such proceeding,
or Maker by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Maker shall take any corporate action to authorize any of the foregoing; or
(f) A petition against Maker in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and any
decree or order adjudging Maker a bankrupt or insolvent in such proceeding shall
remain in force undismissed and unstayed for a period of sixty (60) days after
such adjudication or, in the case the approval of such petition by a court of
competent jurisdiction is required, the petition as filed or amended shall be
approved by such a court as properly filed and such approval shall not be
withdrawn and the proceeding shall not be dismissed within sixty (60) days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to Maker, any court of competent
jurisdiction shall enter an order or decree assuming custody or control of Maker
or of any substantial part of its property and such custody or control remains
in force unrelinquished, unstayed and unterminated for a period of thirty (30)
days; or
(g) An Event of Default occurs and is continuing under any of the Long
Term Agreements (as such terms are defined in the Mortgage).
6. Choice of Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, this Note has been duly executed as of the date
first above written in Honolulu, Hawaii.
HAWAIIAN AIRLINES, INC.
By: __________________________________________
Bruce R. Nobles
Its: President and Chief Executive
Officer
By:
_______________________________________
Rae A. Capps
Its:Vice President, General Counsel
and Secretary
NA953330.122/11+
4
<PAGE>
EXHIBIT 10(l)
NOTE REPAYMENT AND STOCK PURCHASE AGREEMENT
This Note Repayment and Stock Purchase Agreement (this "Agreement"), dated
as of January 31, 1996, by and among Hawaiian Airlines, Inc. ("Hawaiian"),
AEROUSA, Inc. ("AEROUSA") and GPA Group plc ("GPA," and together with AEROUSA,
the "GPA Entities").
Recitals
--------
A. The GPA Entities are collectively the registered owners of an aggregate
of 827,221 shares (the "GPA Shares") of Class A Common Stock of Hawaiian ("Class
A Stock") and Class B Common Stock of Hawaiian (the "Class B Stock").
B. Hawaiian has executed and delivered to AEROUSA that certain promissory
note, dated May 1, 1994, of Hawaiian in the stated principal amount of
$6,000,000 payable to AEROUSA as agent for itself and GPA (the "Secured
Promissory Note") and executed and delivered to GPA that certain promissory
note, dated as of August 23, 1994, of Hawaiian and payable to the order of GPA
in the stated principal amount of $276,426 (the "L-1011 Note" and together with
the Secured Promissory Note, the "Notes").
C. The Notes and certain other obligations of Hawaiian are secured by that
certain Rotable Spare Parts Chattel Mortgage (the "Mortgage"), dated as of
October 30, 1992, as amended, including the Amendment dated as of August 23,
1994, between Hawaiian and AEROUSA, as collateral agent for the benefit of
itself, individually and as collateral agent, and GPA and one or more affiliates
of GPA. (Capitalized terms used herein and not defined herein have the meanings
set forth in the Mortgage.)
D. Hawaiian and the GPA Entities desire to set forth their agreement as to
the prepayment of the Notes by Hawaiian, the release of the lien of the Mortgage
and the purchase of the GPA Shares by Hawaiian.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. NOTE REPAYMENT.
--------------
Subject to Section 5 hereof and to the satisfaction or waiver of the
conditions set forth in Section 4 hereof:
(a) Each of the GPA Entities hereby agrees that Hawaiian shall have the
right to repay the Note held by such GPA Entity at the Repayment Price thereof
on the Closing Date.
(b) Hawaiian hereby agrees that it will repay both of the Notes at the
aggregate Repayment Price thereof on the Closing Date.
(c) The term "Repayment Price" for the Notes means an amount in U.S.
Dollars determined by the following formula:
<PAGE>
RP = (0.84873 x NB) + C
where "RP" equals the Repayment Price, "NB" equals the aggregate outstanding
balance on the Closing Date of the principal and interest on the Notes plus
$57,009.00 (which additional amount represents a deferred payment due to the GPA
Entities), and "C" equals the sum of all costs and other expenses owed by
Hawaiian to any of the GPA Entities under the Mortgage or the Notes.
(d) The term "Closing Date" means the earlier of (i) the day specified in
an irrevocable written notice (a "Closing Notice") by Hawaiian to the GPA
Entities, which day shall be no earlier than five calendar days after the date
of the Closing Notice, (ii) the day mutually agreed to by Hawaiian and the GPA
Entities occurring within five Business Days after the closing of the Rights
Offering or (iii) failing such agreement, the fifth Business Day following the
closing of the Rights Offering.
(e) The term "Rights Offering" means the proposed offering by Hawaiian to
certain of its shareholders of the right to purchase shares of Class A Common
Stock of Hawaiian, as described under the caption "Rights Offering" in
Hawaiian's Proxy Statement for Special Meeting of Shareholders January 30, 1996,
dated January 13, 1996.
(f) Hawaiian shall pay the aggregate Repurchase Price to the GPA Entities
as directed by the GPA Entities.
SECTION 2. RELEASE OF MORTGAGE.
-------------------
On the Closing Date, upon payment by Hawaiian in full of the Repayment
Price for all of the Notes as set forth herein, AEROUSA shall release the
Collateral from the Lien of the Mortgage and thereafter, at Hawaiian's expense,
shall execute and deliver to Hawaiian such instruments and documents, including,
without limitation, U.C.C. termination statements and FAA Releases, as Hawaiian
shall reasonably request to accomplish such release.
SECTION 3. STOCK PURCHASE.
--------------
Subject to Section 5 hereof and to the satisfaction or waiver of the
conditions set forth in Section 4 hereof:
(a) The GPA Entities hereby agree to sell the GPA Shares to Hawaiian, or at
Hawaiian's direction, for an aggregate purchase of $909,943.00 on the Closing
Date.
(b) Hawaiian hereby agrees that it will purchase, or cause the purchase of,
the GPA Shares from the GPA Entities for an aggregate purchase of $909,943.00 on
the Closing Date.
(c) On the Closing Date, upon tender by the GPA Entities of the
certificates representing the GPA Shares, properly endorsed, Hawaiian shall pay
each GPA Entity, in immediately available funds at the account specified by such
GPA Entity to Hawaiian prior to the Closing Date, an amount that equals the
product of (A) the number of shares of Class A Stock and/or Class B Stock
tendered by such GPA Entity, times (B) $909,943.00, divided by (C) by 827,221.
2
<PAGE>
(d) Hawaiian and each GPA Entity acknowledge that the purchase price per
share of the GPA Shares provided for herein (i) may differ from the open market
price of shares of Class A or Class B Stock on the Closing Date, (ii) has been
negotiated in consideration of the entirety of this Agreement and (iii) shall be
deemed adequate consideration for all purposes of this Agreement.
SECTION 4. CONDITIONS PRECEDENT.
--------------------
The obligations of the GPA Entities under Sections 1 and 2 are subject to
the satisfaction (or waiver by the GPA Entities) on the Closing Date of the
following conditions:
(a) No Default or Event of Default under the Mortgage, the Notes, the
Amended DC-9 Leases or and Related Lease Document shall exist.
(b) In the event that, on or after the execution of this Agreement and
prior to the Closing Date, a petition for relief under the United States
Bankruptcy Code has been filed by or against Hawaiian, Hawaiian shall have
assumed the DC-9 Leases without modification and such assumption shall have be
the subject of a final, non-appealable Bankruptcy Court order.
(c) Hawaiian shall have purchased, or caused the purchase of, the GPA
Shares from the GPA Entities in accordance with Section 3 of this Agreement.
SECTION 5. TERMINATION.
-----------
In the event that the closing of the Rights Offering shall not have
occurred by September 30, 1996, this Agreement, and the obligations of the
parties hereto, shall automatically, without further act, terminate on September
30, 1996.
SECTION 6. MISCELLANEOUS.
-------------
(a) No waiver shall be deemed to be made by any party hereto of any of
their respective rights hereunder unless it is in writing signed by the waiving
party.
(b) For the purposes of this Agreement, written notices shall be send by
United States first class mail, postage prepaid, addressed to the notified party
at its address set forth below its signature line, or such other address
specified by the party with like notice, and shall be deemed received upon
deposit in the United States mail or on the day of transmittal by personal
delivery, telecopier, telex, cable or other electronic communication devise
capable of providing a written document.
(c) If there is any claim or controversy litigated in any lawsuit between
any of the parties hereto in connection with this Agreement, the prevailing
parties in the lawsuit shall be entitled to recover from the other parties their
reasonable costs and attorneys' fees.
(d) Each of the parties hereto consents to the nonexclusive jurisdiction of
any state or federal court located within New York County, New York, Anchorage,
Alaska or Honolulu, Hawaii. Each of the parties hereto waives personal service
of any and all process upon it, and
3
<PAGE>
consents that all service of process be made in the manner set forth in
Section 4(b) of this Agreement. Each of the parties hereto waives, to the
fullest extent each may effectively do so, any defense or objection
based upon forum non conveniens and any defense or objection to venue
----- --- ----------
of any action instituted within New York County, New York, Anchorage, Alaska or
Honolulu, Hawaii. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO
THIS AGREEMENT.
(e) This Agreement has been delivered and accepted at and shall be deemed
to have been made in the State of New York, United States of America, and shall
be interpreted, and the rights and liabilities of the parties hereto determined,
in accordance with the internal laws (as opposed to conflicts of laws
provisions) of the State of New York.
(f) This Agreement shall be binding upon and shall inure to the benefit of
the parties' respective successors and assigns, subject to the provisions
hereof.
(g) This Agreement sets forth the entire understanding of the parties with
respect to the within matters and may not be modified or amended except upon a
writing signed by all parties.
(h) Each of the signatories hereto certifies that such party has all
necessary authority to execute this Agreement.
(i) This Agreement may be executed in one or more counterparts, each on of
which when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
AEROUSA, INC.
By: /s/ G. M. Gabler
----------------
Title: President
---------
Address: 83 Wooster Heights Road
Danbury, Connecticut 06810
Attention: President
GPA GROUP PLC
By: /s/ Richard Pierce
------------------
Title: Group Chief Accountant
----------------------
4
<PAGE>
Address: GPA House
County Claire
Shannon, Ireland
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
-------------------
Title:Chairman, President and
-----------------------
Chief Executive Officer
-----------------------
By: /s/ Rae A. Capps
----------------
Title:Vice President, General Counsel
--------------------------------
and Corporate Secretary
-----------------------
Address: 3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attn: Vice President - Finance
Copy to:
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attn: Vice President, General
Counsel and Corporate Secretary
/+ /NA960670.173/1+
5
<PAGE>
EXHIBIT 10(m)
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated January 31, 1996 (this "AGREEMENT"), BY AND
AMONG HAWAIIAN AIRLINES, INC., A HAWAII CORPORATION (THE "COMPANY"), AIRLINE
INVESTORS PARTNERSHIP, L.P., A DELAWARE LIMITED PARTNERSHIP ("AIP"), THE AIR
LINE PILOTS ASSOCIATION, HAWAIIAN MASTER EXECUTIVE COUNCIL ("HAWAIIAN MEC"), THE
ASSOCIATION OF FLIGHT ATTENDANTS ("AFA") AND THE INTERNATIONAL ASSOCIATION OF
MACHINISTS ("IAM" AND, TOGETHER WITH THE HAWAIIAN MEC AND AFA, THE "UNIONS").
WHEREAS, AIP and the Company entered into the Stock Purchase Agreement,
dated December 8, 1995 (the "STOCK PURCHASE AGREEMENT"), PURSUANT TO WHICH AIP
HAS AGREED TO PURCHASE FROM THE COMPANY, AND THE COMPANY HAS AGREED TO ISSUE AND
SELL TO AIP AT THE CLOSING (AS DEFINED IN THE STOCK PURCHASE AGREEMENT), AN
AGGREGATE OF 18,181,818 SHARES, PAR VALUE $.01 PER SHARE, OF CLASS A COMMON
STOCK OF THE COMPANY (THE "CLASS A COMMON STOCK"), FOR AN AGGREGATE PRICE OF
$20,000,000.
WHEREAS, as set forth in the Stock Purchase Agreement, it is a condition to
AIP's purchase of the Class A Common Stock that the Unions enter into amended
collective bargaining agreements (the "AMENDED COLLECTIVE BARGAINING
AGREEMENTS") CARRYING OUT THE TERM SHEETS SET FORTH AS EXHIBIT F TO THE STOCK
PURCHASE AGREEMENT (THE "TERM SHEETS").
NOW, THEREFORE, to induce the Unions to enter into the Amended Collective
Bargaining Agreements, and as required by the Term Sheets set forth as Exhibit F
to the Stock Purchase Agreement, and in consideration of the same, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below:
An "Affiliate" of, or a person "affiliated" with, a specified Person, means
a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. The term "control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise.
"AIP Stockholder" shall mean AIP or any "affiliate" of AIP as defined in
the Charter Documents.
<PAGE>
"Board of Directors" means the Board of Directors of the Company.
"Charter Documents" means the Amended Articles of Incorporation and the
Amended Bylaws of the Company as in effect on the date hereof, copies of which
are attached hereto as Exhibits A and B, respectively.
"Common Stock" means the Class A Common Stock or any other capital stock of
the Company into which such stock is reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by its
terms convertible into shares of Common Stock and any option, warrant or other
subscription or purchase right with respect to Common Stock.
"Person" means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental body or other entity.
"Series B Special Preferred Stock," "Series C Special Preferred Stock,"
"Series D Special Preferred Stock" and "Series E Special Preferred Stock" shall
have the meanings assigned to such terms in the Charter Documents.
"Shares" means, with respect to the AIP Stockholder, all shares, whether
now owned or hereafter acquired, of Common Stock; provided, for purposes of
Section 2, Shares shall be deemed to include Common Stock Equivalents.
"Stockholders Meeting" shall mean any regular or special meeting of the
stockholders of the Company.
"Written Consent" shall mean any written consent executed in lieu of a
Stockholders Meeting.
2. Restriction on Transfer of Shares. The AIP Stockholder agrees that it
shall not sell, give, assign or otherwise dispose of (whether by operation of
law or otherwise) (each a "transfer") any Shares or any right, title or
interest therein or thereto to any Person that is, or is an Affiliate of, any
Person that has been denied a Part 121 certificate by the Department of
Transportation. Any attempt to transfer any Shares or any such rights in
violation of the preceding sentence shall be null and void ab initio, and the
Company agrees not to register any such transfer.
<PAGE>
3. Corporate Governance.
3.1 Election of Directors. The AIP Stockholder shall vote its Shares at
any Stockholders Meeting called for the purpose of filling positions on the
Board of Directors, or in any Written Consent executed for such purpose, in
favor of the directors standing for election and nominated by the holders of
Series B Special Preferred Stock, Series C Special Preferred Stock, Series D
Special Preferred Stock, and Series E Special Preferred Stock, respectively.
3.2 Amendment of Charter Documents. The AIP Stockholder shall vote its
Shares at any Stockholders Meeting called for the purpose of revising the
Charter Documents, or in any Written Consent executed for such purposes, against
any proposed amendment to any Charter Document that would be inconsistent with,
or alter the rights of the Unions or the obligations of the Board of Directors
under, the Designation of Special Preferred Stock included in Exhibit A hereto
or any of Sections 3.02, 3.09, 3.12 or 7.04 of the By-Laws included in Exhibit B
hereto (collectively referred to as the "Governance Provisions"). In the event
the Board of Directors purports to amend or revise the Charter Documents in any
respect that would be inconsistent with, or alter the rights of the Unions or
the obligations of the Board of Directors under, the Governance Provisions, then
the AIP Stockholder shall, at the request of any Union and to the extent
permitted by law, (i) seek a Stockholders Meeting or stockholder action by
Written Consent, as soon as practicable, for the purpose of restoring the
Governance Provisions, (2) propose a stockholder resolution at such Stockholders
Meeting or action by Written consent to restore the Governance Provisions, and
(3) vote its shares at any Stockholders Meeting, or in any Written Consent, in
favor of such resolution to restore the Governance Provisions.
3.3 Board Committee Representation. The AIP Stockholder shall make
reasonable efforts to ensure that at least one Employee Director serves on each
significant committee of the Board other than the Audit Committee (including, if
any, the Executive Committee, the Strategic Planning Committee, the Board
Nominating Committee and other committees of comparable significance).
3.4 General Obligations. The AIP Stockholder shall not take any action
inconsistent with the Governance Provisions. In the event of any material change
to the terms or structure of the rights or powers of the AIP Stockholder, as a
stockholder or as a holder of the Series B Special Preferred Stock, under the
Charter Documents or comparable corporate documentation (including, without
<PAGE>
limitation, changes in the AIP Stockholder's right to nominate, designate,
remove or replace directors on the Board of Directors), the AIP Stockholder
shall, at the request of any Union and to the extent permitted by law, take all
action necessary to implement comparable changes to the terms or structure of
the rights or powers of such Union under the Charter Documents or comparable
corporate documentation.
3.5. Stockholder Actions. In order to effectuate the provisions of this
Section 3, the AIP Stockholder hereby agrees that when any action or vote is
required to be taken pursuant to this Agreement, such Stockholder shall attend
the Stockholders Meeting, in person or by proxy, or execute or cause to be
executed a Written Consent to effectuate such stockholder action, as
appropriate.
4. Stock Certificate Legend. A copy of this Agreement shall be filed
with the Secretary of the Company and kept with the records of the Company. Each
certificate representing Shares now held or hereafter acquired by the AIP
Stockholder shall for as long as this Agreement is effective bear a legend
substantially in the following form:
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") AND VOTING
OF ANY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED
BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED JANUARY 31, 1996, BY
AND AMONG THE COMPANY, AIRLINE INVESTORS PARTNERSHIP, L.P. AND CERTAIN
UNIONS, A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL
OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES
ON THE BOOKS OF THE COMPANY IF THE TRANSFER HAS NOT BEEN MADE IN COMPLIANCE
WITH THE STOCKHOLDERS AGREEMENT.
5. Miscellaneous.
5.1 Notices. All notices or other communications given or made
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof.)
<PAGE>
(a) if to the Hawaiian MEC:
Air Line Pilots Association,
Hawaiian Master Executive Council
535 Herndon Parkway
Herndon, Virginia 22070-1169
Attention: Master Chairman, Hawaiian MEC
Telecopy: (703) 689-4290
with a copy to:
Cohen, Weiss and Simon
330 West 42nd Street
New York, New York 10036
Attention: Stephen Presser
Telecopy: (212) 239-9012
(b) if to the AFA:
Association of Flight Attendants
1625 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: President, Hawaiian MEC
and David Borer
Telecopy: (202) 939-5385
(c) if to the IAM:
International Association of Machinists,
District 141
1449 South Beretania Street
Honolulu, HI 96814
Attention: Sam Poomaihealani and
Floyd Baptiste
Telecopy: (808) 836-0144
(d) if to the AIP Stockholder:
Airline Investors Partnership, L.P.
885 Third Avenue
34th Floor
New York, New York 10022
Attention: John Adams and Richard Conway
Telecopy: (212) 751-9501
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Judith R. Thoyer, Esq.
Telecopy: (212) 757-3990
<PAGE>
(e) if to the Company:
Hawaiian Airlines, Inc.
3376 Koapaka Street
Honolulu, Hawaii 96819
Attention: General Counsel
Telecopy: (808) 835-3690
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attention: Ronald S. Beard, Esq.
Telecopy: (213) 229-7520
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
5.2 Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(b) This Agreement may be amended, supplemented or modified only
with the written consent of the AIP Stockholder and the Unions.
5.3 No Inconsistent Agreement. The AIP Stockholder shall not enter into
any stockholder agreement, voting agreement or other agreement that is
inconsistent with the terms of this Agreement.
5.4 Enforcement. The parties to this Agreement agree that the
irreparable damage will occur in the event that any of the provisions of this
Agreement is not performed in accordance with its specific terms or is
otherwise breached and that monetary damages will not constitute adequate
compensation for any breach of this Agreement. Accordingly, in addition to any
other remedy available to any party at law or equity, the parties shall be
entitled to an injunction or injunctions in any court of competent jurisdiction
to prevent breaches of this Agreement
<PAGE>
to specifically enforce the terms and provisions of this Agreement.
5.5 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, or unenforceable in any
respect for any reason, the validity, legality or enforceability of such
provision in every other respect and of each remaining provision of the
Agreement shall not be impaired thereby in any respect. The parties specifically
intend that all of the rights of the Unions under this Agreement shall be
enforceable to the fullest extent permitted by law.
5.6 Entire Agreement. The Agreement, together with the exhibits hereto,
is intended by the AIP Stockholder and the Unions as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of such parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits hereto, supersede all prior agreements and
understandings between the AIP Stockholder and the Unions with respect to such
subject matter.
5.7 Term of Agreement. This Agreement shall terminate at such time as
the AIP Stockholder shall no longer have any right to designate directors
pursuant to the Charter Documents.
5.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF EXCEPT TO THE EXTENT INTERNAL CORPORATE LAWS OF THE
COMPANY'S STATE OF INCORPORATION SHALL APPLY.
5.9 Transfer to Affiliates. An AIP Stockholder shall not transfer any
shares to any Affiliate of AIP or an AIP Stockholder (an "AIP Affiliate") unless
the AIP Affiliate agrees in writing to be bound by the terms and conditions of
this Agreement in the same manner as AIP.
5.10 Successors and Assigns. This agreement shall be binding on any
successor that acquires all or substantially all of AIP or any AIP Affiliate
that maintains beneficial or record ownership of any Shares (an "AIP
successor"), and the AIP Stockholder shall not adopt or permit any agreement or
arrangement that results in a AIP Successor unless the AIP Successor agrees in
writing to be bound by the terms and conditions of this Agreement in the
<PAGE>
same manner as AIP. This Agreement is not assignable except in connection with a
transfer of Shares by AIP to an "affiliate," as defined in the Charter
Documents.
5.11 Notice of Transfer. The AIP Stockholder shall provide the Company
and the Unions with reasonable notice prior to transferring record or beneficial
ownership of Shares to any Affiliate, Substantial Purchaser or AIP Successor.
For this purpose, a "Substantial Purchaser" shall mean a transferee (or group of
transferees acting in concert) which acquires 10% or more of the Shares.
5.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed, or have cause to be
executed, this Agreement on the date first written above.
AIR LINE PILOTS ASSOCIATION,
HAWAIIAN MASTER EXECUTIVE COUNCIL
By: /s/ RENO F. MORELLA
--------------------------------
Reno F. Morella
Chairman, Hawaiian MEC
ASSOCIATION OF FLIGHT ATTENDANTS
By: /s/ PATRICIA A. FRIEND
---------------------------------
Name: Patricia A. Friend
Title: International President
<PAGE>
INTERNATIONAL ASSOCIATION OF MACHINISTS
By: /s/ K. W. THIEDE
---------------------------
Name: K. W. Thiede
Title: District Lodge 141 President
AIRLINE INVESTORS PARTNERSHIP, L.P.
By: AIP GENERAL PARTNER, INC.,
Its General Partner
By: /s/ JOHN W. ADAMS
--------------------------------
Name: John W. Adams
Title: President
HAWAIIAN AIRLINES, INC.
By: /s/ BRUCE R. NOBLES
--------------------------------
Name: Bruce R. Nobles
Title: Chairman, President and
Chief Executive Officer
(Solely with respect to Sections 2 and 4 hereof)
<PAGE>
EXHIBIT 10(n)
AIRCRAFT LEASE AMENDMENT
THIS AIRCRAFT LEASE AMENDMENT (the "Amendment") is made effective as of
-----------------------------
this 31st day of January, 1996 by and between AEROUSA, Inc., a company
incorporated under the laws of the State of Connecticut whose chief executive
office is at Lee Farm Corporate Park, 83 Wooster Heights Road, Danbury,
Connecticut 06810, U.S.A. (the "Lessor"), and HAWAIIAN AIRLINES, INC. a company
incorporated under the laws of the Territory of Hawaii and existing under the
laws of the State of Hawaii and having its principal place of business at 3375
Koapaka Street, Suite G350, Honolulu, Hawaii 96819 (the "Lessee").
W I T N E S S E T H :
WHEREAS, by an Aircraft Lease Agreement dated as of 31 March ,1992 and
recorded by the Federal Aviation Administration ("FAA") on July 6, 1992 and
assigned conveyance number N99495, as amended by Aircraft Lease Amendment
Agreement dated as of 10 November, 1992 recorded by the FAA on April 29, 1993
and assigned by (i) that certain Aircraft Lease Extension Agreement dated as of
15 September, 1992 (the "First Amendment"), (ii) that certain letter agreement
between Lessor, GPA Group plc and Lessee dated November 10, 12992 (the "Second
Letter Agreement"), (iv) that certain letter agreement among Lessor, GPA Group
plc and Lessee, dated October 30, 1992, (v) that certain Aircraft Lease
Amendment Agreement dated as of 10 November, 1992 (the "Second Amendment") (as
so amended, the "Lease"), Lessor has leased to Lessee and Lessee has taken on
lease from Lessor a McDonnell Douglas DC9-51 aircraft bearing manufacturer's
serial number 47784 and Federal Aviation Administration registration number
N603DC on the terms and conditions thereon;
WHEREAS, the Third Amendment, with the First Amendment, the First Letter
Agreement, the Second Letter Agreement and the Second Amendment attached, was
recorded by the FAA as a single instrument on _______ and assigned conveyance
number _______; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease in the manner
hereinafter described.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. INTERPRETATION
--------------
1.1 All terms used herein shall have the same meanings as in the Lease (unless
defined herein) and the Lease shall be deemed amended to the extent
herein provided and as so amended shall remain in full force and
effect.
<PAGE>
2. MODIFICATIONS
-------------
2.1 Schedule 7 (Rent) to the Lease shall be deleted in its entirety and
replaced by the following Schedule 7 (Rent)"
(a) This Schedule 7 (Rent) is subject, in its entirety, to that
certain Global Settlement Agreement and Adequate Protection
Stipulation (GPA) approved by the Bankruptcy Court in In re Hawaiian
--------------
Airlines, Inc., Case No. 93-01072 (Bankr. Haw.).
--------------
(b) Commencing on August 1, 1995 and continuing thereafter through
March 31, 1996, the Rent shall be $65,000 per month, payable in
advance on Tuesday of each calendar week in installments of $15,000.
(c) Commencing April 1, 1996 and continuing thereafter through the
remainder of the Term, the Rent all be $68,000 per month, payable in
advance on Tuesday of each calendar week in installments of $15,692.
(d) If Lessee provides to any lessor under any lease of DC-9 aircraft
that existed on August 23, 1994 (a "Comparable Lease") a higher rental
(other than a higher rental resulting from a rental reset provision
similar to that set forth in the Third Amendment) for the use of such
DC-9 aircraft after March 1, 1996 and prior to the expiration of the
term of such Comparable Lease (excluding any renewal periods), then
Lessor shall be entitled to such higher rental under the Lease from
and after the effective date of such higher rental under such
Comparable Lease.
3. MISCELLANEOUS
-------------
3.1 This Amendment in all respect is governed by the Governing Law and the
provisions of Clause 16:12 (b)-(e) inclusive of the Lease Agreement
are hereby incorporated by referenced into this Amendment as if the
same were set out in full in this Amendment.
3.2 The amendment to the Lease set forth above are limited precisely as written
and, as so amended, the Lease is ratified and confirmed and the terms and
conditions thereof shall remain in full force and effect as the legal,
valid and binding rights and obligations of the parties. The Lease, this
Amendment and the Global Settlement Agreement embody the entire agreement
between the parties relating to the subject matter hereof and thereof, and
such agreements terminate and supersede all prior or contemporaneous
agreements, discussions, undertakings and understandings, whether written
or oral, express or implied, between the parties hereto and thereto
concerning the subject matter hereof or thereof.
3.3 References in the Lease Agreement to "this Agreement" shall be construed as
references to the Lease Agreement as amended hereby.
3.4 This Amendment may be executed in any number of counterparts each of which,
when taken together, shall constitute one and the same agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first above written.
AEROUSA, INC.
LESSOR
By: /s/ G. M. Gabler
----------------
Its: President
---------
HAWAIIAN AIRLINES, INC.
LESSEE
By: /s/ Bruce R. Nobles
-------------------
Its: Chairman, President and
-----------------------
Chief Executive Officer
-----------------------
By: /s/ Rae A. Capps
----------------
Its: Vice President, General Counsel
--------------------------------
and Corporate Secretary
-----------------------
NA960670.177/1+
3
<PAGE>
EXHIBIT 10(o)
-------------
AIRCRAFT LEASE AMENDMENT
------------------------
THIS AIRCRAFT LEASE AMENDMENT (the "Amendment") is made effective as of
this 31st day of January 1996 by and between GPA GROUP plc, a company
incorporated under the laws of Ireland, having its registered office at GPA
House, Shannon, Ireland (the "Lessor") and HAWAIIAN AIRLINES, INC., a company
incorporated under the laws of the Territory of Hawaii and existing under the
laws of the State of Hawaii and having its principal place of business at 3375
Koapaka Street, Suite G350, Honolulu, Hawaii 96819 (the "Lessee").
W I T N E S S E T H :
WHEREAS, by an Aircraft Lease Agreement, dated as of February 28, 1990, as
amended by (i) that certain Amendment to Aircraft Lease Agreement, dated as of
April 2, 1990, (ii) that certain Aircraft Lease Amendment Agreement, dated as of
31 October, 1990, (iii) that certain letter agreement among Lessor, AeroUSA,
Inc. and Lessee, dated January 17, 1992 (the "Letter Agreement"), (iv) that
certain letter agreement among Lessor, AeroUSA, Inc. and Lessee, dated October
30, 1992 and (v) that certain Aircraft Lease Amendment dated August 23, 1994
(the "1994 Amendment") (as so amended, the "Lease"), Lessor has leased to Lessee
and Lessee has taken on lease from Lessor a McDonnell Douglas DC9-51 aircraft
bearing manufacturer's serial number 47742 and registration number EI-CBG on the
terms and conditions therein; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease in the manner
hereinafter described.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. INTERPRETATION
--------------
1.1 All term used herein shall have the same meanings as in the Lease
(unless defined herein) and the Lease shall be deemed amended to the extent
herein provided and as so amended shall remain in full force and effect.
2. MODIFICATION
------------
2.1 The definition of the term "Rent" set forth in Appendix B to the Lease
is amended to read in its entirety:
(a) the definition of Rent is subject, in its entirety, to that certain
Global Settlement Agreement and Adequate Protection Stipulation (GPA)
approved by the Bankruptcy Court in In re Hawaiian Airlines, Inc., Case No.
-----------------------------
93-01072 (Bankr. Haw.).
<PAGE>
(b) Commencing on August 1, 1995 and continuing thereafter through March
31, 1996, the Rent shall be $65,000 per month, payable in advance on
Tuesday of each calendar week in installments of $15,000.
(c) Commencing April 1, 1996 and continuing thereafter through the
remainder of the Term, the Rent shall be $68,000 per month, payable in
advance on Tuesday of each calendar week in installments of $15,692.
(d) If Lessee provides to Lessor under any lease of DC-0 aircraft that
existed on August 23, 1994 (a "Comparable Lease") a higher rental (other
than a higher rental resulting from a rental reset provision similar to
that set forth in the 1994 Amendment) for the use of such DC-9 aircraft
after March 1, 1995 and prior to the expiration of the term of such
Comparable Lease (excluding any renewal periods), then Lessor shall be
entitled to such higher rental under the Lease from and after the effective
date of such higher rental under such Comparable Lease.
3. MISCELLANEOUS
-------------
3.1 This Amendment in all respects is governed by the Governing Law and
the provisions of Clause 16.8 of the Lease Agreement are hereby incorporated by
reference into this Amendment as if the same were set out in full in this
Amendment.
3.2 The amendments to the Lease set forth above are limited precisely as
written and, as so amended, the Lease is ratified and confirmed and the terms
and conditions thereof shall remain in full force and effect as the legal, valid
and binding rights and obligations of the parties. The Lease, this Amendment
and the Global Settlement Agreement embody the entire agreement between the
parties relating to the subject matter hereof and thereof, and such agreements
terminate and supersede all prior or contemporaneous agreements, discussions,
undertakings and understandings, whether written or oral, express or implied,
between the parties hereto and thereto concerning the subject matter hereof and
thereof.
3.3 References made in the Lease Agreement to "this Agreement" shall be
construed as references to the Lease Agreement as amended hereby.
2
<PAGE>
3.4 This Amendment may be executed in any number of counterparts each of
which, when taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first above written.
GPA GROUP plc
LESSOR
By: /s/ Richard Pierce
------------------
Its: Group Chief Accountant
----------------------
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
-------------------
Its: Chairman, President and
-----------------------
Chief Executive Officer
-----------------------
By: /s/ Rae A. Capps
----------------
Its: Vice President, General Counsel
--------------------------------
and Corporate Secretary
-----------------------
NA960670.174/1+
3
<PAGE>
EXHIBIT 10(p)
-------------
AIRCRAFT LEASE AMENDMENT
------------------------
THIS AIRCRAFT LEASE AMENDMENT (the "Amendment") is made effective as of
this 31st day of January 1996 by and between GPA GROUP plc, a company
incorporated under the laws of Ireland, having its registered office at GPA
House, Shannon, Ireland (the "Lessor") and HAWAIIAN AIRLINES, INC., a company
incorporated under the laws of the Territory of Hawaii and existing under the
laws of the State of Hawaii and having its principal place of business at 3375
Koapaka Street, Suite G350, Honolulu, Hawaii 96819 (the "Lessee").
W I T N E S S E T H :
WHEREAS, by an Aircraft Lease Agreement, dated as of February 28, 1990, as
amended by (i) that certain Amendment to Aircraft Lease Agreement, dated as of
April 2, 1990, (ii) that certain Aircraft Lease Amendment Agreement, dated as of
31 October, 1990, (iii) that certain letter agreement among Lessor, AeroUSA,
Inc. and Lessee, dated January 17, 1992 (the "Letter Agreement"), (iv) that
certain letter agreement among Lessor, AeroUSA, Inc. and Lessee, dated October
30, 1992 and (v) that certain Aircraft Lease Amendment dated August 23, 1994
(the "1994 Amendment") (as so amended, the "Lease"), Lessor has leased to Lessee
and Lessee has taken on lease from Lessor a McDonnell Douglas DC9-51 aircraft
bearing manufacturer's serial number 48122 and registration number EI-CBI on the
terms and conditions therein; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease in the manner
hereinafter described.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. INTERPRETATION
--------------
1.1 All term used herein shall have the same meanings as in the Lease
(unless defined herein) and the Lease shall be deemed amended to the extent
herein provided and as so amended shall remain in full force and effect.
2. MODIFICATION
------------
2.1 The definition of the term "Rent" set forth in Appendix B to the Lease
is amended to read in its entirety:
(a) the definition of Rent is subject, in its entirety, to that certain
Global Settlement Agreement and Adequate Protection Stipulation (GPA)
approved by the Bankruptcy Court in In re Hawaiian Airlines, Inc., Case No.
-----------------------------
93-01072 (Bankr. Haw.).
<PAGE>
(b) Commencing on August 1, 1995 and continuing thereafter through March
31, 1996, the Rent shall be $65,000 per month, payable in advance on
Tuesday of each calendar week in installments of $15,000.
(c) Commencing April 1, 1996 and continuing thereafter through the
remainder of the Term, the Rent shall be $68,000 per month, payable in
advance on Tuesday of each calendar week in installments of $15,692.
(d) If Lessee provides to Lessor under any lease of DC-0 aircraft that
existed on August 23, 1994 (a "Comparable Lease") a higher rental (other
than a higher rental resulting from a rental reset provision similar to
that set forth in the 1994 Amendment) for the use of such DC-9 aircraft
after March 1, 1995 and prior to the expiration of the term of such
Comparable Lease (excluding any renewal periods), then Lessor shall be
entitled to such higher rental under the Lease from and after the effective
date of such higher rental under such Comparable Lease.
3. MISCELLANEOUS
-------------
3.1 This Amendment in all respects is governed by the Governing Law and
the provisions of Clause 16.8 of the Lease Agreement are hereby incorporated by
reference into this Amendment as if the same were set out in full in this
Amendment.
3.2 The amendments to the Lease set forth above are limited precisely as
written and, as so amended, the Lease is ratified and confirmed and the terms
and conditions thereof shall remain in full force and effect as the legal, valid
and binding rights and obligations of the parties. The Lease, this Amendment
and the Global Settlement Agreement embody the entire agreement between the
parties relating to the subject matter hereof and thereof, and such agreements
terminate and supersede all prior or contemporaneous agreements, discussions,
undertakings and understandings, whether written or oral, express or implied,
between the parties hereto and thereto concerning the subject matter hereof and
thereof.
3.3 References made in the Lease Agreement to "this Agreement" shall be
construed as references to the Lease Agreement as amended hereby.
2
<PAGE>
3.4 This Amendment may be executed in any number of counterparts each of
which, when taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first above written.
GPA GROUP plc
LESSOR
By: /s/ Richard Pierce
------------------
Its: Group Chief Accountant
----------------------
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
-------------------
Its: Chairman, President and
-----------------------
Chief Executive Officer
-----------------------
By: /s/ Rae A. Capps
----------------
Its: Vice President, General Counsel
--------------------------------
and Corporate Secretary
-----------------------
NA960670.180/1+
3
<PAGE>
EXHIBIT 10(q)
AIRCRAFT LEASE AMENDMENT
------------------------
THIS AIRCRAFT LEASE AMENDMENT (the "Amendment") is made effective as of
this 31st day of January 1996 by and between GPA GROUP plc, a company
incorporated under the laws of Ireland, having its registered office at GPA
House, Shannon, Ireland (the "Lessor") and HAWAIIAN AIRLINES, INC., a company
incorporated under the laws of the Territory of Hawaii and existing under the
laws of the State of Hawaii and having its principal place of business at 3375
Koapaka Street, Suite G350, Honolulu, Hawaii 96819 (the "Lessee").
W I T N E S S E T H :
WHEREAS, by an Aircraft Lease Agreement, dated as of February 28, 1990, as
amended by (i) that certain Amendment to Aircraft Lease Agreement, dated as of
April 2, 1990, (ii) that certain Aircraft Lease Amendment Agreement, dated as of
31 October, 1990, (iii) that certain letter agreement among Lessor, AeroUSA,
Inc. and Lessee, dated January 17, 1992 (the "Letter Agreement"), (iv) that
certain letter agreement among Lessor, AeroUSA, Inc. and Lessee, dated October
30, 1992 and (v) that certain Aircraft Lease Amendment dated August 23, 1994
(the "1994 Amendment") (as so amended, the "Lease"), Lessor has leased to Lessee
and Lessee has taken on lease from Lessor a McDonnell Douglas DC9-51 aircraft
bearing manufacturer's serial number 47796and registration number EI-CBH on the
terms and conditions therein; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease in the manner
hereinafter described.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. INTERPRETATION
--------------
1.1 All term used herein shall have the same meanings as in the Lease
(unless defined herein) and the Lease shall be deemed amended to the extent
herein provided and as so amended shall remain in full force and effect.
2. MODIFICATION
------------
2.1 The definition of the term "Rent" set forth in Appendix B to the Lease
is amended to read in its entirety:
(a) the definition of Rent is subject, in its entirety, to that certain
Global Settlement Agreement and Adequate Protection Stipulation (GPA)
approved by the Bankruptcy Court in In re Hawaiian Airlines, Inc., Case No.
-----------------------------
93-01072 (Bankr. Haw.).
<PAGE>
(b) Commencing on August 1, 1995 and continuing thereafter through March
31, 1996, the Rent shall be $65,000 per month, payable in advance on
Tuesday of each calendar week in installments of $15,000.
(c) Commencing April 1, 1996 and continuing thereafter through the
remainder of the Term, the Rent shall be $68,000 per month, payable in
advance on Tuesday of each calendar week in installments of $15,692.
(d) If Lessee provides to Lessor under any lease of DC-0 aircraft that
existed on August 23, 1994 (a "Comparable Lease") a higher rental (other
than a higher rental resulting from a rental reset provision similar to
that set forth in the 1994 Amendment) for the use of such DC-9 aircraft
after March 1, 1995 and prior to the expiration of the term of such
Comparable Lease (excluding any renewal periods), then Lessor shall be
entitled to such higher rental under the Lease from and after the effective
date of such higher rental under such Comparable Lease.
3. MISCELLANEOUS
-------------
3.1 This Amendment in all respects is governed by the Governing Law and
the provisions of Clause 16.8 of the Lease Agreement are hereby incorporated by
reference into this Amendment as if the same were set out in full in this
Amendment.
3.2 The amendments to the Lease set forth above are limited precisely as
written and, as so amended, the Lease is ratified and confirmed and the terms
and conditions thereof shall remain in full force and effect as the legal, valid
and binding rights and obligations of the parties. The Lease, this Amendment
and the Global Settlement Agreement embody the entire agreement between the
parties relating to the subject matter hereof and thereof, and such agreements
terminate and supersede all prior or contemporaneous agreements, discussions,
undertakings and understandings, whether written or oral, express or implied,
between the parties hereto and thereto concerning the subject matter hereof and
thereof.
3.3 References made in the Lease Agreement to "this Agreement" shall be
construed as references to the Lease Agreement as amended hereby.
2
<PAGE>
3.4 This Amendment may be executed in any number of counterparts each of
which, when taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first above written.
GPA GROUP plc
LESSOR
By: /s/ Richard Pierce
------------------
Its: Group Chief Accountant
----------------------
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
-------------------
Its: Chairman, President and
-----------------------
Chief Executive Officer
-----------------------
By: /s/ Rae A. Capps
----------------
Its: Vice President, General Counsel
--------------------------------
and Corporate Secretary
-----------------------
NA960670.181/1+
3
<PAGE>
EXHIBIT 10(r)
LEASE AMENDMENT NO. 8
---------------------
THIS LEASE AMENDMENT NO. 8 (herein called "Amendment No. 8"), dated January
31, 1996 between AMERICAN AIRLINES, INC., a Delaware corporation ("Lessor") and
HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee").
WITNESSETH:
----------
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of September 12, 1994 (as amended and
supplemented from time to time, the "Lease Agreement", defined terms used herein
as therein defined), which provides for the execution of a Lease Amendment for
the purpose of, among other things, amending the Lease Agreement and any Lease
Supplements thereto;
WHEREAS, the Lease Agreement was modified and amended by those certain
Lease Supplements No. 1 through 6, each dated as of September 12, 1994, recorded
with the Lease Agreement, with the Federal Aviation Administration (the "FAA")
on September 16, 1994 as Conveyance No. P98874; by that certain Lease Supplement
No. 7 dated as of September 21, 1994, recorded with the FAA on October 26, 1994
as Conveyance No. II00230; by that certain Lease Supplement No. 8 dated as of
October 6, 1994, recorded with the FAA on October 31, 1994 as Conveyance No.
LL08311; by that certain Amendment to Lease Agreement, Lease Supplements and
Lease Supplement No. 9, dated as of November 12, 1994, recorded with the FAA on
November 21, 1994 as Conveyance No. NN007458; by that certain Lease Supplement
No. 10 dated November 21, 1994, recorded by the FAA on March 15, 1995 as
Conveyance No. YY010872; by that certain Lease Amendment No. 2 dated April 13,
1995 ("Lease Amendment No. 2"), recorded by the FAA on May 26, 1995 as
Conveyance No. D06501; by that certain Lease Amendment No. 3 dated June 1, 1995
("Lease Amendment No. 3"), recorded by the FAA on June 8, 1995 as Conveyance No.
E19773; by that certain Lease Amendment No. 4 dated August 22, 1995 ("Lease
Amendment No. 4"), recorded by the FAA on September 27, 1995 as Conveyance No.
JJ14862; by that certain Lease Amendment No. 5 dated October 6, 1995 ("Lease
Amendment No. 5"), recorded by the FAA on ______________, 1995 as Conveyance No.
_______________; by that certain Lease Amendment No. 6 dated November 20, 1995
("Lease Amendment No. 6"), recorded by the FAA on ____________________, 1995 as
Conveyance No. _______________; and by that certain Lease Amendment No. 7, dated
as of December 8, 1995 ("Lease Amendment No. 7"), recorded with the FAA on
_______________, 1995 as Conveyance No. _______________; and
WHEREAS, the transaction contemplated by the Letter Agreement, dated
December 8, 1995 between Lessee and Lessor have been consummated on or before
the date hereof and Lessee has elected to pay all Additional Deferred Rent
through the delivery to Lessor of a Secured Promissory Note and the payment of
interest on the principal amount of the Additional Deferred Rent from January
25, 1996 to the date hereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
<PAGE>
acknowledged, and pursuant to the Lease Agreement, the Lessor and Lessee hereby
amend the Lease Agreement as follows:
A. AMENDMENTS TO THE LEASE AGREEMENT.
---------------------------------
1. Section 1 is amended by inserting the following definitions:
"AA Mortgage" means the Chattel Mortgage and Security
-----------
Agreement, dated as of January 31, 1996, between Lessor and Lessee,
and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all
as from time to time amended, supplemented or modified.
"AA Note" means the Secured Promissory Note, dated January 31, 1996,
-------
as executed and delivered by Lessee to Lessor.
"AAdvantage Agreement" means the AAdvantage(R) Participating
--------------------
Agreement, dated as of September 12, 1994 between Lessee and Lessor,
and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all
as from time to time amended, supplemented or modified.
"American Agreements" mean the Lease Agreement, the Long Term
-------------------
Agreements, the Ancillary Agreements, 151 Lease and the 161 Lease.
"Change in Control" means the acquisition by any Person or 13D Group
-----------------
(other than Airline Investors Partnership, L.P. or its Affiliates) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of Voting Securities after which such Person or Group owns Voting
Securities representing 30% or more of the outstanding Voting
Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"151 Lease" means the Aircraft Lease Agreement, dated as of December
---------
15, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"161 Lease" means the Aircraft Lease Agreement, dated as of December
---------
30, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
2
<PAGE>
"Maintenance Services Termination Date" shall have the meaning set
--------------------------------------
forth in Section 1 to Exhibit F hereto.
"Monthly Minimum Maintenance Amount" shall have the meaning set forth
----------------------------------
in Section 3(g)(i) of Exhibit F hereto.
""13D Group" means any partnership, limited partnership, syndicate or
---------
other "group" ( as such term is used in Section 13(d)(3) of the
Exchange Act).
"Voting Securities" means any securities of Lessee entitled to vote
-----------------
generally in the election of directors, or securities convertible into
or exercisable or exchangeable for such securities.
2. The definition of Basic Rent Payment Date is amended by adding the
following sentence to the end thereof:
"After January 31, 1996, and continuing throughout the remainder of
the Lease Term, the Basic Rent Payment Dates shall be (i) the first
Business Day of each calendar month, commencing with March, 1996 and
(ii) September 11, 2001."
3. Sections 10(c), 13A(g), 13(A)(l) and 14A(g) are deleted in their
entirety.
4. Section 3(a) of the Lease Agreement is hereby amended by adding a new
sentence at the end thereof to read as follows:
"Notwithstanding the foregoing, Lessor shall have the right to
terminate this Lease by written notice to Lessee upon the occurrence
of a Change in Control and the relevant Term for each Aircraft shall
end on the date specified in such notice."
5 Section 13A(g) is inserted to read as follows:
"So long as the AA Note shall not have been paid in full, an Event of
Default or Termination Event (as defined therein, respectively) exists
under the AA Mortgage, the AA Note or any of the American Agreements
or an event that permits American, pursuant to Section 11 of the
AAdvantage Agreement, to terminate the AAdvantage Agreement exists."
6. A new Section 22 is inserted to read as follows:
"Customer's obligations hereunder are secured by the lien (the "AA
Lien") created by the AA Mortgage. THE AA LIEN IS SUBORDINATE TO (i)
THE LIEN CREATED BY THAT CERTAIN LOAN AND SECURITY AGREEMENT, DATED AS
OF SEPTEMBER 12, 1994, BETWEEN CUSTOMER AND THE CIT GROUP/CREDIT
FINANCE, INC. ("CIT") PURSUANT TO AN INTERCREDITOR AND SUBORDINATION
AGREEMENT, DATED AS OF DECEMBER 31, 1996, BETWEEN CIT AND AMERICAN AND
(ii) THE LIEN
3
<PAGE>
CREATED BY THAT CERTAIN ROTABLE SPARE PARTS CHATTEL MORTGAGE AND
SECURITY AGREEMENT, DATED AS OF OCTOBER 30, 1992, BETWEEN CUSTOMER AND
AEROUSA, INC. ("AEROUSA") PURSUANT TO AN INTERCREDITOR AND
SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 31, 1996, BETWEEN
AEROUSA AND AMERICAN."
7. Section 1 of Exhibit F is amended by adding the following to the end
thereof:
"Notwithstanding the forgoing, Lessor shall have the right, in
Lessor's sole discretion, to terminate its obligations to provide
Maintenance Services for the Serviced Aircraft on a date (the
"Maintenance Services Termination Date") occurring on or after January
1, 1999, by delivering to Lessee a notice of termination at least 180
days prior to the Maintenance Services Termination Date. In the event
that Lessor so elects to terminate its obligations under this Exhibit
F, all references to the Lease Term contained in this Exhibit F shall
be deemed to refer to the period from the Delivery Date to the
Maintenance Services Termination Date and all references to September
11, 2001, in this Exhibit F shall be deemed to refer to the
Maintenance Services Termination Date."
8. Section 3(a) of Exhibit F is amended in its entirety to read as
follows:
"(a) Charges for Base Maintenance Services and Line
----------------------------------------------
Maintenance Services. In consideration for the agreement of
--------------------
Lessor to perform Base Maintenance Services and Line Maintenance
Services on the Serviced Aircraft, any Serviced Engines and any
Serviced Parts thereof, Lessee shall pay to Lessor an amount equal to
the sum of the products of (i) the number of Flight Hours the Serviced
Aircraft are flown during each calendar year (or portion thereof)
within the Lease Term, multiplied by (ii) the amount set forth
opposite "Total Cost Per Flight Hour" below the applicable calendar
year on Attachment A. Charges for Base Maintenance Services and Line
Maintenance Services shall for the period from the Delivery Date
through January 31, 1996, be payable, monthly, weekly, or
approximately weekly (for the period from May 1, 1995, through and
including January 31, 1996), as the case may be, in advance, and
thereafter monthly, in arrears, in accordance with Section 3(g) of
this Exhibit F and shall include (i) all fees charged for access to
inventory of Rotable Parts, APUs, and spare GE-CF6-6K engines required
to perform Base Maintenance Services and Line Maintenance Services;
and (ii) all fees charged for access to or use of all other Serviced
Parts required to perform Base Maintenance Services and Line
Maintenance Services unless, and to the extent, Lessee has properly
elected to perform its own line maintenance. Outside Services,
Expendable Parts and engineering utilized in connection with the
performance by Lessor of Base
4
<PAGE>
Maintenance Services and Line Maintenance Services are included in the
fixed charges described on Attachment A.
9. Section 3(g)(i) of Exhibit F is amended as follows:
In Clause (iii) of the first sentence thereof the words "throughout
the remainder of the Lease Term " are replaced with the words "to and
including January 31, 1996" and the words "(other than January 31,
1996)" are inserted after the word "Wednesday".
A new clause (iv) is added to the first sentence thereof to read in
its entirety "and (iv) for the period commencing February 1, 1996
throughout the remainder of the Lease Term, Lessee shall pay to Lessor
on a monthly basis in arrears on the first Business Day of each month
commencing in March, 1996, and on September 11, 2001, (each also a
"Monthly Supplemental Rent Payment Date") for Base Maintenance
Services and Line Maintenance Services
In the penultimate sentence thereof the words "through and including
the end of the Lease Term " are replaced with the words "though and
including January 31, 1996"
The last sentence thereof is deleted and replaced in its entirety with
the words " The amount of each such payment (each also a "Monthly
Supplemental Rent Payment") which becomes due during the period
commencing February 1, 1996, through and including the end of the
Lease Term shall equal the product of (A) the aggregate projected
Flight Hours, as determined in accordance with Section 4(u) of this
Exhibit F to be flown by all of the Serviced Aircraft (but in no event
less than the Monthly Minimum Maintenance Amount for each Serviced
Aircraft) during the calendar month (or partial month in the case of
the Monthly Supplemental Rent Payment Date that occurs on September
11, 2001) preceding such Monthly Supplemental Rent Payment Date,
commencing with the month of February, 1996, multiplied by (B) the
amount set forth opposite 'Total Cost Per Flight Hour' below the time
period relating to the time period to which such Monthly
Supplemental Rent Payment corresponds as set forth on Attachment A.
The "Monthly Minimum Maintenance Amount" for each Serviced Aircraft
for each month (or partial month) shall be the product of (1) 200
Flight Hours per month times (2) a fraction the numerator of which is
the number of days such Serviced Aircraft is not grounded for
Maintenance Services during such month and the denominator of which is
the number of days in such month such Serviced Aircraft is subject to
this Lease. Lessor shall not provide Lessee a monthly or weekly
invoice with respect to Weekly Supplemental Rent Payments or Monthly
Supplemental Rent Payments. "
5
<PAGE>
10. Schedule I to the Lease Agreement shall be amended in its entirety to
read as set forth in Schedule I attached hereto.
B. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 8.
-------------------------------------------------------------
This Amendment No. 8 shall become effective upon the fulfillment of the
following conditions precedent:
1. On the effective date of this Amendment No. 8 (the "Amendment Effective
Date"), the representations and warranties of Lessee set forth in the Lease
Agreement shall be true and accurate as if made on such date.
2. The Lease Amendment and the applicable Lease Supplements shall have
been executed and filed for information with the FAA in Oklahoma City, Oklahoma.
3. The receipt by Lessor from Lessee not later than two (2) days prior to
the Amendment Effective Date of the following, dated as of such Amendment
Effective Date, all of which shall be satisfactory in form and substance to
Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized officer thereof
or certifying no changes or amendments thereto since the date they were last
certified to Lessor by Lessee;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform this Amendment No. 8 and the transactions
contemplated hereby, certified to be true and up to date copies by a duly
authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of duly authorized
officers of Lessee setting out the names and signatures of the person or persons
authorized to sign the Lease Agreement;
(d) receipt by Lessor of the installments of Basic Rent pursuant to Section
3 of the Lease Agreement, as amended hereby, and Supplemental Rent pursuant to
Exhibit F to this Lease Agreement, as amended hereby, and payment of all amounts
then due under any other Long-Term Agreement.
4. The Final Order confirming the Plan shall be and remain in full force
and effect.
5. The Long-Term Agreements shall be in full force and effect.
6. No Default or Lessee Event of Default shall have occurred and be
continuing after giving effect to this Lease Amendment and no "Event of Default"
or "Termination Event" shall have occurred and be continuing under the Long-Term
Agreements.
7. The receipt by Lessor from Lessee on or prior to the Amendment
Effective Date of executed counterparts of the AA Note and the AA Mortgage.
6
<PAGE>
C. MISCELLANEOUS.
-------------
1. Except as set forth herein, all terms and provisions contained in the
Lease Agreement shall remain in full force and effect. Nothing contained in
this Lease Amendment No. 8 shall be deemed a waiver by Lessor of any amounts due
and owing under the Lease or of any rights of Lessor existing on the date hereof
under the Lease.
2. Lessee hereby confirms its agreement to pay to Lessor Basic Rent,
Deferred Basic Rent, Additional Deferred Rent, Deferral Interest and
Supplemental Rent for the Aircraft throughout the Term in accordance with the
Lease Agreement, as amended.
3. This Amendment No. 8 is being delivered in the State of Texas and shall
in all respects be governed by, and construed in accordance with, the laws of
the State of Texas, including all matters of construction, validity and
performance.
4. This Amendment No. 8 may be executed in several counterparts, each of
which shall be deemed an original, and all such counterparts shall constitute
one and the same instrument. To the extent that this Amendment No. 8
constitutes chattel paper, as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction, no security interest in this
Amendment No. 8 may be created through the transfer or possession of any
counterpart other than the counterpart marked as the "Original."
SIGNATURE PAGE FOLLOWS
7
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused Amendment No. 8 to be
duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: /s/ Jeffrey M. Jackson
-----------------------------
Jeffrey M. Jackson
Vice President - Corporate
Development and Treasurer
8
<PAGE>
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
-----------------------------
Bruce R. Nobles
President and Chief Executive
Officer
By: /s/ Rae A. Capps
-----------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
9
<PAGE>
SCHEDULE I
----------
This Schedule I has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
10
<PAGE>
EXHIBIT 10(s)
AMENDMENT NO. 1 TO LEASE
------------------------
THIS AMENDMENT NO. 1 TO LEASE (herein called "Amendment No. 1"), dated
January 31, 1996 between AMERICAN AIRLINES, INC., a Delaware corporation
("Lessor") and HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee").
WITNESSETH:
----------
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of December 15, 1995 (as amended, the "Lease
Agreement", defined terms used herein as therein defined), which provides for
the execution of a Lease Amendment for the purpose of, among other things,
amending the Lease Agreement and any prior Lease Supplements thereto; and
WHEREAS, the Lease Agreement was modified and amended by that certain Lease
Supplement No. 1 dated as of December 18, 1995, recorded with the Federal
Aviation Administration (the "FAA") on _______________, as Conveyance No.
_____________; and
WHEREAS, Lessor and Lessee have agreed to amend certain terms of the Lease
Agreement and Lease Supplements as noted herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to the Lease Agreement, the Lessor and Lessee hereby
amend the Lease Agreement as follows:
A. AMENDMENTS TO THE LEASE AGREEMENT.
---------------------------------
1. Section 1 is amended by inserting the following definitions:
"AA Mortgage" means the Chattel Mortgage and Security
-----------
Agreement, dated as of January 31, 1996, between Lessor and
Lessee, and all other agreements, instruments, certificates
and documents related thereto or executed or delivered in
connection therewith, all as from time to time amended,
supplemented or modified.
"AA Note" means the Secured Promissory Note, dated January 31, 1996,
-------
as executed and delivered by Lessee to Lessor.
"AAdvantage Agreement" means the AAdvantage(R) Participating
--------------------
Agreement, dated as of September 12, 1994 between Lessee and Lessor,
and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all
as from time to time amended, supplemented or modified.
<PAGE>
"American Agreements" mean the Lease Agreement, the Long Term
-------------------
Agreements, the Ancillary Agreements and the 161 Lease.
"Change in Control" means the acquisition by any Person or 13D Group
-----------------
(other than Airline Investors Partnership, L.P. or its Affiliates) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of Voting Securities after which such Person or Group owns Voting
Securities representing 30% or more of the outstanding Voting
Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"161 Lease" means the Aircraft Lease Agreement, dated as of December
---------
30, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"Monthly Minimum Maintenance Amount" shall have the meaning set forth
----------------------------------
in Section 3(f)(i) of Exhibit E hereto.
"Monthly Supplemental Rent Payment Date" shall have the meaning set
--------------------------------------
forth in Section 3(f)(i) of Exhibit E hereto.
"13D Group" means any partnership, limited partnership, syndicate or
---------
other "group" ( as such term is used in Section 13(d)(3) of the
Exchange Act).
"Voting Securities" means any securities of Lessee entitled to vote
-----------------
generally in the election of directors, or securities convertible into
or exercisable or exchangeable for such securities.
2. The definition of Basic Rent Payment Date is amended by adding the
following sentence to the end thereof:
"After January 31, 1996, and continuing throughout the
remainder of the Lease Term, the Basic Rent Payment Dates
shall be (i) the first Business Day of each calendar month,
commencing with March, 1996 and (ii) the last day of the
Term."
3. Sections 10(c), 13A(g), 13(A)(l) and 14A(g) are deleted in their
entirety.
4. Section 3(a) of the Lease Agreement is hereby amended in its entirety
to read as follows:
"Term. Except as otherwise provided herein (including
----
pursuant to the definition of Event of Loss), the Term for
the
2
<PAGE>
Aircraft shall commence on the Delivery Date and end on
December 15, 1996: provided, however, that Lessor at its
-------- -------
sole and absolute discretion, may terminate this Lease by
giving Lessee thirty (30) days prior written notice of such
earlier termination date, which shall thereupon be the last
day of the Term. Notwithstanding the foregoing, Lessor
shall have the right to terminate this Lease on by written
notice to Lessee upon the occurrence of a Change in
Control."
5. A new Section 13A(g) is inserted to read as follows:
"So Long as the AA Note shall not have been paid in full, an
Event of Default or Termination Event (as defined therein,
respectively) exists under the AA Mortgage, the AA Note or
any of the American Agreements or an event that permits
American, pursuant to Section 11 of the AAdvantage
Agreement, to terminate the AAdvantage Agreement exists."
6. Security. A new Section 24 is inserted to read as follows:
--------
"Customer's obligations hereunder are secured by the lien
(the "AA Lien") created by the AA Mortgage. THE AA LIEN IS
SUBORDINATE TO (I) THE LIEN CREATED BY THAT CERTAIN LOAN AND
SECURITY AGREEMENT, DATED AS OF SEPTEMBER 12, 1994, BETWEEN
CUSTOMER AND THE CIT GROUP/CREDIT FINANCE, INC. ("CIT")
PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT,
DATED AS OF DECEMBER 31, 1996, BETWEEN CIT AND AMERICAN AND
(II) THE LIEN CREATED BY THAT CERTAIN ROTABLE SPARE PARTS
CHATTEL MORTGAGE AND SECURITY AGREEMENT, DATED AS OF OCTOBER
30, 1992, BETWEEN CUSTOMER AND AEROUSA, INC. ("AEROUSA")
PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT,
DATED AS OF DECEMBER 31, 1996, BETWEEN AEROUSA AND
AMERICAN."
7. Section 3(a) of Exhibit E is amended in its entirety to read as
follows:
"(a) Charges for Base Maintenance Services and Line
----------------------------------------------
Maintenance Services. In consideration for the agreement of
--------------------
Lessor to perform Base Maintenance Services and Line
Maintenance Services on the Serviced Aircraft, any Serviced
Engines and any Serviced Parts thereof, Lessee shall pay to
Lessor an amount equal to the sum of the products of (i) the
number of Flight Hours the Serviced Aircraft are flown
during each calendar year (or portion thereof) within the
Lease Term, multiplied by (ii) the amount set forth opposite
"Total Cost Per Flight Hour" below the applicable calendar
year on Attachment A. Charges for Base Maintenance Services
and Line Maintenance Services shall for the period from the
Delivery Date through January 31, 1996, be payable weekly,
or approximately weekly (for the period from the Business
Day immediately preceding the Delivery Date of the Serviced
Aircraft through and including December 31, 1995), as the
case may be, in advance, and thereafter monthly, in arrears,
in
3
<PAGE>
accordance with Section 3(f) of this Exhibit E and shall
include (i) all fees charged for access to inventory of
Rotable Parts, APUs, and spare GE-CF6-6K3 engines required
to perform Base Maintenance Services and Line Maintenance
Services; and (ii) all fees charged for access to or use of
all other Serviced Parts required to perform Base
Maintenance Services and Line Maintenance Services unless,
and to the extent, Lessee has properly elected to perform
its own line maintenance. Outside Services, Expendable
Parts and engineering utilized in connection with the
performance by Lessor of Base Maintenance Services and Line
Maintenance Services are included in the fixed charges
described on Attachment A.
8. Section 3(f)(i) of Exhibit E is amended in its entirety to read as
follows:
"(i) Payments. Lessee shall pay Lessor on the Delivery
--------
Date (the "Initial Payment Date") of the Aircraft and on
each of January 8, 17 and 24, 1996 (the "January Payment
Dates") (each a "Weekly Supplemental Rent Payment Date") and
on the second Business Day of each Month commencing in
March, 1996 (each a "Monthly Supplemental Rent Payment
Date") for Basic Maintenance Services and Line Maintenance
Services. The amount of the payment to be made on each
Weekly Supplemental Rent Payment Date shall be in an amount
equal to the product of: (A) (1) in respect of the payment
due on the Initial Payment Date, the projected Flight Hours
as determined in accordance with Section 4(u) of this
Exhibit E to be flown by the Serviced Aircraft during the
period from and including the Delivery Date to and including
January 8, 1996, and (2) in respect of the payments to be
made on each January Payment Date, the projected Flight
Hours as determined in accordance with Section 4(u) of this
Exhibit E to be flown by the Serviced Aircraft during the
period from and including January 9, 1996 to and including
January 31, 1996, multiplied by (B) the amount set forth
opposite 'Total Cost Per Flight Hour' below the time period
relating to the time period to which such Weekly
Supplemental Rent Payment corresponds as set forth on
Attachment A; (C) the product of which is divided by one (1)
in the case of the payments due on the Initial Payment Date
and by three (3) for the payments due on each January
Payment Date. The amount of the payment to be made on each
Monthly Supplemental Rent Payment Date shall be in an amount
equal to the product of the projected Flight Hours, as
determined in accordance with Section 4(u) of this Exhibit E
to be flown by the Serviced Aircraft (but in no event less
than the Monthly Minimum Maintenance Amount) during the
calendar month preceding such Monthly Supplemental Rent
Payment Date, commencing with the month of February, 1996,
multiplied by the amount set forth opposite 'Total Cost Per
Flight Hour' below the time period relating to the time
period to which such Monthly Supplemental Rent Payment
corresponds as set forth
4
<PAGE>
on Attachment A. The "Monthly Minimum Maintenance Amount"
for each month shall be the product of (1) 200 Flight Hours
per month times (2) a fraction the numerator of which is the
number of days a Serviced Aircraft is not grounded for
Maintenance Services during such month and the denominator
of which is the number of days in such month the Serviced
Aircraft is subject to this Lease. Lessor shall not provide
Lessee a monthly or weekly invoice with respect to Weekly
Supplemental Rent Payments or Monthly Supplemental Rent
Payments. "
9. Schedule I to the Lease Agreement shall be amended in its entirety to
read as set forth in Schedule I attached hereto.
10. Attachment A to Exhibit E to the Lease Agreement shall be amended in
its entirety to read as set forth in Attachment A attached hereto.
B. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.
-------------------------------------------------------------
This Amendment No. 1 shall become effective upon the fulfillment of the
following conditions precedent:
1. On the effective date of this Amendment No. 1 (the "Amendment Effective
Date"), the representations and warranties of Lessee set forth in the Lease
Agreement shall be true and accurate as if made on such date.
2. The Lease Amendment and the applicable Lease Supplements shall have
been executed and filed for information with the FAA in Oklahoma City, Oklahoma.
3. The receipt by Lessor from Lessee not later than two (2) days prior to
the Amendment Effective Date of the following, dated as of such Amendment
Effective Date, all of which shall be satisfactory in form and substance to
Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized officer thereof
or certifying no changes or amendments thereto since the date they were last
certified to Lessor by Lessee;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform this Amendment No. 1 and the transactions
contemplated hereby, certified to be true and up to date copies by a duly
authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officer of Lessee setting out the names and signatures of the person
or persons authorized to sign the Lease Agreement;
(d) receipt by Lessor of the installments of Basic Rent pursuant to Section
3 of the Lease Agreement, as amended hereby, and Supplemental Rent
5
<PAGE>
pursuant to Exhibit E to this Lease Agreement, as amended hereby, and payment of
all amounts then due under any other Long-Term Agreement.
4. The Final Order confirming the Plan shall be and remain in full force
and effect.
5. The Long-Term Agreements shall be in full force and effect.
6. No Default or Lessee Event of Default shall have occurred and be
continuing after giving effect to this Lease Amendment and no "Event of Default"
or "Termination Event" shall have occurred and be continuing under the Long-Term
Agreements.
C. MISCELLANEOUS.
-------------
1. Except as set forth herein, all terms and provisions contained in the
Lease Agreement shall remain in full force and effect.
2. Lessee hereby confirms its agreement to pay to Lessor Basic Rent and
Supplemental Rent for the Aircraft throughout the Term in accordance with
Section 3 of the Lease Agreement.
3. This Amendment No. 1 is being delivered in the State of Texas and shall
in all respects be governed by, and construed in accordance with, the laws of
the State of Texas, including all matters of construction, validity and
performance.
4. This Amendment No. 1 may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Amendment No. 1 constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Amendment No. may be created through the transfer or
possession of any counterpart other than the counterpart marked as the
"Original."
SIGNATURE PAGE FOLLOWS
6
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused Amendment No. 1 to be
duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: /s/ Jeffrey M. Jackson
--------------------------------
Jeffrey M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
----------------------------------
Bruce R. Nobles,
Title: Chairman, President and
Chief Executive Officer
By: /s/ Rae A. Capps
----------------------------------
Name: Rae A. Capps
Title: Vice President, General Counsel
Corporate Secretary
7
<PAGE>
SCHEDULE I
----------
This Schedule I has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
8
<PAGE>
ATTACHMENT A
------------
This Attachment A has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
9
<PAGE>
EXHIBIT 10(t)
AMENDMENT NO. 1 TO LEASE
------------------------
THIS AMENDMENT NO. 1 TO LEASE (herein called "Amendment No. 1"), dated
January 31, 1996 between AMERICAN AIRLINES, INC., a Delaware corporation
("Lessor") and HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee").
WITNESSETH:
----------
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of December 30, 1995 (as amended, the "Lease
Agreement", defined terms used herein as therein defined), which provides for
the execution of a Lease Amendment for the purpose of, among other things,
amending the Lease Agreement and any prior Lease Supplements thereto; and
WHEREAS, the Lease Agreement was modified and amended by that certain Lease
Supplement No. 1 dated as of January 8, 1995, recorded with the Federal Aviation
Administration (the "FAA") on _______________, as Conveyance No. _____________;
and
WHEREAS, Lessor and Lessee have agreed to amend certain terms of the Lease
Agreement and Lease Supplements as noted herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to the Lease Agreement, the Lessor and Lessee hereby
amend the Lease Agreement as follows:
A. AMENDMENTS TO THE LEASE AGREEMENT.
---------------------------------
1. Section 1 is amended by inserting the following definitions:
"AA Mortgage" means the Chattel Mortgage and Security Agreement, dated
-----------
as of January 31, 1996, between Lessor and Lessee, and all other
agreements, instruments, certificates and documents related thereto or
executed or delivered in connection therewith, all as from time to time
amended, supplemented or modified.
"AA Note" means the Secured Promissory Note, dated January 31, 1996,
-------
as executed and delivered by Lessee to Lessor.
"AAdvantage Agreement" means the AAdvantage(R) Participating
--------------------
Agreement, dated as of September 12, 1994 between Lessee and Lessor,
and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all
as from time to time amended, supplemented or modified.
<PAGE>
"American Agreements" mean the Lease Agreement, the Long Term
-------------------
Agreements, the Ancillary Agreements and the 151 Lease.
"Change in Control" means the acquisition by any Person or 13D Group
-----------------
(other than Airline Investors Partnership, L.P. or its Affiliates) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of Voting Securities after which such Person or Group owns Voting
Securities representing 30% or more of the outstanding Voting
Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"151 Lease" means the Aircraft Lease Agreement, dated as of December
---------
15, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"Monthly Minimum Maintenance Amount" shall have the meaning set forth
----------------------------------
in Section 3(f)(i) of Exhibit E hereto.
"Monthly Supplemental Rent Payment Date" shall have the meaning set
--------------------------------------
forth in Section 3(f)(i) of Exhibit E hereto.
"13D Group" means any partnership, limited partnership, syndicate or
---------
other "group" ( as such term is used in Section 13(d)(3) of the
Exchange Act).
"Voting Securities" means any securities of Lessee entitled to vote
-----------------
generally in the election of directors, or securities convertible into
or exercisable or exchangeable for such securities.
2. The definition of Basic Rent Payment Date is amended by adding the
following sentence to the end thereof:
"After January 31, 1996, and continuing throughout the
remainder of the Lease Term, the Basic Rent Payment Dates
shall be (i) the first Business Day of each calendar month,
commencing with March, 1996 and (ii) and the last day of the
Term."
3. Sections 10(c), 13A(g), 13(A)(l) and 14A(g) are deleted in their
entirety.
4. Section 3(a) of the Lease Agreement is hereby amended in its entirety
to read as follows:
"Term. Except as otherwise provided herein (including
----
pursuant to the definition of Event of Loss), the Term for
the
2
<PAGE>
Aircraft shall commence on the Delivery Date and end on
the earlier of May 31, 1997 and the date on which the
Aircraft has 2600 hours remaining until its next scheduled
"C" check: provided, however, that Lessor at its sole and
-------- -------
absolute discretion, may terminate this Lease by giving
Lessee thirty (30) days prior written notice of such earlier
termination date, which shall thereupon be the last day of
the Term. Notwithstanding the foregoing, Lessor shall have
the right to terminate this Lease by written notice to
Lessee upon the occurrence of a Change in Control."
5. A new Section 13A(g) is inserted to read as follows:
"So long as the AA Note shall not have been paid in full, an
Event of Default or Termination Event (as defined therein,
respectively) exists under the AA Mortgage, the AA Note or
any of the American Agreements or an event that permits
American, pursuant to Section 11 of the AAdvantage
Agreement, to terminate the AAdvantage Agreement exists."
6. Security. A new Section 24 is inserted to read as follows:
--------
"Customer's obligations hereunder are secured by the lien
(the "AA Lien") created by the AA Mortgage. THE AA LIEN IS
SUBORDINATE TO (I) THE LIEN CREATED BY THAT CERTAIN LOAN AND
SECURITY AGREEMENT, DATED AS OF SEPTEMBER 12, 1994, BETWEEN
CUSTOMER AND THE CIT GROUP/CREDIT FINANCE, INC. ("CIT")
PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT,
DATED AS OF DECEMBER 31, 1996, BETWEEN CIT AND AMERICAN AND
(II) THE LIEN CREATED BY THAT CERTAIN ROTABLE SPARE PARTS
CHATTEL MORTGAGE AND SECURITY AGREEMENT, DATED AS OF OCTOBER
30, 1992, BETWEEN CUSTOMER AND AEROUSA, INC. ("AEROUSA")
PURSUANT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT,
DATED AS OF DECEMBER 31, 1996, BETWEEN AEROUSA AND
AMERICAN."
7. Section 3(a) of Exhibit E is amended in its entirety to read as
follows:
"(a) Charges for Base Maintenance Services and Line
----------------------------------------------
Maintenance Services. In consideration for the agreement of
--------------------
Lessor to perform Base Maintenance Services and Line
Maintenance Services on the Serviced Aircraft, any Serviced
Engines and any Serviced Parts thereof, Lessee shall pay to
Lessor an amount equal to the sum of the products of (i) the
number of Flight Hours the Serviced Aircraft are flown
during each calendar year (or portion thereof) within the
Lease Term, multiplied by (ii) the amount set forth opposite
"Total Cost Per Flight Hour" below the applicable calendar
year on Attachment A. Charges for Base Maintenance Services
and Line Maintenance Services shall for the period from the
Delivery Date through January 31, 1996, be payable weekly,
or approximately weekly (for the period from the Business
Day immediately preceding the Delivery Date of the Serviced
3
<PAGE>
Aircraft through and including January 8, 1996), as the case
may be, in advance, and thereafter monthly, in arrears, in
accordance with Section 3(f) of this Exhibit E and shall
include (i) all fees charged for access to inventory of
Rotable Parts, APUs, and spare GE-CF6-6K engines required to
perform Base Maintenance Services and Line Maintenance
Services; and (ii) all fees charged for access to or use of
all other Serviced Parts required to perform Base
Maintenance Services and Line Maintenance Services unless,
and to the extent, Lessee has properly elected to perform
its own line maintenance. Outside Services, Expendable
Parts and engineering utilized in connection with the
performance by Lessor of Base Maintenance Services and Line
Maintenance Services are included in the fixed charges
described on Attachment A.
8. Section 3(f)(i) of Exhibit E is amended in its entirety to read as
follows:
"(i) Payments. Lessee shall pay Lessor on the Delivery
--------
Date (the "Initial Payment Date") of the Aircraft and on
each of January 8, 17 and 24, 1996 (the "January Payment
Dates") (each a "Weekly Supplemental Rent Payment Date") and
on the first Business Day of each Month commencing in March,
1996 (each a "Monthly Supplemental Rent Payment Date") for
Basic Maintenance Services and Line Maintenance Services.
The amount of the payment to be made on each Weekly
Supplemental Rent Payment Date shall be in an amount equal
to the product of: (A) (1) in respect of the payment due on
the Initial Payment Date, the projected Flight Hours as
determined in accordance with Section 4(u) of this Exhibit E
to be flown by the Serviced Aircraft during the period from
and including the Delivery Date to and including January 8,
1996, and (2) in respect of the payments to be made on each
January Payment Date, the projected Flight Hours as
determined in accordance with Section 4(u) of this Exhibit
E to be flown by the Serviced Aircraft during the period
from and including January 9, 1996 to and including January
31, 1996 (which in the case of Clause (2) shall not be less
than 30.59 hours ( a "Minimum Maintenance Amount")),
multiplied by (B) the amount set forth opposite 'Total Cost
Per Flight Hour' below the time period relating to the time
period to which such Weekly Supplemental Rent Payment
corresponds as set forth on Attachment A; (C) the product of
which is divided by one (1) in the case of the payments due
on the Initial Payment Date and by three (3) for the
payments due on each January Payment Date. The amount of the
payment to be made on each Monthly Supplemental Rent Payment
Date shall be in an amount equal to the product of the
projected Flight Hours, as determined in accordance with
Section 4(u) of this Exhibit E (but in no event less than
the Monthly Minimum Maintenance Amount) during the calendar
month preceding such Monthly Supplemental Rent Payment Date,
commencing with the month of February, 1996, multiplied by
the amount set forth opposite 'Total Cost Per Flight Hour'
below the time period
4
<PAGE>
relating to the time period to which such Monthly
Supplemental Rent Payment corresponds as set forth on
Attachment A. The "Monthly Minimum Maintenance Amount" for
each month shall be the product of (1) 40 Flight Hours per
month times (2) a fraction the numerator of which is the
number of days a Serviced Aircraft is not grounded for
Maintenance Services during such month and the denominator
of which is the number of days in such month the Serviced
Aircraft is subject to this Lease. Lessor shall not provide
Lessee a monthly or weekly invoice with respect to Weekly
Supplemental Rent Payments or Monthly Supplemental Rent
Payments."
9. Schedule I to the Lease Agreement shall be amended in its entirety to
read as set forth in Schedule I attached hereto.
10. Attachment A to Exhibit E to the Lease Agreement shall be amended in
its entirety to read as set forth in Attachment A attached hereto.
B. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.
-------------------------------------------------------------
This Amendment No. 1 shall become effective upon the fulfillment of the
following conditions precedent:
1. On the effective date of this Amendment No. 1 (the "Amendment Effective
Date"), the representations and warranties of Lessee set forth in the Lease
Agreement shall be true and accurate as if made on such date.
2. The Lease Amendment and the applicable Lease Supplements shall have
been executed and filed for information with the FAA in Oklahoma City, Oklahoma.
3. The receipt by Lessor from Lessee not later than two (2) days prior to
the Amendment Effective Date of the following, dated as of such Amendment
Effective Date, all of which shall be satisfactory in form and substance to
Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized officer thereof
or certifying no changes or amendments thereto since the date they were last
certified to Lessor by Lessee;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform this Amendment No. 1 and the transactions
contemplated hereby, certified to be true and up to date copies by a duly
authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officer of Lessee setting out the names and signatures of the person
or persons authorized to sign the Lease Agreement;
(d) receipt by Lessor of the installments of Basic Rent pursuant to Section
3 of the Lease Agreement, as amended hereby, and Supplemental Rent
5
<PAGE>
pursuant to Exhibit E to this Lease Agreement, as amended hereby, and payment of
all amounts then due under any other Long-Term Agreement.
4. The Final Order confirming the Plan shall be and remain in full force
and effect.
5. The Long-Term Agreements shall be in full force and effect.
6. No Default or Lessee Event of Default shall have occurred and be
continuing after giving effect to this Lease Amendment and no "Event of Default"
or "Termination Event" shall have occurred and be continuing under the Long-Term
Agreements.
C. MISCELLANEOUS.
-------------
1. Except as set forth herein, all terms and provisions contained in the
Lease Agreement shall remain in full force and effect.
2. Lessee hereby confirms its agreement to pay to Lessor Basic Rent and
Supplemental Rent for the Aircraft throughout the Term in accordance with
Section 3 of the Lease Agreement.
3. This Amendment No. 1 is being delivered in the State of Texas and shall
in all respects be governed by, and construed in accordance with, the laws of
the State of Texas, including all matters of construction, validity and
performance.
4. This Amendment No. 1 may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Amendment No. 1 constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Amendment No. may be created through the transfer or
possession of any counterpart other than the counterpart marked as the
"Original."
SIGNATURE PAGE FOLLOWS
6
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused Amendment No. 1 to be
duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: /s/ Jeffrey M. Jackson
------------------------------------
Jeffrey M. Jackson
Vice President -
Corporate
Development and
Treasurer
HAWAIIAN AIRLINES, INC.
By: /s/ C.J. David Davies
------------------------------------
C.J. David Davies
Senior Vice
President - Finance
and Chief Executive
Officer
By: /s/ Rae A. Capps
------------------------------------
Rae A. Capps
Vice President,
General Counsel
and Corporate
Secretary
7
<PAGE>
SCHEDULE I
----------
This Schedule I has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
8
<PAGE>
ATTACHMENT A
-------------
This Attachment A has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
9
<PAGE>
EXHIBIT 10(u)
HAWAIIAN AIRLINES, INC.
AMENDED AND RESTATED
INDEMNIFICATION AGREEMENT
This Amended and Restated Indemnification Agreement (the "Agreement"), dated as
of January 30, 1996, is made by and among Hawaiian Airlines, Inc., a Hawaii
corporation (the "Corporation"), Hawaiian Trust Company, Ltd. ("Trustee") and
_____________, a director in 1995 and/or currently a director/officer of the
Corporation ("Indemnitee").
RECITALS
A. The Corporation and Indemnitee recognize that the present state
of the law is too uncertain to provide the Corporation's directors and officers
with adequate and reliable advance knowledge or guidance with respect to the
legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Corporation;
B. The Corporation and Indemnitee are aware of the substantial
growth in the number of lawsuits filed against corporate directors and officers
in connection with their activities in such capacities and by reason of their
status as such;
C. The Corporation and Indemnitee recognize that the cost of
defending against such lawsuits, whether or not meritorious, is typically beyond
the financial resources of most directors and officers of the Corporation or far
outweighs the limited benefits of serving as a director and officer of the
Corporation;
D. The Corporation and Indemnitee recognize that the legal risks and
potential liabilities, and the threat thereof, associated with proceedings filed
against the directors and officers of the Corporation bear no reasonable
relationship to the amount of compensation received by the Corporation's
directors and officers;
E. The Corporation, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Corporation as of the date hereof may be inadequate, unreasonably expensive or
both. The Corporation believes, therefore, that the interest of the
Corporation's shareholders would be best served by a combination of (i) such
insurance as the Corporation may obtain pursuant to the Corporation's
obligations hereunder and (ii) a contract with its directors and officers,
including Indemnitee, to indemnify them to the fullest extent permitted by law
(as in effect on the date hereof, or, to the extent any amendment may expand
such permitted indemnification, as hereafter in effect) against personal
liability for actions taken in the performance of their duties to the
Corporation;
<PAGE>
F. Section 415-5 of the Hawaii Business Corporation Act (the "HBC
Act") empowers Hawaii corporations to indemnify their directors and officers and
further states that the indemnification provided by Section 415-5 "shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in a person's official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be an agent and shall inure to the benefit of the heirs and
personal representatives of such a person";
G. The Corporation's Restated and Amended Articles of Incorporation
authorize the indemnification of the directors and officers of the Corporation
in excess of that expressly permitted by Section 415-5 of the HBC Act, subject
to the limitations set forth in Section 415-48.5 of the HBC Act;
H. The Board of Directors of the Corporation has concluded that, to
retain and attract talented and experienced individuals to serve as directors
and officers of the Corporation and to encourage such individuals to take the
business risks necessary for the success of the Corporation, it is necessary for
the Corporation to contractually indemnify its directors and officers, and to
assume for itself liability for expenses and damages in connection with claims
against such directors and officers in connection with their service to the
Corporation, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Corporation and
its shareholders;
I. The Corporation previously requested Indemnitee to serve or
continue to serve as a director or officer of the Corporation, free from undue
concern for the risks and potential liabilities associated with such services to
the Corporation;
J. Certain Indemnitees have been willing to serve, or continue to
serve, the Corporation, provided, and on the express condition, that they are
furnished with the indemnification provided for herein;
K. For the foregoing reasons, the Company, Indemnitee and Trustee
previously entered into that certain Indemnification Agreement dated as of June
13, 1995 (the "Indemnification Agreement") pursuant to which the Company agreed
to provide Indemnitee with indemnification, subject to the terms and conditions
of the Indemnification Agreement, and the Company and Trustee previously entered
into that certain Trust Agreement dated as of June 13, 1995 (the "Trust
Agreement") which provides for funding for the Company's obligations under the
Indemnification Agreement; and
L. The Board of Directors of the Corporation has concluded that it
is in the best interests of the Corporation to terminate the Trust Agreement,
and therefore, to amend and restate the Indemnification Agreement pursuant to
Section 20 to delete
2
<PAGE>
Section 9 of the Indemnification Agreement and any other references to the Trust
or Trustee contained herein.
AGREEMENT
NOW THEREFORE, the Corporation, Trustee and Indemnitee hereby amend
and restate the Indemnification Agreement in its entirety as follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all direct
and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with the investigation, preparation, defense or appeal
of a Proceeding; provided, however, that Expenses shall not include judgments,
-----------------
fines, penalties or amounts paid in settlement of a Proceeding unless such
matters may be indemnified under applicable provisions of the HBC Act.
(b) "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action or proceeding whether civil, criminal,
administrative or investigative (including actions, suits or proceedings brought
by or in the right of the Corporation) in which Indemnitee may be or may have
been involved as a party or otherwise, by reason of the fact that Indemnitee is
or was a director or officer of the Corporation, by reason of any action taken
by him or of any inaction on his part while acting as such director or officer
or by reason of the fact that he is or was serving at the request of the
Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director and/or officer of the foreign or domestic corporation which was a
predecessor corporation to the Corporation or of another enterprise at the
request of such predecessor corporation, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
2. Indemnification.
(a) Third Party Proceedings. To the fullest extent permitted by law,
the Corporation shall indemnify Indemnitee against Expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines, penalties
and amounts paid in settlement (if the settlement is approved in advance by the
Corporation)) actually and reasonably incurred by Indemnitee in connection with
a Proceeding (other than a Proceeding by or in the right of the Corporation) if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any
3
<PAGE>
Proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal Proceeding, had no reasonable cause to believe that
Indemnitee's conduct was unlawful. Notwithstanding the foregoing, no
indemnification shall be made in any criminal proceeding where Indemnitee has
been adjudged guilty unless a disinterested majority of the directors determine
that Indemnitee did not receive, participate in or share in any pecuniary
benefit to the detriment of the Corporation and, in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for Expenses or liabilities.
(b) Proceedings by or in the Right of the Corporation. To the fullest
extent permitted by law, the Corporation shall indemnify Indemnitee against
Expenses actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of a Proceeding by or in the right of the Corporation to
procure a judgment in its favor if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation and its shareholders. Notwithstanding the
foregoing, no indemnification shall be made in respect of any claim, issue or
matter as to which Indemnitee shall have been adjudged to be liable for
negligence or misconduct in the performance of Indemnitee's duty to the
Corporation unless and only to the extent that the court in which such
Proceeding is or was pending shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the court deems proper.
3. Limitations on Indemnification. Any other provision herein to the
contrary notwithstanding, the Corporation shall not be obligated pursuant to the
terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director and officer may not be
relieved of liability under Section 415-48.5 of the HBC Act or for
Expenses, judgments, penalties, or other payments incurred in an
administrative proceeding or action instituted by an appropriate
regulatory agency which proceeding or action results in a final order
assessing civil money penalties or requiring affirmative action by an
individual or individuals in the form of payments to the Corporation;
or
(b) Claims Initiated by Indemnitee. To indemnify or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated
or brought voluntarily by Indemnitee and not by way of defense, except
with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or
otherwise as required under Section 415-5 of the HBC Act, but such
indemnification or advancement of Expenses may be provided by the
Corporation in specific cases if a
4
<PAGE>
disinterested majority of the directors has approved the initiation or
bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of
competent jurisdiction determines that each of the material assertions
made by Indemnitee in such proceeding was not made in good faith or was
frivolous; or
(d) Insured Claims. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines or penalties, and amounts paid in settlement) which
have been paid directly to or on behalf of Indemnitee by an insurance
carrier under a policy of directors' and officers' liability insurance
maintained by the Corporation or any other policy of insurance
maintained by the Corporation or Indemnitee, or otherwise indemnified
and actually paid other than pursuant to this Agreement; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale
by Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any similar successor
statute.
4. Determination of Right to Indemnification. Upon receipt of a
written claim addressed to the Board of Directors for indemnification pursuant
to Section 2 of this Agreement, the Corporation shall determine by any of the
methods set forth in Section 415-5(e) of the HBC Act whether Indemnitee has met
the applicable standard of conduct which makes it permissible under applicable
law to indemnify Indemnitee. If a claim under Section 2 of this Agreement is
not paid in full by the Corporation within ninety days after such written claim
has been received by the Corporation, Indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, unless such action is dismissed by the court as frivolous or brought in bad
faith, Indemnitee shall be entitled to be paid also the expense of prosecuting
such claim. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to make a
determination prior to the commencement of such action that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct under applicable law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or its shareholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has not met the applicable
standard of conduct. The court in which such action is brought shall determine
whether Indemnitee or the Corporation shall have the burden of proof concerning
whether Indemnitee has or has not met the applicable standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses incurred by
Indemnitee in defending and investigating any Proceeding shall be paid by
5
<PAGE>
the Corporation in advance of the final disposition of such Proceeding within
thirty days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such Expenses. Indemnitee hereby undertakes to repay to the
Corporation the amount of any Expenses theretofore paid to the extent it is
ultimately determined that such Expenses were not reasonable or that Indemnitee
is not entitled to indemnification. In determining whether or not to make an
advance hereunder, the ability of Indemnitee to repay shall not be a factor.
Notwithstanding the foregoing, in a proceeding brought by the Corporation
directly, in its own right (as distinguished from an action brought derivatively
or by any receiver or trustee), the Corporation shall not be required to make
the advances called for hereby if a majority of the disinterested directors
determine that it does not appear that Indemnitee has met the standards of
conduct which made it permissible under applicable law to indemnify Indemnitee
and the advancement of Expenses would not be in the best interests of the
Corporation and its shareholders.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the Corporation
of some or a portion of any Expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, penalties and amounts paid in
settlement) incurred by him or her in the investigation, defense, settlement or
appeal of a Proceeding, but is not entitled to indemnification or advancement of
the total amount thereof, the Corporation shall nevertheless indemnify or pay
advancements to Indemnitee for the portion of such Expenses or liabilities to
which Indemnitee is entitled.
7. Notice to Corporation by Indemnitee. Indemnitee shall notify the
Corporation in writing of any matter with respect to which Indemnitee intends to
seek indemnification hereunder as soon as reasonably practicable following the
receipt by Indemnitee of written notice thereof; provided that any delay in so
notifying Corporation shall not constitute a waiver by Indemnitee of his rights
hereunder. The written notification to the Corporation shall be addressed to
the Board of Directors and shall include a description of the nature of the
Proceeding and the facts underlying the Proceeding and be accompanied by copies
of any documents filed with the court in which the Proceeding is pending. In
addition, Indemnitee shall give the Corporation such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
8. Maintenance of Liability Insurance.
(a) The Corporation hereby agrees that so long as Indemnitee shall
continue to serve as a director or officer of the Corporation and thereafter so
long as Indemnitee shall be subject to any possible Proceeding, the Corporation,
subject to Section 8(b) of this Agreement, shall use its best efforts to obtain
and maintain, or have an affiliate obtain and maintain, in full force and effect
directors' and officers' liability insurance ("D&O Insurance") which provides
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Corporation's directors.
6
<PAGE>
(b) Notwithstanding the foregoing, the Corporation shall have no
obligation to obtain or maintain D&O Insurance if the Corporation determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or Indemnitee is covered by similar insurance maintained
by a subsidiary or parent of the Corporation.
(c) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 7 hereof, the Corporation has D&O Insurance in
effect, the Corporation shall give prompt notice of the commencement of such
Proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Corporation shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of Indemnitee, all
amounts payable as a result of such Proceeding in accordance with the terms of
such policies.
9. Termination of Rights and Obligations under Trust Agreement.
This Agreement, though signed by Trustee to reflect the amendment, eliminates
the ability of the Indemnitee to look to Trustee for indemnification if the
Company fails to provide indemnification hereunder.
10. Attorneys' Fees. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover, in
addition to other amounts to which the prevailing party may be entitled, actual
attorneys' fees and court costs as may be awarded by the court.
11. Continuation of Obligations. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and shall
continue thereafter so long as Indemnitee shall be subject to any possible
proceeding by means of the fact that Indemnitee served in any capacity referred
to herein.
12. Successors and Assigns. This Agreement establishes contract
rights that shall be binding upon, and shall inure to the benefit of, the
successors, assigns, heirs and legal representatives of the parties hereto.
13. Non-exclusivity; Subrogation Rights.
(a) The provisions for indemnification and advancement of expenses set
forth in this Agreement shall not be deemed to be exclusive of any other rights
that Indemnitee may have under any provision of law, the Corporation's Restated
and Amended Articles of Incorporation or Amended Bylaws, the vote of the
Corporation's
7
<PAGE>
shareholders or disinterested directors, other agreements or otherwise, both as
to action in his or her official capacity and action in another capacity while
occupying his or her position as a director and officer of the Corporation.
(b) In the event Indemnitee shall receive payment from any insurance
carrier or from a third party in any Proceeding against such Indemnitee in
respect of indemnified amounts paid hereunder by the Corporation after payment
on account of all or part of such indemnified amounts have been made by the
Corporation pursuant hereto, Indemnitee shall promptly reimburse to the
Corporation the amount, if any, by which the sum of such payment by such
insurance carrier or such third party and payments by the Corporation or
pursuant to arrangements made by the Corporation to Indemnitee exceeds such
indemnified amounts; provided, however, that such portions, if any, of such
-------- -------
insurance proceeds that are required to be reimbursed to the insurance carrier
under the terms of its insurance policy, such as deductibles or co-insurance
payments, shall not be deemed to be payments to Indemnitee hereunder.
(c) In the event of a payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee and Indemnitee shall execute and deliver all papers
required and shall do everything that may be necessary to secure such rights,
including, without limitation, the execution of such documents as may be
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
(d) In the event of any changes, after the date of this Agreement, in
any applicable law, statute, or rule which narrows the right of a Hawaii
corporation to indemnify a director and officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
14. Effectiveness of Agreement. This Agreement shall be effective as
of the date set forth on the first page and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was a director,
officer, employee or other agent of the Corporation, or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, at the time
such act or omission occurred.
15. Severability. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The Corporation's inability pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be severable
as provided in this Section 15. If this Agreement or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify Indemnitee to the fullest extent
permitted by any applicable portion of this Agreement that shall not have
8
<PAGE>
been invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
16. Governing Law. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Hawaii.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
18. Mutual Acknowledgment. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Corporation's
right under public policy to indemnify Indemnitee.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
20. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
HAWAIIAN AIRLINES, INC.
By: _______________________________
Title: President and Chief
Executive Officer
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
By: _______________________________
Title: Vice President, General Counsel
and Corporate Secretary
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
INDEMNITEE: TRUSTEE:
_______________________ By: _______________________________
Title: Vice President
Title:
P.O. Box 3170
Honolulu, Hawaii 96802
LT960300.009/16+
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<PAGE>
EXHIBIT 10(v)
Warrant No. 12
NOTICE: THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER OTHER
SECURITIES LAWS AND, ACCORDINGLY, TRANSFER OF THIS WARRANT OR SUCH
SHARES MAY BE RESTRICTED.
HAWAIIAN AIRLINES, INC.
WARRANT FOR THE
PURCHASE OF 948,973 SHARES OF
CLASS A COMMON STOCK
VOID AFTER
SEPTEMBER 11, 2001
______________________
For value received, this Warrant entitles AMR Corporation ("AMR") and its
successors and assigns, subject to the terms and conditions
hereinafter set forth, to purchase from Hawaiian Airlines,
Inc. ("Hawaiian") 948,973 fully paid and nonassessable
shares of Class A Common Stock, par value $.01 per share, of
Hawaiian (the "Class A Common Stock"), subject to adjustment
as hereinafter provided upon payment therefor to Hawaiian of
$1.10 per share (the "Warrant Price"), subject to adjustment
as hereinafter provided (this "Warrant"). This is one of
two warrants issued concurrently to AMR for the purchase of
Class A Common Stock which collectively are referred to
herein as the "AMR Warrants."
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A
"TRANSFER") OF THIS WARRANT IS RESTRICTED BY THE TERMS OF
THE RIGHTSHOLDERS AGREEMENT (THE "RIGHTSHOLDERS AGREEMENT"),
DATED AS OF JANUARY 31, 1996, BY AND AMONG THE COMPANY,
AIRLINE INVESTORS PARTNERSHIP, L.P. AND THE HOLDERS OF
WARRANTS OF HAWAIIAN, A COPY OF WHICH MAY BE INSPECTED AT
HAWAIIAN'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER
ON THE BOOKS OF THE COMPANY OR OTHERWISE EFFECT THE TRANSFER
OF THIS WARRANT IF THE TRANSFER HAS NOT BEEN MADE IN
COMPLIANCE WITH THE RIGHTSHOLDERS AGREEMENT.
1. EXERCISE.
--------
(a) Subject to Section 1(d), this Warrant is exercisable at the option
of the holder hereof in whole or in part from time to time on or before
September 11, 2001.
(b) Before the holder of this Warrant shall be entitled to exercise
the same, he shall surrender this Warrant at the principal office of Hawaiian
accompanied by funds payable by cash, a certified check, bank cashiers check or
wire transfer to an account designated by Hawaiian in the amount of the Warrant
Price payable upon such exercise plus any tax or taxes payable or which may be
payable by such holder in respect of such exercise,
<PAGE>
Warrant No. 12
and shall give written notice (the "Exercise Notice") to Hawaiian at such office
that such holder elects to exercise this Warrant, and shall state therein the
number of shares of Class A Common Stock or other securities issuable upon such
exercise and the name or names in which he wishes the certificate or
certificates for such shares of Class A Common Stock or other securities to be
issued. Hawaiian will, as soon as practicable after such surrender of this
Warrant accompanied by the written notice and the statement described above,
requisition from the then transfer agent for Hawaiian a certificate or
certificates for shares of Class A Common Stock for issuance and delivery to or
on the written order of the registered holder of such Warrant and in such name
or names as such registered holder may designate. Such certificate or
certificates shall represent the number of whole shares of Class A Common Stock
issuable on such exercise, together with a cash amount for any fraction of a
share of Class A Common Stock otherwise issuable on such exercise and shall be
delivered as directed by the holder of the Warrant in the Exercise Notice no
later than five Business Days after exercise.
(c) Certificates representing such shares shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of surrender of a
Warrant and payment of the Warrant Price as provided herein, provided that if,
--------
at the date of surrender of such Warrant and payment of such Warrant Price, the
transfer books for the Class A Common Stock or other class of stock purchasable
on the exercise of such Warrant shall be closed, the certificates for the shares
in respect of which such Warrant is then exercised shall be issuable as of the
date on which such books shall next be opened and until such date, Hawaiian
shall be under no duty to deliver any certificate for such shares. The Warrant
shall be exercisable at the election of the registered holder thereof, either as
an entirety or from time to time for part of the number of whole shares
specified in the Warrant, but in no event shall fractional shares be issued. In
the event of any partial exercise, a new Warrant will be issued to the
registered holder to evidence such holder's Warrant to purchase the number of
shares as to which the Warrant has not been exercised. No adjustment shall be
made for any cash dividends on shares issuable on the exercise of any Warrant.
(d) This Warrant may not be exercised until American Airlines,
Inc.("American"), a wholly owned subsidiary of AMR, and Hawaiian enter into a
binding code sharing arrangement permitting Hawaiian to add American's flight
designations to Hawaiian's interisland flights (other than the Honoulu to Maui
segment) (a "Code Share"). This Warrant may not be exercised after Decenber 31,
1996, if American and Hawaiian fail, after good faith negotiations, to enter
into a Code Share prior to January 1, 1997.
2. TRANSFER AND EXCHANGE.
---------------------
(a) This Warrant may be transferred at the principal office of
Hawaiian upon its surrender by the holder thereof in person or by attorney duly
authorized in writing. Upon such surrender, a new Warrant or new Warrants of
different denominations will be issued to the transferee or transferees, dated
the date of such surrender, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Class A Common Stock (after giving
effect to any adjustments therein).
(b) This Warrant may be exchanged at the principal office of Hawaiian
upon surrender by the holder hereof in person or by attorney duly authorized in
writing, for another Warrant or other Warrants of different denominations, dated
the date of such surrender, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Class A Common Stock (after giving
effect to any adjustments therein).
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<PAGE>
Warrant No. 12
Hawaiian shall not be required to effect any registration of transfer or
exchange which will result in the issuance of a Warrant to purchase only a
fraction of a share.
3. ADJUSTMENT OF NUMBER OF SHARES.
------------------------------
(a) Upon any adjustment of the Current Warrant Price, as provided in
Section 4 hereof, the number of shares of Class A Common Stock issuable upon
exercise of this Warrant shall be determined by dividing (i) the result obtained
by multiplying the Warrant Price in effect immediately prior to such adjustment
by the number of shares of Class A Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment by (ii) the Warrant Price resulting
from such adjustment.
(b) No adjustment in the number of shares of Class A Common Stock
issuable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent in such number; provided that any
--------
adjustments which by reason of this Section 3(b) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
4. ADJUSTMENT OF WARRANT PRICE.
---------------------------
(a) In case Hawaiian shall at any time (i) issue or sell any shares of
Common Equity (which term for all purposes hereof shall mean and include stock
of Hawaiian of any class or series, whether now or hereafter authorized, the
holders of which shall be entitled to participate in the distribution of
earnings and assets of Hawaiian without limit as to amount or percentage,
including Class A Common Stock, unless the holders of such stock shall be
entitled to receive dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, senior in preference or priority
to the holders of any outstanding stock of Hawaiian of any other class or
series) without consideration, or for consideration per share less than the
Current Market Price (determined as hereinafter provided), or (ii) issue or sell
any securities convertible into, or exchangeable for, shares of Common Equity
("Convertible Securities") at a conversion price per share of Common Equity less
than the Current Market Price, or (iii) issue or sell any warrants or other
rights to subscribe to or purchase, or any options for the purchase of shares of
Common Equity or Convertible Securities ("Rights or Options") at an exercise
price per share of Common Equity less than the Current Market Price, then, and
thereafter successively upon each such issuance or sale, except as provided
below, the Warrant Price in effect immediately prior to such issuance or sale
(the "Current Warrant Price") shall simultaneously with such issuance or sale be
reduced to a price (calculated to the nearest cent) determined by multiplying:
(A) the Current Warrant Price by (B) a fraction of which the numerator shall be
the aggregate number of shares of Common Equity outstanding immediately prior to
such issuance or sale plus the number of shares of Common Equity which the
aggregate consideration for the total number of shares of Common Equity,
Convertible Securities and Rights or Options issued or sold as aforesaid would
purchase at the Current Market Price, and of which the denominator shall be the
aggregate number of shares of Common Equity outstanding immediately prior to
such issuance or sale, plus the number of shares of Common Equity issued or sold
as aforesaid and the maximum number of shares of Common Equity issuable with
respect to such Convertible Securities and Rights or Options issued or sold as
aforesaid.
In case Hawaiian shall at any time distribute to holders of Common
Equity, as such, (i) evidences of indebtedness or assets (excluding regular cash
dividends or cash distributions payable out of consolidated retained earnings)
of Hawaiian or any corporation or other legal entity a majority of the voting
equity securities or equity interests of which are
3
<PAGE>
Warrant No. 12
owned, directly or indirectly, by Hawaiian (a "Subsidiary"), (ii) shares of
capital stock of any Subsidiary, (iii) securities convertible into or
exchangeable for capital stock of any Subsidiary, or (iv) any rights, options,
or warrants to purchase any of the foregoing, then and thereafter successively
upon each distribution, the Current Warrant Price shall, simultaneously with
such distribution, be reduced to a price (calculated to the nearest cent)
determined by multiplying, (A) the Current Warrant Price by (B) a fraction, the
numerator of which will be the Current Market Price less the fair value (as
determined in good faith by the Board of Directors of the Hawaiian, whose
determination will be conclusive if based on the financial advice of a
nationally recognized investment banking firm) of the portion of the evidences
of indebtedness, assets, securities, or rights, options, or warrants so
distributed on account of one share of Common Equity on the record date for such
distribution, and the denominator of which will be such Current Market Price.
Such adjustment will be made whenever any such distribution is made, and will
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(b) Notwithstanding the foregoing, no adjustment of the Current
Warrant Price shall be made in any case in which Hawaiian shall issue (i)
employee stock options, (ii) shares of Common Equity upon conversion or exchange
of any Convertible Securities, (iii) shares of Common Equity or Convertible
Securities upon exercise of any Rights or Options, (iv) in consideration of the
acquisition by Hawaiian or any subsidiary of all or substantially all of the
stock of another company or all or substantially all the assets of another
company (whether by merger, acquisition of assets or otherwise), any shares of
Common Equity or any Convertible Securities or any Rights or Option or (v)
shares of Common Equity pursuant to the proposed offering by Hawaiian of
nontransferable rights to purchase Class A Common Stock (the "Rights Offering")
to be made to the Company's shareholders and to holders of options under its
stock option plan and reasonably anticipated for February or March of 1996, but
only to the extent that the number shares of Common Equity issued in the Rights
Offering does not exceed the number of shares held by such shareholders plus the
number of shares issuable on exercise of such options.
(c) Calculations pursuant to Section 4(a) hereof shall be made in
accordance with the following provisions:
(i) "Current Market Price" on any day shall mean the average of
the daily closing prices of the Class A Common Stock for the 30 consecutive
business days commencing 35 business days before the day in question. The
closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such date, the average
of the reported closing bid and asked prices regular way, in either case on
the American Stock Exchange, or, if such stock is not listed or admitted to
trading on such exchange, on the principal national securities exchange on
which such stock is listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market, as furnished
by any national brokerage firm selected from time to time by Hawaiian for
that purpose. For the purposes of the foregoing provision, the term
"business day" shall not include any day on which securities are not traded
on such exchange or in such market.
(ii) In case of the issuance or sale of any securities of
Hawaiian for cash, the consideration received by Hawaiian therefor shall be
deemed to be the amount of cash received by Hawaiian for such security (or
if such securities are offered by Hawaiian for subscription, the
subscription price, or, if such securities are sold to underwriters or
dealers for public offering without a subscription offer, the
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<PAGE>
Warrant No. 12
initial public offering price), without deducting therefrom any
compensation or discount paid or allowed to underwriters or dealers or
others performing similar services or for any expenses incurred in
connection therewith.
(iii) In case of the issuance or sale of any securities of
Hawaiian for consideration other than cash or a consideration a part of
which is other than cash, the amount of the consideration other than cash
received by Hawaiian for such securities shall be deemed to be the fair
value of such consideration as determined by its Board of Directors, which
determination may be inconsistent with the accounting treatment thereof.
(iv) In case of the issuance or sale of Convertible Securities,
the aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale, plus
the minimum aggregate amount of additional consideration, if any, payable
to Hawaiian upon the conversion or exchange of such Convertible Securities
at the time such Convertible Securities first become convertible or
exchangeable.
(v) In case of the issuance or sale of Rights or Options, the
aggregate consideration therefor shall be deemed to be the consideration,
if any, received at the time of such issuance or sale, plus the minimum
aggregate amount of additional consideration, if any, payable to Hawaiian
upon the exercise of such Rights or Options, plus, in the case of Rights or
Options to purchase Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to Hawaiian upon the conversion
or exchange of such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable.
(vi) In case of the issuance or sale of Convertible Securities or
Rights or Options, the conversion or exercise price per share of Common
Equity shall be determined by dividing the aggregate consideration for such
Convertible Securities or Rights or Options by the maximum number of shares
of Common Equity issuable with respect to such Convertible Securities or
Rights or Options.
(vii) The maximum number of shares of Common Equity issuable
with respect to Convertible Securities or Rights or Options shall include
the number of shares issuable upon conversion or exchange of such
Convertible Securities or exercise of such Rights or Options, plus, in the
case of Rights or Options to purchase Convertible Securities, the number of
shares issuable upon conversion or exchange of such Convertible Securities.
(viii) In case of the issuance of additional shares of Common
Equity as a dividend or as the distribution on any capital stock of
Hawaiian, the aggregate number of shares of Common Equity issued in payment
of such dividend or distribution shall be deemed to have been issued on the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall be deemed to have been issued without
consideration.
(ix) The reclassification of securities other than Common Equity
into securities including Common Equity shall be deemed to involve the
issuance for consideration other than cash of such Common Equity on the
record date for the determination of stockholders entitled to receive such
Common Equity.
5
<PAGE>
Warrant No. 12
(x) The number of shares of Common Equity at any time outstanding
shall include the maximum number of shares issuable at such time with
respect to all Convertible Securities and Rights or Options then
outstanding and unconverted or unexchanged or unexercised.
(xi) No adjustment provided for in Section 4(a) hereof shall be
made if it results in an increase in the Current Warrant Price above the
initial Warrant Price as adjusted only as provided in Section 4(d) hereof.
(d) In case the outstanding shares of Common Equity shall be
subdivided into a greater number of shares of Common Equity, the Current Warrant
Price shall, simultaneously with the effectiveness of such subdivision, be
proportionately reduced, and conversely, in case the outstanding shares of
Common Equity shall be combined into a smaller number of shares of Common
Equity, the Current Warrant Price shall, simultaneously with the effectiveness
of such combination, be proportionately increased.
(e) Whenever the Current Warrant Price shall be adjusted as herein
provided, and from time to time, at the reasonable request of the holder hereof,
Hawaiian will forthwith deliver to such holder a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer of
Hawaiian, showing in reasonable detail the facts requiring any such adjustment
and stating the Current Warrant Price in effect on the date of such certificate
after giving effect to any such adjustment and the number of shares of Class A
Common Stock or other securities then purchaseable upon the exercise hereof.
Hawaiian may retain a firm of independent public accountants of recognized
standing, selected by its Board of Directors to make any computation required
under this Section 4, and the certificate signed by such firm shall be
conclusive evidence of the correctness of any such computation.
5. CAPITAL REORGANIZATION, RECLASSIFICATION OR MERGER. In case the
--------------------------------------------------
Class A Common Stock shall be changed into another kind of capital stock of
Hawaiian (otherwise than through a subdivision or combination of shares) or
shall represent the right to receive some other security or property as a result
of any capital reorganization, reclassification or merger into or consolidation
with another company, or sale of all or substantially all the assets of Hawaiian
to another company, this Warrant shall (subject to further adjustments in the
Warrant Price as herein provided) thereafter entitle the holder hereof to
acquire upon exercise hereof the kind and number of shares of stock or other
securities or property to which such holder would have been entitled if such
holder had held the Class A Common Stock issuable upon exercise of this Warrant
immediately prior to such capital reorganization, reclassification, merger,
consolidation or sale of assets.
6. RESERVATION OF SHARES. Hawaiian shall at all times reserve and
---------------------
keep available, out of its treasury stock or authorized and unissued stock,
solely for the purpose of effecting the exercise of this Warrant, such number of
shares of Class A Common Stock and other securities of Hawaiian as shall, from
time to time, be sufficient to effect the exercise of this Warrant. All shares
of Class A Common Stock issued on exercise of this Warrant shall be validly
issued, fully paid and nonassessable.
7. HOLDER OF WARRANT. Hawaiian may deem and treat the person in
-----------------
whose name this Warrant is registered as the absolute owner hereof for all
purposes and Hawaiian shall not be affected by any notice to the contrary. No
holder of this Warrant, as such, shall be entitled to vote on or be deemed for
any purpose the holder of Class A Common Stock or any other securities of
Hawaiian which may at any time be issuable on the exercise hereof.
6
<PAGE>
Warrant No. 12
8. DEMAND REGISTRATION RIGHTS. As soon as practicable after
--------------------------
Hawaiian's receipt of a request, made at any time before September 11, 2001, of
holders of Class A Common Stock heretofore issued upon exercise of AMR Warrants
and/or of then exercisable AMR Warrants to purchase Class A Common Stock
aggregating not less than five hundred thousand shares to register such shares
of Class A Common Stock ("Registrable Securities") under the Securities Act of
1933, as amended (the "Act"), Hawaiian shall cause a registration statement to
be filed with respect to the number of such shares specified in the request and
shall use its best efforts to cause the Registration Statement to become
effective. Hawaiian shall not be required to cause more than two registration
statements to be filed pursuant to this Section 8. Hawaiian shall be entitled
to include other securities of Hawaiian to be offered by Hawaiian or other
stockholders of Hawaiian, in such registration statement; provided, however,
-------- -------
that such stockholders or holders of AMR Warrants requesting registration
pursuant to this Section 8 may request that any such other securities of
Hawaiian not be included in the registration statement if they shall be advised
by the investment banking firm managing the underwriting that it reasonably
believes that such inclusion would adversely affect the offering of the shares
to be covered by the proposed registration statement. Hawaiian shall be
entitled to postpone the filing of any such registration statement for a
reasonable period of time if (a) Hawaiian is, at the time at which it receives
any such request, conducting or, within 60 days of receipt by Hawaiian of such
notice, is about to conduct an offering of its securities and Hawaiian
reasonably believes that such offering would be adversely affected by the
registration requested, (b) such request is received by Hawaiian within six
months after the effective date of a registration statement of Hawaiian and,
prior to the filing of such registration statement, Hawaiian has complied with
its obligations under Section 9 hereof, or (c) the filing of the registration
statement would require Hawaiian to furnish audited financial statements other
than the audited financial statements customarily prepared at the end of its
fiscal year or unaudited financial information with respect to any period other
than its regularly reported interim quarterly periods.
9. PIGGY-BACK REGISTRATION RIGHTS.
------------------------------
(a) From the date hereof and on or before September 11, 2001, at any
time Hawaiian proposes to file a registration statement under the Act with
respect to an offering by Hawaiian, for its own account or the account of its
shareholders, of shares of Class A Common Stock (other than the Rights Offering,
a registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the Securities and Exchange Commission (the "Commission")) or filed
in connection with an exchange offer or an offering of securities solely to
Hawaiian's existing security holders), then Hawaiian shall in each such case
give written notice of such proposed filing to the holders of the AMR Warrants
and holders of Registrable Securities as soon as practicable (but in no event
less than 30 days before the anticipated filing date), and such notice shall
offer such holders the opportunity to register such shares of Registrable
Securities as such holder may request.
(b) Hawaiian shall use its best efforts to cause any managing
underwriter or underwriters of such proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of Hawaiian included therein. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering advise Hawaiian that they
reasonably believe that the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities and the inclusion
of other shares requested to be included, such amount of Registrable Securities
as shall be required to substantially eliminate the adverse effect in the
judgment of the managing underwriter or underwriters, will be excluded from such
offering as provided in the
7
<PAGE>
Warrant No. 12
Rightsholders Agreement. In the case of a non-underwritten offering, Hawaiian
may decline to include any Registrable Securities in a registration statement
pursuant to Section 9(a) if it reasonably believes that such inclusion would
adversely affect the offering of the securities to be covered by the proposed
registration statement.
(c) To the extent not inconsistent with applicable law, each holder
whose securities are included in the registration statement pursuant to this
Section 9 agrees not to effect any public sale or distribution of the issue
being registered or a similar security of Hawaiian, including a sale pursuant to
Rule 144 under the Act, during the 14 days prior to, and during the 60-day
period beginning on, the effective date of such registration statement (except
as part of such registration), if and to the extent requested by Hawaiian in the
case of the non-underwritten public offering or if and to the extent requested
by the managing underwriter or underwriters in the case of an underwritten
public offering.
10. REGISTRATION EXPENSES. The out-of-pocket expenses of any
---------------------
registration pursuant to Section 8 or Section 9 shall be borne by Hawaiian,
except each holder proposing to sell Registrable Securities pursuant to the
registration shall pay all underwriting discounts and commissions applicable to
his shares and all legal fees and expenses, if any, of his own counsel;
provided, however, that if the out-of-pocket expenses of the registration
- -------- -------
pursuant to Section 9 are being borne by a person other than Hawaiian, each
holder proposing to sell Registrable Securities pursuant to the registration
shall pay his pro rata share of the out-of-pocket expenses of such registration.
11. STATE SECURITIES LAWS. In connection with the offering of any
---------------------
Registrable Securities registered pursuant to this Warrant, Hawaiian shall take
such action as may be necessary to qualify or register the Registrable
Securities to be sold under the securities or "blue sky" laws of such
jurisdictions as may be reasonably requested by such holder or his underwriters;
provided, however, that Hawaiian will not be required to (a) qualify generally
- -------- -------
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section, (b) subject itself to taxation in any such
jurisdiction or (c) consent to general service of process in any such
jurisdiction. The expenses of such qualification or registration shall be borne
by Hawaiian in the case of a registration pursuant to Section 8 and shall be
borne pro rata by the holders and any other party registering shares pursuant to
such registration statement in the case of a registration pursuant to Section 9.
12. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Hawaiian agrees to indemnify and hold harmless each holder of
Registrable Securities, its officers, directors and agents and each person, if
any, who controls such holder within the meaning of Section 15 of the Act or
Section 20 of the Securities and Exchange Act of 1934 (the "Exchange Act") from
and against any and all lawsuits, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue or alleged untrue statements of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof made in reliance upon and in
conformity with information furnished in writing to Hawaiian by such holder or
at the direction of such holder expressly for use therein; provided that, with
--------
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity
8
<PAGE>
Warrant No. 12
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of such Registrable Securities to such person if it is
determined that it was the responsibility of such holder to provide such person
with a current copy of the prospectus and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. Hawaiian also agrees to indemnify and provide contribution
arrangements to the underwriters of the Registrable Securities, their officers
and directors and each person who controls such underwriters on substantially
the same basis as that of the indemnification of a holder provided in this
Section 12(a).
(b) Each holder agrees to indemnify and hold harmless Hawaiian, its
officers, directors and agents and each person, if any, who controls Hawaiian
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from Hawaiian to such holder,
but only with respect to such information furnished in writing by such holder or
at such holder's direction expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus; provided that, with respect
--------
to any untrue statement or omission or alleged untrue statement or omission made
in any preliminary prospectus, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
was not sent or given to the person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of such
Registrable Securities to such person if it is determined that it was the
responsibility of Hawaiian to provide such person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. Each holder also
agrees to indemnify and provide contribution arrangements to the underwriters of
the Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of Hawaiian provided in this Section 12(b).
(c) Promptly after receipt by an indemnified party under Section 12(a)
or Section 12(b) above of notice of the commencement of any action for which
indemnification may be sought, the indemnified party shall notify the
indemnifying party. The failure to notify the indemnifying party shall relieve
it from any liability hereunder with respect to the action, but only to the
extent the indemnifying party was actually harmed by such failure. In case any
such action is brought against any indemnified party, and it notifies any
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to assume and control the defense of the action at its expense, with
counsel reasonably satisfactory to the indemnified party, and if the
indemnifying party gives notice to such indemnified party of its election to
assume and control the defense, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense or investigation of the
action. Notwithstanding the foregoing, the indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the named
parties to any such action or proceeding include both the indemnifying party and
the indemnified party and each of the indemnifying party and the indemnified
party shall have been advised by counsel that counsel employed by the
indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnified party and the indemnifying party,
it being
9
<PAGE>
Warrant No. 12
understood, however, that such indemnifying party shall not, in connection with
any such action or proceeding or separate, but substantially similar or related
actions or proceedings, in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for such indemnified party
and controlling persons thereof.
13. TAG-ALONG SALE RIGHTS.
---------------------
(a) If a holder or holders of record of Common Stock of Hawaiian (for
purposes of this Section 13, the "Proposed Transferor") at any time or from time
to time prior to September 11, 2001, in one transaction or in a series of
related transactions, agrees (whether orally or in writing) to transfer to any
person, group or entity a sufficient number of shares of Common Equity so that
such person, group or entity owns at least 50.1% of the then-outstanding Common
Equity (a "Tag-Along Sale") and Hawaiian becomes aware of such Tag-Along Sale,
then Hawaiian shall use its best efforts to cause the Proposed Transferor to
provide to the holder of this Warrant (for purposes of this Section 13, the
"Warrant Holder") the right, but not the obligation, to include in such Tag-
Along Sale up to the number of shares of Class A Common Stock derived by
multiplying the total number of shares of Class A Common Stock owned by or
issuable to the Warrant Holder by a fraction, the numerator of which is equal to
the number of shares of Common Stock then owned by or issuable to the Proposed
Transferor that are to be purchased by the proposed purchaser (without giving
effect to any reduction in such number of shares by reason of the Warrant
Holder's exercise the "tag-along" rights provided in this Section 13 in
connection with such transaction) and the denominator of which is the total
number of shares of Common Stock owned by or issuable to the Proposed Transferor
prior to such sale. Any such sale by such Warrant Holder shall be on the same
terms and conditions as the proposed Tag-Along Sale by the Proposed Transferor.
(b) If the Proposed Transferor agrees to permit the Warrant Holder to
participate in a Tag-Along Sale, the Proposed Transferor shall agree that the
Tag-Along sale shall be subject to the terms set forth in Sections 13(c), 13(d)
and 13(e).
(c) The Proposed Transferor shall promptly provide Hawaiian with
notice of the proposed Tag-Along Sale (which Hawaiian shall transmit to the
Warrant Holder within five calendar days of its receipt thereof, but in no event
less than five calendar days prior to the proposed closing date for such sale
(the "Closing Date")) containing the following:
(i) the name and address of the proposed transferee of the shares
of Common Stock in the Tag-Along Sale;
(ii) the number of shares of Common Stock proposed to be
transferred by the Proposed Transferor in the event no persons to whom Tag-
Along rights have been granted elects to participate;
(iii) the proposed amount and form of consideration to be paid
for such shares of Common Stock and the terms and conditions of payment
offered by the proposed transferee;
(iv) the aggregate number of shares of Common Stock held of
record by such Proposed Transferor as of the date of the notice from the
Proposed Transferor to Hawaiian (the "Notice Date");
10
<PAGE>
Warrant No. 12
(v) the aggregate number of shares of Common Stock held of record
as of the Notice Date by all holders of Tag-Along rights as a group;
(vi) the maximum number of shares of Common Stock the Warrant
Holder is entitled to include in the Tag-Along Sale (as computed in
accordance with the equations set forth in Section 13(a));
(vii) the Closing Date; and
(viii) that the proposed transferee has been informed of the
Tag-Along rights provided for in this Section 13.
(d) If the Warrant Holder desires to participate in such Tag-Along
Sale, such Warrant Holder shall provide written notice (the "Tag-Along Notice")
to the Proposed Transferor within 15 calendar days after the Notice Date, but in
no event less than one calendar day prior to the Closing Date, setting forth the
number of shares of Class A Common Stock such Warrant Holder elects to include
in the Tag-Along Sale. The Tag-Along Notice given by the Warrant Holder shall
constitute such Warrant Holder's binding agreement to sell such shares of Class
A Common Stock as are included therein on the terms and conditions applicable to
such sale (including the requirements of this Section 13). In the event that
the proposed transferee does not purchase the shares of the Proposed Transferor,
then the proposed sale by the Warrant Holder to such proposed transferee
pursuant to the Tag-Along Sale shall not take place. If the Tag-Along Notice
from the Warrant Holder is not received by the Proposed Transferor within the
time period specified above in this Section 13(d), the Proposed Transferor shall
have the right to transfer the shares of Common Stock to the proposed transferee
without any participation by the Warrant Holder, but only on the terms and
conditions stated in the notice to such holder or on terms and conditions no
more favorable to the Proposed Transferor.
(e) If the Warrant Holder chooses not to sell any or all shares of
Class A Common Stock which such Warrant Holder may be entitled to sell under
this Section 13, the Proposed Transferor may sell, in the same transaction,
additional shares of Common Stock equal to the difference between the number of
shares of Class A Common Stock which such Warrant Holder is entitled to sell and
the number of shares of Class A Common Stock such Warrant Holder chooses to
sell, if any.
(f) The provisions of this Section 13 shall not apply to:
(i) any transaction in which shares of Class A Common Stock are
proposed to be sold publicly pursuant to a registration statement filed
under the Act; or
(ii) any shares of Common Stock proposed to be transferred by the
Proposed Transferor which are purchased by the Company or an affiliate as
defined in the Exchange Act of the Proposed Transferor.
14. NOTICES. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to Hawaiian:
11
<PAGE>
Warrant No. 12
3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819
If to the holder of this Warrant, the address last shown on the warrant
or stock register, as the case may be.
15. AMENDMENTS; GOVERNING LAW. This Warrant shall not be amended or
-------------------------
terminated orally, but may be amended or terminated in writing at any time by
agreement between Hawaiian and the holder hereof. This Warrant shall be
construed and enforced in accordance with and governed by the laws of the State
of Hawaii.
IN WITNESS WHEREOF, Hawaiian has caused this Warrant to be signed in
its corporate name on __________, 1996 by its President or one of its Vice
Presidents and its corporate seal to be affixed hereunto, duly attested by its
Corporate Secretary.
HAWAIIAN AIRLINES, INC.
By:__________________________________
President
[SEAL]
Attest:
______________________________________
Corporate Secretary
12
<PAGE>
EXHIBIT 10(w)
NOTICE: THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER OTHER
SECURITIES LAWS AND, ACCORDINGLY, TRANSFER OF THIS WARRANT OR SUCH
SHARES MAY BE RESTRICTED.
HAWAIIAN AIRLINES, INC.
WARRANT FOR THE
PURCHASE OF 948,973 SHARES OF
CLASS A COMMON STOCK
VOID AFTER
SEPTEMBER 11, 2001
______________________
For value received, this Warrant entitles AMR Corporation ("AMR") and its
successors and assigns, subject to the terms and conditions
hereinafter set forth, to purchase from Hawaiian Airlines, Inc.
("Hawaiian") 948,973 fully paid and nonassessable shares of Class A
Common Stock, par value $.01 per share, of Hawaiian (the "Class A
Common Stock"), subject to adjustment as hereinafter provided upon
payment therefor to Hawaiian of $1.10 per share (the "Warrant Price"),
subject to adjustment as hereinafter provided (this "Warrant"). This
is one of two warrants issued concurrently to AMR for the purchase of
Class A Common Stock which collectively are referred to herein as the
"AMR Warrants."
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") OF THIS
WARRANT IS RESTRICTED BY THE TERMS OF THE RIGHTSHOLDERS AGREEMENT (THE
"RIGHTSHOLDERS AGREEMENT"), DATED AS OF JANUARY 31, 1996, BY AND AMONG
THE COMPANY, AIRLINE INVESTORS PARTNERSHIP, L.P. AND THE HOLDERS OF
WARRANTS OF HAWAIIAN, A COPY OF WHICH MAY BE INSPECTED AT HAWAIIAN'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER ON THE BOOKS OF THE
COMPANY OR OTHERWISE EFFECT THE TRANSFER OF THIS WARRANT IF THE
TRANSFER HAS NOT BEEN MADE IN COMPLIANCE WITH THE RIGHTSHOLDERS
AGREEMENT.
1. EXERCISE.
--------
(a) This Warrant is exercisable at the option of the holder hereof in
whole or in part from time to time on or before September 11, 2001.
(b) Before the holder of this Warrant shall be entitled to exercise
the same, he shall surrender this Warrant at the principal office of Hawaiian
accompanied by funds payable by cash, a certified check, bank cashiers check or
wire transfer to an account designated by Hawaiian in the amount of the Warrant
Price payable upon such exercise plus any tax or taxes payable or which may be
payable by such holder in respect of such exercise,
<PAGE>
Warrant No. 11
and shall give written notice (the "Exercise Notice") to Hawaiian at such office
that such holder elects to exercise this Warrant, and shall state therein the
number of shares of Class A Common Stock or other securities issuable upon such
exercise and the name or names in which he wishes the certificate or
certificates for such shares of Class A Common Stock or other securities to be
issued. Hawaiian will, as soon as practicable after such surrender of this
Warrant accompanied by the written notice and the statement described above,
requisition from the then transfer agent for Hawaiian a certificate or
certificates for shares of Class A Common Stock for issuance and delivery to or
on the written order of the registered holder of such Warrant and in such name
or names as such registered holder may designate. Such certificate or
certificates shall represent the number of whole shares of Class A Common Stock
issuable on such exercise, together with a cash amount for any fraction of a
share of Class A Common Stock otherwise issuable on such exercise and shall be
delivered as directed by the holder of the Warrant in the Exercise Notice no
later than five Business Days after exercise.
(c) Certificates representing such shares shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of surrender of a
Warrant and payment of the Warrant Price as provided herein, provided that if,
--------
at the date of surrender of such Warrant and payment of such Warrant Price, the
transfer books for the Class A Common Stock or other class of stock purchasable
on the exercise of such Warrant shall be closed, the certificates for the shares
in respect of which such Warrant is then exercised shall be issuable as of the
date on which such books shall next be opened and until such date, Hawaiian
shall be under no duty to deliver any certificate for such shares. The Warrant
shall be exercisable at the election of the registered holder thereof, either as
an entirety or from time to time for part of the number of whole shares
specified in the Warrant, but in no event shall fractional shares be issued. In
the event of any partial exercise, a new Warrant will be issued to the
registered holder to evidence such holder's Warrant to purchase the number of
shares as to which the Warrant has not been exercised. No adjustment shall be
made for any cash dividends on shares issuable on the exercise of any Warrant.
2. TRANSFER AND EXCHANGE.
---------------------
(a) This Warrant may be transferred at the principal office of
Hawaiian upon its surrender by the holder thereof in person or by attorney duly
authorized in writing. Upon such surrender, a new Warrant or new Warrants of
different denominations will be issued to the transferee or transferees, dated
the date of such surrender, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Class A Common Stock (after giving
effect to any adjustments therein).
(b) This Warrant may be exchanged at the principal office of Hawaiian
upon surrender by the holder hereof in person or by attorney duly authorized in
writing, for another Warrant or other Warrants of different denominations, dated
the date of such surrender, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Class A Common Stock (after giving
effect to any adjustments therein). Hawaiian shall not be required to effect
any registration of transfer or exchange which will result in the issuance of a
Warrant to purchase only a fraction of a share.
3. ADJUSTMENT OF NUMBER OF SHARES.
------------------------------
(a) Upon any adjustment of the Current Warrant Price, as provided in
Section 4 hereof, the number of shares of Class A Common Stock issuable upon
exercise of
2
<PAGE>
Warrant No. 11
this Warrant shall be determined by dividing (i) the result obtained by
multiplying the Warrant Price in effect immediately prior to such adjustment by
the number of shares of Class A Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment by (ii) the Warrant Price resulting
from such adjustment.
(b) No adjustment in the number of shares of Class A Common Stock
issuable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent in such number; provided that any
--------
adjustments which by reason of this Section 3(b) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
4. ADJUSTMENT OF WARRANT PRICE.
---------------------------
(a) In case Hawaiian shall at any time (i) issue or sell any shares of
Common Equity (which term for all purposes hereof shall mean and include stock
of Hawaiian of any class or series, whether now or hereafter authorized, the
holders of which shall be entitled to participate in the distribution of
earnings and assets of Hawaiian without limit as to amount or percentage,
including Class A Common Stock, unless the holders of such stock shall be
entitled to receive dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, senior in preference or priority
to the holders of any outstanding stock of Hawaiian of any other class or
series) without consideration, or for consideration per share less than the
Current Market Price (determined as hereinafter provided), or (ii) issue or sell
any securities convertible into, or exchangeable for, shares of Common Equity
("Convertible Securities") at a conversion price per share of Common Equity less
than the Current Market Price, or (iii) issue or sell any warrants or other
rights to subscribe to or purchase, or any options for the purchase of shares of
Common Equity or Convertible Securities ("Rights or Options") at an exercise
price per share of Common Equity less than the Current Market Price, then, and
thereafter successively upon each such issuance or sale, except as provided
below, the Warrant Price in effect immediately prior to such issuance or sale
(the "Current Warrant Price") shall simultaneously with such issuance or sale be
reduced to a price (calculated to the nearest cent) determined by multiplying:
(A) the Current Warrant Price by (B) a fraction of which the numerator shall be
the aggregate number of shares of Common Equity outstanding immediately prior to
such issuance or sale plus the number of shares of Common Equity which the
aggregate consideration for the total number of shares of Common Equity,
Convertible Securities and Rights or Options issued or sold as aforesaid would
purchase at the Current Market Price, and of which the denominator shall be the
aggregate number of shares of Common Equity outstanding immediately prior to
such issuance or sale, plus the number of shares of Common Equity issued or sold
as aforesaid and the maximum number of shares of Common Equity issuable with
respect to such Convertible Securities and Rights or Options issued or sold as
aforesaid.
In case Hawaiian shall at any time distribute to holders of Common
Equity, as such, (i) evidences of indebtedness or assets (excluding regular cash
dividends or cash distributions payable out of consolidated retained earnings)
of Hawaiian or any corporation or other legal entity a majority of the voting
equity securities or equity interests of which are owned, directly or
indirectly, by Hawaiian (a "Subsidiary"), (ii) shares of capital stock of any
Subsidiary, (iii) securities convertible into or exchangeable for capital stock
of any Subsidiary, or (iv) any rights, options, or warrants to purchase any of
the foregoing, then and thereafter successively upon each distribution, the
Current Warrant Price shall, simultaneously with such distribution, be reduced
to a price (calculated to the nearest cent) determined by multiplying, (A) the
Current Warrant Price by (B) a fraction, the numerator of which will be the
Current Market Price less the fair value (as determined in good faith by the
Board of Directors of the
3
<PAGE>
Warrant No. 11
Hawaiian, whose determination will be conclusive if based on the financial
advice of a nationally recognized investment banking firm) of the portion of the
evidences of indebtedness, assets, securities, or rights, options, or warrants
so distributed on account of one share of Common Equity on the record date for
such distribution, and the denominator of which will be such Current Market
Price. Such adjustment will be made whenever any such distribution is made, and
will become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(b) Notwithstanding the foregoing, no adjustment of the Current
Warrant Price shall be made in any case in which Hawaiian shall issue (i)
employee stock options, (ii) shares of Common Equity upon conversion or exchange
of any Convertible Securities, (iii) shares of Common Equity or Convertible
Securities upon exercise of any Rights or Options, (iv) in consideration of the
acquisition by Hawaiian or any subsidiary of all or substantially all of the
stock of another company or all or substantially all the assets of another
company (whether by merger, acquisition of assets or otherwise), any shares of
Common Equity or any Convertible Securities or any Rights or Option or (v)
shares of Common Equity pursuant to the proposed offering by Hawaiian of
nontransferable rights to purchase Class A Common Stock (the "Rights Offering")
to be made to the Company's shareholders and to holders of options under its
stock option plan and reasonably anticipated for February or March of 1996, but
only to the extent that the number shares of Common Equity issued in the Rights
Offering does not exceed the number of shares held by such shareholders plus the
number of shares issuable on exercise of such options..
(c) Calculations pursuant to Section 4(a) hereof shall be made in
accordance with the following provisions:
(i) "Current Market Price" on any day shall mean the average of
the daily closing prices of the Class A Common Stock for the 30 consecutive
business days commencing 35 business days before the day in question. The
closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such date, the average
of the reported closing bid and asked prices regular way, in either case on
the American Stock Exchange, or, if such stock is not listed or admitted to
trading on such exchange, on the principal national securities exchange on
which such stock is listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market, as furnished
by any national brokerage firm selected from time to time by Hawaiian for
that purpose. For the purposes of the foregoing provision, the term
"business day" shall not include any day on which securities are not traded
on such exchange or in such market.
(ii) In case of the issuance or sale of any securities of
Hawaiian for cash, the consideration received by Hawaiian therefor shall be
deemed to be the amount of cash received by Hawaiian for such security (or
if such securities are offered by Hawaiian for subscription, the
subscription price, or, if such securities are sold to underwriters or
dealers for public offering without a subscription offer, the initial
public offering price), without deducting therefrom any compensation or
discount paid or allowed to underwriters or dealers or others performing
similar services or for any expenses incurred in connection therewith.
(iii) In case of the issuance or sale of any securities of
Hawaiian for consideration other than cash or a consideration a part of
which is other than cash, the amount of the consideration other than cash
received by Hawaiian for such securities
4
<PAGE>
Warrant No. 11
shall be deemed to be the fair value of such consideration as determined by
its Board of Directors, which determination may be inconsistent with the
accounting treatment thereof.
(iv) In case of the issuance or sale of Convertible Securities,
the aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale, plus
the minimum aggregate amount of additional consideration, if any, payable
to Hawaiian upon the conversion or exchange of such Convertible Securities
at the time such Convertible Securities first become convertible or
exchangeable.
(v) In case of the issuance or sale of Rights or Options, the
aggregate consideration therefor shall be deemed to be the consideration,
if any, received at the time of such issuance or sale, plus the minimum
aggregate amount of additional consideration, if any, payable to Hawaiian
upon the exercise of such Rights or Options, plus, in the case of Rights or
Options to purchase Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to Hawaiian upon the conversion
or exchange of such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable.
(vi) In case of the issuance or sale of Convertible Securities or
Rights or Options, the conversion or exercise price per share of Common
Equity shall be determined by dividing the aggregate consideration for such
Convertible Securities or Rights or Options by the maximum number of shares
of Common Equity issuable with respect to such Convertible Securities or
Rights or Options.
(vii) The maximum number of shares of Common Equity issuable
with respect to Convertible Securities or Rights or Options shall include
the number of shares issuable upon conversion or exchange of such
Convertible Securities or exercise of such Rights or Options, plus, in the
case of Rights or Options to purchase Convertible Securities, the number of
shares issuable upon conversion or exchange of such Convertible Securities.
(viii) In case of the issuance of additional shares of Common
Equity as a dividend or as the distribution on any capital stock of
Hawaiian, the aggregate number of shares of Common Equity issued in payment
of such dividend or distribution shall be deemed to have been issued on the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall be deemed to have been issued without
consideration.
(ix) The reclassification of securities other than Common Equity
into securities including Common Equity shall be deemed to involve the
issuance for consideration other than cash of such Common Equity on the
record date for the determination of stockholders entitled to receive such
Common Equity.
(x) The number of shares of Common Equity at any time outstanding
shall include the maximum number of shares issuable at such time with
respect to all Convertible Securities and Rights or Options then
outstanding and unconverted or unexchanged or unexercised.
5
<PAGE>
Warrant No. 11
(xi) No adjustment provided for in Section 4(a) hereof shall be
made if it results in an increase in the Current Warrant Price above the
initial Warrant Price as adjusted only as provided in Section 4(d) hereof.
(d) In case the outstanding shares of Common Equity shall be
subdivided into a greater number of shares of Common Equity, the Current Warrant
Price shall, simultaneously with the effectiveness of such subdivision, be
proportionately reduced, and conversely, in case the outstanding shares of
Common Equity shall be combined into a smaller number of shares of Common
Equity, the Current Warrant Price shall, simultaneously with the effectiveness
of such combination, be proportionately increased.
(e) Whenever the Current Warrant Price shall be adjusted as herein
provided, and from time to time, at the reasonable request of the holder hereof,
Hawaiian will forthwith deliver to such holder a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer of
Hawaiian, showing in reasonable detail the facts requiring any such adjustment
and stating the Current Warrant Price in effect on the date of such certificate
after giving effect to any such adjustment and the number of shares of Class A
Common Stock or other securities then purchaseable upon the exercise hereof.
Hawaiian may retain a firm of independent public accountants of recognized
standing, selected by its Board of Directors to make any computation required
under this Section 4, and the certificate signed by such firm shall be
conclusive evidence of the correctness of any such computation.
5. CAPITAL REORGANIZATION, RECLASSIFICATION OR MERGER. In case the
--------------------------------------------------
Class A Common Stock shall be changed into another kind of capital stock of
Hawaiian (otherwise than through a subdivision or combination of shares) or
shall represent the right to receive some other security or property as a result
of any capital reorganization, reclassification or merger into or consolidation
with another company, or sale of all or substantially all the assets of Hawaiian
to another company, this Warrant shall (subject to further adjustments in the
Warrant Price as herein provided) thereafter entitle the holder hereof to
acquire upon exercise hereof the kind and number of shares of stock or other
securities or property to which such holder would have been entitled if such
holder had held the Class A Common Stock issuable upon exercise of this Warrant
immediately prior to such capital reorganization, reclassification, merger,
consolidation or sale of assets.
6. RESERVATION OF SHARES. Hawaiian shall at all times reserve and
---------------------
keep available, out of its treasury stock or authorized and unissued stock,
solely for the purpose of effecting the exercise of this Warrant, such number of
shares of Class A Common Stock and other securities of Hawaiian as shall, from
time to time, be sufficient to effect the exercise of this Warrant. All shares
of Class A Common Stock issued on exercise of this Warrant shall be validly
issued, fully paid and nonassessable.
7. HOLDER OF WARRANT. Hawaiian may deem and treat the person in
-----------------
whose name this Warrant is registered as the absolute owner hereof for all
purposes and Hawaiian shall not be affected by any notice to the contrary. No
holder of this Warrant, as such, shall be entitled to vote on or be deemed for
any purpose the holder of Class A Common Stock or any other securities of
Hawaiian which may at any time be issuable on the exercise hereof.
8. DEMAND REGISTRATION RIGHTS. As soon as practicable after
--------------------------
Hawaiian's receipt of a request, made at any time before September 11, 2001, of
holders of Class A Common Stock heretofore issued upon exercise of AMR Warrants
and/or of then exercisable AMR Warrants to purchase Class A Common Stock
aggregating not less than five hundred
6
<PAGE>
Warrant No. 11
thousand shares to register such shares of Class A Common Stock ("Registrable
Securities") under the Securities Act of 1933, as amended (the "Act"), Hawaiian
shall cause a registration statement to be filed with respect to the number of
such shares specified in the request and shall use its best efforts to cause the
Registration Statement to become effective. Hawaiian shall not be required to
cause more than two registration statements to be filed pursuant to this Section
8. Hawaiian shall be entitled to include other securities of Hawaiian to be
offered by Hawaiian or other stockholders of Hawaiian, in such registration
statement; provided, however, that such stockholders or holders of AMR Warrants
-------- -------
requesting registration pursuant to this Section 8 may request that any such
other securities of Hawaiian not be included in the registration statement if
they shall be advised by the investment banking firm managing the underwriting
that it reasonably believes that such inclusion would adversely affect the
offering of the shares to be covered by the proposed registration statement.
Hawaiian shall be entitled to postpone the filing of any such registration
statement for a reasonable period of time if (a) Hawaiian is, at the time at
which it receives any such request, conducting or, within 60 days of receipt by
Hawaiian of such notice, is about to conduct an offering of its securities and
Hawaiian reasonably believes that such offering would be adversely affected by
the registration requested, (b) such request is received by Hawaiian within six
months after the effective date of a registration statement of Hawaiian and,
prior to the filing of such registration statement, Hawaiian has complied with
its obligations under Section 9 hereof, or (c) the filing of the registration
statement would require Hawaiian to furnish audited financial statements other
than the audited financial statements customarily prepared at the end of its
fiscal year or unaudited financial information with respect to any period other
than its regularly reported interim quarterly periods.
9. PIGGY-BACK REGISTRATION RIGHTS.
------------------------------
(a) From the date hereof and on or before September 11, 2001, at any
time Hawaiian proposes to file a registration statement under the Act with
respect to an offering by Hawaiian, for its own account or the account of its
shareholders, of shares of Class A Common Stock (other than the Rights Offering,
a registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the Securities and Exchange Commission (the "Commission")) or filed
in connection with an exchange offer or an offering of securities solely to
Hawaiian's existing security holders), then Hawaiian shall in each such case
give written notice of such proposed filing to the holders of the AMR Warrants
and holders of Registrable Securities as soon as practicable (but in no event
less than 30 days before the anticipated filing date), and such notice shall
offer such holders the opportunity to register such shares of Registrable
Securities as such holder may request.
(b) Hawaiian shall use its best efforts to cause any managing
underwriter or underwriters of such proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of Hawaiian included therein. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering advise Hawaiian that they
reasonably believe that the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities and the inclusion
of other shares requested to be included, such amount of Registrable Securities
as shall be required to substantially eliminate the adverse effect in the
judgment of the managing underwriter or underwriters, will be excluded from such
offering as provided in the Rightsholders Agreement. In the case of a non-
underwritten offering, Hawaiian may decline to include any Registrable
Securities in a registration statement pursuant to Section 9(a) if it reasonably
believes that such inclusion would adversely affect the offering of the
securities to be covered by the proposed registration statement.
7
<PAGE>
Warrant No. 11
(c) To the extent not inconsistent with applicable law, each holder
whose securities are included in the registration statement pursuant to this
Section 9 agrees not to effect any public sale or distribution of the issue
being registered or a similar security of Hawaiian, including a sale pursuant to
Rule 144 under the Act, during the 14 days prior to, and during the 60-day
period beginning on, the effective date of such registration statement (except
as part of such registration), if and to the extent requested by Hawaiian in the
case of the non-underwritten public offering or if and to the extent requested
by the managing underwriter or underwriters in the case of an underwritten
public offering.
10. REGISTRATION EXPENSES. The out-of-pocket expenses of any
---------------------
registration pursuant to Section 8 or Section 9 shall be borne by Hawaiian,
except each holder proposing to sell Registrable Securities pursuant to the
registration shall pay all underwriting discounts and commissions applicable to
his shares and all legal fees and expenses, if any, of his own counsel;
provided, however, that if the out-of-pocket expenses of the registration
- -------- -------
pursuant to Section 9 are being borne by a person other than Hawaiian, each
holder proposing to sell Registrable Securities pursuant to the registration
shall pay his pro rata share of the out-of-pocket expenses of such registration.
11. STATE SECURITIES LAWS. In connection with the offering of any
---------------------
Registrable Securities registered pursuant to this Warrant, Hawaiian shall take
such action as may be necessary to qualify or register the Registrable
Securities to be sold under the securities or "blue sky" laws of such
jurisdictions as may be reasonably requested by such holder or his underwriters;
provided, however, that Hawaiian will not be required to (a) qualify generally
- -------- -------
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section, (b) subject itself to taxation in any such
jurisdiction or (c) consent to general service of process in any such
jurisdiction. The expenses of such qualification or registration shall be borne
by Hawaiian in the case of a registration pursuant to Section 8 and shall be
borne pro rata by the holders and any other party registering shares pursuant to
such registration statement in the case of a registration pursuant to Section 9.
12. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Hawaiian agrees to indemnify and hold harmless each holder of
Registrable Securities, its officers, directors and agents and each person, if
any, who controls such holder within the meaning of Section 15 of the Act or
Section 20 of the Securities and Exchange Act of 1934 (the "Exchange Act") from
and against any and all lawsuits, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue or alleged untrue statements of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof made in reliance upon and in
conformity with information furnished in writing to Hawaiian by such holder or
at the direction of such holder expressly for use therein; provided that, with
--------
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the person asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the sale
of such Registrable Securities to such person if it is determined that it was
the responsibility of such holder to provide such person with a
8
<PAGE>
Warrant No. 11
current copy of the prospectus and such current copy of the prospectus would
have cured the defect giving rise to such loss, claim, damage, liability or
expense. Hawaiian also agrees to indemnify and provide contribution arrangements
to the underwriters of the Registrable Securities, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of a holder provided in this Section 12(a).
(b) Each holder agrees to indemnify and hold harmless Hawaiian, its
officers, directors and agents and each person, if any, who controls Hawaiian
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from Hawaiian to such holder,
but only with respect to such information furnished in writing by such holder or
at such holder's direction expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus; provided that, with respect
--------
to any untrue statement or omission or alleged untrue statement or omission made
in any preliminary prospectus, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
was not sent or given to the person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of such
Registrable Securities to such person if it is determined that it was the
responsibility of Hawaiian to provide such person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. Each holder also
agrees to indemnify and provide contribution arrangements to the underwriters of
the Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of Hawaiian provided in this Section 12(b).
(c) Promptly after receipt by an indemnified party under Section 12(a)
or Section 12(b) above of notice of the commencement of any action for which
indemnification may be sought, the indemnified party shall notify the
indemnifying party. The failure to notify the indemnifying party shall relieve
it from any liability hereunder with respect to the action, but only to the
extent the indemnifying party was actually harmed by such failure. In case any
such action is brought against any indemnified party, and it notifies any
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to assume and control the defense of the action at its expense, with
counsel reasonably satisfactory to the indemnified party, and if the
indemnifying party gives notice to such indemnified party of its election to
assume and control the defense, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense or investigation of the
action. Notwithstanding the foregoing, the indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the named
parties to any such action or proceeding include both the indemnifying party and
the indemnified party and each of the indemnifying party and the indemnified
party shall have been advised by counsel that counsel employed by the
indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnified party and the indemnifying party,
it being understood, however, that such indemnifying party shall not, in
connection with any such action or proceeding or separate, but substantially
similar or related actions or proceedings, in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
such indemnified party and controlling persons thereof.
9
<PAGE>
Warrant No. 11
13. TAG-ALONG SALE RIGHTS.
---------------------
(a) If a holder or holders of record of Common Stock of Hawaiian (for
purposes of this Section 13, the "Proposed Transferor") at any time or from time
to time prior to September 11, 2001, in one transaction or in a series of
related transactions, agrees (whether orally or in writing) to transfer to any
person, group or entity a sufficient number of shares of Common Equity so that
such person, group or entity owns at least 50.1% of the then-outstanding Common
Equity (a "Tag-Along Sale") and Hawaiian becomes aware of such Tag-Along Sale,
then Hawaiian shall use its best efforts to cause the Proposed Transferor to
provide to the holder of this Warrant (for purposes of this Section 13, the
"Warrant Holder") the right, but not the obligation, to include in such Tag-
Along Sale up to the number of shares of Class A Common Stock derived by
multiplying the total number of shares of Class A Common Stock owned by or
issuable to the Warrant Holder by a fraction, the numerator of which is equal to
the number of shares of Common Stock then owned by or issuable to the Proposed
Transferor that are to be purchased by the proposed purchaser (without giving
effect to any reduction in such number of shares by reason of the Warrant
Holder's exercise the "tag-along" rights provided in this Section 13 in
connection with such transaction) and the denominator of which is the total
number of shares of Common Stock owned by or issuable to the Proposed Transferor
prior to such sale. Any such sale by such Warrant Holder shall be on the same
terms and conditions as the proposed Tag-Along Sale by the Proposed Transferor.
(b) If the Proposed Transferor agrees to permit the Warrant Holder to
participate in a Tag-Along Sale, the Proposed Transferor shall agree that the
Tag-Along sale shall be subject to the terms set forth in Sections 13(c), 13(d)
and 13(e).
(c) The Proposed Transferor shall promptly provide Hawaiian with
notice of the proposed Tag-Along Sale (which Hawaiian shall transmit to the
Warrant Holder within five calendar days of its receipt thereof, but in no event
less than five calendar days prior to the proposed closing date for such sale
(the "Closing Date")) containing the following:
(i) the name and address of the proposed transferee of the shares
of Common Stock in the Tag-Along Sale;
(ii) the number of shares of Common Stock proposed to be
transferred by the Proposed Transferor in the event no persons to whom Tag-
Along rights have been granted elects to participate;
(iii) the proposed amount and form of consideration to be paid
for such shares of Common Stock and the terms and conditions of payment
offered by the proposed transferee;
(iv) the aggregate number of shares of Common Stock held of
record by such Proposed Transferor as of the date of the notice from the
Proposed Transferor to Hawaiian (the "Notice Date");
(v) the aggregate number of shares of Common Stock held of record
as of the Notice Date by all holders of Tag-Along rights as a group;
(vi) the maximum number of shares of Common Stock the Warrant
Holder is entitled to include in the Tag-Along Sale (as computed in
accordance with the equations set forth in Section 13(a));
10
<PAGE>
Warrant No. 11
(vii) the Closing Date; and
(viii) that the proposed transferee has been informed of the
Tag-Along rights provided for in this Section 13.
(d) If the Warrant Holder desires to participate in such Tag-Along
Sale, such Warrant Holder shall provide written notice (the "Tag-Along Notice")
to the Proposed Transferor within 15 calendar days after the Notice Date, but in
no event less than one calendar day prior to the Closing Date, setting forth the
number of shares of Class A Common Stock such Warrant Holder elects to include
in the Tag-Along Sale. The Tag-Along Notice given by the Warrant Holder shall
constitute such Warrant Holder's binding agreement to sell such shares of Class
A Common Stock as are included therein on the terms and conditions applicable to
such sale (including the requirements of this Section 13). In the event that
the proposed transferee does not purchase the shares of the Proposed Transferor,
then the proposed sale by the Warrant Holder to such proposed transferee
pursuant to the Tag-Along Sale shall not take place. If the Tag-Along Notice
from the Warrant Holder is not received by the Proposed Transferor within the
time period specified above in this Section 13(d), the Proposed Transferor shall
have the right to transfer the shares of Common Stock to the proposed transferee
without any participation by the Warrant Holder, but only on the terms and
conditions stated in the notice to such holder or on terms and conditions no
more favorable to the Proposed Transferor.
(e) If the Warrant Holder chooses not to sell any or all shares of
Class A Common Stock which such Warrant Holder may be entitled to sell under
this Section 13, the Proposed Transferor may sell, in the same transaction,
additional shares of Common Stock equal to the difference between the number of
shares of Class A Common Stock which such Warrant Holder is entitled to sell and
the number of shares of Class A Common Stock such Warrant Holder chooses to
sell, if any.
(f) The provisions of this Section 13 shall not apply to:
(i) any transaction in which shares of Class A Common Stock are
proposed to be sold publicly pursuant to a registration statement filed
under the Act; or
(ii) any shares of Common Stock proposed to be transferred by the
Proposed Transferor which are purchased by the Company or an affiliate as
defined in the Exchange Act of the Proposed Transferor.
14. NOTICES. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to Hawaiian:
3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819
If to the holder of this Warrant, the address last shown on the warrant or
stock register, as the case may be.
11
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Warrant No. 11
15. AMENDMENTS; GOVERNING LAW. This Warrant shall not be amended or
-------------------------
terminated orally, but may be amended or terminated in writing at any time by
agreement between Hawaiian and the holder hereof. This Warrant shall be
construed and enforced in accordance with and governed by the laws of the State
of Hawaii.
IN WITNESS WHEREOF, Hawaiian has caused this Warrant to be signed in
its corporate name on __________, 1996 by its President or one of its Vice
Presidents and its corporate seal to be affixed hereunto, duly attested by its
Corporate Secretary.
HAWAIIAN AIRLINES, INC.
By:__________________________________
President
[SEAL]
Attest:
______________________________________
Corporate Secretary
12
<PAGE>
EXHIBIT 10(x)
Warrant No. 13
NOTICE: THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER
OTHER SECURITIES LAWS AND, ACCORDINGLY, TRANSFER OF THIS WARRANT OR
SUCH SHARES MAY BE RESTRICTED.
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") OF THIS
WARRANT IS RESTRICTED BY THE TERMS OF THE RIGHTSHOLDERS AGREEMENT,
DATED AS OF JANUARY 31, 1996, BY AND AMONG THE COMPANY, AIRLINE
INVESTORS PARTNERSHIP, L.P. AND THE HOLDERS OF WARRANTS OF THE COMPANY,
A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE
COMPANY WILL NOT REGISTER IN THE BOOKS OF THE COMPANY OR OTHERWISE
EFFECT THE TRANSFER OF THIS WARRANT IF THE TRANSFER HAS NOT BEEN MADE
IN COMPLIANCE WITH THE RIGHTSHOLDERS AGREEMENT.
HAWAIIAN AIRLINES, INC.
WARRANT FOR THE
PURCHASE OF 93,678 SHARES OF
CLASS A COMMON STOCK
VOID AFTER
SEPTEMBER 12, 1999
For value received, this Warrant entitles Martin Anderson and his
successors and assigns, subject to the terms and conditions hereinafter set
forth, to purchase from Hawaiian Airlines, Inc. ("Hawaiian") 93,678 fully paid
and nonassessable shares of Class A Common Stock, par value $.01 per share, of
Hawaiian (the "Class A Common Stock"), subject to adjustment as hereinafter
provided upon payment therefor to Hawaiian of $1.71 per share (the "Warrant
Price"), subject to adjustment as hereinafter provided. This is one of 6
warrants issued concurrently for the purchase of Class A Common Stock of
Hawaiian, all of which are on the same terms and are referred to collectively as
the "Warrants."
1. Exercise.
--------
(a) This Warrant is exercisable at the option of the holder
hereof in whole or in part from time to time on or before September 12,
1999.
(b) Before the holder of this Warrant shall be entitled to
exercise the same, he shall surrender this Warrant at the principal office
of Hawaiian accompanied by funds in the amount of the Warrant Price payable
upon such exercise plus any tax or taxes payable or which may be payable by
such holder in respect of such exercise, and shall give written notice to
Hawaiian at such office that such holder elects to exercise this Warrant,
and shall state therein the number of shares of Class A Common Stock or
other securities issuable upon
1
<PAGE>
Warrant No. 13
such exercise and the name or names in which he wishes the certificate or
certificates for such shares of Class A Common Stock or other securities to
be issued. Hawaiian will, as soon as practicable after such surrender of
this Warrant accompanied by the written notice and the statement described
above, Hawaiian shall requisition from the then transfer agent for Hawaiian
a certificate or certificates for shares of Class A Common Stock for
issuance and delivery to or on the written order of the registered holder
of such Warrant and in such name or names as such registered holder may
designate. Such certificate or certificates shall represent the number of
whole shares of Class A Common Stock issuable on such exercise, together
with a cash amount for any fraction of a share of Class A Common Stock
otherwise issuable on such exercise.
(c) Certificates representing such shares shall be deemed to have
been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of
surrender of a Warrant and payment of the Warrant Price as provided herein,
provided that if, at the date of surrender of such Warrant and payment of
such Warrant Price, the transfer books for the Class A Common Stock or
other class of stock purchasable on the exercise of such Warrant shall be
closed, the certificates for the shares in respect of which such Warrant is
then exercised shall be issuable as of the date on which such books shall
next be opened and until such date, Hawaiian shall be under no duty to
deliver any certificate for such shares. Each Warrant shall be exercisable
at the election of the registered holder thereof, either as an entirety or
from time to time for part of the number of whole shares specified in the
Warrant, but in no event shall fractional shares be issued. In the event
of any partial exercise, a new Warrant will be issued to the registered
holder to evidence such holder's Warrant to purchase the number of shares
as to which the Warrant has not been exercised. No adjustment shall be
made for any cash dividends on shares issuable on the exercise of any
Warrant.
2
<PAGE>
Warrant No. 13
2. Transfer and Exchange.
---------------------
(a) Pursuant to the Amended and Restated Articles of
Incorporation of Hawaiian, the transfer of outstanding securities (defined
as any interest in the corporation that will be treated as stock under
Section 382 of the Internal Revenue Code) of Hawaiian (including this
Warrant) is subject to significant restrictions until the earlier of the
occurrence of certain events or September 12, 1997. Unless such
restrictions are waived by the Board of Directors or are subject to certain
exceptions set forth in the Amended and Restated Articles of Incorporation,
until such expiration, no transfer of this Warrant shall be permitted if
such transfer would increase the percentage of outstanding securities owned
by or attributed to any person (individually or through attribution as part
of a group or pursuant to the option attribution rules) who owns, or by
virtue of such transfer would own, or has at any time since September 12,
1994 owned, more than 4.75% of the outstanding securities of Hawaiian. Any
attempted transfer in violation of the restriction generally will be void,
and could subject the transferor and transferee to losses and damages.
Reference is hereby made to Hawaiian's Amended and Restated Articles of
Incorporation for a full description of certain restrictions on the
transfer of outstanding securities of Hawaiian, including this Warrant.
(b) Subject to the restrictions described in Section 2(a) hereof,
this Warrant may be transferred at the principal office of Hawaiian upon
its surrender by the holder thereof in person or by attorney duly
authorized in writing. Upon such surrender, a new Warrant or new Warrants
of different denominations will be issued to the transferee or transferees,
dated the date of such surrender, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Class A Common
Stock (after giving effect to any adjustments therein).
(c) Subject to the restrictions described in Section 2(a) hereof,
this Warrant may be exchanged at the principal office of Hawaiian upon
surrender by the holder hereof in person or by attorney duly authorized in
writing, for another Warrant or other Warrants of different denominations,
dated the date of such surrender, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Class A Common
Stock (after giving effect to any adjustments therein). Hawaiian shall not
be required to effect any registration of transfer or exchange which
3
<PAGE>
Warrant No. 13
will result in the issuance of a Warrant to purchase only a fraction of a
share.
3. Adjustment of Number of Shares.
------------------------------
(a) Upon any adjustment of the Current Warrant Price, as provided
in Section 4 hereof, the number of shares of Class A Common Stock issuable
upon exercise of this Warrant shall be determined by dividing (i) the
result obtained by multiplying the Warrant Price in effect immediately
prior to such adjustment by the number of shares of Class A Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment
by (ii) the Warrant Price resulting from such adjustment.
(b) No adjustment in the number of shares of Class A Common Stock
issuable hereunder shall be required unless such adjustment would require
an increase or decrease of at least one percent in such number; provided
that any adjustments which by reason of this Section 3(b) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment.
4. Adjustment of Warrant Price.
---------------------------
(a) In case Hawaiian shall at any time (i) issue or sell any
shares of Common Equity (which term for all purposes hereof shall mean and
include stock of Hawaiian of any class or series, whether now or hereafter
authorized, the holders of which shall be entitled to participate in the
distribution of earnings and assets of Hawaiian without limit as to amount
or percentage, including Class A Common Stock, unless the holders of such
stock shall be entitled to receive dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, senior in
preference or priority to the holders of any outstanding stock of Hawaiian
of any other class or series) without consideration, or for consideration
per share less than the Current Market Price (determined as hereinafter
provided), or (ii) issue or sell any securities convertible into, or
exchangeable for, shares of Common Equity ("Convertible Securities") at a
conversion price per share of Common Equity less than the Current Market
Price, or (iii) issue or sell any warrants or other rights to subscribe to
or purchase, or any options for the purchase of shares of Common Equity or
Convertible Securities ("Rights or Options") at an exercise price per share
of Common Equity less than the Current Market Price, then, and thereafter
successively upon each such issuance or sale, except as provided below, the
Warrant Price in effect immediately prior to such issuance or
4
<PAGE>
Warrant No. 13
sale (the "Current Warrant Price") shall simultaneously with such issuance
or sale be reduced to a price (calculated to the nearest cent) determined
by multiplying: (A) the Current Warrant Price by (B) a fraction of which
the numerator shall be the aggregate number of shares of Common Equity
outstanding immediately prior to such issuance or sale plus the number of
shares of Common Equity which the aggregate consideration for the total
number of shares of Common Equity, Convertible Securities and Rights or
Options issued or sold as aforesaid would purchase at the Current Market
Price, and of which the denominator shall be the aggregate number of shares
of Common Equity outstanding immediately prior to such issuance or sale,
plus the number of shares of Common Equity issued or sold as aforesaid and
the maximum number of shares of Common Equity issuable with respect to such
Convertible Securities and Rights or Options issued or sold as aforesaid.
(b) Notwithstanding the foregoing, no adjustment of the Current
Warrant Price shall be made in any case in which Hawaiian shall issue (i)
employee stock options, (ii) shares of Common Equity upon conversion or
exchange of any Convertible Securities, (iii) shares of Common Equity or
Convertible Securities upon exercise of any Rights or Options, or (iv) in
consideration of the acquisition by Hawaiian or any subsidiary of all or
substantially all of the stock of another company or all or substantially
all the assets of another company (whether by merger, acquisition of assets
or otherwise), any shares of Common Equity or any Convertible Securities or
any Rights or Option.
(c) Calculations pursuant to Section 4(a) hereof shall be made in
accordance with the following provisions:
(i) "Current Market Price" on any day shall mean the
average of the daily closing prices of the Class A Common
Stock for the 30 consecutive business days commencing 35
business days before the day in question. The closing price
for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such
date, the average of the reported closing bid and asked
prices regular way, in either case on the American Stock
Exchange, or, if such stock is not listed or admitted to
trading on such exchange, on the principal national
securities exchange on which such stock is listed or
admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the average of the
closing bid
5
<PAGE>
Warrant No. 13
and asked prices in the over-the-counter market, as furnished by any
national brokerage firm selected from time to time by Hawaiian for
that purpose. For the purposes of the foregoing provision, the term
"business day" shall not include any day on which securities are not
traded on such exchange or in such market.
(ii) In case of the issuance or sale of any securities of
Hawaiian for cash, the consideration received by Hawaiian therefor
shall be deemed to be the amount of cash received by Hawaiian for such
security (or if such securities are offered by Hawaiian for
subscription, the subscription price, or, if such securities are sold
to underwriters or dealers for public offering without a subscription
offer, the initial public offering price), without deducting therefrom
any compensation or discount paid or allowed to underwriters or
dealers or others performing similar services or for any expenses
incurred in connection therewith.
(iii) In case of the issuance or sale of any securities of
Hawaiian for consideration other than cash or a consideration a part
of which is other than cash, the amount of the consideration other
than cash received by Hawaiian for such securities shall be deemed to
be the fair value of such consideration as determined by its Board of
Directors, which determination may be inconsistent with the accounting
treatment thereof.
(iv) In case of the issuance or sale of Convertible
Securities, the aggregate consideration therefor shall be deemed to be
the consideration, if any, received at the time of such issuance or
sale, plus the minimum aggregate amount of additional consideration,
if any, payable to Hawaiian upon the conversion or exchange of such
Convertible Securities at the time such Convertible Securities first
become convertible or exchangeable.
(v) In case of the issuance or sale of Rights or Options,
the aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale,
plus the minimum aggregate amount of additional consideration, if any,
payable to Hawaiian upon the exercise of such Rights or Options, plus,
in the case of Rights or Options to purchase Convertible Securities,
the minimum aggregate amount of additional consideration, if any,
payable to
6
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Warrant No. 13
Hawaiian upon the conversion or exchange of such Convertible
Securities at the time such Convertible Securities first become
convertible or exchangeable.
(vi) In case of the issuance or sale of Convertible
Securities or Rights or Options, the conversion or exercise price per
share of Common Equity shall be determined by dividing the aggregate
consideration for such Convertible Securities or Rights or Options by
the maximum number of shares of Common Equity issuable with respect to
such Convertible Securities or Rights or Options.
(vii) The maximum number of shares of Common Equity
issuable with respect to Convertible Securities or Rights or Options
shall include the number of shares issuable upon conversion or
exchange of such Convertible Securities or exercise of such Rights or
Options, plus, in the case of Rights or Options to purchase
Convertible Securities, the number of shares issuable upon conversion
or exchange of such Convertible Securities.
(viii) In case of the issuance of additional shares of
Common Equity as a dividend or as the distribution on any capital
stock of Hawaiian, the aggregate number of shares of Common Equity
issued in payment of such dividend or distribution shall be deemed to
have been issued on the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall be deemed to have been issued without consideration.
(ix) The reclassification of securities other than Common
Equity into securities including Common Equity shall be deemed to
involve the issuance for consideration other than cash of such Common
Equity on the record date for the determination of stockholders
entitled to receive such Common Equity.
(x) The number of shares of Common Equity at any time
outstanding shall include the maximum number of shares issuable at
such time with respect to all Convertible Securities and Rights or
Options then outstanding and unconverted or unexchanged or
unexercised.
(xi) No adjustment provided for in Section 4(a) hereof shall
be made if it results in
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<PAGE>
Warrant No. 13
an increase in the Current Warrant Price above the initial Warrant
Price as adjusted only as provided in Section 4(d) hereof.
(d) In case the outstanding shares of Common Equity shall be
subdivided into a greater number of shares of Common Equity, the Current
Warrant Price shall, simultaneously with the effectiveness of such
subdivision, be proportionately reduced, and conversely, in case the
outstanding shares of Common Equity shall be combined into a smaller number
of shares of Common Equity, the Current Warrant Price shall, simultaneously
with the effectiveness of such combination, be proportionately increased.
(e) Whenever the Current Warrant Price shall be adjusted as
herein provided, and from time to time, at the reasonable request of the
holder hereof, Hawaiian will forthwith deliver to such holder a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer of Hawaiian, showing in reasonable detail the facts
requiring any such adjustment and stating the Current Warrant Price in
effect on the date of such certificate after giving effect to any such
adjustment. Hawaiian may retain a firm of independent public accountants
of recognized standing, selected by its Board of Directors to make any
computation required under this Section 4, and the certificate signed by
such firm shall be conclusive evidence of the correctness of any such
computation.
5. Capital Reorganization, Reclassification or Merger. In case the
--------------------------------------------------
Class A Common Stock shall be changed into another kind of capital stock of
Hawaiian (otherwise than through a subdivision or combination of shares) or
shall represent the right to receive some other security or property as a result
of any capital reorganization, reclassification or merger into or consolidation
with another company, or sale of all or substantially all the assets of Hawaiian
to another company, this Warrant shall (subject to further adjustments in the
Warrant Price as herein provided) thereafter entitle the holder hereof to
acquire upon exercise hereof the kind and number of shares of stock or other
securities or property to which such holder would have been entitled if such
holder had held the Class A Common Stock issuable upon exercise of this Warrant
immediately prior to such capital reorganization, reclassification, merger,
consolidation or sale of assets.
6. Reservation of Shares. Hawaiian shall at all times reserve and
---------------------
keep available, out of its treasury stock or authorized and unissued stock,
solely for the purpose of effecting the exercise of this Warrant, such number of
shares
8
<PAGE>
Warrant No. 13
of Class A Common Stock and other securities of Hawaiian as shall, from
time to time, be sufficient to effect the exercise of this Warrant. All shares
of Class A Common Stock issued on exercise of this Warrant shall be validly
issued, fully paid and nonassessable.
7. Holder of Warrant. Hawaiian may deem and treat the person in
-----------------
whose name this Warrant is registered as the absolute owner hereof for all
purposes and Hawaiian shall not be affected by any notice to the contrary. No
holder of this Warrant, as such, shall be entitled to vote on or be deemed for
any purpose the holder of Class A Common Stock or any other securities of
Hawaiian which may at any time be issuable on the exercise hereof.
8. Demand Registration Rights. As soon as practicable after
--------------------------
Hawaiian's receipt of a request, made at any time during the period commencing
with the date on which Hawaiian has filed its quarterly report on Form 10-Q for
the quarter ended March 31, 1995 and before December 31, 1997, of holders of
Class A Common Stock heretofore issued upon exercise of Warrants and/or of
Warrants to purchase Class A Common Stock aggregating not less than five hundred
thousand shares to register such shares of Class A Common Stock ("Registrable
Securities") under the Securities Act of 1933 (the "Act"), Hawaiian shall cause
a registration statement to be filed with respect to the number of such shares
specified in the request and shall use its best efforts to cause the
Registration Statement to become effective. Hawaiian shall not be required to
cause more than one registration statement to be filed pursuant to this Section
8. Hawaiian shall be entitled to include other securities of Hawaiian to be
offered by Hawaiian or other stockholders of Hawaiian, in such registration
statement; provided, however, that such requesting stockholders may request that
any such other securities of Hawaiian not be included in the registration
statement if they shall be advised by the investment banking firm managing the
underwriting that it reasonably believes that such inclusion would adversely
affect the offering of the shares to be covered by the proposed registration
statement. Hawaiian shall be entitled to postpone the filing of any such
registration statement for a reasonable period of time if (a) Hawaiian is, at
the time at which it receives any such request, conducting or is about to
conduct an offering of its securities and Hawaiian reasonably believes that such
offering would be adversely affected by the registration requested, (b) such
request is received by Hawaiian within six months after the effective date of a
registration statement of Hawaiian and, prior to the filing of such registration
statement, Hawaiian has complied with its obligations under Section 9 hereof, or
(c) the filing of the registration statement would require Hawaiian to furnish
audited financial
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Warrant No. 13
statements other than the audited financial statements customarily prepared at
the end of its fiscal year or unaudited financial information with respect to
any period other than its regularly reported interim quarterly periods.
9. Piggy-back Registration Rights.
------------------------------
(a) For five years following the date hereof, at any time Hawaiian
proposes to file a registration statement under the Act with respect to an
offering by Hawaiian [for its own account or] the account of its holders
shares of Class A Common Stock (other than a registration statement on Form
S-4 or S-8 (or any substitute form that may be adopted by the Securities
and Exchange Commission (the "Commission")) or filed in connection with an
exchange offer or an offering of securities solely to Hawaiian's existing
security holders), then Hawaiian shall in each such case give written
notice of such proposed filing to the holders of Warrants and holders of
Registrable Securities as soon as practicable (but in no event less than 15
days before the anticipated filing date), and such notice shall offer such
holders the opportunity to register such shares of Registrable Securities
as such holder may request.
(b) Hawaiian shall use its best efforts to cause any managing
underwriter or underwriters of such proposed underwritten offering to
permit the Registrable Securities requested to be included in the
registration statement for such offering to be included on the same terms
and conditions as any similar securities of Hawaiian included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters
of such offering advise Hawaiian that they reasonably believe that the
success of the offering would be materially and adversely affected by
inclusion of the Registrable Securities requested to be included, such
amount of Registrable Securities as shall be required to substantially
eliminate the adverse effect in the judgment of the managing underwriter or
underwriters, will be excluded from such offering. In the case of a non-
underwritten offering, Hawaiian may decline to include any Registrable
Securities in a registration statement pursuant to Section 9(a) if it
reasonably believes that such inclusion would adversely affect the offering
of the securities to be covered by the proposed registration statement .
(c) To the extent not inconsistent with applicable law, each
holder whose securities are included in the registration statement pursuant
to this Section 9 agrees not to effect any public sale or distribution of
10
<PAGE>
Warrant No. 13
the issue being registered or a similar security of Hawaiian, including a
sale pursuant to Rule 144 under the Act, during the 14 days prior to, and
during the 60-day period beginning on, the effective date of such
registration statement (except as part of such registration), if and to the
extent requested by Hawaiian in the case of the non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
10. Registration Expenses. The out-of-pocket expenses of any
---------------------
registration pursuant to Section 8 or Section 9 shall be borne by Hawaiian,
except each holder proposing to sell Registrable Securities pursuant to the
registration shall pay all underwriting discounts and commissions applicable to
his shares and all legal fees and expenses, if any, of his own counsel;
provided, however, that if the out-of-pocket expenses of the registration
pursuant to Section 9 are being borne by a person other than Hawaiian, each
holder proposing to sell Registrable Securities pursuant to the registration
shall pay his pro rata share of the out-of-pocket expenses of such registration.
11. State Securities Laws. In connection with the offering of any
---------------------
Registrable Securities registered pursuant to this Warrant, Hawaiian shall take
such action as may be necessary to qualify or register the Registrable
Securities to be sold under the Securities or "blue sky" laws of such
jurisdictions as may be reasonably requested by such holder or his underwriters;
provided, however, that Hawaiian will not be required to (a) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section, (b) subject itself to taxation in any such
jurisdiction or (c) consent to general service of process in any such
jurisdiction. The expenses of such qualification or registration shall be borne
by Hawaiian in the case of a registration pursuant to Section 8 and shall be
borne pro rata by the holders and any other party registering shares pursuant to
such registration statement in the case of a registration pursuant to Section 9.
12. Indemnification and Contribution.
--------------------------------
(a) Hawaiian agrees to indemnify and hold harmless each holder of
Registrable Securities, its officers, directors and agents and each person,
if any, who controls such holder within the meaning of Section 15 of the
Act or Section 20 of the Securities and Exchange Act of 1934 (the "Exchange
Act") from and against any and all lawsuits, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out
11
<PAGE>
Warrant No. 13
of or based upon any untrue or alleged untrue statements of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out
of, or are based upon, any such untrue statement or omission or allegation
thereof made in reliance upon and in conformity with information furnished
in writing to Hawaiian by such holder or on such holder's behalf expressly
for use therein; provided that, with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall not
apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of such
Registrable Securities to such person if it is determined that it was the
responsibility of such holder to provide such person with a current copy of
the prospectus and such current copy of the prospectus would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
Hawaiian also agrees to indemnify and provide contribution arrangements to
the underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially
the same basis as that of the indemnification of a holder provided in this
Section 12(a).
(b) Each holder agrees to indemnify and hold harmless Hawaiian,
its officers, directors and agents and each person, if any, who controls
Hawaiian within the meaning of either Section 15 of the Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from
Hawaiian to such holder, but only with respect to such information
furnished in writing by such holder or on such holder's behalf expressly
for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each holder also agrees to indemnify and provide
contribution arrangements to the underwriters of the Registrable
Securities, their officers and directors and each person who controls such
underwriters on substantially the same basis as that of
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Warrant No. 13
the indemnification of Hawaiian provided in this Section 12(b).
(c) Indemnification Procedures. Promptly after receipt by an indemnified
--------------------------
party under Section 12(a) or Section 12(b) above of notice of the
commencement of any action, the indemnified party shall notify the
indemnifying party. The failure to notify the indemnifying party shall
relieve it from any liability hereunder with respect to the action. In
case any such action is brought against any indemnified party, and it
notifies any indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to assume and control the defense of
the action at its expense and if the indemnifying party gives notice to
such indemnified party of its election to assume and control the defense,
the indemnifying party will not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense or investigation of the action.
Notwithstanding the foregoing, the indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding include both the
indemnifying party and the indemnified party and each of the indemnifying
party and the indemnified party shall have been advised by counsel that
counsel employed by the indemnifying party would, under applicable
professional standards, have a conflict in representing both the
indemnified party and the indemnifying party, it being understood, however,
that such indemnifying party shall not, in connection with any such action
or proceeding or separate, but substantially similar or related actions or
proceedings, in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for such
indemnified party and controlling persons thereof.
13. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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Warrant No. 13
If to Hawaiian:
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
If to the holder of this Warrant, the address last shown on the
warrant or stock register, as the case may be.
14. Amendments; Governing Law. This Warrant shall not be amended or
-------------------------
terminated orally, but may be amended or terminated in writing at any time by
agreement between Hawaiian and the holder hereof. This Warrant shall be
construed and enforced in accordance with and governed by the laws of the State
of Hawaii.
15. Rightsholders Agreement. This Warrant is subject to all of the
-----------------------
terms of the Rightsholders Agreement, dated as of January 31, 1996, by and among
Hawaiian, Airline Investors Partnership, L.P., a Delaware limited partnership,
AMR Corporation, a Delaware corporation, Martin Anderson and Robert Midkiff (the
"Rightsholders Agreement"), which modifies the terms hereof in certain respects.
A copy of the Rightsholders Agreement is available from the Corporate Secretary
of the Company upon request of the holder hereof.
14
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Warrant No. 13
IN WITNESS WHEREOF, Hawaiian has caused this Warrant to be signed in
its corporate name by its President or one of its Vice Presidents and its
corporate seal to be affixed hereunto, duly attested by its Corporate Secretary.
HAWAIIAN AIRLINES, INC.
Dated as of: By:
-------------------
January 31, 1996 Its: President
[SEAL]
Attest:
- --------------------------------------
Corporate Secretary
LT960290.137/8+
15
<PAGE>
EXHIBIT 10(y)
Warrant No. 16
NOTICE: THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER OTHER
SECURITIES LAWS AND, ACCORDINGLY, TRANSFER OF THIS WARRANT OR SUCH
SHARES MAY BE RESTRICTED.
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") OF THIS
WARRANT IS RESTRICTED BY THE TERMS OF THE RIGHTSHOLDERS AGREEMENT,
DATED AS OF JANUARY 31, 1996, BY AND AMONG THE COMPANY, AIRLINE
INVESTORS PARTNERSHIP, L.P. AND THE HOLDERS OF WARRANTS OF THE COMPANY,
A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE. THE
COMPANY WILL NOT REGISTER IN THE BOOKS OF THE COMPANY OR OTHERWISE
EFFECT THE TRANSFER OF THIS WARRANT IF THE TRANSFER HAS NOT BEEN MADE
IN COMPLIANCE WITH THE RIGHTSHOLDERS AGREEMENT.
HAWAIIAN AIRLINES, INC.
WARRANT FOR THE
PURCHASE OF 93,678 SHARES OF
CLASS A COMMON STOCK
VOID AFTER
SEPTEMBER 12, 1999
For value received, this Warrant entitles Robert Midkiff and his
successors and assigns, subject to the terms and conditions hereinafter set
forth, to purchase from Hawaiian Airlines, Inc. ("Hawaiian") 93,678 fully paid
and nonassessable shares of Class A Common Stock, par value $.01 per share, of
Hawaiian (the "Class A Common Stock"), subject to adjustment as hereinafter
provided upon payment therefor to Hawaiian of $1.71 per share (the "Warrant
Price"), subject to adjustment as hereinafter provided. This is one of 6
warrants issued concurrently for the purchase of Class A Common Stock of
Hawaiian, all of which are on the same terms and are referred to collectively as
the "Warrants."
1. Exercise.
--------
(a) This Warrant is exercisable at the option of the holder
hereof in whole or in part from time to time on or before September 12,
1999.
(b) Before the holder of this Warrant shall be entitled to
exercise the same, he shall surrender this Warrant at the principal office
of Hawaiian accompanied by funds in the amount of the Warrant Price payable
upon
1
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Warrant No. 16
such exercise plus any tax or taxes payable or which may be payable by
such holder in respect of such exercise, and shall give written notice to
Hawaiian at such office that such holder elects to exercise this Warrant,
and shall state therein the number of shares of Class A Common Stock or
other securities issuable upon such exercise and the name or names in which
he wishes the certificate or certificates for such shares of Class A Common
Stock or other securities to be issued. Hawaiian will, as soon as
practicable after such surrender of this Warrant accompanied by the written
notice and the statement described above, Hawaiian shall requisition from
the then transfer agent for Hawaiian a certificate or certificates for
shares of Class A Common Stock for issuance and delivery to or on the
written order of the registered holder of such Warrant and in such name or
names as such registered holder may designate. Such certificate or
certificates shall represent the number of whole shares of Class A Common
Stock issuable on such exercise, together with a cash amount for any
fraction of a share of Class A Common Stock otherwise issuable on such
exercise.
(c) Certificates representing such shares shall be deemed to have
been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of
surrender of a Warrant and payment of the Warrant Price as provided herein,
provided that if, at the date of surrender of such Warrant and payment of
such Warrant Price, the transfer books for the Class A Common Stock or
other class of stock purchasable on the exercise of such Warrant shall be
closed, the certificates for the shares in respect of which such Warrant is
then exercised shall be issuable as of the date on which such books shall
next be opened and until such date, Hawaiian shall be under no duty to
deliver any certificate for such shares. Each Warrant shall be exercisable
at the election of the registered holder thereof, either as an entirety or
from time to time for part of the number of whole shares specified in the
Warrant, but in no event shall fractional shares be issued. In the event
of any partial exercise, a new Warrant will be issued to the registered
holder to evidence such holder's Warrant to purchase the number of shares
as to which the Warrant has not been exercised. No adjustment shall be
made for any cash dividends on shares issuable on the exercise of any
Warrant.
2
<PAGE>
Warrant No. 16
2. Transfer and Exchange.
---------------------
(a) Pursuant to the Amended and Restated Articles of
Incorporation of Hawaiian, the transfer of outstanding securities (defined
as any interest in the corporation that will be treated as stock under
Section 382 of the Internal Revenue Code) of Hawaiian (including this
Warrant) is subject to significant restrictions until the earlier of the
occurrence of certain events or September 12, 1997. Unless such
restrictions are waived by the Board of Directors or are subject to certain
exceptions set forth in the Amended and Restated Articles of Incorporation,
until such expiration, no transfer of this Warrant shall be permitted if
such transfer would increase the percentage of outstanding securities owned
by or attributed to any person (individually or through attribution as part
of a group or pursuant to the option attribution rules) who owns, or by
virtue of such transfer would own, or has at any time since September 12,
1994 owned, more than 4.75% of the outstanding securities of Hawaiian. Any
attempted transfer in violation of the restriction generally will be void,
and could subject the transferor and transferee to losses and damages.
Reference is hereby made to Hawaiian's Amended and Restated Articles of
Incorporation for a full description of certain restrictions on the
transfer of outstanding securities of Hawaiian, including this Warrant.
(b) Subject to the restrictions described in Section 2(a) hereof,
this Warrant may be transferred at the principal office of Hawaiian upon
its surrender by the holder thereof in person or by attorney duly
authorized in writing. Upon such surrender, a new Warrant or new Warrants
of different denominations will be issued to the transferee or transferees,
dated the date of such surrender, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Class A Common
Stock (after giving effect to any adjustments therein).
(c) Subject to the restrictions described in Section 2(a) hereof,
this Warrant may be exchanged at the principal office of Hawaiian upon
surrender by the holder hereof in person or by attorney duly authorized in
writing, for another Warrant or other Warrants of different denominations,
dated the date of such surrender, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Class A Common
Stock (after giving effect to any adjustments therein). Hawaiian shall not
be required to effect any registration of transfer or exchange which
3
<PAGE>
Warrant No. 16
will result in the issuance of a Warrant to purchase only a fraction of
a share.
3. Adjustment of Number of Shares.
------------------------------
(a) Upon any adjustment of the Current Warrant Price, as provided
in Section 4 hereof, the number of shares of Class A Common Stock issuable
upon exercise of this Warrant shall be determined by dividing (i) the
result obtained by multiplying the Warrant Price in effect immediately
prior to such adjustment by the number of shares of Class A Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment
by (ii) the Warrant Price resulting from such adjustment.
(b) No adjustment in the number of shares of Class A Common Stock
issuable hereunder shall be required unless such adjustment would require
an increase or decrease of at least one percent in such number; provided
that any adjustments which by reason of this Section 3(b) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment.
4. Adjustment of Warrant Price.
---------------------------
(a) In case Hawaiian shall at any time (i) issue or sell any
shares of Common Equity (which term for all purposes hereof shall mean and
include stock of Hawaiian of any class or series, whether now or hereafter
authorized, the holders of which shall be entitled to participate in the
distribution of earnings and assets of Hawaiian without limit as to amount
or percentage, including Class A Common Stock, unless the holders of such
stock shall be entitled to receive dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, senior in
preference or priority to the holders of any outstanding stock of Hawaiian
of any other class or series) without consideration, or for consideration
per share less than the Current Market Price (determined as hereinafter
provided), or (ii) issue or sell any securities convertible into, or
exchangeable for, shares of Common Equity ("Convertible Securities") at a
conversion price per share of Common Equity less than the Current Market
Price, or (iii) issue or sell any warrants or other rights to subscribe to
or purchase, or any options for the purchase of shares of Common Equity or
Convertible Securities ("Rights or Options") at an exercise price per share
of Common Equity less than the Current Market Price, then, and thereafter
successively upon each such issuance or sale, except as provided below, the
Warrant Price in effect immediately prior to such issuance or
4
<PAGE>
Warrant No. 16
sale (the "Current Warrant Price") shall simultaneously with such issuance
or sale be reduced to a price (calculated to the nearest cent) determined
by multiplying: (A) the Current Warrant Price by (B) a fraction of which
the numerator shall be the aggregate number of shares of Common Equity
outstanding immediately prior to such issuance or sale plus the number of
shares of Common Equity which the aggregate consideration for the total
number of shares of Common Equity, Convertible Securities and Rights or
Options issued or sold as aforesaid would purchase at the Current Market
Price, and of which the denominator shall be the aggregate number of shares
of Common Equity outstanding immediately prior to such issuance or sale,
plus the number of shares of Common Equity issued or sold as aforesaid and
the maximum number of shares of Common Equity issuable with respect to such
Convertible Securities and Rights or Options issued or sold as aforesaid.
(b) Notwithstanding the foregoing, no adjustment of the Current
Warrant Price shall be made in any case in which Hawaiian shall issue (i)
employee stock options, (ii) shares of Common Equity upon conversion or
exchange of any Convertible Securities, (iii) shares of Common Equity or
Convertible Securities upon exercise of any Rights or Options, or (iv) in
consideration of the acquisition by Hawaiian or any subsidiary of all or
substantially all of the stock of another company or all or substantially
all the assets of another company (whether by merger, acquisition of assets
or otherwise), any shares of Common Equity or any Convertible Securities or
any Rights or Option.
(c) Calculations pursuant to Section 4(a) hereof shall be made in
accordance with the following provisions:
(i) "Current Market Price" on any day shall mean the
average of the daily closing prices of the Class A Common
Stock for the 30 consecutive business days commencing 35
business days before the day in question. The closing price
for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such
date, the average of the reported closing bid and asked
prices regular way, in either case on the American Stock
Exchange, or, if such stock is not listed or admitted to
trading on such exchange, on the principal national
securities exchange on which such stock is listed or
admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the average of the
closing bid
5
<PAGE>
Warrant No. 16
and asked prices in the over-the-counter market, as
furnished by any national brokerage firm selected from time
to time by Hawaiian for that purpose. For the purposes of
the foregoing provision, the term "business day" shall not
include any day on which securities are not traded on such
exchange or in such market.
(ii) In case of the issuance or sale of any securities of
Hawaiian for cash, the consideration received by Hawaiian therefor
shall be deemed to be the amount of cash received by Hawaiian for such
security (or if such securities are offered by Hawaiian for
subscription, the subscription price, or, if such securities are sold
to underwriters or dealers for public offering without a subscription
offer, the initial public offering price), without deducting therefrom
any compensation or discount paid or allowed to underwriters or
dealers or others performing similar services or for any expenses
incurred in connection therewith.
(iii) In case of the issuance or sale of any securities of
Hawaiian for consideration other than cash or a consideration a part
of which is other than cash, the amount of the consideration other
than cash received by Hawaiian for such securities shall be deemed to
be the fair value of such consideration as determined by its Board of
Directors, which determination may be inconsistent with the accounting
treatment thereof.
(iv) In case of the issuance or sale of Convertible
Securities, the aggregate consideration therefor shall be deemed to be
the consideration, if any, received at the time of such issuance or
sale, plus the minimum aggregate amount of additional consideration,
if any, payable to Hawaiian upon the conversion or exchange of such
Convertible Securities at the time such Convertible Securities first
become convertible or exchangeable.
(v) In case of the issuance or sale of Rights or Options,
the aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale,
plus the minimum aggregate amount of additional consideration, if any,
payable to Hawaiian upon the exercise of such Rights or Options, plus,
in the case of Rights or Options to purchase Convertible Securities,
the minimum aggregate amount of additional consideration, if any,
payable to
6
<PAGE>
Warrant No. 16
Hawaiian upon the conversion or exchange of such Convertible
Securities at the time such Convertible Securities first become
convertible or exchangeable.
(vi) In case of the issuance or sale of Convertible
Securities or Rights or Options, the conversion or exercise price per
share of Common Equity shall be determined by dividing the aggregate
consideration for such Convertible Securities or Rights or Options by
the maximum number of shares of Common Equity issuable with respect to
such Convertible Securities or Rights or Options.
(vii) The maximum number of shares of Common Equity
issuable with respect to Convertible Securities or Rights or Options
shall include the number of shares issuable upon conversion or
exchange of such Convertible Securities or exercise of such Rights or
Options, plus, in the case of Rights or Options to purchase
Convertible Securities, the number of shares issuable upon conversion
or exchange of such Convertible Securities.
(viii) In case of the issuance of additional shares of
Common Equity as a dividend or as the distribution on any capital
stock of Hawaiian, the aggregate number of shares of Common Equity
issued in payment of such dividend or distribution shall be deemed to
have been issued on the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall be deemed to have been issued without consideration.
(ix) The reclassification of securities other than Common
Equity into securities including Common Equity shall be deemed to
involve the issuance for consideration other than cash of such Common
Equity on the record date for the determination of stockholders
entitled to receive such Common Equity.
(x) The number of shares of Common Equity at any time
outstanding shall include the maximum number of shares issuable at
such time with respect to all Convertible Securities and Rights or
Options then outstanding and unconverted or unexchanged or
unexercised.
(xi) No adjustment provided for in Section 4(a) hereof shall
be made if it results in
7
<PAGE>
Warrant No. 16
an increase in the Current Warrant Price above the initial Warrant
Price as adjusted only as provided in Section 4(d) hereof.
(d) In case the outstanding shares of Common Equity shall be
subdivided into a greater number of shares of Common Equity, the Current
Warrant Price shall, simultaneously with the effectiveness of such
subdivision, be proportionately reduced, and conversely, in case the
outstanding shares of Common Equity shall be combined into a smaller number
of shares of Common Equity, the Current Warrant Price shall, simultaneously
with the effectiveness of such combination, be proportionately increased.
(e) Whenever the Current Warrant Price shall be adjusted as
herein provided, and from time to time, at the reasonable request of the
holder hereof, Hawaiian will forthwith deliver to such holder a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer of Hawaiian, showing in reasonable detail the facts
requiring any such adjustment and stating the Current Warrant Price in
effect on the date of such certificate after giving effect to any such
adjustment. Hawaiian may retain a firm of independent public accountants
of recognized standing, selected by its Board of Directors to make any
computation required under this Section 4, and the certificate signed by
such firm shall be conclusive evidence of the correctness of any such
computation.
5. Capital Reorganization, Reclassification or Merger. In case the
--------------------------------------------------
Class A Common Stock shall be changed into another kind of capital stock of
Hawaiian (otherwise than through a subdivision or combination of shares) or
shall represent the right to receive some other security or property as a result
of any capital reorganization, reclassification or merger into or consolidation
with another company, or sale of all or substantially all the assets of Hawaiian
to another company, this Warrant shall (subject to further adjustments in the
Warrant Price as herein provided) thereafter entitle the holder hereof to
acquire upon exercise hereof the kind and number of shares of stock or other
securities or property to which such holder would have been entitled if such
holder had held the Class A Common Stock issuable upon exercise of this Warrant
immediately prior to such capital reorganization, reclassification, merger,
consolidation or sale of assets.
6. Reservation of Shares. Hawaiian shall at all times reserve and
---------------------
keep available, out of its treasury stock or authorized and unissued stock,
solely for the purpose of effecting the exercise of this Warrant, such number of
shares
8
<PAGE>
Warrant No. 16
of Class A Common Stock and other securities of Hawaiian as shall, from
time to time, be sufficient to effect the exercise of this Warrant. All shares
of Class A Common Stock issued on exercise of this Warrant shall be validly
issued, fully paid and nonassessable.
7. Holder of Warrant. Hawaiian may deem and treat the person in
-----------------
whose name this Warrant is registered as the absolute owner hereof for all
purposes and Hawaiian shall not be affected by any notice to the contrary. No
holder of this Warrant, as such, shall be entitled to vote on or be deemed for
any purpose the holder of Class A Common Stock or any other securities of
Hawaiian which may at any time be issuable on the exercise hereof.
8. Demand Registration Rights. As soon as practicable after
--------------------------
Hawaiian's receipt of a request, made at any time during the period commencing
with the date on which Hawaiian has filed its quarterly report on Form 10-Q for
the quarter ended March 31, 1995 and before December 31, 1997, of holders of
Class A Common Stock heretofore issued upon exercise of Warrants and/or of
Warrants to purchase Class A Common Stock aggregating not less than five hundred
thousand shares to register such shares of Class A Common Stock ("Registrable
Securities") under the Securities Act of 1933 (the "Act"), Hawaiian shall cause
a registration statement to be filed with respect to the number of such shares
specified in the request and shall use its best efforts to cause the
Registration Statement to become effective. Hawaiian shall not be required to
cause more than one registration statement to be filed pursuant to this Section
8. Hawaiian shall be entitled to include other securities of Hawaiian to be
offered by Hawaiian or other stockholders of Hawaiian, in such registration
statement; provided, however, that such requesting stockholders may request that
any such other securities of Hawaiian not be included in the registration
statement if they shall be advised by the investment banking firm managing the
underwriting that it reasonably believes that such inclusion would adversely
affect the offering of the shares to be covered by the proposed registration
statement. Hawaiian shall be entitled to postpone the filing of any such
registration statement for a reasonable period of time if (a) Hawaiian is, at
the time at which it receives any such request, conducting or is about to
conduct an offering of its securities and Hawaiian reasonably believes that such
offering would be adversely affected by the registration requested, (b) such
request is received by Hawaiian within six months after the effective date of a
registration statement of Hawaiian and, prior to the filing of such registration
statement, Hawaiian has complied with its obligations under Section 9 hereof, or
(c) the filing of the registration statement would require Hawaiian to furnish
audited financial
9
<PAGE>
Warrant No. 16
statements other than the audited financial statements customarily prepared at
the end of its fiscal year or unaudited financial information with respect to
any period other than its regularly reported interim quarterly periods.
9. Piggy-back Registration Rights.
------------------------------
(a) For five years following the date hereof, at any time Hawaiian proposes
to file a registration statement under the Act with respect to an offering
by Hawaiian [for its own account or] the account of its holders shares of
Class A Common Stock (other than a registration statement on Form S-4 or S-
8 (or any substitute form that may be adopted by the Securities and
Exchange Commission (the "Commission")) or filed in connection with an
exchange offer or an offering of securities solely to Hawaiian's existing
security holders), then Hawaiian shall in each such case give written
notice of such proposed filing to the holders of Warrants and holders of
Registrable Securities as soon as practicable (but in no event less than 15
days before the anticipated filing date), and such notice shall offer such
holders the opportunity to register such shares of Registrable Securities
as such holder may request.
(b) Hawaiian shall use its best efforts to cause any managing underwriter
or underwriters of such proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration
statement for such offering to be included on the same terms and conditions
as any similar securities of Hawaiian included therein. Notwithstanding
the foregoing, if the managing underwriter or underwriters of such offering
advise Hawaiian that they reasonably believe that the success of the
offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, such amount of Registrable
Securities as shall be required to substantially eliminate the adverse
effect in the judgment of the managing underwriter or underwriters, will be
excluded from such offering. In the case of a non-underwritten offering,
Hawaiian may decline to include any Registrable Securities in a
registration statement pursuant to Section 9(a) if it reasonably believes
that such inclusion would adversely affect the offering of the securities
to be covered by the proposed registration statement .
(c) To the extent not inconsistent with applicable law, each holder whose
securities are included in the registration statement pursuant to this
Section 9 agrees not to effect any public sale or distribution of
10
<PAGE>
Warrant No. 16
the issue being registered or a similar security of Hawaiian, including a
sale pursuant to Rule 144 under the Act, during the 14 days prior to, and
during the 60-day period beginning on, the effective date of such
registration statement (except as part of such registration), if and to the
extent requested by Hawaiian in the case of the non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
10. Registration Expenses. The out-of-pocket expenses of any
---------------------
registration pursuant to Section 8 or Section 9 shall be borne by Hawaiian,
except each holder proposing to sell Registrable Securities pursuant to the
registration shall pay all underwriting discounts and commissions applicable to
his shares and all legal fees and expenses, if any, of his own counsel;
provided, however, that if the out-of-pocket expenses of the registration
pursuant to Section 9 are being borne by a person other than Hawaiian, each
holder proposing to sell Registrable Securities pursuant to the registration
shall pay his pro rata share of the out-of-pocket expenses of such registration.
11. State Securities Laws. In connection with the offering of any
---------------------
Registrable Securities registered pursuant to this Warrant, Hawaiian shall take
such action as may be necessary to qualify or register the Registrable
Securities to be sold under the Securities or "blue sky" laws of such
jurisdictions as may be reasonably requested by such holder or his underwriters;
provided, however, that Hawaiian will not be required to (a) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section, (b) subject itself to taxation in any such
jurisdiction or (c) consent to general service of process in any such
jurisdiction. The expenses of such qualification or registration shall be borne
by Hawaiian in the case of a registration pursuant to Section 8 and shall be
borne pro rata by the holders and any other party registering shares pursuant to
such registration statement in the case of a registration pursuant to Section 9.
12. Indemnification and Contribution.
--------------------------------
(a) Hawaiian agrees to indemnify and hold harmless each holder of
Registrable Securities, its officers, directors and agents and each person,
if any, who controls such holder within the meaning of Section 15 of the
Act or Section 20 of the Securities and Exchange Act of 1934 (the "Exchange
Act") from and against any and all lawsuits, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out
11
<PAGE>
Warrant No. 16
of or based upon any untrue or alleged untrue statements of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out
of, or are based upon, any such untrue statement or omission or allegation
thereof made in reliance upon and in conformity with information furnished
in writing to Hawaiian by such holder or on such holder's behalf expressly
for use therein; provided that, with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall not
apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of such
Registrable Securities to such person if it is determined that it was the
responsibility of such holder to provide such person with a current copy of
the prospectus and such current copy of the prospectus would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
Hawaiian also agrees to indemnify and provide contribution arrangements to
the underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially
the same basis as that of the indemnification of a holder provided in this
Section 12(a).
(b) Each holder agrees to indemnify and hold harmless Hawaiian, its
officers, directors and agents and each person, if any, who controls
Hawaiian within the meaning of either Section 15 of the Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from
Hawaiian to such holder, but only with respect to such information
furnished in writing by such holder or on such holder's behalf expressly
for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each holder also agrees to indemnify and provide
contribution arrangements to the underwriters of the Registrable
Securities, their officers and directors and each person who controls such
underwriters on substantially the same basis as that of
12
<PAGE>
Warrant No. 16
the indemnification of Hawaiian provided in this Section 12(b).
(c) Indemnification Procedures. Promptly after receipt by an indemnified
--------------------------
party under Section 12(a) or Section 12(b) above of notice of the
commencement of any action, the indemnified party shall notify the
indemnifying party. The failure to notify the indemnifying party shall
relieve it from any liability hereunder with respect to the action. In
case any such action is brought against any indemnified party, and it
notifies any indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to assume and control the defense of
the action at its expense and if the indemnifying party gives notice to
such indemnified party of its election to assume and control the defense,
the indemnifying party will not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense or investigation of the action.
Notwithstanding the foregoing, the indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding include both the
indemnifying party and the indemnified party and each of the indemnifying
party and the indemnified party shall have been advised by counsel that
counsel employed by the indemnifying party would, under applicable
professional standards, have a conflict in representing both the
indemnified party and the indemnifying party, it being understood, however,
that such indemnifying party shall not, in connection with any such action
or proceeding or separate, but substantially similar or related actions or
proceedings, in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for such
indemnified party and controlling persons thereof.
13. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
13
<PAGE>
Warrant No. 16
If to Hawaiian:
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
If to the holder of this Warrant, the address last shown on the warrant or
stock register, as the case may be.
14. Amendments; Governing Law. This Warrant shall not be amended or
-------------------------
terminated orally, but may be amended or terminated in writing at any time by
agreement between Hawaiian and the holder hereof. This Warrant shall be
construed and enforced in accordance with and governed by the laws of the State
of Hawaii.
15. Rightsholders Agreement. This Warrant is subject to all of the
-----------------------
terms of the Rightsholders Agreement, dated as of January 31, 1996, by and among
Hawaiian, Airline Investors Partnership, L.P., a Delaware limited partnership,
AMR Corporation, a Delaware corporation, Martin Anderson and Robert Midkiff (the
"Rightsholders Agreement"), which modifies the terms hereof in certain respects.
A copy of the Rightsholders Agreement is available from the Corporate Secretary
of the Company upon request of the holder hereof.
14
<PAGE>
Warrant No. 16
IN WITNESS WHEREOF, Hawaiian has caused this Warrant to be signed in
its corporate name by its President or one of its Vice Presidents and its
corporate seal to be affixed hereunto, duly attested by its Corporate Secretary.
HAWAIIAN AIRLINES,
INC.
Dated as of: By:
January 31, 1996 -----------------------
Its: President
[SEAL]
Attest:
- -------------------
Corporate Secretary
- -------------------
LT960290.144/5+
15
<PAGE>
EXHIBIT 10(Z)
AIRCRAFT
LEASE AGREEMENT
Dated as of December 30, 1995
Between
AMERICAN AIRLINES, INC., as
Lessor
and
HAWAIIAN AIRLINES, INC., as
Lessee
One (1) DC10-10 Aircraft
Registration No. N161AA
Series Number 46942
with Three GE CF6-6K Engines
This Lease Agreement has been executed in several counterparts. To the extent,
if any, that this Lease Agreement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the original.
The counterpart to be deemed the original shall be the counterpart that is
designated on the signature pages thereof as the original counterpart and no
security interest in this Lease Agreement may be created through the transfer of
any counterpart other than such original counterpart. This is not the original
counterpart.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Section 1. Definitions.................................................................. 2
Section 2. Delivery and Acceptance...................................................... 13
(a) Time and Place............................................................... 14
(b) Delivery Date................................................................ 14
Section 3. Term and Rent................................................................ 14
(a) Term 14
(b) Basic Rent................................................................... 14
(c) Supplemental Rent............................................................ 14
(d) Prohibition Against Setoff, Etc.............................................. 14
(e) Payment to Lessor............................................................ 15
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain Agreements of
Lessee, Representations of Lessee............................................ 15
(a) Disclaimer................................................................... 15
(b) Quiet Enjoyment.............................................................. 16
(c) Waiver of Warranties......................................................... 16
(d) Lessee's Representations and Warranties...................................... 17
(e) Lessor's Representations and Warranties...................................... 19
Section 5. Return of Airframe and Engines............................................... 20
(a) Return of Airframe and Serviced Engines...................................... 20
(b) Return of Other Engines...................................................... 21
Section 6. Liens........................................................................ 21
Section 7. Registration, Maintenance and Operation; Possession; Insignia................ 22
(a) Registration, Maintenance and Operation...................................... 22
(b) Additional Maintenance Provisions............................................ 23
(c) Territorial Restrictions on Use of Aircraft.................................. 23
(d) Obligations Absolute......................................................... 23
(e) Possession................................................................... 24
(f) Registration and Insignia.................................................... 24
(g) Replacement of Parts......................................................... 24
(h) Alterations, Modifications and Additions..................................... 25
(i) Manuals and Technical Records................................................ 25
(j) Maintenance and Usage........................................................ 26
Section 8. Loss, Destruction, Requisition, Etc.......................................... 26
(a) Event of Loss to the Aircraft................................................ 26
(b) Event of Loss to a Serviced Engine........................................... 27
(c) Application of Payments for Requisition of Title............................. 30
(d) Requisition of Use of the Airframe........................................... 30
(e) Investment of Proceeds Pending Replacement................................... 30
(f) Application of Payments During Default....................................... 31
Section 9. Insurance.................................................................... 31
(a) Liability Insurance.......................................................... 31
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
(b) All Risk Hull Insurance...................................................... 32
(c) War-Risk Insurance........................................................... 34
(d) Application of Proceeds...................................................... 34
(e) Reports, Etc................................................................. 34
(f) Additional Insurance......................................................... 35
(g) Notice from Lessee; No Modification.......................................... 35
(h) Reinsurance.................................................................. 35
(i) Insurance of Lessor.......................................................... 35
(j) Insurance Relating to Allocated Parts........................................ 35
(k) Compliance with Head Lease................................................... 36
Section 10. Inspection; Financial Information; Letter of Credit.......................... 36
(a) Inspection................................................................... 36
(b) Financial Information........................................................ 36
(c) Letter of Credit............................................................. 38
Section 11. Lessee's Covenants........................................................... 40
(a) Merger....................................................................... 40
(b) Certificated Air Carrier..................................................... 40
Section 12. FAA Recordation and Further Assurances....................................... 40
(a) FAA Recordation.............................................................. 41
(b) Further Assurances........................................................... 41
Section 13A. Lessee Events of Default..................................................... 41
Section 13B. Lessor Events of Default..................................................... 43
Section 14A. Lessor Remedies.............................................................. 44
Section 14B. Lessee Remedies.............................................................. 46
(a) Remedies..................................................................... 46
(b) Limitation on Damages........................................................ 46
(c) No Implied Waiver............................................................ 47
Section 15. Indemnification.............................................................. 47
(a) General...................................................................... 47
(b) Indemnification for Negligent Acts........................................... 49
(c) Defense of Claims; Settlement................................................ 49
(d) Indemnification by Lessor.................................................... 50
(e) Survival..................................................................... 50
Section 16. General Tax Indemnity........................................................ 50
(a) Tax Indemnity................................................................ 50
(b) Exclusions from General Tax Indemnity........................................ 51
(c) Calculation of General Tax Indemnity Payments................................ 53
(d) Payment of General Tax Indemnity............................................. 54
(e) Verification of Calculations................................................. 54
(f) Reports...................................................................... 54
(g) General Tax Indemnity Contest Provisions..................................... 54
(h) Compromise or Settlement..................................................... 56
(i) Refunds...................................................................... 57
(j) Failure to Contest........................................................... 57
(k) Interest..................................................................... 57
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(l) Effect of Other Indemnities.................................................. 58
Section 17. Miscellaneous................................................................ 58
(a) Construction; Governing Law.................................................. 58
(b) Notices...................................................................... 59
(c) Lessor's Right to Perform.................................................... 61
(d) Confidentiality.............................................................. 61
(e) Counterparts................................................................. 63
(f) Grant of Security Interest by Lessor......................................... 63
(g) Survival..................................................................... 63
(h) Assignment................................................................... 63
(i) Transaction Expenses......................................................... 64
(j) Entirety..................................................................... 64
(k) Force Majeure................................................................ 64
(l) Independent Contractor; No Agency............................................ 64
(m) Certain Consents and Waivers of Lessee....................................... 65
(n) Offset....................................................................... 67
Section 18. True Lease................................................................... 67
(a) Intent of the Parties........................................................ 67
(b) Federal Bankruptcy Act....................................................... 67
Section 19. Enforceability in Jurisdictions.............................................. 67
Section 20. No Third-Party Beneficiaries................................................. 67
Section 21. Maintenance Obligations...................................................... 68
Section 22. Amendment of Long-Term Lease Agreement....................................... 68
Section 23. Subordinate to Head Lease.................................................... 68
</TABLE>
iii
<PAGE>
Schedule I - Basic Rent
Exhibit A - Lease Supplement No. 1
Exhibit B - Stipulated Loss Value Schedule
Exhibit C - Conditions Precedent to Delivery
Exhibit D - Delivery and Return Conditions
Exhibit E - Supplemental Rent for Maintenance
Schedule 4(d)(i)
Schedule 4(d)(iv)
Schedule 4(d)(v)
Schedule 4(d)(vi)
Schedule 4(d)(vii)
iv
<PAGE>
AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT, dated as of December 30, 1995, between
AMERICAN AIRLINES, INC., a Delaware corporation, with its principal place of
business at Dallas/Fort Worth International Airport, Texas 75261-9616, and its
successors and assigns ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii
corporation with its principal place of business at 3375 Koapaka Street, Suite
G350, Honolulu, Hawaii 96819 ("Lessee").
WHEREAS, First Security Bank of Utah, National Association, not in its
individual capacity, except as expressly stated therein, but solely as Owner
Trustee under the Trust Agreement (as defined in the Head Lease), as lessor (the
"Head Lease Lessor"), and the Lessor, as lessee have heretofore entered into
that certain Lease Agreement dated as of September 25, 1984 (as amended and
supplemented from time to time, the "Head Lease"), and that certain Lease
Supplement No. 1 dated September 25, 1984, pursuant to which Head Lease Lessor
leased to Lessor, among other things, the Airframe (as hereinafter defined); and
WHEREAS, Head Lease Lessor, in connection with its purchase of the
Airframe, has entered into a Trust Indenture and Security Agreement (the
"Indenture"), dated as of September 25, 1984, with State Street Bank and Trust
Company (as successor in interest to Connecticut Bank and Trust Company,
National Association) (the "Mortgagee") and the Persons listed in Schedule A
thereto (the "Unit Holders"); and
WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to
lease to Lessee, the Aircraft (as defined below) upon the terms and conditions
set forth herein; and
WHEREAS, the indebtedness, obligations and liabilities of Lessee to Lessor
hereunder will be secured by the Letter of Credit (as hereinafter defined); and
WHEREAS, Lessor is certificated under FAA Regulations Part 121 to inspect,
maintain, repair and overhaul the Aircraft with GE CF6-6K Engines; and
WHEREAS, Lessee has requested that Lessor perform certain repair,
maintenance and overhaul services with respect to the Aircraft, other than the
Lessee Assumed Services (as defined below), at a fixed cost per flight hour; and
WHEREAS, Lessee has further requested that Lessor perform certain
additional repair, modification, maintenance and overhaul services on a time-
and-materials basis; and
WHEREAS, Lessor desires to perform such maintenance services for Lessee;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree as follows:
<PAGE>
Section 1. Definitions. Unless the context otherwise requires, the
-----------
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"AA Station" means HNL, LAS, LAX, SEA, SFO or TUL.
----------
"ACARS" means the Aircraft Communications and Reporting System currently
-----
installed on the Aircraft.
"ADs" means Airworthiness Directives issued by the FAA.
---
"AD Effective Date" shall have the meaning assigned to such term in Section
-----------------
4(s) of Exhibit E.
"Additional Insured" shall have the meaning specified in Section 9 hereof.
------------------
"Additional Services" means the engineering, inspection, maintenance,
-------------------
repair and overhaul services that are necessary or appropriate (i) to correct
damage (including replacement at Lessee's expense if Lessor reasonably
determines that the damage (other than ordinary wear and tear) is beyond
economic repair) to the Serviced Aircraft, any Serviced Engines and/or any
Rotable Parts (including Serviced Parts removed during the delivery of
Maintenance Services other than Additional Services) that resulted from (a)
improper use, improper repairs by Persons other than Lessor or its
subcontractors, neglect (other than by Lessor or its subcontractors), or any
cause other than ordinary wear and tear or (b) Foreign Object Damage, (ii) to
complete modifications to the Serviced Aircraft and any Serviced Engines
requested by Lessee to customize the Serviced Aircraft in any manner that
deviates from Lessor's standard configuration (subject to the provisions of
Section 4(q) of Exhibit E which require Lessee to procure and provide certain
Serviced Parts prior to their installation on the Serviced Aircraft), (iii) to
complete modifications (including those modifications mandated by the FAA) to
the Serviced Aircraft the costs of which exceed $1,000 per Serviced Aircraft, or
(iv) to complete any inspections mandated by the FAA that are not included in
Lessor's existing maintenance program and are not related to aging aircraft and
corrosion prevention issues, but excluding Field Trip Maintenance Services, and
On-Call Maintenance Services.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" when used with respect to any specified
-------
Person means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
-----------
"controlled" have meanings correlative to the foregoing.
----------
"Aircraft" means the Airframe delivered and leased hereunder, together with
--------
the three Engines initially leased hereunder with the Airframe (or any Engine
substituted for any such Engine hereunder), whether or not any of such initial
or substituted Engines may from time to time be installed on the Airframe or may
be installed on any other airframe or on any other aircraft.
"Airframe" means (i) the McDonnell Douglas DC10-10 aircraft (except engines
--------
or Serviced Engines from time to time installed thereon) bearing the U.S.
Registration Number N161AA and
-2-
<PAGE>
Manufacturer's Serial Number 46942 and (ii) any and all Parts so long as the
same shall be incorporated or installed in or attached to the Airframe or so
long as title thereto shall remain vested in Lessor.
"Allocated Parts" shall have the meaning assigned to such term in the Long-
---------------
Term Lease Agreement.
"Allocated Spare Engine" shall have the meaning assigned to such term in
----------------------
Section 4(n) of Exhibit F of the Long-Term Lease Agreement.
"AMRCG" means AMR Training & Consulting Group, Inc., a Delaware
-----
corporation, and its successors and assigns.
"AMR Leasing" means AMR Aircraft Sales & Leasing Company, a Delaware
-----------
corporation, and its successors and assigns.
"Ancillary Agreements" means that certain Manuals Supplement, Amended and
--------------------
Restated Training Document and FOS Implementation Document, each dated as of
March 31, 1994, and entered into by and between Lessor and Lessee.
"A.O.G." means aircraft on the ground.
------
"Applicable Law" means all applicable laws of any Governmental Authority,
--------------
including securities laws, tax laws, tariff and trade laws, ordinances,
judgments, decrees, injunctions, writs and orders or like actions of any court,
arbitrator, judicial or quasi-judicial tribunal, governmental agency or
authority in any country and rules, regulations, orders, interpretations,
licenses and permits of any federal, state, county, municipal, regional or other
United States or foreign governmental body, instrumentality, agency or
authority.
"APU" means auxiliary power unit.
---
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. (S)
---------------
101 et seq.), as amended from time to time and any successor statute.
- ---
"Base Maintenance Services" means the inspection, engineering,
-------------------------
maintenance, repair and overhaul services of the Serviced Aircraft, any Serviced
Engines and any Serviced Parts that are ordinarily performed at a Maintenance
Base as part of the scheduled maintenance of the Serviced Aircraft, any Serviced
Engines or any Serviced Parts to repair ordinary wear and tear including,
without limitation, all aircraft heavy maintenance checks and phase checks, but
excluding (i) the inspection, maintenance, repair and overhaul of Parts
described in Section 4(q) of Exhibit E and (ii) Additional Services, Field Trip
Maintenance Services, Line Maintenance Services and On-Call Maintenance
Services.
"Basic Rent" means the rent payable for the Aircraft pursuant to Section
----------
3(b), as the same may be adjusted pursuant to Section 16.
"Basic Rent Payment Date" means the Delivery Date, and on and after the
-----------------------
Delivery Date, the dates for payment of Basic Rent described in Schedule I
attached hereto.
-3-
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banking institutions in New York City, New York, Fort Worth,
Texas or Honolulu, Hawaii are authorized or required by law, regulation or
executive order to be closed.
"Claims" means actual or threatened claims, demands and suits.
------
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and analogous provisions of any successor statute.
"Confidential Information" shall have the meaning assigned to such term in
------------------------
Section 17(d).
"Confidentiality Agreement" means that certain Confidentiality Agreement
-------------------------
dated November 8, 1993, between AMRCG and Lessee.
"Cycle" means, with respect to the Serviced Aircraft, one takeoff of such
-----
Serviced Aircraft and the next subsequent landing of such Serviced Aircraft.
"December Lease Agreement" means the Aircraft Lease Agreement, dated as of
------------------------
December 15, 1995, between Lessor and Lessee and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, and as heretofore and from time to time amended,
supplemented or modified.
"Default" means any event which with the passage of time or the giving of
-------
notice or both would become a Lessee Event of Default.
"Defect" shall have the meaning assigned to such term in Section 5(a) of
------
Exhibit E.
"Deferred Purchase Certificate" has the meaning set forth in the Indenture.
-----------------------------
"Delivery Date" means the date on which the Aircraft is delivered by Lessor
-------------
to, and accepted by, Lessee.
"Discount Rate" means the Prime Rate.
-------------
"DOT" means the United States Department of Transportation, or any Person,
---
governmental department, bureau, commission, or agency succeeding to the
functions of such department.
"Engine" means (i) each of the three General Electric Model CF6-6K engines
------
listed by manufacturer's serial numbers in Lease Supplement No. 1, whether or
not from time to time installed on the Airframe or installed on any other
airframe or on any other aircraft and (ii) any Replacement Engine which may from
time to time be substituted pursuant to Section 8 for an Engine leased
hereunder; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto shall remain vested in Lessor in accordance with the terms of
Section 8 after removal from such Engine. Except as otherwise set forth herein,
at such time as a Replacement Engine shall be so substituted, such replaced
Engine shall cease to be an Engine hereunder. The term "Engines" means, as of
any date of determination, all Engines then leased hereunder.
-4-
<PAGE>
"Event of Loss" with respect to any Item of Equipment means any of the
-------------
following events with respect to such Item of Equipment: (i) loss of such Item
of Equipment or the use thereof due to theft, disappearance, destruction, damage
beyond repair or rendition of such Item of Equipment permanently unfit for
normal use for any reason whatsoever; (ii) any damage to such Item of Equipment
which results in an insurance settlement with respect to such Item of Equipment
on the basis of a total loss whether actual, constructive or arranged; (iii) the
condemnation, confiscation or seizure of, or requisition of title to such Item
of Equipment; (iv) the requisition of use of such Item of Equipment (other than
requisition for use by the Government); (v) the requisition of use of such Item
of Equipment by the Government for any period ending after the expiration of the
Term unless Lessor elects, upon 30 days' prior notice, not to treat such
requisition as an Event of Loss at the end of the Term; (vi) as a result of any
rule, regulation, order or other action by the FAA, DOT or other governmental
body of the United States having jurisdiction, the use of such Item of Equipment
in the normal course of air transportation of persons shall have been prohibited
for a period of six consecutive months, unless Lessee, prior to the expiration
of such six-month period, shall have undertaken and shall be diligently carrying
forward all steps which are necessary or desirable to permit the normal use of
such property by Lessee or, in any event, if such use shall have been prohibited
for a period of twelve consecutive months or if such use is prohibited at the
end of the Term, unless at the end of the Term such use has then been prohibited
for less than six consecutive months, then an Event of Loss shall not be deemed
to have occurred hereunder until the expiration of six consecutive months during
which the use of the Item of Equipment has been so prohibited, but only so long
as Lessee continues to pay Basic Rent to the Lessor on the first day of each
month, at the rate set forth in Schedule I attached hereto and Supplemental
Rent pursuant to Exhibit E hereto, and agrees to and does comply with all other
provisions hereof; or (vii) the operation or location of the Item of Equipment,
while under requisition for use by the Government, in any area excluded from
coverage by any insurance policy in effect with respect to the Item of Equipment
required by the terms of Section 9, if Lessee shall not have obtained indemnity
in lieu thereof from the Government, acceptable to Lessor; provided that if such
--------
property shall be returned to Lessee in such a condition that Lessee can within
30 days following the return thereof cause the Item of Equipment to comply with
the maintenance conditions set forth in Section 7 hereof, then such event shall,
at the option of Lessee, not constitute an Event of Loss. An Event of Loss with
respect to the Aircraft shall be deemed to have occurred if an Event of Loss
occurs with respect to the Airframe. In the case of clauses (i), (ii), (iii)
and (iv), the date of an Event of Loss shall be the date of destruction, damage,
requisition, loss, etc. to any Item of Equipment. In the cases of clauses (v),
(vi) and (vii), the date of an Event of Loss shall be respectively (A) such
180th day or last day of the applicable Term as the case may be, and (B) the
last day of such six month period or twelve month period, as the case may be and
(C) the first day of such operation or location.
"Expendable Parts" means (i) Serviced Parts used in the repair and overhaul
----------------
of the Serviced Airframe, any Serviced Engines and other Rotable Parts that are
assumed to have no potential for reuse and miscellaneous materials and supplies
consumed during the repair and overhaul process, and (ii) Serviced Parts that
have some potential for repair but that are customarily assumed to be expended.
"Expenses" means liabilities, obligations, losses, damages, penalties,
--------
claims (including claims involving liability in tort, strict liability or
otherwise), actions, suits, judgments, costs, expenses and disbursements
(including legal fees and expenses and costs of investigation) of any kind and
nature
-5-
<PAGE>
whatsoever without any limitation as to amount, together with interest thereon
at the Stipulated Interest Rate from the date incurred until reimbursed
hereunder.
"FAA" means the United States Federal Aviation Administration, or any
---
person, governmental department, bureau, commission or agency succeeding to the
functions of such Administration.
"Federal Aviation Act" or "Act" means the Federal Aviation Act of 1958, as
-------------------- ---
amended.
"Field Trip Maintenance Services" means, with respect to the Serviced
-------------------------------
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at any
location where Lessor does not have on-site the necessary number of mechanics
trained to work on the particular malfunction experienced by the Serviced
Aircraft, any Serviced Engine or any Serviced Part.
"Flight Hour" means the amount of time (expressed in hours and rounded
-----------
upward to the nearest one-tenth (1/10th) of an hour) during the flight of a
Serviced Aircraft between "wheels off" on takeoff and "wheels on" on landing.
"Foreign Object Damage" means damage to a Serviced Engine or any component
---------------------
thereof caused by any object or material ingested into the Serviced Engine that
results in the breakage or destruction of a Serviced Engine component or a
notch, non-stress related crack, cut, indentation or other depression to the
surface of a Serviced Engine component in each case beyond specification limits
of the Lessor's maintenance program, but excluding the gradual erosion or
smoothing of any Serviced Engine component caused by numerous Flight Hours of
operation.
"Government" means the government of the United States of America, and any
----------
instrumentality or agency thereof.
"Governmental Authority" means any governmental department, court, bureau,
----------------------
commission, agency or any other entity, whether of the United States (including
any state or subdivision thereof) or any other country (including any political
subdivision thereof), having jurisdiction over this Lease, the transactions
contemplated hereby, or any document related hereto or thereto or delivered in
connection herewith or therewith, the Serviced Aircraft or the parties hereto.
"Head Lease Lessor's Liens" means any Lien arising as a result of (i)
-------------------------
Claims against or affecting Head Lease Lessor, not related to the transactions
contemplated by the Head Lease or this Lease; (ii) acts or omissions of Head
Lease Lessor, not related to the transactions contemplated by the Head Lease or
this Lease, or not permitted under the Head Lease; (iii) Taxes or Claims imposed
against Head Lease Lessor which are not indemnified against by Lessee pursuant
hereto; or (iv) Claims against Head Lease Lessor arising out of the voluntary or
involuntary transfer by Head Lease Lessor (without the consent of Lessee) of any
of its interests in the Airframe, any Serviced Engine or any Engine, including,
without limitation, by means of granting a security interest therein, other than
a transfer of the Aircraft pursuant to Section 8 or 14A hereof.
"HNL" means Honolulu International Airport in Honolulu, Hawaii.
---
"IATA" means International Air Transport Association.
----
-6-
<PAGE>
"Indemnified Party" shall have the meaning assigned to such term in Section
-----------------
15.
"Interim Aircraft Lease Agreements" means the Interim Aircraft Lease
---------------------------------
Agreements each dated as of December 30, 1993, May 20, 1994, August 10, 1994 or
August 31, 1994 between AMR Leasing and Lessee, as the same may be amended,
modified or supplemented from time to time.
"Interim Aircraft Maintenance Agreement" means the Interim Aircraft
--------------------------------------
Maintenance Agreement dated as of December 30, 1993 between Lessor and Lessee,
as the same may be amended, modified or supplemented from time to time.
"Interim Definitive Agreements" means the Interim Aircraft Lease
-----------------------------
Agreements, the Interim AAdvantage Participating Carrier Agreement dated as of
December 30, 1993 between Lessee and Lessor, the Interim Aircraft Maintenance
Agreement, the Interim Multihost Agreement dated as of December 30, 1993 between
Lessee and SABRE, the Interim Flight Operating System Agreement dated as of
December 30, 1993 between Lessee and SABRE, the Interim Equipment Master
Equipment Lease Agreement dated as of December 30, 1993 between Lessee and
SABRE, the Guaranty Agreement dated as of December 10, 1993 executed by HAL,
Inc. and West Maui Airport, Inc. in favor of Lessor, AMRCG, AMR Leasing and
SABRE and the Security Agreement dated as of December 10, 1993 between Lessee,
HAL, Inc. and West Maui Airport, Inc. as debtors and Lessor, AMRCG, AMR Leasing
and SABRE as secured parties, and all other agreements, instruments,
certificates or documents related thereto or executed or delivered in connection
therewith, as amended or modified from time to time.
"In-Use Aircraft" means the Airframe delivered and leased hereunder,
---------------
together with the three Serviced Engines or engines installed from time to time
thereon.
"Issuer Insolvency" shall have the meaning assigned thereto in Section 13A
-----------------
hereof.
"Item of Equipment" or "Item" means the Airframe or each of the Serviced
----------------- ----
Engines, and for purposes of the definition of "Event of Loss" as used in
Section 8(b)(3) hereof, shall mean each Engine.
"July Lease Agreement" means the Aircraft Lease Agreement dated as of July
--------------------
5, 1995 between Lessor and Lessee and all other agreements, instruments,
certificates and documents related thereto or executed or delivered in
connection therewith, all as heretofore or from time to time amended,
supplemented or modified.
"LAS" means McCarren International Airport in Las Vegas, Nevada.
---
"LAX" means Los Angeles International Airport in Los Angeles, California.
---
"Lease Agreement", "this Lease Agreement", "this Lease", "this Agreement",
--------------- -------------------- ---------- --------------
"herein", "hereunder", "hereby" or other like words mean this Lease Agreement as
------ --------- ------
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions hereof, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the applicable
provisions hereof.
-7-
<PAGE>
"Lease Supplement" means Lease Supplement No. 1, substantially in the form
----------------
of Exhibit A hereto to be entered into between Lessor and Lessee for the purpose
of leasing the Aircraft under and pursuant to the terms of this Lease, or any
amendment hereto or to any other Lease Supplement entered into subsequent to the
Delivery Date.
"Lease Term" means the period from the Delivery Date of the Aircraft until
----------
February 7, 1996, unless earlier terminated in accordance with the provisions of
this Lease.
"Lessee Assumed Services" means those maintenance services set forth on
-----------------------
Attachment C to Exhibit E to be performed by Lessee at HNL during the Lease Term
- ------------
and any other maintenance services that the parties mutually agree pursuant to
Section 1 of Exhibit E that Lessee will assume and perform.
"Lessee Event of Default" shall have the meaning specified in Section 13A
-----------------------
hereof.
"Lessor Event of Default" shall have the meaning specified in Section 13B
-----------------------
hereof.
"Lessor Warranty" shall have the meaning assigned to such term in Section
---------------
5(a) of Exhibit E.
"Lessor's Liens" means any Lien arising as a result of (i) Claims against
--------------
or affecting Lessor, not related to the transactions contemplated by this Lease;
(ii) acts or omissions of Lessor, not related to the transactions contemplated
by this Lease, or not permitted under this Lease; (iii) Taxes or Claims imposed
against Lessor which are not indemnified against by Lessee pursuant hereto; or
(iv) Claims against Lessor arising out of the voluntary or involuntary transfer
by Lessor (without the consent of Lessee) of any of its interests in the
Airframe, any Serviced Engine or any Engine, including, without limitation, by
means of granting a security interest therein, other than a transfer of the
Aircraft pursuant to Section 8 or 14A hereof.
"Letter of Credit" means that certain Letter of Credit which has been
----------------
delivered pursuant to the Interim Definitive Agreements which meets the
requirements hereof or such other Letter of Credit which is either (A) an
irrevocable standby letter of credit issued in favor of Lessor by a financial
institution acceptable to Lessor, which secures payment of Lessee's obligations
hereunder and under the Long-Term Agreements and under the Ancillary Agreements
and may be drawn upon the occurrence of a Lessee Event of Default or as provided
in the Long Term Agreements or in the Ancillary Agreements: (i) which is in form
and substance satisfactory to Lessor and its Affiliates; (ii) whose initial
expiry date is on or after the first anniversary of the Effective Date; (iii)
whose final expiry date is on or after December 31, 2001; and (iv) which will
provide that either the issuer thereof will renew the letter of credit annually
on or prior to 30 days preceding the expiry thereof, or the letter of credit may
be drawn; (v) which shall be freely assignable and transferable; (vi) which
shall provide for partial draws thereunder; (B) any letter of credit provided in
substitution therefor meeting the same requirements; and/or (C) except as set
forth in Section 10(c)(6) and (7) below, a deposit, which is deposited with
Lessor and/or one of its Affiliates and held in an account in Lessor's or one
of its Affiliates' names at a financial institution(s) selected by Lessor or its
Affiliates, except as set forth in Section 10(c)(6) and (7) below, which secures
payment of Lessee's obligations hereunder and under the Long-Term Agreements and
under the Ancillary Agreements, upon terms and conditions acceptable to Lessor
and its Affiliates; provided, that at all times the sum of: (x) the face amount
--------
of
-8-
<PAGE>
the letter of credit, less the amount of any draws previously made under the
letter of credit, plus (y) the principal amount of the deposit, shall not be
less than $2,000,000.
"Liabilities" means Claims, liabilities, losses, judgments, damages, fines,
-----------
penalties and costs, fees and expenses of any nature incident thereto
(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation), whether arising in tort, contract or
otherwise.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest or Claim.
"Line Maintenance Services" means all customary line maintenance services
-------------------------
to the Serviced Aircraft, any Serviced Engine or any Serviced Part, including
scheduled inspections and servicing of the Serviced Aircraft and related
repairs, but excluding (i) Additional Services, Base Maintenance Services, Field
Trip Maintenance Services and On-Call Maintenance Services and (ii) Lessee
Assumed Services.
"Long-Term Agreements" means the Long-Term Lease Agreement, the November
--------------------
Lease Agreement, the July Lease Agreement, the December Lease Agreement, the
AAdvantage Participating Carrier Agreement dated as of September 12, 1994
between Lessee and Lessor, the Multihost Agreement dated as of September 12,
1994 between Lessee and SABRE, the Flight Operating System Agreement dated as of
September 12, 1994 between Lessee and SABRE, the Equipment Master Lease
Agreement dated as of September 12, 1994 between Lessee and SABRE, and all other
agreements, instruments, certificates and documents related thereto or executed
or delivered in connection therewith, all as amended or modified from time to
time.
"Long-Term Lease Agreement" means the Aircraft Lease Agreement dated as of
-------------------------
September 12, 1994 between Lessor and Lessee, as amended, supplemented, modified
and renewed from time to time.
"Loss Payment Date" shall have the meaning set forth in Section 8(a)
-----------------
hereof.
"MAGSA Rates" means the hourly rates applicable to participants in the
-----------
Mutual Assistance Ground Service Agreement among Lessor and other participating
IATA carriers as amended from time to time, or any comparable replacement
agreement.
"Maintenance Base" shall have the meaning assigned to such term in Section
----------------
2(a)(i) of Exhibit E.
"Maintenance Services" means Additional Services, Base Maintenance
--------------------
Services, Field Trip Maintenance Services, Line Maintenance Services and On-Call
Maintenance Services but excluding Lessee Assumed Services.
"Manual" means the Standard Practice Manual mutually prepared by Lessor and
------
Lessee for administration of this Agreement, a true and correct copy of which
has been provided to Lessor and Lessee, together with any amendments made
thereto from time to time by a party hereto with the consent of the other party
hereto (which consent shall not be unreasonably withheld).
-9-
<PAGE>
"Manufacturer" means, collectively, the respective manufacturers of the
------------
Airframe, each Engine and each Serviced Engine.
"November Lease Agreement" means the Aircraft Lease Agreement dated as of
------------------------
November 20, 1994 between Lessor and Lessee and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, all as heretofore or from time to time amended,
supplemented or modified.
"NTF" means, with respect to the Serviced Aircraft, any Serviced Engine or
---
any Serviced Part upon which an inspection has been performed to determine the
existence of a suspected malfunction, that the results of such inspection
indicated there was "no trouble found."
"On-Call Field Stations" means (i) LAS, LAX, SEA and SFO and any other
----------------------
station requested by Lessee and agreed to in writing by Lessor, and in each
case, at which, pursuant to Section 1 of Exhibit E, Lessee has elected to
perform, and is performing, Line Maintenance Services at such location and (ii)
HNL.
"On-Call Maintenance Services" means, with respect to the Serviced
----------------------------
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at the
request of Lessee at any of the On-Call Field Stations but excluding Field Trip
Maintenance Services.
"Outside Services" shall have the meaning assigned to such term in Section
----------------
4(f) of Exhibit E.
"Participants" means the Unit Holders and the Seller.
------------
"Participation Agreement" means the Participation Agreement dated as of
-----------------------
September 25, 1984 among Lessor, the Seller, the Mortgagee, and Unit Holders,
Head Lease Lessor (in its individual capacity as expressly provided therein and
as trustee), Polaris Aircraft Leasing Corporation and Polaris Investment
Management Corporation, as such Participation Agreement was originally executed
or as thereafter modified, amended or supplemented pursuant to the applicable
provisions thereof.
"Parts" means (i) any and all appliances, parts, instruments,
-----
appurtenances, accessories, furnishings, seats and other equipment of whatever
nature (other than complete engines or Serviced Engines), which may from time to
time be incorporated or installed in or attached to the Airframe or any Serviced
Engine, or having been so installed in or attached, are later removed therefrom,
so long as title thereto remains vested in Lessor, and (ii) all Allocated Parts
(other than the Allocated Spare Engine).
"Permitted Liens" means Liens referred to in clauses (i) through (vii) of
---------------
Section 6.
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or other
form of entity or any government or any agency or political subdivision thereof.
"Phased-Out Parts" means Serviced Parts of a type formerly utilized during
----------------
the Lease Term by Lessor but discontinued with respect to Lessor's fleet of
DC10-10 Aircraft that Lessee has
-10-
<PAGE>
properly elected without contravening Section 4 of Exhibit E to continue to
utilize on the Serviced Aircraft.
"Pooling Agreement" means the Pooling Agreement dated the date hereof
-----------------
between Lessor and Lessee, as amended, supplemented and modified from time to
time.
"Prime Rate" means the per annum rate announced by The Chase Manhattan
----------
Bank, N.A. from time to time as its prime rate in New York, New York.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Replacement Engine" means a GE CF6-6K engine (or an engine of the same or
------------------
another manufacturer of a comparable or an improved model and suitable for
installation and use on the Airframe) which shall have been leased hereunder
pursuant to Section 8, together with all Parts relating to such engine.
"Return Aircraft" means upon the return of the Aircraft to Lessor hereunder
---------------
pursuant to Section 5, 8, or 14A hereof, the Airframe constituting part of the
Aircraft and the engines or Serviced Engines attached thereto.
"Rotable Parts" means Serviced Parts that customarily have a potential for
-------------
reuse through inspection, repair, overhaul or calibration.
"SABRE" means SABRE Decision Technologies, a division of The SABRE Group,
-----
Inc. (formerly known as AMR Information Services, Inc.).
"SEA" means the Seattle/Tacoma International Airport in Seattle,
---
Washington.
"Seller" means Kanematsu-Gosho (U.S.A.) Inc., a New York corporation and
------
its successors and assigns and each other holder from time to time of a Deferred
Purchase Certificate.
"Serviced Aircraft" means the Aircraft.
-----------------
"Serviced Airframe" means (i) the Serviced Aircraft (except Serviced
-----------------
Engines) and (ii) any and all Serviced Parts (except Serviced Parts that
comprise a Serviced Engine) so long as the same shall be incorporated or
installed in, or attached to, such Serviced Aircraft.
"Serviced Engines" means (i) each Engine, so long as Lessee has not
----------------
delivered possession of any such Engine to Lessor pursuant to the Pooling
Agreement; (ii) each of the GE CF6-6K engines delivered to Lessee by Lessor
pursuant to the Pooling Agreement so long as such engines have not been
redelivered by Lessee to Lessor under the Pooling Agreement, provided that, for
-------------
the purposes of Exhibit E attached hereto, an engine delivered by Lessee to
Lessor thereunder shall remain a Serviced Engine until all Maintenance Services
have been completed thereon; and (iii) the Allocated Spare Engine; and (iv) for
purposes of Exhibit E only, GE CF6-6K engines in transit between Lessor and
Lessee pursuant to Sections 3(d), 3(i) and 4(d)(iii) of Exhibit E.
-11-
<PAGE>
"Serviced Part" means any Serviced Aircraft component, including any APU,
-------------
landing gear, part, equipment, accessory, instrument, avionics or system and
miscellaneous materials and supplies consumed during operation or inspection,
maintenance, repair and overhaul services.
"SFO" means the San Francisco International Airport in San Francisco,
---
California.
"Stipulated Interest Rate" means the rate of ten percent (10%) per annum.
------------------------
"Stipulated Loss Value" payable with respect to an Event of Loss for the
---------------------
Airframe and its Serviced Engines shall mean, as of any date of determination,
the amounts set forth in Exhibit B hereto.
"Supplemental Rent" means all amounts, liabilities and obligations (other
-----------------
than Basic Rent) which Lessee assumes or agrees to pay hereunder to Lessor or
others, including, without limitation, all Monthly Supplemental Rent Payments
and all other amounts, liabilities and obligations of Lessee to Lessor set
forth in Exhibit E attached hereto.
"Taxes" means any and all fees (including license, documentation and
-----
registration fees), taxes (including income, gross receipts, preferences, sales,
use, turnover, value added, property (tangible and intangible), excise and stamp
taxes), licenses, levies, imposts, duties, charges, surcharges, assessments or
withholdings of any nature whatsoever, together with any and all penalties,
fines, additions to tax and interest thereon in each case imposed by a Taxing
Authority.
"Taxing Authority" means any Federal, state or local government or other
----------------
taxing authority in the United States or any political subdivision or territory
or possession thereof, any international authority and any taxing authority of
any other government or political subdivision or territory or possession
thereof.
"Term" means the period for which the Aircraft is leased pursuant to
----
Section 3(a) hereof and Section 3 of the Lease Supplement.
"TUL" means Tulsa International Airport in Tulsa, Oklahoma.
---
"Turn Time" means, with respect to any particular Maintenance Services, the
---------
period of time ordinarily required by Lessor, exerting its reasonable efforts,
to complete such Maintenance Services in accordance with its customary practices
and procedures or such specified period of time agreed to in writing by Lessor
and Lessee for the performance of any particular Maintenance Services.
"Warranty Claim" means a written notice delivered to Lessor by Lessee of a
--------------
Defect in Maintenance Services performed by Lessor, which Defect is claimed to
be within the scope of the warranty provided by Lessor in Section 5(a) of
Exhibit E, such notice specifying in detail the nature of the Defect.
"Warranty Period" means, with respect to the Serviced Aircraft, any
---------------
Serviced Engine or any Serviced Part upon which Maintenance Services were
performed, that period of time commencing upon redelivery to Lessee of such
Serviced Aircraft, Serviced Engine or Serviced Part after performance of
Maintenance Services thereon and expiring on the first to occur of the
following: (i) the expiration of one hundred twenty (120) days after redelivery
of such Serviced Aircraft,
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<PAGE>
Serviced Engine or Serviced Part to Lessee, or (ii) the completion of four
hundred (400) Flight Hours of operation of such Serviced Aircraft, Serviced
Engine or Serviced Part after redelivery to Lessee.
"Weekly Supplemental Rent Payment" shall have the meaning assigned to such
--------------------------------
term in Section 3(f) of Exhibit E.
"Weekly Supplemental Rent Payment Date" shall have the meaning assigned to
--------------------------------------
such term in Section 3(f) of Exhibit E.
Rules of Interpretation. The following rules of interpretation apply to
-----------------------
this Lease Agreement:
(1) "or" is not exclusive and "include" and "including" are not limiting;
(2) "hereby", "herein", "hereof", "hereunder", "this Lease", "this
Agreement", "Lease Agreement", or other like words refer to this
Aircraft Lease Agreement;
(3) a reference to any agreement or other contract includes permitted
supplements and amendments;
(4) a reference to a law includes any amendment or modification to such
law and any rules or regulations issued thereunder or any law enacted
in substitution or replacement therefor;
(5) a reference to a Person includes its permitted successors and assigns;
(6) a reference herein to an Article, Section, Exhibit or Schedule is to
the relevant Article, Section, Exhibit or Schedule of this Lease
Agreement;
(7) any right may be exercised at any time and from time to time;
(8) all obligations are continuing obligations;
(9) time shall be of the essence in the performance of all payment
obligations;
(10) the heading of the Articles, Sections, Exhibits, Schedules and
subsections are for the convenience of reference only and shall not
affect the meaning of this Lease Agreement; and
(11) no term or provision herein may be changed, waived, discharged or
terminated orally, but only by written instrument signed by the party
against which the enforcement of the change, waiver, discharge or
termination is sought.
Section 2. Delivery and Acceptance.
-----------------------
(a) Time and Place. Lessor hereby agrees (subject to satisfaction of the
--------------
conditions set forth in Exhibit C attached hereto) to lease to Lessee hereunder
and Lessee hereby agrees to lease from Lessor hereunder, on the Delivery Date,
the Aircraft, as evidenced by the execution by Lessor
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<PAGE>
and Lessee of Lease Supplement No. 1 hereunder. Delivery of the Aircraft by
Lessor and acceptance thereof by Lessee shall occur at LAX, or such other
location agreed on by Lessor and Lessee.
(b) Delivery Date. The Delivery Date for the Aircraft shall occur on or
-------------
about January 5, 1996.
Lessor shall deliver the In-Use Aircraft in the condition set forth in Exhibit D
attached hereto, provided that such delivery and fulfillment of delivery
conditions shall, subject to the execution and delivery of Lease Supplement No.
1 (and satisfaction of the conditions set forth in Exhibit C attached hereto),
be deemed to have been met. Lessor shall use its reasonable efforts to deliver
the In-Use Aircraft on the Delivery Date, but if Lessor is unable to deliver the
In-Use Aircraft on the Delivery Date, it shall deliver the In-Use Aircraft to
Lessee as soon thereafter as possible without any penalty, charge or damages for
late delivery.
Section 3. Term and Rent.
-------------
(a) Term. Except as otherwise provided herein (including, without
----
limitation, pursuant to the definition of Event of Loss), the Term for the
Aircraft shall commence on the Delivery Date and end on February 7, 1996.
(b) Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for the
----------
Aircraft throughout the Term, in advance in the amounts set forth in Schedule I,
on each Basic Rent Payment Date, commencing on the Delivery Date.
(c) Supplemental Rent. Lessee also agrees to pay to Lessor, or to
-----------------
whosoever shall be entitled thereto, any and all Supplemental Rent promptly as
the same shall become due and owing, including on each Monthly Supplemental Rent
Payment Date (as defined in Exhibit E attached hereto) (or on demand if no due
date is specified), and in the event of any failure on the part of Lessee to pay
any Supplemental Rent, Lessor shall have all rights, powers and remedies
provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. In addition, Lessee shall pay, on demand, as
Supplemental Rent, to the extent permitted by applicable law, an amount equal to
interest at the Stipulated Interest Rate on any part of any installment of Basic
Rent not paid when due for any period for which the same shall be overdue and on
any payment of Supplemental Rent not paid when due or demanded, as the case may
be, for the period until the same shall be paid. The expiration or other
termination of Lessee's obligations to pay Basic Rent hereunder shall not limit
or modify the obligations of Lessee with respect to Supplemental Rent. All
Supplemental Rent to be paid pursuant to this Section 3(c) shall be payable in
the type of funds and in the manner set forth in Section 3(e).
(d) Prohibition Against Setoff, Etc. Except as set forth in Section
--------------------------------
4(c)(i)(D) of Exhibit E attached hereto, this Lease is a net lease and Lessee's
obligation to pay Rent hereunder shall be absolute and unconditional and shall
not be affected by any circumstance including (i) any claim which Lessee may
have against Head Lease Lessor, any Participant, Mortgagee or Lessor or anyone
else for any reason whatsoever (whether in connection with the transactions
contemplated hereby or any other transactions), including any breach by Lessor
or any of its Affiliates, of any of its warranties, agreements or covenants
contained herein or in any of the Long-Term Agreements or any of the documents
related hereto or thereto or performance, or nonperformance by Lessor of any of
its
-14-
<PAGE>
duties or obligations to Lessee set forth in Exhibit E attached hereto, (ii)
any defect in the title, registration, airworthiness, condition, design,
operation, or fitness for use of, or any damage to or loss or destruction of,
the Airframe, any Serviced Engine or any Engine, or any interruption or
cessation in or including any such interruption, cessation or prohibition of the
use or possession thereof by Lessee for any reason whatsoever, resulting from
the act of any Governmental Authority; and (iii) any other circumstance,
happening or event whatsoever, whether or not foreseen or similar to the
foregoing; provided, that Lessee's obligations to pay Basic Rent and
--------
Supplemental Rent shall cease with respect to the Aircraft, except with respect
to Rent accrued at such time upon (i) redelivery of the Aircraft by Lessee to
Lessor in accordance with the provisions of Sections 5 hereof; and/or (ii)
repossession of the Aircraft by Head Lease Lessor, Mortgagee or Lessor pursuant
to Section 14A hereof, but subject to Lessee's payments of sums specified under
said Section 14A; and/or (iii) with respect to any Item of Equipment, payment by
or on behalf of Lessee to Lessor in full of the Stipulated Loss Value and other
sums specified in Section 8 hereof to be paid by Lessee pursuant to an Event of
Loss with respect to such Item of Equipment. Lessee hereby waives, and hereby
agrees to waive at any future time at the request of Lessor, to the extent now
or then permitted by Applicable Law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or otherwise,
to terminate, cancel, quit or surrender this Lease except in accordance with the
express terms hereof. Each payment of Rent made by Lessee to Lessor shall be
final as to Lessor and Lessee. Lessee shall not seek to recover all or any part
of any such payment of Rent from Lessor for any reason whatsoever except
manifest error. The parties agree that nothing contained in this Section 3(d)
shall affect or limit any right of Lessee to collect damages for the breach of
any covenant or representation by Lessor hereunder, including Section 4 hereto
or Exhibit E hereto or by any Affiliate of Lessor under any Long-Term Agreement.
Lessee shall pay all costs and expenses of every character, whether seen or
unforeseen, ordinary or extraordinary or structural or nonstructural, in
connection with the delivery, use, operation, maintenance, return, and repair
and reconstruction of the Airframe and each Serviced Engine by Lessee, including
the costs and expenses particularly set forth in this Lease, except as may be
otherwise expressly set forth in the other documents related hereto.
(e) Payment to Lessor. All Rent shall be paid by Lessee to Lessor by wire
-----------------
transfer of immediately available funds in U. S. Dollars, to such account as
Lessor shall designate to Lessee in writing. Such funds shall be available to
Lessor not later than 3:00 p.m., New York City time on the date of payment.
Whenever any payment of Rent is due on a day other than a Business Day, such
payment shall be made on the next preceding Business Day. All Rent to be paid
by Lessee hereunder shall be paid in full without any deduction or withholding
with respect to Taxes of any nature imposed by any Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall comply with Section 16 below.
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain
---------- --------------------------------------------------------
Agreements of Lessee, Representations of Lessee.
-----------------------------------------------
(a) Disclaimer. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-
----------
IS", AND LESSOR DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE, AND EXPRESSLY
DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE,
AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS
FOR USE OR FOR ANY PARTICULAR
-15-
<PAGE>
PURPOSE OF ANY ITEM OF EQUIPMENT OR ENGINE OR AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE INFRINGEMENT OF ANY
PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT
LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN ANY
ITEM OF EQUIPMENT OR ENGINE OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY WHATSOEVER WITH RESPECT THERETO, except for the representations of
Lessor set forth in Section 4(e) below, and that Lessor represents that (i) it
has good title to the Engines free of Lessor's Liens and the lawful right to
lease the Engines to Lessee in accordance with the terms hereof, (ii) Lessee
shall have the same leasehold interest in the Airframe that was conveyed to
Lessor by Head Lease Lessor pursuant to the Head Lease, subject to the terms of
the Head Lease and the Indenture, (iii) Lessor has the lawful right to lease the
Airframe to Lessee in accordance with the terms hereof, and (iv) that Lessor is
a citizen of the United States of America as defined in Section 40102(a)(15)
(former 101(16)) of the Act. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY TO LESSEE OR ANY OTHER PERSON WITH RESPECT TO (I) ANY LIABILITY, LOSS
OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF
EQUIPMENT OR ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN
OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION THEREWITH; (II) THE USE, OPERATION
OR PERFORMANCE OF ANY ITEM OF EQUIPMENT OR ENGINE OR ANY RISKS RELATING THERETO;
(III) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES; OR (IV) THE DELIVERY HEREUNDER,
OPERATION, SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY ITEM OF
EQUIPMENT EXCEPT AS EXPRESSLY PROVIDED IN THE PROVISIONS OF EXHIBIT E HERETO
RELATING TO THE SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY SERVICED
ENGINE OR SERVICED AIRCRAFT; PROVIDED THAT NOTHING CONTAINED IN THIS SECTION
--------
4(a) SHALL IN ANY WAY LIMIT THE RIGHTS OF LESSEE AGAINST ANY AFFILIATE OF LESSOR
UNDER ANY LONG-TERM AGREEMENT.
(b) Quiet Enjoyment. Notwithstanding any other term or provision of this
---------------
Agreement, Lessor covenants that, so long as no Lessee Event of Default shall
have occurred and be continuing, it shall not take any action contrary to
Lessee's rights under this Lease, or otherwise through its own actions or
inactions in any way interfere with the quiet enjoyment of the use and
possession of the Aircraft, the Airframe or any Serviced Engines by Lessee;
provided, that no performance or failure by Lessor to perform its obligations
- --------
under Exhibit E hereto shall be deemed a breach of this Section 4(b).
(c) Waiver of Warranties. LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES THE
--------------------
BENEFIT OF ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS ON THE PART OF
LESSOR WHICH ARE EXPRESSED OR WOULD OR MIGHT BE IMPLIED IN THIS AGREEMENT
WHETHER BY LAW OR OTHERWISE AND RELATING IN ANY WAY TO THE STATE, CONDITION OR
AIRWORTHINESS OF AN ITEM OF EQUIPMENT OR ENGINE. LESSEE ACKNOWLEDGES THAT THE
PROVISIONS OF SECTIONS 4(a) AND 4(b) HAVE BEEN THE SUBJECT OF FULL DISCUSSION
AND NEGOTIATION BETWEEN LESSEE AND LESSOR AND THAT THE BASIC RENT AND ALL
-16-
<PAGE>
OTHER AGREEMENTS OF LESSEE AND LESSOR CONTAINED IN THIS AGREEMENT WERE ARRIVED
AT IN CONSIDERATION OF THE PROVISIONS OF SECTIONS 4(a) AND 4(b) SPECIFICALLY
INCLUDING THE DISCLAIMER BY LESSOR SET FORTH IN SECTION 4(a) AND THE WAIVER,
RELEASE AND RENUNCIATION BY LESSEE SET FORTH IN THIS SECTION 4(c).
(d) Lessee's Representations and Warranties. To induce Lessor to enter
---------------------------------------
into this Lease Agreement, and any documents contemplated hereby, Lessee makes
the following representations and warranties, each of which shall survive the
execution and delivery of this Lease Agreement and the Delivery Date:
(i) Lessee is a corporation duly incorporated under the laws of the
Territory of Hawaii and is validly existing in good standing under the laws
of the State of Hawaii and has its chief executive office in Honolulu,
Hawaii. Except as set forth on Schedule 4(d)(i) hereto Lessee has all
requisite corporate power and authority to carry on its business as now
conducted, and to execute, deliver and perform its obligations under this
Lease and each Lease Supplement. Lessee is a duly certificated "air
carrier" under Section 41102 (former Section 401) and Section 44705 (former
Section 604) of the Federal Aviation Act and possesses all necessary
licenses or permits required by any Governmental Authority having
jurisdiction over Lessee or the Aircraft to permit Lessee to engage in air
transportation and to perform and comply with its obligations under this
Lease, and is duly qualified to do business as a foreign corporation, and
is in good standing, in each jurisdiction in which its failure to so
qualify would adversely and materially affect it or its ability to carry
out its obligations under this Lease;
(ii) this Lease has been duly authorized by all necessary corporate
action on the part of Lessee, does not require any approval of stockholders
of Lessee (or if such approval is required, such approval has been
obtained), and the execution and delivery hereof, and/or the consummation
of the transactions contemplated hereby, and/or compliance by Lessee with
any of the terms and provisions hereof, do not contravene any provisions of
the Articles of Incorporation or By-laws of Lessee, or result in any breach
of, or constitute any default under, or result in the creation of any Lien
upon any assets or property of Lessee under, any (A) indenture, mortgage,
lease, chattel mortgage, deed of trust, conditional sales contract, bank
loan, credit agreement or other material agreement or instrument to which
Lessee is a party or by which Lessee or its properties may be bound or
affected other than the Lien under this Lease and Permitted Liens, or (B)
Applicable Law;
(iii) the execution and delivery by Lessee of this Lease, and the
performance by Lessee of any of the transactions contemplated hereby do not
require the consent or approval of, or registration with, or the giving or
prior notice to any Person, including any federal, state or foreign
governmental authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Lease, and (B) routine reporting requirements of the
Securities and Exchange Commission, the FAA, the DOT or other Governmental
Authorities after the Delivery Date;
-17-
<PAGE>
(iv) this Lease has been duly executed and delivered by Lessee, and
this Lease, together with Lease Supplement No. 1 when executed and
delivered by Lessee, will constitute legal, valid and binding obligations
of Lessee, fully enforceable, except as set forth on Schedule 4(d)(iv), in
accordance with their respective terms;
(v) except as set forth on Schedule 4(d)(v), there are no pending or,
to the knowledge of Lessee, threatened investigations, suits or proceedings
against it or affecting it or its properties or operations, that, if
determined adversely, would materially adversely affect it, the
consummation of the transactions described in, or the performance of its
obligations under, this Lease Agreement or affect the right, title or
interest of Lessor in the Aircraft;
(vi) except as set forth on Schedule 4(d)(vi), Lessee is not in
violation of, or in default under, any law, ordinance, order, regulation or
authorization of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that could have a material
adverse effect on the business or condition (financial or otherwise) of
Lessee;
(vii) except as set forth in Schedule 4(d)(vii), Lessee is not in
default, and no condition exists that with notice or lapse of time or both
would constitute a default, under any mortgage, deed of trust, indenture,
or other instrument or agreement to which it is a party, or by which it or
any of its properties or assets may be bound, that would have a material
adverse effect on any of the actions described in, or on its ability to
perform its obligations under, this Lease, and it is not in breach of any
Applicable Law that would have a material adverse effect on it, or any of
the actions described in, or on its ability to perform its obligations
under, this Lease;
(viii) except for the filing for recordation of this Lease, and Lease
Supplement No. 1, and the placing on the Aircraft and on each Engine of the
plates containing the legends referred to in Section 7(f) hereof, no
further filing or recording of this Lease or of any other document
(including any financing statement under Article 9 of the Uniform
Commercial Code) and no further action is necessary or advisable, under the
laws of the United States of America or the State of Hawaii, in order to
fully protect and establish Lessor's title to, and interest in, the
Aircraft and the Engines as against Lessee or any third parties;
(ix) the financial and written information furnished by Lessee in
connection with this Agreement, and the transactions contemplated hereby
does not contain any untrue statement of a material fact or omit to state a
material fact;
(x) No Default or Lessee Event of Default has occurred and is
continuing hereunder;
(xi) Lessee has assets in excess of $5,000,000.00 according to its most
recent financial statement prepared in accordance with generally accepted
accounting principles and is not a "consumer" as that term is defined in
Section 17.45 of the Texas Deceptive Trade Practices-Consumer Protection
Act;
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<PAGE>
(xii) Lessee is not a consumer as defined by Hawaii Revised Statutes
Section 480-1 (1992 Supp.), and therefore has no right to bring an action
or pursue damages based upon unfair or deceptive acts or practices under
that Section;
(xiii) Lessee is an air carrier under 14 C.F.R. Part 121; and
(xiv) Lessor shall be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to its rights of repossession of the Aircraft,
any Engines, any appliances or spare parts, each as defined in such Section
1110 of the Bankruptcy Code, pursuant to Section 14A hereof.
(e) Lessor's Representations and Warranties. To induce Lessee to enter
---------------------------------------
into this Lease Agreement, Lessor makes the following representations and
warranties each of which shall survive the execution and delivery of this Lease
Agreement and the Delivery Date:
(i) the execution and delivery by Lessor of this Agreement have been
duly authorized by all necessary corporate action on the part of Lessor, do
not require any approval of stockholders of Lessor (or if such approval is
required, such approval has been obtained), and the execution and delivery
hereof, and/or the consummation by Lessor of the transactions contemplated
hereby, and/or compliance by Lessor with any of the terms and provisions
hereof, do not contravene any provisions of the Certificate of
Incorporation or By-laws of Lessor, or result in any breach of, or
constitute any default under, or result in the creation of any Lien upon
any assets or property of Lessor under, any (A) indenture, mortgage, lease,
chattel mortgage, deed of trust, conditional sales contract, bank loan,
credit agreement or other material agreement or instrument to which Lessor
is a party or by which Lessor or its properties may be bound or materially
affected, which breach or default would have a material adverse effect on
its ability to perform the transactions contemplated by this Agreement, or
(B) any Applicable Law binding on Lessor, which breach or default would
have a material adverse effect on its ability to perform the transactions
contemplated by this Agreement;
(ii) the execution and delivery by Lessor of this Agreement and the
performance by Lessor of its obligations under this Agreement do not
require the consent or approval of, or registration with, or the giving of
prior notice to, any Person including any federal, state or foreign
Governmental Authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Agreement, and (B) routine reporting requirements of
the Securities and Exchange Commission, the FAA, the DOT or other
Governmental Authorities after the Effective Date;
(iii) this Agreement has been duly executed and delivered by Lessor
and, assuming due authorization, execution and delivery by Lessee,
constitutes the legal, valid and binding obligation of Lessor, fully
enforceable against Lessor in accordance with its terms;
(iv) Lessor is not in default, and no condition exists that with notice
or lapse of time or both would constitute a default, under any material
mortgage, deed of trust,
-19-
<PAGE>
indenture, or other instrument or agreement to which it is a party, or
by which it or any of its properties or assets may be bound, that would
have a material adverse effect on its ability to perform its obligations
under this Agreement;
(v) there are no pending or, to the knowledge of Lessor, threatened
investigations, suits or proceedings against it or affecting it or its
properties or operations, that, if determined adversely, would materially
adversely affect the consummation by Lessor of the transactions described
in, or the performance of its obligations under, this Agreement;
(vi) Lessor is not in violation of, or in default under, any Applicable
Law, of any Governmental Authority or any permit or certificate issued or
granted by any Governmental Authority, that would have a material adverse
effect on its ability to perform its obligations under this Agreement;
(vii) Lessor is certificated under 14 C.F.R. Part 121 to perform
Maintenance Services; and
(viii) Lessor has the right to transfer possession and use of the
Serviced Engines to Lessee.
Section 5. Return of Airframe and Engines.
---------- -------------------------------
(a) Return of Airframe and Serviced Engines. Upon the termination of this
---------------------------------------
Lease at the end of the Term or pursuant to Sections 8 or 14A hereof, Lessee
shall return the Return Aircraft by delivering the same, at its own expense, to
Tulsa, Oklahoma (TUL), Marana, Arizona (MZJ), Amarillo, Texas (AMA), Dallas/Fort
Worth International Airport (DFW), or Los Angeles International Airport (LAX) at
Lessor's sole option. Upon the expiration of the Term or pursuant to Sections 8
or 14A, as the case may be, Lessee shall make the redelivered Return Aircraft
available for inspection by Lessor and its representatives and designees. At
the time of the return of the Return Aircraft:
(i) the Return Aircraft shall be in compliance with the Return
Conditions as set forth in Exhibit D;
(ii) the Return Aircraft shall be in compliance with Lessee's FAA-
approved maintenance program;
(iii) each Item of Equipment and Engine shall be free and clear of all
Liens (except any Head Lease Lessor's Liens or Lessor's Liens);
(iv) the Return Aircraft shall be in the same passenger configuration
as when delivered to Lessee, and each Item of Equipment shall be in as good
an operating condition as when delivered to the Lessee on the Delivery
Date, ordinary wear and tear excepted;
(v) Upon the return of the Airframe, either at the end of the Term,
pursuant to Section 8 hereof or pursuant to Section 14A, (i) Lessee shall
have no obligation with respect to the amount of fuel or oil contained in
the Airframe and all fuel or oil remaining on board the Airframe shall be
the property of Lessor without charge and (ii) Lessee shall deliver or
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<PAGE>
cause to be delivered to Lessor all logs, manuals and data, and inspection,
modification and overhaul records required to be maintained with respect
thereto under applicable rules and regulations of the FAA;
(vi) Subject to the availability of storage space, upon the termination
of the Lease as to the Aircraft, upon request of Lessor, Lessee shall
provide Lessor with storage facilities for such Return Aircraft for a
period not exceeding ninety (90) days in accordance with the applicable
manufacturer's recommendations for storage and FAA regulations and shall
arrange for insurance and maintenance (performance of such maintenance
subject to the availability of Lessee's employees) for such Return
Aircraft during such storage period. The Lessor shall pay Lessee's direct
costs for such storage, maintenance and insurance without mark-up; and
(vii) Any Serviced Engines returned by Lessee on any Return Aircraft
are deemed to be Engines for the purpose of compliance with Return
Conditions.
So long as Lessor is maintaining the Aircraft pursuant to Exhibit E
attached hereto, the Return Conditions set forth in Exhibit D (other than
Sections 2F(a) and (b), k, 2M(2), (4) and (5) and 2P thereof and the obligation
to return all documents required for return set forth in Exhibit D and the
obligation to return the Aircraft clean) shall be deemed to be satisfied with
respect to the Aircraft.
(b) Return of Other Engines. In the event that any engine that is not a
-----------------------
Serviced Engine shall be installed on the Airframe returned, such engine shall
be an engine suitable to be a Replacement Engine hereunder. Upon return of the
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor
with a full warranty bill of sale, in form and substance reasonably satisfactory
to it, with respect to such engine and take such other action as may be
reasonably requested in order that title to such engine may be duly and properly
vested in Lessor to the same extent as the Engine replaced thereby. Upon
conveyance of good title to such engine to Lessor, and upon full compliance by
Lessee with its obligations hereunder, at Lessee's expenses, Lessor will
transfer to Lessee all rights, title and interest originally conveyed to Lessor
in an Engine constituting part of the Aircraft but not installed on the Airframe
at the time of the return of the Airframe "as-is, where-is", free and clear of
any Head Lease Lessor's Liens and Lessor's Liens but otherwise without recourse
or warranty, express or implied to Lessee.
Section 6. Liens. Lessee shall not directly or indirectly create, incur,
-----
assume or suffer to exist any Lien on or with respect to the Airframe or any
Engine or any Serviced Engine or any Parts, title thereto or any interest
therein or in this Lease except (i) the respective rights of Lessor and Lessee
as herein provided, of Head Lease Lessor and Lessor as provided in the Head
Lease and of Mortgagee as provided in the Indenture, (ii) the rights of others
under agreements or arrangements to the extent expressly permitted by the terms
of Sections 7(e) and 7(h), (iii) Head Lease Lessor's Liens or Lessor's Liens,
(iv) Liens for Taxes either not yet due or being contested in good faith (and
the payment
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of which has been bonded to the satisfaction of Lessor) by appropriate
proceedings so long as such proceedings do not involve any danger of the sale,
forfeiture or loss of the Airframe or any Engine or any Serviced Engine or
interest therein, (v) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like liens arising in the ordinary course of business for
amounts the payment of which is either not yet delinquent or is being contested
in good faith (and the payment of which has been bonded to the satisfaction of
Lessor) by appropriate proceedings so long as such proceedings do not involve
any danger of the sale, forfeiture or loss of the Airframe or any Engine or any
Serviced Engine or interest therein, (vi) liens arising out of judgments or
awards against Lessee with respect to which at the time an appeal or proceeding
for review is being prosecuted in good faith and with respect to which there
shall have been secured a stay of execution pending such appeal or proceeding
for review, (vii) the Pooling Agreement, (viii) the Head Lease and (ix) the
Indenture. Notwithstanding the foregoing, however, Lessee shall not, in any
event, create, incur, assume or suffer to exist any Lien on or with respect to
the Airframe, title thereto or any interest therein in violation of the terms of
the Head Lease or the Indenture. Lessee shall promptly, at its own expense, take
such action as may be necessary duly to discharge (by bonding or otherwise) any
such Lien not excepted above if the same shall arise at any time.
Section 7. Registration, Maintenance and Operation; Possession; Insignia.
-------------------------------------------------------------
(a) Registration, Maintenance and Operation. Lessee, at its own cost and
---------------------------------------
expense, shall:
(i) maintain, service, repair, overhaul and test or cause to be
maintained, serviced, repaired, overhauled and tested each Item of
Equipment in accordance with Lessee's FAA approved maintenance program, so
as to keep each Item of Equipment (A) in at least as good an operating
condition as when delivered, ordinary wear and tear excepted, and within
the acceptable limits of performance provided in the Manufacturer's
manuals, (B) in conformity with any Manufacturer's operating manual,
instructions and service bulletins and all mandatory service bulletins and
such other non-mandatory Manufacturer's service bulletins reasonably
requested by Lessor and by the Manufacturer, (C) in conformity with all
AD's that are required to be performed with respect to any Item of
Equipment during the Lease Term, (D) in conformity with the requirements of
any other Governmental Authority having jurisdiction over the Item of
Equipment, (E) in such condition that the Airframe and each Serviced Engine
will comply with the FAA type certificate (as in effect from time to time)
issued to the Manufacturer of the Airframe or such Serviced Engine and in
compliance with a maintenance program approved by the FAA so long as such
maintenance program conforms to the maintenance program (as in effect from
time to time) established by the applicable FAA-approved maintenance review
board report for airframes and engines of the same type, and (F) in such
condition as may be necessary to enable the airworthiness certification of
the In-Use Aircraft to be maintained in good standing at all times (and, in
the case of any Engine when it is not installed on the Airframe, so as to
keep such Engine serviceable at all times except when such Engine is
awaiting overhaul, maintenance, repair, inspection or servicing in the
normal course of Lessee's FAA-approved or compatible maintenance program)
under the rules and regulations of the FAA. All maintenance on the
Airframe and Serviced Engines shall be performed by Lessee in accordance
with the standards set forth above. Lessee shall promptly notify Lessor of
any material change in the maintenance program in respect of the In-Use
Aircraft from that in effect on the Delivery Date;
(ii) not permit the Airframe, any Serviced Engine, or any Part to be
maintained, serviced, repaired, overhauled, tested, used or operated in
violation of any Applicable Law of any Governmental Authority having
jurisdiction or in violation of any airworthiness
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certificate, license or registration relating to the Airframe, any Serviced
Engine or any Part issued by any such Governmental Authority. In the event
that any such Applicable Law requires alteration of the Airframe, any
Serviced Engine, or any Part, Lessee will conform thereto or obtain
conformance therewith at no expense to Lessor and will maintain the
Airframe, such Serviced Engine or such Part in proper operating condition
under such Applicable Laws;
(iii) maintain or cause to be maintained all records, logs and other
materials required by the FAA or other applicable Governmental Authority to
be maintained in respect of the In-Use Aircraft; and
(iv) promptly furnish to Lessor such information as may be required to
enable Lessor to file any reports required to be filed by Lessor with any
Governmental Authority because of Lessor's ownership of the Aircraft.
(b) Additional Maintenance Provisions. Lessee covenants and agrees that it
---------------------------------
shall use, operate, maintain, service, repair, overhaul and test or cause to be
used, operated, maintained, serviced, repaired, overhauled and tested, the
Airframe, each Serviced Engine and any Part in at least as good manner and with
at least as much care as used by Lessee with respect to other airframes, engines
and parts of the same type or utility owned, leased or operated by Lessee and
that it will not discriminate against the Airframe, any Serviced Engine or any
Part (as compared to other airframes, engines or parts of the same type or
utility owned, leased or operated by Lessee) in the use, operation, maintenance,
service, repair, overhaul or testing of the Airframe, each Serviced Engine or
any Part.
(c) Territorial Restrictions on Use of Aircraft. Lessee agrees not to
-------------------------------------------
operate or locate any Item of Equipment, or suffer such Item to be operated, (A)
unless such Item is covered by insurance as required by the provisions of
Section 9, (B) contrary to the terms of the insurance required by the provisions
of Section 9 of this Lease or section 11 of the Head Lease, (C) in any war zone
or recognized or threatened area of hostilities unless covered to Lessor's
satisfaction by war risk insurance, (D) to or from any airport which is at such
time the subject of a prohibition order of any Governmental Authority of the
United States or of any international authority or treaty organization of which
the United States is a member, (E) to or from any airport that the aircraft
leased by Lessee from Lessor pursuant to the Long-Term Lease are not operated to
or from or (F) contrary to the terms of the Head Lease..
(d) Obligations Absolute. Nothing herein, including Exhibit E hereto,
--------------------
shall be deemed to affect Lessee's obligations pursuant to this Section 7 or to
impose on Lessor the obligation to pay for or be responsible for the payment of
any maintenance, repair or overhaul. It is understood and agreed that Lessee
shall be responsible for all of its obligations under this Section 7 hereof,
regardless of the performance or non-performance by Lessor of its obligations
described in Exhibit E hereto; provided that nothing contained in this Lease
--------
shall prohibit Lessee from maintaining a separate action against Lessor for any
default by Lessor of its obligations described on Exhibit E attached hereto. So
long as Lessor is required to maintain the Aircraft pursuant to Exhibit E
hereto, the maintenance requirements of this Section 7 shall be deemed to have
been satisfied to the extent such maintenance has been provided by Lessor
pursuant to Exhibit E hereto.
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<PAGE>
(e) Possession. Except for the delivery of the Airframe or any Serviced
----------
Engine to Lessor pursuant to Exhibit E hereto or delivery of any Serviced
Engines pursuant to the Pooling Agreement, Lessee shall not sublease or
otherwise in any manner deliver, transfer or relinquish possession of the
Airframe, and shall not, without the prior written consent of Lessor, sublease
or otherwise in any manner deliver, transfer or relinquish possession of any
Serviced Engine or install any Serviced Engine, or permit any Serviced Engine to
be installed, on any airframe other than the Airframe.
(f) Registration and Insignia. Lessee shall maintain in the cockpit of the
-------------------------
Airframe adjacent to the airworthiness certificate therein the metal nameplate
bearing the Head Lease Lessor's name, as owner and lessor, and the Mortgagee's
name, as mortgagee. Lessee shall affix as promptly as practicable after the
Delivery Date and thereafter to maintain on each Engine a metal nameplate
bearing the inscription "AMERICAN AIRLINES, INC., OWNER AND LESSOR". Lessee may
place its customary colors and insignia on the Airframe or Engines so long as
no polished portion of the In-Use Aircraft is painted. The placement of and
colors or insignia on the In-Use Aircraft shall be performed by Lessor.
Provided that Lessor shall (i) remain a citizen of the United States of America
as defined in Section 40102(a)(15) (former 101(16)) of the Act and (ii)
cooperate with the Lessee, Lessee shall maintain continued registration of the
Airframe in Head Lease Lessor's name under the Act. Except as set forth in
Section 7(h) below, no additional modifications may be made to the Aircraft or
any Serviced Engines without the prior written consent of Lessor.
(g) Replacement of Parts. Subject to the provisions of Exhibit E hereof,
--------------------
Lessee at its own cost and expense, shall promptly replace (or cause to be
replaced) all Parts which may from time to time be incorporated or installed in
or attached to the Airframe or any Serviced Engine and which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8. In addition, Lessee may, at its own
cost and expense, remove or cause to be removed in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damages beyond repair or
permanently rendered unfit for use; provided that Lessee, except as otherwise
--------
provided in Section 8, will, at its own cost and expense, replace such Parts as
promptly as possible. All replacement Parts shall be free and clear of all
Liens (except for Permitted Liens), and shall be in as good operating condition
as, and shall have a value and utility at least equal to, the Parts replaced,
assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof. All Parts at any time removed from the Airframe
or any Serviced Engine shall remain the property of Lessor (or Head Lease
Lessor, as the case may be), no matter where located. Immediately upon any
replacement Part becoming incorporated or installed in or attached to the
Airframe or any Serviced Engine as above provided, without further act, (i)
title to the replacement Part shall thereupon vest in Lessor free and clear of
all Liens (except for Permitted Liens); and (iii) such replacement Part shall
become subject to this Lease and be deemed part of the Airframe or such Serviced
Engine for all purposes to the same extent as the Parts originally incorporated
or installed in or attached to the Airframe or such Serviced Engine. Any Parts
replaced or supplied by Lessor pursuant to Exhibit E attached hereto shall be
deemed to satisfy the conditions of this Section.
(h) Alterations, Modifications and Additions. Subject to the provisions of
----------------------------------------
Section 7(a) hereof, and, in addition, so long as Lessor is maintaining the
Aircraft pursuant to Exhibit E attached hereto, in compliance with Exhibit E
attached hereto, Lessee, at its own expense, will make (or cause
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<PAGE>
to be made) such alterations and modifications in and additions to the Airframe
and the Serviced Engines as may be required from time to time to meet the
standards of the FAA or other Governmental Authority having jurisdiction. In
addition and subject to the terms of Exhibit E hereto, Lessee, at its own
expense, may from time to time make (or cause to be made) such alterations and
modifications in and additions to the Airframe or any Serviced Engine as Lessee
may deem desirable in the proper conduct of its business, including, without
limitation, removal of Parts which Lessee deems obsolete or no longer suitable
or appropriate for use in the Airframe or any Serviced Engine, provided that (i)
--------
no such alteration, modification, addition or removal shall diminish the fair
market value, utility or remaining useful life of the Airframe or such Serviced
Engine, or impair the condition or airworthiness thereof below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification, addition or removal assuming the Airframe or such
Serviced Engine was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this Lease; and (ii) no
structural modification shall be made without the prior written consent of
Lessor. Title to all Parts incorporated or installed in or attached or added to
the Airframe or any Serviced Engine as the result of such alteration,
modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 7(h), so long as no
Default or Lessee Event of Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part, provided that (i) such Part
--------
is in addition to, and not in replacement of or substitution for, (x) any Part
originally incorporated or installed in or attached to the Airframe or any
Serviced Engine at the time of delivery thereof hereunder, or (y) any Part in
replacement of or substitution for any such Part, (ii) such Part is not required
to be incorporated or installed in or attached or added to the Airframe or any
Serviced Engine pursuant to the terms of this Section 7(h), and (iii) such Part
can be removed from the Airframe or such Serviced Engine without causing
material damage to the Airframe or such Serviced Engine and without diminishing
or impairing the value, utility, condition or airworthiness required to be
maintained by the terms of this Lease which the Airframe or such Serviced Engine
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any Part as provided in the immediately
preceding sentence, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Airframe or such Serviced Engine
from which it was removed. Any Part not removed by Lessee as provided in such
sentence prior to the return of the Airframe or such Serviced Engine to Lessor
hereunder shall remain the property of Lessor.
(i) Manuals and Technical Records.
-----------------------------
Lessee undertakes that:
(1) Throughout the Lease Term, Lessee shall keep, or cause to be
kept, accurate, complete and current records of all flights
made by the Aircraft and each Serviced Engine and of all
maintenance and repairs carried out to the Airframe and each
Serviced Engine and shall allow the Lessor or its agents to
examine and make reasonable copies of the records at any
reasonable time upon giving reasonable notice to Lessee.
(2) The records so kept shall conform with Lessee's approved
maintenance program.
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<PAGE>
(3) The records so kept shall be part of the manuals and technical
records and shall be the property of Lessor and that at the end
of the relevant Lease Term or upon the repossession or redelivery
of the Aircraft, Lessee shall deliver the relevant records to the
Lessor, provided that Lessee shall be entitled to take and retain
copies thereof.
(4) The Lessee shall provide to the Lessor or its authorized
representative each month a status report containing engine and
airframe utilization in hours and cycles, and other information
which Lessor may reasonably request.
(5) All original records shall be maintained in their original paper
form and shall be the property of the Lessor upon lease
termination.
(j) Maintenance and Usage. Except as otherwise expressly provided herein,
---------------------
throughout the Lease Term, Lessor and Lessee each agrees to perform its
obligations, duties and liabilities set forth in Exhibit E attached hereto.
Section 8. Loss, Destruction, Requisition, Etc.
------------------------------------
(a) Event of Loss to the Aircraft. Upon the occurrence of an Event of Loss
-----------------------------
with respect to the In-Use Aircraft Lessee shall (i) forthwith (and in any event
within five days after such occurrence) give to Mortgagee, Head Lease Lessor and
Lessor written notice of such Event of Loss and (ii) comply with Section
8(a)(1):
(1) Payment of Stipulated Loss Value and Rent. On or before the
-----------------------------------------
Business Day before the earlier of (i) the 60th day following the date of
the occurrence of such Event of Loss with respect to the In-Use Aircraft;
or (ii) five days following the receipt of insurance proceeds with respect
to such occurrence (the "Loss Payment Date"), Lessee shall pay to Lessor,
-----------------
in the manner and in funds of the type specified in Section 3(e), an amount
equal to the sum of (i) the Stipulated Loss Value for the In-Use Aircraft
calculated as of the Basic Rent Payment Date next following the Event of
Loss (or if the date of such Event of Loss is a Basic Rent Payment Date, as
of such Basic Rent Payment Date (the "Loss Computation Date")) less any
payment of Basic Rent paid by Lessee after the date of such Event of Loss
and on or prior to the Loss Payment Date, (ii) any installment of Basic
Rent due and owing prior to the Loss Payment Date, (iii) all Supplemental
Rent then due and owing for the Aircraft on the Loss Payment Date, and (iv)
interest on the amounts described in clause (i) and (ii) hereof from the
Loss Computation Date to the Loss Payment Date at the Prime Rate.
(2) Termination Upon Payment of Stipulated Loss Value. Upon payment
-------------------------------------------------
in full of the amounts required pursuant to Section 8(a)(1), (i) Lessee's
obligation to pay Basic Rent hereunder with respect to the Aircraft for any
period commencing after the Loss Payment Date shall terminate (but Lessee
shall remain liable for all payments of Rent, including Basic Rent and
Supplemental Rent, including, without limitation, the Supplemental Rent
pursuant to Exhibit E hereto, for the Aircraft, due through and including
the date of such payment), (ii) the Term for the Aircraft shall
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<PAGE>
end, and (iii) Lessor shall (subject to the rights of any insurer) transfer
to Lessee all of Lessor's right, title and interest in the Airframe and the
Serviced Engines, if any, which were subject to the Event of Loss "as-is,
where-as", free and clear of Lessor's Liens, but otherwise without recourse
or warranty, express or implied.
(b) Event of Loss to a Serviced Engine.
----------------------------------
(1) Event of Loss. Upon the occurrence of an Event of Loss with
-------------
respect to a Serviced Engine not then installed on the Airframe, or upon
the occurrence of an Event of Loss with respect to a Serviced Engine
installed on the Airframe but not involving an Event of Loss with respect
to the Airframe, Lessee shall give Lessor prompt written notice thereof and
shall: (i) within sixty (60) days after the occurrence of such Event of
Loss, convey or cause to be conveyed to Lessor, as replacement for the
Serviced Engine with respect to which such Event of Loss occurred, title to
a replacement Serviced Engine free and clear of Liens (other than Permitted
Liens) or (ii) if mutually agreed between Lessor and Lessee, Lessee shall
in lieu of replacing such Serviced Engine pursuant to this Section 8(b)(1),
pay or cause to be paid to Lessor hereunder, within ten (10) days after
such agreement, the Stipulated Loss Value for such Serviced Engine,
computed as of the Basic Rent Payment Date next following the date of such
Event of Loss.
(2) Conditions, Lessee's Obligations. Lessee's right to replace
--------------------------------
contemplated by Section 8(b)(1) shall be subject to the fulfillment, in
addition to the requirements contained in Section 9(b), of the conditions
precedent set forth below:
(i) No Default or Lessee Event of Default shall be continuing on
the replacement date;
(ii) Lessee will promptly (all writings referred to below to be
reasonably satisfactory in form and substance to Lessor):
(a) furnish Lessor a bill of sale duly conveying to Lessor
such replacement Serviced Engine, together with such evidence of
title as Lessor may reasonably request;
(b) if the replaced Serviced Engine is an Engine hereunder,
cause a Lease Supplement, subjecting such Replacement Engine to
this Lease, duly executed by Lessee, to be delivered to Lessor
for execution and, upon such execution, to be duly filed for
recordation with the FAA;
(c) furnish Lessor with such evidence of compliance with the
insurance provisions of Section 9 with respect to such
replacement Serviced Engine as Lessor may reasonably request;
(d) furnish Lessor with a certificate or certification of a
qualified aircraft engineer reasonably satisfactory to Lessor
certifying
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<PAGE>
that such replacement Serviced Engine has a value, utility and
remaining useful life at least equal to the Serviced Engine so
replaced (assuming such Serviced Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss), provided that in addition to
--------
such certificate or certification, Lessor shall have the right to
inspect such replacement Serviced Engine and shall be reasonably
satisfied that it has a value, utility and remaining useful life
at least equal to the Serviced Engine so replaced (assuming such
Serviced Engine was in the condition and repair required by the
terms hereof immediately prior to the occurrence of such Event of
Loss); and
(e) On or before such replacement date, Lessee shall (i)
furnish Lessor with an opinion of independent counsel reasonably
satisfactory to Lessor, that Lessor will suffer no adverse tax
consequences as a result of such replacement or (ii) have agreed
to pay to Lessor as an indemnity such amount or amounts as may be
necessary to hold harmless, on an after-tax basis, Lessor against
any and all adverse tax consequences as may result from such
replacement and shall have provided to Lessor satisfactory
assurances regarding Lessee's ability to pay such indemnity; and
(f) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request in
order that such replacement Serviced Engine be duly and properly
titled in Lessor and leased hereunder to the same extent as the
Serviced Engine replaced thereby.
(3) Event of Loss to an Engine, Not a Serviced Engine. Upon the
-------------------------------------------------
occurrence of an Event of Loss to an Engine which is not a Serviced Engine,
Lessor shall give Lessee prompt written notice thereof and shall within
sixty (60) days after the occurrence of such Event of Loss, lease hereunder
to Lessee a Replacement Engine with respect to such Engine to which such
Event of Loss occurred, free and clear of Liens (other than Permitted
Liens). Lessor shall furnish Lessee with a certificate or certification of
a qualified aircraft engineer reasonably satisfactory to Lessee certifying
that such Replacement Engine has a value, utility and remaining useful life
at least equal to the Engine so replaced, provided that in addition to such
--------
certificate or certification, Lessee shall have the right to inspect such
Replacement Engine and shall be reasonably satisfied that it has a value,
utility and remaining useful life at least equal to the Engine so replaced
(assuming such Engine was in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of Loss).
(4) Conditions, Lessor's Obligations. Lessor's obligation to replace
--------------------------------
contemplated by Section 8(b)(3) shall be subject to the fulfillment of the
conditions precedent that Lessee and Lessor will promptly:
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<PAGE>
(i) cause a Lease Supplement, subjecting such Replacement Engine
to this Lease, duly executed by Lessee and Lessor, to be delivered to
Lessor for execution and, upon such execution, to be duly filed for
recordation with the FAA; and
(ii) take such other actions and furnish such other certificates
and documents as Lessor may reasonably request in order that such
Replacement Engine be duly and properly titled in Lessor and leased
hereunder to the same extent as the Engine replaced thereby;
provided, that Lessor shall have no obligation to deliver possession
--------
of a Replacement Engine to Lessee so long as a Default or Lessee Event of
Default has occurred and is continuing hereunder.
(5) Recordation and Opinions. Promptly after the recordation of the
------------------------
Lease Supplement covering any such Replacement Engine pursuant to the
Federal Aviation Act (or in case the Aircraft was at the time of the Event
of Loss subject to registration under the laws of a country other than the
United States, pursuant to the laws of such country), Lessee shall cause to
be delivered to Lessor an opinion of counsel reasonably satisfactory to
Lessor as to the due recordation of such Lease Supplement pursuant to the
Act (or such other laws).
(6) Conveyance; Replacement Engine. Upon compliance by Lessee with
------------------------------
the terms of this Section 8(b), Lessor will (subject to the rights of any
insurer) transfer (other than in the case of the replacement of an Engine
which was not upon the occurrence of the Event of Loss, a Serviced Engine)
to Lessee all of Lessor's right, title and interest as of the delivery date
of such replacement Serviced Engine in the replaced Serviced Engine, "as-
is, where-is", free and clear of Lessor's Liens but otherwise without
recourse or warranty, express, implied or otherwise.
(7) No Reduction of Basic Rent. No Event of Loss with respect to a
--------------------------
Serviced Engine or an Engine under the circumstance contemplated by this
Section 8(b) shall result in any reduction of Basic Rent. Upon the payment
by Lessee to Lessor of the Stipulated Loss Value of any Serviced Engine,
Lessor, shall provide Lessee with a replacement Serviced Engine.
(8) If Lessor furnishes the replacement Serviced Engine, then the
conditions set forth in Sections 8(b)(2)(ii)(a) and (d) shall be deemed to
be fulfilled.
(c) Application of Payments for Requisition of Title. Any payments (other
------------------------------------------------
than insurance proceeds the application of which is provided for in Section 9)
received at any time by Lessor, Lessee or from any Governmental Authority or
other Person with respect to any Event of Loss, other than a requisition for
use by the Government not constituting an Event of Loss, will be applied as
follows:
(1) Replacement of Serviced Engine. If such payments are received as
------------------------------
a result of an Event of Loss to a Serviced Engine under circumstances
contemplated by Section 8(b), and the Serviced Engine is replaced, so much
of such payments
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<PAGE>
remaining after reimbursement of Lessor for reasonable costs and expenses,
if any, theretofore incurred by Lessor related to such replacement shall be
paid over to, or retained by, Lessee, provided that Lessee shall have fully
performed, or concurrently therewith will perform, the terms of Section
8(b) with respect to the Event of Loss for which such payments are made.
(2) Loss of Airframe. If such payments are received as a result of an
----------------
Event of Loss to the Airframe or the Airframe or Serviced Engines then
installed thereon, so much of such payments as shall not exceed the amounts
payable pursuant to 8(a)(1) shall be applied to pay such amounts (or
reimburse Lessee for its payment of such amounts), and the balance, if
any, of such payment remaining thereafter shall, first, to the extent of
the value of Lessee's interest in such payment, be paid over to Lessee,
and, second, the remainder, if any, shall be retained by Lessor. For
purposes of this clause (2), the value of Lessee's interest in a payment
shall be the amount of the Basic Rent due in regard to the leasing of the
Aircraft for the remainder of the applicable Term.
(d) Requisition of Use of the Airframe. In the event of the requisition
----------------------------------
for use of the Airframe or any Serviced Engines installed on the Airframe during
the Term not constituting an Event of Loss including without limitation,
pursuant to CRAF, Lessee shall promptly notify Lessor of such requisition and
all of Lessee's obligations under this Lease shall continue to the same extent
as if such requisition had not occurred, except to the extent that any failure
or delay in Lessee's performance or observance of such obligations (other than
obligations for the payment of Rent) is caused by such requisition. Unless
Lessor elects to treat such requisition as an Event of Loss, Lessee shall be
obligated to return the Airframe and such Serviced Engines to Lessor pursuant
to, and in all other respects in compliance with the provisions of, Section 5
promptly at the later of the end of the Term or, if Lessor consents, the date of
such return by any such Governmental Authority. All payments received by Lessor
or Lessee from any Governmental Authority for the use of the Airframe and
Serviced Engines during the Term (so long as no Lessee Event of Default shall
have occurred and be continuing) shall be paid over to, or retained by, Lessee;
and all payments received by Lessor or Lessee from the Government for the use of
the Airframe and such Serviced Engines after the Term (or so long as a default
or a Lessee Event of Default shall have occurred and be continuing) shall be
paid over to, or retained by, Lessor, unless such requisition for use by any
Governmental Authority is treated as an Event of Loss in which case all such
payments shall be applied in accordance with Section 8(c)(2).
(e) Investment of Proceeds Pending Replacement. If an Event of Loss shall
------------------------------------------
occur with respect to a Serviced Engine and the provisions of Section 8(b)
apply, or Lessor receives any insurance proceeds pending completion of repairs
by Lessee to the Airframe or a Serviced Engine, Lessor shall, if requested by
Lessee and if no Lessee Event of Default shall have occurred and be continuing,
use its reasonable efforts to invest, at the request, direction and risk of
Lessee, any payments received theretofore or thereafter with respect to the
Airframe or such Serviced Engine from any insurer under insurance required to be
maintained hereunder or from Lessee or from any Governmental Authority or other
person with respect to the applicable Event of Loss or otherwise. Any such
investments shall be in obligations of the United States or obligations
guaranteed as to principal and interest by the Government or certificates of
deposit issued in the United States by a
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<PAGE>
commercial bank or banks each having a combined capital, surplus, and undivided
profits of at least $250,000,000, in each case having a stated maturity not
later than one year from the date of the acquisition thereof by Lessor. Lessee
will pay to Lessor on demand the amount of any loss incurred in connection with
any such investment. All profits and losses on such investments and any taxes in
respect thereof shall be for the account of Lessee. In order to make the
payments to Lessee provided for in Section 8 or 9 hereof, Lessor is authorized
to sell any obligations purchased as aforesaid; and Lessor shall not be required
to make such payments to Lessee until Lessor shall have had a reasonable time to
sell such obligations and to obtain the sale proceeds therefrom.
(f) Application of Payments During Default. Any amount for requisition of
--------------------------------------
title or requisition of use of any Item of Equipment referred to in this Section
8 which is payable to or retainable by Lessee shall not be paid to or retained
by Lessee if at the time of such payment or retention a Default or a Lessee
Event of Default shall have occurred and be continuing, but shall be held by or
paid to Lessor and applied against the obligations of Lessee under this Lease,
and at such time as there shall not be continuing any such Default or Lessee
Event of Default, such amount shall be paid to Lessee to the extent not
previously applied in accordance with this sentence.
Section 9. Insurance.
---------
(a) Liability Insurance. During the Lease Term and during the next three
-------------------
years thereafter, Lessee shall maintain (or cause to be maintained) at no
expense to Mortgagee, Seller, Head Lease Lessor or Lessor the following
insurance, on a worldwide basis with no territorial restrictions, except as may
be specifically consented to from time to time by Mortgagee, Lessor and Head
Lease Lessor, such consent not to be unreasonably withheld, with insurers of
recognized responsibility approved by Lessor through nationally recognized
aviation insurance brokers: comprehensive aviation liability insurance
(including third party legal liability, public liability, passenger legal
liability, personal injury liability, passenger's baggage and personal effects
(checked and unchecked) liability, cargo legal liability, mail legal liability,
premises liability, products/completed operations, hangarkeepers (ground and in-
flight) liability and war risks liability (Lloyd's of London Clause AV.52 or its
equivalent), insurance of the indemnification obligations set forth in Section
15 hereof, and property damage liability insurance with respect to the In-Use
Aircraft in an amount not less than that carried by Lessee on similar equipment
owned or leased by Lessee, provided that such liability insurance shall in no
--------
event be less than $1,000,000,000 for any one accident, or series of accidents
arising out of any one event. Lessee shall not self-insure with respect to any
public liability coverage with the exception of baggage, cargo and mail
liabilities. Any policies of insurance carried in accordance with this Section
9(a) and any policies taken out in substitution or replacement for any of such
policies shall: (1) name Mortgagee, Seller, Head Lease Lessor (as owner of the
Airframe and in its individual capacity) and Lessor and their respective
Affiliates and directors, officers, employees, servants and agents as an
additional insured (each such Person an "Additional Insured"), as their
------------------
respective interests may appear; (2) provide that in respect of the interest of
each Additional Insured in such policies, the insurance shall not be invalidated
by any action or inaction of Lessee or any other insured, and shall insure each
Additional Insured regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by Lessee; (3) provide that
if the insurers cancel such insurance for any reason whatever, or if such
insurance is allowed to lapse for nonpayment of premium, or if there is any
substantial change in policy terms and conditions or coverage, such
cancellation, lapse or change shall not be effective as to any Additional
Insured until
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thirty days (seven days, or such other period as may from time to time be
customarily obtainable in the industry, in the case of war risk and allied
perils coverage) after receipt by such Additional Insured of written notice from
such insurers of such cancellation, lapse or change; and (4) provide that no
Additional Insured shall have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. Each
liability policy shall (i) be primary without right of contribution from any
other insurance which is carried by any Additional Insured, (ii) expressly
provide that all of the provisions thereof, except the limits of liability,
shall operate in the same manner as if there were a separate policy covering any
Additional Insured, and (iii) waive any right of the insurers to any
subrogation, set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any liability of any Additional Insured
or Lessee to the extent of any moneys due to such Additional Insureds. In the
case of the requisition for use of the In-Use Aircraft or any Serviced Engine by
the Government, a valid agreement by the Government to indemnify Lessee in a
manner satisfactory to Mortgagee, Lessor and Head Lease Lessor against any of
the risks which Lessee is required hereunder to insure against in an amount at
least equal to the amount of insurance required to be maintained for the
Aircraft under this Section 9 from time to time shall, to the extent such
indemnity from the Government complies with the requirements set forth in
Section 7(g) hereof, be considered adequate insurance to the extent of the risks
and in the amounts that are the subject of any such agreement to indemnify.
(b) All Risk Hull Insurance. During the relevant Terms, Lessee shall
-----------------------
maintain (or cause to be maintained) at no expense to Mortgagee, Seller, Head
Lease Lessor or Lessor the following insurance, on a worldwide basis with no
territorial restrictions with insurers of recognized responsibility (A) all-
risks (ground, taxing, flight and ingestion) hull insurance covering the In-Use
Aircraft; and (B) all risks (including transit) Aviation Spare Parts (including
Engine and Equipment) Insurance and (C) at all times that any In-Use Aircraft or
any Serviced Engine is not covered by the insurance described in Section 9(c),
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any vandalism, malicious act or act of sabotage, and (iii)
hijacking, or any unlawful seizure or wrongful exercise of control of the In-Use
Aircraft or crew in flight made by any person or persons on board the In-Use
Aircraft without the consent of the insured other than hijacking committed by
persons engaged in a program of irregular warfare for terrorist purposes, in
each case to the extent insured by the standard "buy-back" provisions to the
Airline War Exclusion Clause (AV48B) or its equivalent. Such insurance shall be
for an Agreed Value basis which shall be in an amount not less than the
Stipulated Loss Value. Lessee may self-insure only with the prior written
consent of Head Lease Lessor, Mortgagee and Lessor, and in the event such
consent is granted, only by way of standard market deductibles, the risks
required to be insured against pursuant to the preceding two sentences in such
amounts as are acceptable to Mortgagee, Lessor and Head Lease Lessor in their
sole discretion. Any policies carried in accordance with this Section 9(b)
covering the In-Use Aircraft and any policies taken out in substitution or
replacement for any such policies shall (1) name Head Lease Lessor, as owner of
the Airframe, Mortgagee, Seller and Lessor as additional insureds as their
interests may appear, and Head Lessor and Lessor as loss payees, as their
interests may appear; (2) provide that the amount of any loss up to $2,000,000
shall be paid to Lessor or its order so long as the insurer has not been
notified that an Event of Default under the Head Lease exists and provide that
the amount of any loss in excess of $2,000,000 (or all proceeds if the insurer
has been notified that an Event of Default under the Head Lease exists) shall be
payable to the Mortgagee; (3) provide that if such insurance is canceled for any
reason whatsoever, or any
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<PAGE>
substantial change is made in policy terms, conditions or coverage, or the same
is allowed to lapse for non-payment of premium, such cancellation, change or
lapse shall not be effective as to Mortgagee, Seller, Head Lease Lessor or
Lessor until thirty days (seven days or such other period as may from time to
time be customarily obtainable in the industry, in the case of war risk and
allied perils coverage), after receipt by Mortgagee, Seller, Head Lease Lessor
or Lessor, respectively, of written notice from such insurers of such
cancellation or lapse or change in policy terms, conditions or coverage; (4)
provide that losses shall be adjusted with Lessor; (5) provide that in respect
of Mortgagee, Seller, Head Lease Lessor and Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and shall
insure such parties regardless of any breach contained in such policies by
Lessee or any other insured; (6) be primary without right of contribution from
any other insurance which is carried by Mortgagee, Seller, Head Lease Lessor or
Lessor with respect to its interest in the In-Use Aircraft; (7) waive any right
of subrogation of the insurers against Head Lease Lessor, Mortgagee, Seller or
Lessor; (8) waive any right of the insurers to set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any liability
of Mortgagee, Seller, Head Lease Lessor, Lessor or Lessee to the extent of any
moneys due to Mortgagee, Seller, Head Lease Lessor or Lessor, as the case may
be; and (9) provide that Mortgagee, Seller, Head Lease Lessor and Lessor shall
have no obligation or liability for premiums, commissions, assessments or calls
in connection with such insurance. If the insurance required to be carried
pursuant to Sections 9(b) and 9(c) is effected under separate policies, the
insurers shall agree that if a disagreement arises as to whether a claim is
covered by the all-risk insurance or the war-risk insurance, the insurers will
settle such claims on the basis of a 50-50 claim funding arrangement. In the
case of the requisition for use of the In-Use Aircraft or any Serviced Engine by
the Government, a valid agreement by the Government, satisfactory to Head Lease
Lessor and Lessor, to indemnify Lessee against any of the risks which Lessee is
required hereunder to insure against in an amount at least equal to the amount
of insurance required to be maintained for the In-Use Aircraft under this
Section 9 from time to time shall, to the extent such indemnity from the
Government complies with the requirements set forth in Section 7(g) hereof, be
considered adequate insurance to the extent of the risks and in the amounts that
are the subject of any such agreement to indemnify.
(c) War-Risk Insurance. During the Lease Term, Lessee shall maintain (or
------------------
cause to be maintained), at no expense to Mortgagee, Seller, Head Lease Lessor
or Lessor War-Risk and Allied Perils Aviation Hull (including Spare Parts,
Engines and Equipment) Insurance on an Agreed Value basis, which shall be not
less than the Stipulated Loss Value. Such policy shall (i) insure against those
perils excluded under Lessee's All Risks Hull and Spares policy(ies) by virtue
of Lloyd's of London Exclusion Clause AVN.48B ("War, Hijacking and Other Perils
Exclusion Clause") or its equivalent (other than paragraph (b) thereof relating
to nuclear perils), (ii) provide for payment in U.S. Dollars, (iii) contain a
50/50 clause in accordance with Lloyd's of London Aviation Clause AVS.103 or its
equivalent, (iv) be endorsed to include coverage for confiscation, requisition,
nationalization, seizure, restraint, detention, appropriation, requisition of
title or for use by any Governmental Authority (except for the government of
registry) of the In-Use Aircraft, (v) provide coverage on a worldwide basis
(subject only to such geographical limits as may be imposed by the hull, war and
allied perils insurance) and (vi) be endorsed to include provisions identical to
those contained in clauses (1), (2), (3), (4), (5), (6), (7), (8), and (9) of
Section 9(b).
(d) Application of Proceeds. Provided no Lessee Event of Default shall
-----------------------
have occurred and be continuing, all insurance payments received under policies
required to be maintained by Lessee
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<PAGE>
pursuant to Section 9 as the result of the occurrence of an Event of Loss shall
be applied in accordance with Section 8(c)(1) or Section 8(c)(2). Insurance
payments relating to any property damage or loss to the In-Use Aircraft or any
Serviced Engine not constituting an Event of Loss with respect thereto will be
applied in payment for repairs or for replacement property in accordance with
the terms of Section 8(c) hereof, if not already paid for by Lessee, and any
balance remaining after compliance with such Sections with respect to such loss
shall be paid to Lessee. Any amount representing proceeds of insurance required
to be maintained by Lessee hereunder which is payable to or retainable by Lessee
shall not be paid to or retained by Lessee if at the time of such payment a
Default or a Lessee Event of Default shall have occurred and be continuing, but
shall be held by or paid to Lessor as security for the obligations of Lessee
under this Lease and such amount (to the extent not previously applied against
such obligations) shall be paid to Lessee at such time as there no longer exists
any Default or Lessee Event of Default.
(e) Reports, Etc. On or before the Delivery Date (except, with respect to
-------------
the insurance required by Section 9(j), prior to the date hereof), and no less
than five (5) Business Days prior to the expiration of any insurance required
pursuant to this Section 9, Lessee shall furnish to Mortgagee, Seller, Lessor
and Head Lease Lessor (i) appropriate certification by each insurer or its
authorized signatories and (ii) a report signed by a firm of independent
insurance brokers, then retained by Lessee, attaching certificates evidencing
the insurance and reinsurance then carried and maintained with respect to the
In-Use Aircraft and Allocated Parts and stating that in the opinion of such firm
the insurance then carried and maintained with respect to the In-Use Aircraft
and Serviced Engines or Parts complies with the terms hereof. Lessee will cause
such firm to advise Mortgagee, Seller, Lessor and Head Lease Lessor in writing
promptly of any material default in the payment of any premium and of any other
act or omission on the part of Lessee of which they have knowledge which might
invalidate or render unenforceable, in whole or in part, any insurance on the
In-Use Aircraft or any Serviced Engine or Parts. Lessee also shall cause such
firm to advise Mortgagee, Seller, Head Lease Lessor and Lessor in writing at
least thirty (30) days (seven (7) days, or such other period as may from time to
time be customarily obtainable in the industry, in the case of war risk and
allied perils coverage), prior to the expiration or termination of any insurance
policy carried or maintained with respect to the In-Use Aircraft or any
Serviced Engine any Parts pursuant to this Section 9. In the event that Lessee
shall fail to maintain insurance as herein provided. Lessor or Head Lessor may
at its option provide such insurance and, in such event, Lessee shall upon
demand, reimburse Lessor, as Supplemental Rent, for the cost thereof, together
with interest, on the amount of the cost of Lessor or Head Lessor of insurance
for the Aircraft as to which Lessee shall have failed to maintain insurance, at
the rate specified in Section 3(c) of the Head Lease.
(f) Additional Insurance. Lessee at its option and at its sole cost and
--------------------
expense may obtain insurance with respect to its interest in the In-Use
Aircraft, provided that such insurance does not prevent Lessee from obtaining
--------
the insurance required by this Section 9; and provided, further, that such
-------- -------
additional insurance does not prevent Mortgagee, Seller, any Participant, Head
Lease Lessor or Lessor, as the case may be, from obtaining insurance for its own
account with respect to the In-Use Aircraft in excess of Stipulated Loss Value.
No such insurance shall be subject to this Section 9. Mortgagee, any
Participant, Head Lease Lessor and Lessor may each carry for its own account at
its sole cost and expense insurance with respect to its interest in the In-Use
Aircraft but in no event shall such insurance prevent Lessee from carrying
insurance required by this Section 9 or adversely affect the cost thereof.
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<PAGE>
(g) Notice from Lessee; No Modification. Lessee shall forthwith notify
-----------------------------------
Mortgagee, Seller, Head Lease Lessor and Lessor of any event which may give
rise to a claim under the insurance required pursuant to this Section 9.
(h) Reinsurance. In the event of any reinsurance of the risks set forth in
-----------
Section 9(b) the following clause shall be incorporated into such reinsurance
policies:
"Reinsurers hereby agree that notwithstanding the insolvency, liquidation,
bankruptcy, dissolution of or similar proceedings affecting Insurers in
respect of a total loss or other claim whereas provided by the Lease such
claim will be paid to the person or persons named as loss payee under the
primary insurance and that Reinsurers shall in lieu of payment to the
Insured, its successors in interest and assigns, pay to the person named as
loss payee under the primary insurance that portion of any loss due for
which the reinsurers would otherwise be liable to pay the Insurers (subject
to proof of loss), it being understood and agreed that any such payment by
the Reinsurers shall (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in connection
therewith, subject to such clause not contravening any law of the
government of registration."
(i) Insurance of Lessor. Lessor agrees to maintain throughout the Lease
-------------------
Term Hangarkeeper's Legal Liability Insurance that, in accordance with the terms
and conditions of the policy, covers the Serviced Aircraft during periods in
which the Serviced Aircraft is within custody and control of Lessor for an
amount not less than the Stipulated Loss Value.
(j) Insurance Relating to Allocated Parts. During the Term, Lessee shall
-------------------------------------
maintain (or cause to be maintained) at no expense to Lessor the following
insurance with respect to the Allocated Parts with insurers of recognized
responsibility satisfactory to Lessor: (A) All Risks Property Insurance and (B)
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances or (ii) vandalism, malicious acts or acts of sabotage. Such
insurance shall be for an aggregate amount of no less than $1,600,000. With the
written consent of Lessor, Lessee may self-insure, only by way of deductibles,
the risks required to be insured against pursuant to the preceding two sentences
in such amounts as are acceptable to Lessor in its sole discretion. Any
policies carried in accordance with this Section 9(j) covering the Allocated
Parts and any policies taken out in substitution or replacement for any such
policies shall (1) name Lessor as sole loss payee; (2) provide that the entire
amount of any loss shall be paid to Lessor or its order; (3) provide that if
such insurance is canceled for any reason whatsoever, or any substantial adverse
change is made in policy terms, conditions or coverage, or the same is allowed
to lapse for non-payment of premium, such cancellation, change or lapse shall
not be effective as to Lessor until thirty (30) days after receipt by Lessor of
written notice from such insurers of such cancellation or lapse or change in
policy terms, conditions or coverage; (4) provide that losses shall be adjusted
with Lessor; (5) provide that in respect of Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and shall
insure such parties regardless of any breach contained in such policies by
Lessee or any other insured; (6) waive any right of subrogation of the insurers
against Lessor; (7) waive any right of the insurers to set-off or counterclaim
or any other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (8)
provide that Lessor shall not have any obligation or liability for premiums,
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<PAGE>
commissions, assessments or calls in connection with such insurance. Lessee
shall bear the risk of loss to the extent of any deficiency in any effective
insurance coverage with respect to loss or damage to all or any portion of the
Allocated Parts.
(k) Compliance with Head Lease. Notwithstanding anything to the contrary
--------------------------
contained in this Section 9, Lessee agrees that it will additionally comply with
and abide by all of the covenants and other obligations of Lessor, as lessee in
Section 11 of the Head Lease; provided, in no event will Lessee maintain
insurance in amounts or coverages less than the amounts and coverages required
by Section 11 of the Head Lease or such lesser amounts as may be consented to by
Head Lease Lessor.
Section 10. Inspection; Financial Information; Letter of Credit.
---------------------------------------------------
(a) Inspection. During the Lease Term, Lessee shall furnish to Mortgagee,
----------
Head Lease Lessor and Lessor such information concerning the location,
condition, use and operation of the In-Use Aircraft as such party may reasonably
request. Lessee shall permit any person designated in writing by Mortgagee,
Head Lease Lessor or Lessor, at such designating party's expense, to visit and
inspect (at any reasonable time, provided that such inspection shall not
unreasonably interfere in any material respect with Lessee's business operations
or operation or maintenance of the In-Use Aircraft) the In-Use Aircraft and the
records maintained in connection therewith and, at such designating party's
expense, to make copies of such records as such party may reasonably designate.
Mortgagee, Head Lease Lessor and Lessor shall not have any duty to make any such
inspection and shall not incur any liability or obligation by reason of making
or not making any such inspection. Any such inspection of the In-Use Aircraft
shall be a visual, walk-around inspection which may include going on board the
In-Use Aircraft and shall not include opening any panels, bays, or the like,
provided, that any such designee of Head Lease Lessor and/or Lessor, as the case
- --------
may be, shall be entitled to be present during any maintenance check of the In-
Use Aircraft at which any panels, bays or the like may be opened and shall have
the right to inspect such items during such maintenance check. Upon written
request from Mortgagee, Head Lease Lessor or Lessor, as the case may be, Lessee
shall provide such requesting party with the anticipated dates of any scheduled
major maintenance checks (including any "C", heavy "C" or "D" check) occurring
within the six-month period following such request.
(b) Financial Information. Lessee also agrees to furnish to Lessor during
---------------------
the Lease Term:
(1) as soon as possible and in any event within ten (10) days after
the occurrence of a Default or Lessee Event of Default, a certificate of
Lessee, signed by a vice president of Lessee, setting forth in detail the
nature of such Default or Lessee Event of Default and the action which the
Lessee proposes to take with respect thereto;
(2) from time to time, such information as Lessor may reasonably
request with respect to the operations of Lessee in order to determine
whether the covenants, terms and provisions of this Lease have been
complied with by Lessee;
(3) such information as may be required to enable Lessor to file any
reports required to be filed with any Governmental Authority because of
Lessor's ownership of the Items of Equipment;
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<PAGE>
(4) as soon as available, quarterly and year-end unaudited Reports of
Financial and Operating Statistics for Large Certified Air Carriers (U.S.
Department of Transportation Form 41 Schedule A); and
(5) as soon as available, and in any event within sixty (60) days
after the end of each of the first three fiscal quarters, an unaudited
balance sheet of the Lessee and its consolidated subsidiaries, as of the
end of such quarter and related unaudited statements of income and retained
earnings of the Lessee and its consolidated subsidiaries, setting forth in
each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year;
(6) as soon as available, and in any event within 120 days after the
end of each fiscal year of Lessee, a financial report for the Lessee for
such year, including therein a balance sheet of Lessee as of the end of
such fiscal year and related statements of income and retained earnings and
changes in financial position of the Lessee for such fiscal year, setting
forth in each case in comparative form corresponding figures for the
preceding fiscal year, all in reasonable detail and as certified by the
Lessee's public accountants, including their certificate and accompanying
comments; and
(7) promptly upon their becoming available, one copy of each financial
statement, report, notice or proxy statement sent by Lessee to stockholders
generally and of each regular or periodic report, registration statement or
prospectus filed by Lessee with any securities exchange or the Securities
and Exchange Commission or any successor agency, and of any order issued by
any Governmental Authority in any proceeding in which Lessee is a party;
and
(8) from time to time, such statistical information concerning the In-
Use Aircraft as Lessor may reasonably request to enable Lessor to evaluate,
calculate and/or report any Taxes.
(c) Letter of Credit.
----------------
(1) Lessee shall take whatever action may be necessary to maintain the
Letter of Credit (whether in the form of a letter of credit or a deposit)
in full force and effect, which shall secure Lessee's obligations hereunder
and under the Long-Term Agreements and the Ancillary Agreements.
(2) In the event any issuer of any letter of credit constituting all
or a portion of the Letter of Credit fails to renew such letter of credit
at least thirty (30) days prior to the then effective expiry date thereof,
then Lessor may draw, or may cause such letter of credit to be drawn. The
proceeds of such draws made under the letters of credit will be deposited
with Lessor and/or one of its Affiliates as set forth in Section 10(c)(4)
below.
(3) In the event Lessor withdraws or causes to be withdrawn any amount
from the deposit constituting all or a portion of the Letter of Credit (the
"Deposit"), Lessor shall promptly thereafter deliver a certificate (the
"Withdrawal Certificate") to Lessee certifying
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<PAGE>
the date and amount of the withdrawal and that Lessor was entitled to make
such withdrawal. Lessee shall on or before the fifth Business Day following
receipt of such Withdrawal Certificate, provide Lessor with all or one of
the following in the amount of such withdrawal (the "Replacement Letter of
Credit) from the Deposit: (i) a letter of credit, complying with the
definition of Letter of Credit set forth herein; or (ii) immediately
available funds to be maintained as a Deposit as set forth herein.
(4) In the event Lessee elects at any time to maintain all or any
portion of the Letter of Credit as a Deposit or any amount drawn under any
Letter of Credit pursuant to 10(c)(2) above is to be held as a Deposit,
then Lessor or one of its Affiliates shall hold such money in an account in
Lessor's or one of its Affiliates' names at a financial institution(s)
selected by Lessor or one of its Affiliates. Lessee hereby agrees with
respect to any Deposit which forms a part of the Letter of Credit
(including the Deposit previously made pursuant to the Interim Definitive
Agreements which shall now be deemed a Deposit hereunder), that: (i)
Lessor and its Affiliates shall have the right of recoupment against such
Deposit and the proceeds thereof with respect to any amount payable by
Lessee to Lessor or its Affiliates pursuant to this Lease or the Long-Term
Agreements and the Ancillary Agreements; and (ii) Lessor and its Affiliates
shall have a valid security interest in such Deposit and the proceeds
thereof to secure its obligations, indebtedness and liabilities hereunder,
under the Long-Term Agreements and the Ancillary Agreements; (iii) the
Deposit will be held in the name of Lessor or an Affiliate, may be
commingled with other funds of Lessor and its Affiliates and may be
invested or held uninvested at the sole discretion of Lessor and its
Affiliates; and (iv) that Lessor is holding such money as a Deposit
pursuant to the terms of this Lease Agreement and the Long-Term Agreements
and the Ancillary Agreements. Lessee shall execute or deliver any other
document or instrument or take any other action necessary to effectuate the
foregoing, and shall take any action reasonably requested by Lessor to
perfect Lessor's security interest in the Deposit.
(5) Lessee shall have the right at any time and from time to time to
replace any portion of the Letter of Credit consisting of a Deposit with a
letter of credit or a letter of credit with a Deposit, provided such
substitute Deposit meets the requirements of Section 10(c)(4) or the
substitute letter of credit meets the requirements of a Letter of Credit
and the aggregate amount of all such Deposits and letters of credit is
$2,000,000. In the case of substitution of a Deposit for a letter of
credit, Lessor shall simultaneously with the delivery of the Deposit and
execution and delivery of an agreement as required by Section 10(c)(4),
deliver to Lessee the original letter of credit for which the substitution
is being made.
(6) Notwithstanding the provisions of Section 10(c)(4) above, in the
event the rating (the "Rating") assigned by Standard & Poor's Corporation
to publicly traded, long-term debt securities issued by Lessor becomes CCC+
or lower, then upon receipt of written request from Lessee, Lessor shall
cause the Deposit to be maintained in a segregated account at a financial
institution acceptable to Lessee, which Deposit shall otherwise continue to
comply with, and be subject to the provisions of this Section 10(c).
Lessor agrees to give Lessee prompt written notice of any such downgrading
of its Rating.
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<PAGE>
(7) In the event Lessor draws upon any letter of credit or withdraws
any Deposit (which constitutes all or a portion of the Letter of Credit),
and Lessee in good faith, reasonably disputes such drawing or withdrawal,
then Lessee must nevertheless continue to maintain the Letter of Credit in
an amount not less than $2,000,000. However, Lessee may cause any
Replacement Letter of Credit which constitutes a deposit ("Replacement
Deposit") to be maintained in a segregated account at a financial
institution acceptable to Lessee, in the names of Lessee and Lessor, which
Deposit must otherwise comply with Sections 10(c)(4) hereof. Lessor may
not make a withdrawal from such Replacement Deposit until the earlier to
occur of the following: (1) resolution of the dispute concerning the
earlier drawing of the Letter of Credit or withdrawal of the Deposit, or
(2) a Lessee Event of Default under Section 13A(i) or (j). In the event
and to the extent it is finally determined pursuant hereto or is otherwise
agreed by Lessee and Lessor, that any drawing upon any Letter of Credit or
any withdrawal from any Deposit (a "Withdrawal") was not authorized under
this Lease Agreement or any Long-Term Agreement, then to the extent such
withdrawal was not authorized, the applicable portion of the replacement
Deposit shall be returned to Lessee and the remainder shall be delivered to
Lessor in accordance with Section 10(c)(4) above.
(8) Upon payment and satisfaction in full of all of Lessee's
obligations, indebtedness and liabilities under this Lease Agreement and
the Long-Term Agreements and the Ancillary Agreements ("Final Payment"),
Lessor shall or shall cause all Letters of Credit to be returned to Lessee.
Upon the substitution of a Letter of Credit for a Deposit or a portion
thereof, pursuant to Section 10(c)(5) above, or upon Final Payment, Lessee
shall return any Deposit, or portion thereof, as applicable, to Lessee,
together with interest on such Deposit or returned portion thereof, from
September 12, 1994 to, but not including, the date of return of the Deposit
or such returned portion, such interest to be calculated at the rate of
four percent (4%) per annum (calculated on the basis of a year of 365 days)
compounded annually beginning on September 12, 1995 and on each September
12 thereafter.
Section 11. Lessee's Covenants.
------------------
(a) Merger. Lessee shall not consolidate with or merge into any other
------
corporation, or convey, transfer or lease all or substantially all of its assets
to any Person, unless (i) the corporation formed by such consolidation or into
which Lessee is merged or the Person who acquires by conveyance, transfer or
lease all or substantially all of the assets of Lessee (the "Successor"): (A)
remains entitled to the benefits of Section 1110 of the Bankruptcy Code with
respect to this Lease; and (B) shall execute and deliver to Lessor an agreement
containing an assumption by such Successor of the due and punctual performance
and observance of each covenant and condition of this Lease Agreement to be
performed or observed by Lessee; (ii) immediately after giving effect to such
transaction, no Default or Lessee Event of Default shall have occurred and be
continuing hereunder and shall not violate the terms of the Head Lease,
including, without limitation, Section 7(b) of the Head Lease; (iii) Lessee
shall have delivered to Lessor, an officer's certificate and an opinion of
independent counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and the assumption agreement described in clause (i) above
comply with this Section 11(a) and that all conditions precedent herein provided
for relating to such transaction have been complied with (except that such
opinion need not cover the matters referred to in clause (ii) above and may
rely, as to factual matters, on an officer's certificate of Lessee) and, in the
case of such opinion, that such assumption
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agreement has been duly authorized, executed and delivered by the Successor,
constitutes its legal, valid and binding obligation and is enforceable against
such Successor in accordance with its terms, that Lessor shall continue to be
entitled to the benefits and protections set forth in Section 1110 of the
Bankruptcy Code, and any such actions shall not constitute an event of default
under the Head Lease as stated in an opinion of independent counsel; (iv) Lessor
shall retain all the benefits of the Letter of Credit; and (v) neither Head
Lease Lessor nor Lessor shall suffer any adverse tax consequences as a result of
such consolidation, merger or transfer which is not indemnified by Lessee in
accordance with the terms hereof or against which Head Lease Lessor and Lessor
are each otherwise indemnified in form and substance reasonably satisfactory to
Head Lease Lessor and Lessor.
Upon any consolidation or merger, or any conveyance, transfer or lease of
all or substantially all of the assets of Lessee as an entirety in accordance
with this Section 11(a), the Successor shall succeed to, be substituted for, and
may exercise every right and power of, and shall assume every obligation and
liability of, Lessee under this Lease Agreement with the same effect as if the
Successor had been named as Lessee herein and therein. No such consolidation or
merger or conveyance, transfer or lease of all or substantially all of the
assets of Lessee shall have the effect of releasing Lessee or any Successor
which shall theretofore have become such in the manner prescribed in this
Section 11(a) from its liability hereunder. Nothing contained herein shall
permit any lease, sublease or other arrangement for the use, operation or
possession of the In-Use Aircraft or Engines except in compliance with the
applicable provisions of this Lease.
(b) Certificated Air Carrier. Lessee will continue to be a certificated
------------------------
air carrier authorized to engage in scheduled air transportation under the
Federal Aviation Act.
Section 12. FAA Recordation and Further Assurances.
--------------------------------------
(a) FAA Recordation. Lessee shall cause this Lease, all Lease Supplements
---------------
and any and all additional instruments which shall be executed pursuant to the
terms hereof so far as permitted by Applicable Laws or regulations, to be duly
kept, filed and recorded, and maintained of record, in accordance with the
applicable law of the government of registry of the Aircraft, which shall be in
the office of the FAA. The cost of all such action shall be borne by Lessor.
(b) Further Assurances. Each party hereto shall, at its expense, promptly
------------------
and duly execute and deliver to the other party such further documents and
promptly take such further action not inconsistent with the terms hereof as the
other party may from time to time reasonably request in order more effectively
to carry out the intent and purpose of this Lease or to perfect and protect the
rights and, with respect to Lessor, remedies created or intended to be created
hereunder.
Section 13A. Lessee Events of Default. The following events shall
------------------------
constitute Lessee Events of Default (each a "Lessee Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessee Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied or
waived by Lessor in writing:
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(a) Lessee shall fail to make any payment of Basic Rent or Supplemental
Rent due pursuant to Exhibit E hereto, as and when due or shall fail to make any
other payment of Supplemental Rent within five (5) Business Days after delivery
to Lessee of notice from Lessor that the amount shall have become due hereunder;
or
(b) Lessee shall fail to procure, carry and maintain any insurance required
by Section 9 hereof; provided that in the case of insurance with respect to
--------
which cancellation, change or lapse for nonpayment of premium shall not be
effective as to Mortgagee, Seller, Head Lease Lessor or Lessor for 30 days (five
days in the case of any war risk and allied perils coverage, or if shorter, such
other period as may be customary in the industry for such notice of
cancellation) after receipt of notice by Mortgagee, Seller, Head Lease Lessor or
Lessor, respectively, of such cancellation, change or lapse, no such failure to
carry and maintain insurance shall constitute a Lessee Event of Default
hereunder until the earlier of (i) the date such insurance is no longer in
effect as to Mortgagee, Seller, Head Lease Lessor or Lessor, or (ii) the date
such failure shall have continued unremedied for a period of 20 days (five days
in the case of any war risk and allied perils coverage, or if shorter, such
other period as may be customary in the industry for such notice of
cancellation) after receipt by Lessor of the notice of cancellation, change or
lapse; or
(c) Lessee shall fail to perform or observe, breach or be in default under
Sections 5, 7(c), 10(c), or 11 hereof; or
(d) Lessee shall fail to perform or observe, breach or be in default under
any other covenant, condition or agreement to be performed or observed by it
hereunder and such failure shall continue unremedied for a period of thirty (30)
Business Days after written notice thereof by Lessor; or
(e) any material representation or warranty made by Lessee herein or in any
document or certificate furnished by Lessee in connection herewith or pursuant
hereto shall prove to have been incorrect in any material respect when made; or
(f) Lessee shall fail to pay any sums which are or become due and owing
under any Interim Aircraft Lease Agreement, the Interim Aircraft Maintenance
Agreement, the Long-Term Lease Agreement, the July Lease Agreement or the
November Lease Agreement or shall fail to perform under any indemnification
obligations contained in any Interim Aircraft Lease Agreement, the Long-Term
Lease Agreement, the November Lease Agreement, the July Lease Agreement, the
December Lease Agreement or the Interim Aircraft Maintenance Agreement; or
(g) the Letter of Credit (to the extent it is not a Deposit) shall,
subsequent to the effectiveness thereof, cease to be a legal, valid, binding
agreement enforceable against the issuer thereof, if any, or shall in any way be
terminated or become or be declared ineffective or inoperative or shall in any
way whatsoever cease to give or provide to Lessor or its Affiliates the
respective Liens, security interest, rights, titles, interest, remedies, powers
or privileges intended to be created thereby for any reason whatsoever other
than due to a breach by Lessor (or its Affiliates, as the case may be) of any of
its obligations thereunder (if any such obligations exist) or if the Deposit, if
any, constituting the Letter of Credit, or any portion thereof, is encumbered,
reduced, depleted or otherwise ceases to secure Lessee's obligations hereunder,
other than one or more withdrawals from the Deposit or draws under the Letter of
Credit pursuant to this Lease Agreement or any Long-Term
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Agreement so long as Lessee complies with Section 10(c)(iii) hereof, and other
than an encumbrance, reduction, depletion or cessation of security arising by,
through or under Lessor or its Affiliates unrelated to the transactions
contemplated by this Lease Agreement and the Long-Term Agreements; or
(h) all or substantially all of Lessee's airline operations are suspended
for more than two days; or
(i) Lessee shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Lessee shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee in any such proceeding,
or Lessee by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Lessee shall take any corporate action to authorize any of the foregoing; or
(j) a petition against Lessee in a proceeding under any bankruptcy or other
insolvency law (as now or hereafter in effect) shall be filed, and any decree or
order adjudging Lessee a bankrupt or insolvent in such proceeding shall remain
in force undismissed and unstayed for a period of sixty (60) days after such
adjudication or, in case the approval of such petition by a court of competent
jurisdiction is required, the petition as filed or amended shall be approved by
such a court as properly filed and such approval shall not be withdrawn and the
proceeding shall not be dismissed within sixty (60) days thereafter, or if,
under the provisions of any law providing for reorganization or winding-up of
corporations which may apply to Lessee, any court of competent jurisdiction
shall enter an order or decree assuming custody or control of Lessee or of any
substantial part of its property and such custody or control remains in force
unrelinquished, unstayed and unterminated for a period of thirty (30) days; or
(k) obligations of Lessee for the payment of borrowed money shall not be
paid when the same become due after the expiration of any applicable grace
period, if the effect of such default is to cause obligations in excess of
$20,000,000 to be accelerated or otherwise declared to be due and unpaid prior
to their stated maturity; or
(l) the issuer, if any, of the Letter of Credit becomes insolvent, or a
receiver, trustee, custodian or similar entity is appointed or otherwise takes
control of the issuer or of the whole or any part of its property (an "Issuer
Insolvency"), and Lessee is unable to secure a substitute letter of credit of an
issuer acceptable to Lessor and its Affiliates or make a deposit in the
applicable amount within thirty (30) days of the occurrence of an Issuer
Insolvency.
Section 13B. Lessor Events of Default. The following events shall
------------------------
constitute Lessor Events of Default (each a "Lessor Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
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Authority) and each such Lessor Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied, or
waived by Lessee in writing:
(a) Lessor shall fail to procure, carry and maintain any insurance
required by Section 9(i) to be carried and maintained by Lessor;
(b) Lessor shall fail to perform or observe, breach or be in default
under any other covenant, condition or agreement to be performed or
observed by Lessor hereunder and such failure shall continue unremedied for
a period of thirty (30) Business Days after written notice thereof by the
Lessee; provided, the existence of any Defect shall not constitute a Lessor
--------
Event of Default so long as Lessor promptly commences and diligently
complies with its warranty obligations under Section 5 of Exhibit E;
(c) Any material representation or warranty made by Lessor herein or
in any document or certificate furnished by Lessor in connection herewith
or pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) Lessor shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a
substantial part of its property, or Lessor shall be unable to pay its
debts generally as they become due, or shall make a general assignment for
the benefit of creditors, or Lessor shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against
Lessor in any such proceeding, or such party by voluntary petition, answer
or consent shall seek relief as debtor under the provisions of any other
present or future bankruptcy or other similar law providing for the
reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors or
Lessor shall take any corporate action to authorize any of the foregoing;
(e) A petition against Lessor in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and
any decree or order adjudging Lessor a bankrupt or insolvent in such
proceeding shall remain in force undismissed and unstayed for a period of
sixty (60) days after such adjudication or, in case the approval of such
petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as properly filed and
such approval shall not be withdrawn and the proceeding shall not be
dismissed within sixty (60) days thereafter, or if, under the provisions of
any law providing for reorganization or winding-up of corporations which
may apply to Lessor, any court of competent jurisdiction shall enter an
order or decree assuming custody or control of such party or of any
substantial part of its property and such custody or control remains in
full force unrelinquished, unstayed and unterminated for a period of thirty
(30) days; or
(f) Repossession by the Mortgagee pursuant to the Indenture or the
Head Lease Lessor pursuant to the terms of the Head Lease of the Airframe.
Section 14A. Lessor Remedies. Upon the occurrence of any Lessee Event of
---------------
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare this
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Lease to be in default by a written notice to Lessee and Lessor may concurrently
therewith or at any time thereafter, as part of the same or a separate written
notice, declare this Lease to be terminated, and immediately proceed to do any
one or more of the following as Lessor in its sole discretion shall elect, to
the extent permitted by, and subject to compliance with any mandatory
requirements of, applicable law then in effect; provided that upon the
--------
occurrence of any Lessee Event of Default described in Section 13A(i) or (j)
above, this Lease Agreement shall automatically be in default, and Lessor may
elect to do any of the following, without prior notice to Lessee:
(a) Lessor may terminate this Lease;
(b) Lessor may cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return promptly the
In-Use Aircraft and any Serviced Engines, as Lessor may so demand to Lessor
or its order in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 5, as if the Airframe and
Engines were being returned at the end of the Term, or Lessor, at its
option, may enter upon the premises where the Airframe or Engine is located
and take immediate possession of and remove the same (together with any
engine or any part which is not an Engine but which is installed on an
Airframe, subject to all of the rights of the Head Lease Lessor or any
owner, lessor, lienor or secured party of such engine or the Airframe; it
being agreed that such engine or airframe, as the case may be, shall be
held for the account of the Head Lease Lessor or any such owner, lessor,
lienor or secured party, or, if such engine is owned by Lessee, may, at the
option of Lessor, be exchanged with Lessee for an Engine in accordance with
the provisions of Section 8(b)) without the necessity for first instituting
proceedings, or by summary proceedings or otherwise, all without liability
accruing to Mortgagee, Head Lease Lessor or Lessor for or by reason of such
entry or taking of possession, whether for the restoration of damage to
property caused by such taking or otherwise;
(c) Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof;
(d) Mortgagee, Lessor or Head Lease Lessor, as the case may be and to
the extent permitted by applicable law, may with or without taking
possession thereof, sell any Airframe or Engine at public or private sale,
as Mortgagee, Head Lease Lessor or Lessor, as applicable, may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep idle all
or the Airframe or Engine as Mortgagee, Head Lease Lessor or Lessor, as the
case may be, in its sole discretion, may determine, all free and clear of
any rights of Lessee except as hereinafter set forth in this Section 14A
and without any duty to account to Lessee with respect to such action or
inaction or for any proceeds with respect thereto;
(e) whether or not Lessor shall have exercised, or shall thereafter at
any time exercise, any of its rights specified above with respect to all or
the Airframe or Engine, Lessor, by written notice to Lessee specifying a
payment ten days from such written notice, may demand that the Lessee pay
to Lessor, and Lessee shall pay to Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and not as a
penalty
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(in lieu of the Basic Rent for the Aircraft due for periods commencing on
or after the date specified for payment in such notice), any unpaid Basic
Rent for the Aircraft due for periods prior to the payment date specified
in such notice plus an amount equal to the excess, if any, of the present
worth of the aggregate unpaid Basic Rent due under this Lease for the
Airframe or Engine, discounted quarterly at the Discount Rate, over the
fair market rental value therefor, discounted in like manner;
(f) in the event Mortgagee, Head Lease Lessor or Lessor, pursuant to
paragraph (d) above, shall have sold all or any Airframe or Engine, Lessor,
in lieu of exercising its rights under paragraph (e) above with respect to
the Airframe or such Engine or part thereof, may, if it shall so elect,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
date of such sale as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the installments of Basic Rent for the Aircraft due
after the Basic Rent Payment Date preceding such date of sale) any unpaid
Basic Rent with respect to the Aircraft due prior to such date plus the
----
amount of any deficiency between the net proceeds of such sale (after
deduction of all reasonable costs of sale) and the Stipulated Loss Value
of the Aircraft, computed as of the Basic Rent Payment Date on or
immediately succeeding the date of such sale together with interest, if
any, on the amount of such deficiency, at the Stipulated Interest Rate,
from the date of such sale to the date of actual payment of such amount;
(g) Lessor may exercise any rights or remedies under the Letter of
Credit, including drawing under the Letter of Credit, or withdrawing money
from the Deposits, and apply, any drawings made under or withdrawals of the
Letter of Credit, as the case may be, to any amount then due and payable
hereunder;
(h) Lessor may rescind this Lease as to any or all Airframe and any or
all Engines, or may exercise any other right or remedy which may be
available to it under applicable law; and
(i) Lessee shall be liable for any and all unpaid Rent and for all
legal fees and other costs and expenses incurred by reason of the
occurrence of any Lessee Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs or expenses incurred in
connection with the return of any Item of Equipment in accordance with the
terms of Section 5 hereof or in placing such Item of Equipment in the
condition and with airworthiness certificates as required by Section 5.
(j) No remedy referred to in this Section 14A is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Mortgagee, Head Lease Lessor or
Lessor or its Affiliates at law or in equity, and the exercise by Lessor of
any one or more of such remedies shall not preclude the simultaneous or
later exercise by Lessor of any or all of such other remedies under either
this Lease or any other agreement between Lessor or its Affiliates and
Lessee. No express or implied waiver by Lessor of any Lessee Event of
Default shall in any way be, or be construed to be a waiver of any future
or further Lessee Event of Default. To the extent permitted by Applicable
Law, Lessee hereby waives any and all rights to notice and to a judicial
hearing
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with respect to the repossession of any Item of Equipment by Lessor
upon the occurrence of a Lessee Event of Default.
Section 14B. Lessee Remedies.
---------------
(a) Remedies. Upon the occurrence of a Lessor Event of Default and at any
--------
time thereafter so long as the same shall be continuing, Lessee may, at its
option, declare a default by a written notice to Lessor; provided, that Lessee's
--------
remedies shall in all respects be limited as set forth in Section 5(b) and 5(g)
of Exhibit E and this Section 14B. At any time after delivery of such written
notice to Lessor, so long as Lessor shall not have remedied all outstanding
Lessor Events of Default Lessee may proceed pursuant to Section 6 of Exhibit E
to enforce performance by Lessor of its covenants and obligations under Exhibit
E to this Agreement and to recover damages for the breach thereof, but only to
the extent permitted under Section 14B(b) and Section 5(b) and 5(g) of Exhibit
E. Subject to Section 5(b) and 5(g) of Exhibit E and Section 14B(b), Lessor
shall be liable for any and all unpaid amounts due from it hereunder and for all
legal fees and other costs and expenses incurred by reason of the occurrence of
any Lessor Event of Default or the exercise of Lessee's remedies with respect
thereto.
(b) Limitation on Damages. WITHOUT LIMITING THE PROVISIONS OF SECTION 4 OF
---------------------
THIS AGREEMENT AND NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
HEAD LEASE LESSOR AND LESSOR SHALL HAVE NO OBLIGATION OR LIABILITY WHETHER
ARISING IN CONTRACT (INCLUDING WARRANTY), TORT (INCLUDING ACTIVE, PASSIVE OR
IMPUTED NEGLIGENCE OR GROSS NEGLIGENCE) OR STRICT LIABILITY OR OTHERWISE FOR
LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY BREACH OF THIS AGREEMENT OR THE
PROCEDURES SET FORTH IN THE MANUAL (OR ANY MANUAL REFERENCED THEREIN) OR ANY
NONCONFORMANCE OR DEFECT IN ANY SERVICE OR WORKMANSHIP OR ANY SERVICED PART OR
OTHER MATERIAL, COMPONENT, ACCESSORY, EQUIPMENT OR PRODUCT PROVIDED OR DELIVERED
PURSUANT TO THIS AGREEMENT. FURTHERMORE, LESSOR'S LIABILITY FOR DAMAGES, IF ANY,
ARISING AS A RESULT OF ANY BREACH OF, OR DEFAULT BY LESSOR UNDER, THIS AGREEMENT
(INCLUDING ANY BREACH OF WARRANTY) SHALL IN NO EVENT EXCEED LESSEE'S DIRECT,
ACTUAL AND REASONABLE DAMAGES (AFTER TAKING INTO ACCOUNT AMOUNTS THAT WOULD HAVE
BEEN PAID TO LESSOR AS SUPPLEMENTAL RENT BUT FOR SUCH BREACH OR DEFAULT)
SUFFERED BY LESSEE TO OBTAIN SUBSTITUTE COMPARABLE MAINTENANCE SERVICES FOR THE
AIRCRAFT FOR THE REMAINDER OF THE LEASE TERM AFTER THE DATE OF SUCH BREACH OR
DEFAULT.
(c) No Implied Waiver. No express or implied waiver by Lessee of any
-----------------
Lessor Event of Default shall in any way be, or be construed to be a waiver of
any future or further Lessor Event of Default.
Section 15. INDEMNIFICATION.
---------------
(a) General. LESSEE DOES HEREBY ASSUME LIABILITY FOR, AND DOES HEREBY
-------
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS MORTGAGEE,
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SELLER, HEAD LEASE LESSOR AND LESSOR AND ANY AFFILIATE OF MORTGAGEE, SELLER,
HEAD LEASE LESSOR OR LESSOR AND THEIR RESPECTIVE SUCCESSORS, PERMITTED ASSIGNS,
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND SERVANTS (EACH THEREOF,
WITH ITS RESPECTIVE AFFILIATES, SUCCESSORS, PERMITTED ASSIGNS, AGENTS AND
SERVANTS REFERRED TO HEREIN AS AN "INDEMNIFIED PARTY") FROM AND AGAINST, AND ON
-----------------
WRITTEN DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT
OF, AS THE CASE MAY BE, ANY AND ALL EXPENSES OR LIABILITIES IMPOSED ON, CHARGED
TO, RECOVERED FROM, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY AS A
RESULT OF ANY CLAIM BY A PERSON (OTHER THAN LESSEE UNDER SECTION 5(a) OF EXHIBIT
E AND 14B HEREOF) RELATING TO OR ARISING OUT OF, OR IN ANY WAY CONNECTED WITH
THIS AGREEMENT, THE INTERIM AIRCRAFT LEASE AGREEMENTS, THE INTERIM AIRCRAFT
MAINTENANCE AGREEMENT, THE POOLING AGREEMENT, THE MANUAL (OR ANY OTHER LESSOR
MANUAL REFERENCED THEREIN) OR ANY MAINTENANCE SERVICES, OUTSIDE SERVICES,
SERVICED ENGINES OR SERVICED PARTS PROVIDED HEREUNDER, OR ANY FAILURE BY LESSEE
OR LESSOR TO PERFORM HEREUNDER, INCLUDING CLAIMS FOR INJURY TO OR DEATH OF
PERSONS (INCLUDING ANY EMPLOYEES OR AGENTS OF LESSEE WHO ENTER LESSOR'S PREMISES
PURSUANT TO SECTION 4(g) OF EXHIBIT E AND ALL INVITEES, GUESTS, PASSENGERS,
SHIPPERS, EMPLOYEES AND AGENTS OF LESSEE), AND DAMAGE TO OR DESTRUCTION OF
PROPERTY (INCLUDING PROPERTY OF LESSEE AND OF ITS INVITEES, GUESTS, PASSENGERS,
EMPLOYEES AND AGENTS AND PROPERTY OF EACH INDEMNIFIED PARTY). THE FOREGOING
INDEMNITY OBLIGATIONS SHALL INCLUDE THE OBLIGATION OF LESSEE TO INDEMNIFY EACH
INDEMNIFIED PARTY FROM AND AGAINST, AND ON WRITTEN DEMAND TO PAY, OR TO
REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS THE CASE MAY BE, ANY AND
ALL EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY
RELATING TO OR ARISING OUT OF (i) ANY ACTION OR INACTION OF LESSEE; (ii) THE
MANUFACTURE OF THE AIRFRAME AND SERVICED ENGINES (INCLUDING LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE, AND PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT); (iii) THE OWNERSHIP OF THE AIRCRAFT AND, EXCEPT AS PROVIDED IN
SECTION 15(d) BELOW, SERVICED ENGINES, DURING THE TERM OF THIS LEASE, (iv) THE
DELIVERY, NONDELIVERY, REDELIVERY, LEASE, REGISTRATION, ASSIGNMENT, TRANSFER,
POSSESSION, USE, OPERATION, CONDITION, SALE OR RETURN OR OTHER DISPOSITION OF
THE AIRFRAME AND SERVICED ENGINES AND PARTS BY LESSEE (INCLUDING INJURY, DEATH
OR PROPERTY DAMAGE SUFFERED BY PASSENGERS, SHIPPERS OR OTHERS), AND
ENVIRONMENTAL CONTROL, NOISE AND POLLUTION REGULATIONS; (v) THE CONDITION UPON
RETURN OF THE AIRFRAME AND SERVICED ENGINES AND PARTS, TO THE EXTENT SUCH
CONDITION DOES NOT COMPLY WITH SECTION 5 HEREOF OR (vi) (WITHOUT LIMITING ANY OF
THE FOREGOING) ANY BREACH BY LESSEE OF, NONCOMPLIANCE BY LESSEE WITH, OR
MISREPRESENTATION BY LESSEE MADE OR DEEMED MADE IN, UNDER OR IN CONNECTION WITH,
THIS LEASE OR ANY OTHER DOCUMENT REQUIRED TO BE DELIVERED PURSUANT HERETO, OR
ANY WARRANTY, CERTIFICATE OR
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AGREEMENT MADE OR DELIVERED IN, UNDER OR IN CONNECTION HEREWITH OR THEREWITH.
THE FOREGOING INDEMNITY OBLIGATIONS OF LESSEE SHALL NOT INCLUDE THE OBLIGATION
TO INDEMNIFY (i) EMPLOYEES OF LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM
RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND
ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES OR (ii)
SUBCONTRACTORS TO LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM RESULTING FROM
THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES
OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES. LESSEE ALSO SHALL NOT BE
REQUIRED TO INDEMNIFY ANY INDEMNIFIED PARTY FOR (i) LIABILITIES RESULTING FROM
ACTS (INCLUDING FAILURE TO ACT) OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PARTY, (ii) DAMAGE TO OR DESTRUCTION OF PROPERTY OF AN
INDEMNIFIED PARTY, WHILE WITHIN SUCH INDEMNIFIED PARTY'S SOLE CARE, CUSTODY AND
CONTROL, TO THE EXTENT RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN
EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS
AFFILIATES, (iii) ACTS, OMISSIONS OR EVENTS THAT OCCUR AFTER FULL AND FINAL
COMPLIANCE BY LESSEE WITH THE TERMS OF THIS LEASE OR AFTER AN AIRCRAFT, ANY
SERVICED ENGINE OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART HAS BEEN
RETURNED TO LESSOR PURSUANT TO THE TERMS HEREOF, OR THE POOLING AGREEMENT AS
SUCH ACTS, OMISSIONS OR EVENTS RELATE TO SUCH RETURNED AIRCRAFT, ANY SERVICED
ENGINE, OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART AFTER ITS RETURN; OR
(iv) ANY TAX EXCEPT TO THE EXTENT AND AS SET FORTH IN SECTION 16 HEREOF AND
SECTION 3(h) OF EXHIBIT E.
(B) INDEMNIFICATION FOR NEGLIGENT ACTS. WITHOUT LIMITING SECTION 15(A),
----------------------------------
LESSOR AND LESSEE EXPRESSLY INTEND THAT LESSEE SHALL HOLD HARMLESS, DEFEND AND
INDEMNIFY EACH INDEMNIFIED PARTY AGAINST CLAIMS (OTHER THAN CLAIMS THAT ARE
EXPRESSLY EXCEPTED IN SECTION 15(A)) THAT ARISE AS A RESULT OF THE NEGLIGENCE
(WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR, HEAD LEASE LESSOR OR ANY OTHER
INDEMNIFIED PARTY AND AS A RESULT OF THE JOINT OR CONCURRENT NEGLIGENCE (WHETHER
ACTIVE, PASSIVE OR IMPUTED) OF LESSOR, HEAD LEASE LESSOR, MORTGAGEE, SELLER, ANY
OTHER INDEMNIFIED PARTY AND LESSEE.
(c) Defense of Claims; Settlement. IF ANY INDEMNIFIED PARTY SHALL HAVE
-----------------------------
KNOWLEDGE OF ANY CLAIM OR LIABILITY REQUIRED TO BE INDEMNIFIED AGAINST UNDER
THIS SECTION 15, SUCH INDEMNIFIED PARTY SHALL GIVE REASONABLY PROMPT WRITTEN
NOTICE THEREOF TO LESSEE AFTER BECOMING AWARE OF SUCH CLAIM, BUT THE FAILURE OF
SUCH INDEMNIFIED PARTY SO TO NOTIFY LESSEE SHALL NOT RELIEVE LESSEE FROM ANY
LIABILITY THAT IT WOULD OTHERWISE HAVE TO SUCH INDEMNIFIED PARTY HEREUNDER
EXCEPT TO THE EXTENT, AND ONLY TO THE EXTENT, THAT LESSEE DEMONSTRATES THAT THE
DEFENSE OF SUCH CLAIM OR LIABILITY IS PREJUDICED THEREBY. LESSEE AND LESSEE'S
INSURERS SHALL HAVE THE RIGHT, AT THEIR SOLE COST AND EXPENSE, TO INVESTIGATE,
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DEFEND OR, EXCEPT AS LIMITED HEREINAFTER, COMPROMISE ANY CLAIM FOR WHICH
INDEMNIFICATION IS SOUGHT UNDER THIS SECTION 15 UPON ACKNOWLEDGMENT BY LESSEE OR
SUCH INSURER OF ITS LIABILITIES TO EACH INDEMNIFIED PARTY IN RESPECT THEREOF.
LESSEE SHALL ASSUME ALL RESPONSIBILITY FOR ANY CLAIM COVERED BY THE FOREGOING
INDEMNITY, AND THE INDEMNIFIED PARTY SHALL PROVIDE REASONABLE ASSISTANCE AND
COOPERATION DURING THE DEFENSE OR SETTLEMENT OF THE CLAIM. EXCEPT AS LIMITED
HEREAFTER, LESSEE SHALL HAVE COMPLETE CONTROL OF THE DEFENSE OR SETTLEMENT OF
SUCH CLAIM OR COMPROMISE THEREOF; PROVIDED, THAT COUNSEL SELECTED BY LESSEE
--------
SHALL BE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY. NO COMPROMISE OR
SETTLEMENT OF ANY CLAIM MAY BE EFFECTED BY LESSEE WITHOUT THE INDEMNIFIED
PARTY'S CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, NO
--------
CONSENT SHALL BE REQUIRED IF (i) THERE IS NO FINDING OR ADMISSION OF ANY
VIOLATION OF ANY LAW BY THE INDEMNIFIED PARTY OR ANY VIOLATION OF THE RIGHTS OF
ANY PERSON BY THE INDEMNIFIED PARTY, (ii) THERE IS NO EFFECT ON ANY CLAIM THAT
MAY BE MADE BY THE INDEMNIFIED PARTY, AND (iii) THE RELIEF PROVIDED IS THE SOLE
RESPONSIBILITY OF LESSEE. EACH INDEMNIFIED PARTY SHALL HAVE THE RIGHT, BUT NOT
THE DUTY, AT ITS OWN EXPENSE, TO PARTICIPATE IN THE DEFENSE AND/OR SETTLEMENT OF
ANY CLAIM WITH COUNSEL OF ITS OWN CHOOSING WITHOUT RELIEVING LESSEE OF ANY
OBLIGATIONS HEREUNDER. LESSEE AND ITS COUNSEL SHALL COOPERATE WITH THE
INDEMNIFIED PARTY'S COUNSEL AND SHALL SUPPLY THE INDEMNIFIED PARTY WITH SUCH
INFORMATION REASONABLY REQUESTED BY THE INDEMNIFIED PARTY AS IS NECESSARY OR
ADVISABLE FOR THE INDEMNIFIED PARTY TO PARTICIPATE IN ANY PROCEEDING TO THE
EXTENT PERMITTED BY THIS SECTION 15, BUT CONTROL OF THE MATTER SHALL REMAIN WITH
LESSEE.
ANY PAYMENT OR INDEMNITY PURSUANT TO THIS SECTION 15 SHALL INCLUDE THE
AMOUNT, IF ANY, NECESSARY TO HOLD THE INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX
BASIS (TAKING INTO ACCOUNT ANY CURRENT TAX BENEFITS TO WHICH ANY SUCH
INDEMNIFIED PARTY IS ENTITLED) AS A RESULT OF THE MATTER INDEMNIFIED AGAINST
UNDER THIS SECTION 15 FROM ALL TAXES REQUIRED TO BE WITHHELD BY LESSEE OR PAID
BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH PAYMENT OR INDEMNITY UNDER THE
LAWS OF ANY FEDERAL, STATE OR LOCAL GOVERNMENT OR TAXING AUTHORITY IN THE UNITED
STATES OR ANY TERRITORY, COMMONWEALTH OR POSSESSION OF THE UNITED STATES OR BY
ANY FOREIGN GOVERNMENT OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF.
(d) Indemnification by Lessor. IF A PERSON WHICH HAS A LIEN ON ANY
-------------------------
SERVICED ENGINE TAKES POSSESSION OF OR INTERFERES WITH LESSEE'S QUIET ENJOYMENT
OR USE OF A SERVICED ENGINE, LESSOR SHALL INDEMNIFY AND HOLD HARMLESS LESSEE
FROM ANY AND ALL COSTS, LIABILITIES AND DAMAGES INCURRED BY LESSEE RELATING TO
OR ARISING THEREFROM.
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(e) Survival. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS SECTION
--------
15 SHALL SURVIVE ANY TRANSFER OF TITLE OR POSSESSION OF THE SERVICED AIRCRAFT,
ANY SERVICED ENGINE OR ANY SERVICED PART, ANY TERMINATION OR EXPIRATION OF THIS
AGREEMENT OR ANY IMPOSSIBILITY OF PERFORMANCE OF THIS AGREEMENT OR FRUSTRATION
OF PURPOSE OF THIS AGREEMENT.
Section 16. General Tax Indemnity.
---------------------
(a) Tax Indemnity. (i) Except as provided in Section 16(b), Lessee agrees
-------------
that each payment of Rent and any other amounts payable to Lessor (with any
affiliate of Lessor and their respective successors, permitted assigns,
shareholders, directors, officers, employees, agents and servants referred to
herein as a "Tax Indemnified Party") by Lessee under this Lease shall be paid in
---------------------
full without any deduction or withholding with respect to Taxes of any nature
whatsoever imposed by the United States or any other Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall (a) ensure that the deduction or withholding does not exceed the minimum
amount legally required; (b) immediately pay to Lessor or any other Person
entitled to receive such payment an additional amount (as Supplemental Rent) in
such amount, net of any Taxes thereon, and at such time as shall result in the
net amount actually received by Lessor or such other Person being, after all
deductions or withholdings, equal to the full amount which would have been
received by Lessor or such other Person had such deduction or withholding not
been made and shall be free of expense to the Lessor or such other Person for
collection or other charges; (c) pay to the relevant Taxing Authority within the
period for payment permitted by Applicable Law the full amount of all deductions
or withholdings; and (d) upon the request of Lessor or such other Person furnish
to Lessor or such other Person, as the case may be, within the period for
payment permitted by Applicable Law, an official receipt of the relevant Taxing
Authority for all amounts deducted or withheld as aforesaid; and
(ii) Except as provided in Section 16(b) hereof, Lessee shall pay,
protect, save, and on written demand shall indemnify and hold harmless on an
after-tax basis each Tax Indemnified Party from and against any and all Taxes
imposed against any Tax Indemnified Party, Lessee or the Serviced Aircraft by
any Taxing Authority in connection with or relating to (A) the construction,
financing, refinancing, purchase, acquisition, acceptance, rejection, delivery,
nondelivery, transport, ownership, registration, reregistration, assembly,
possession, repossession, operation, location, use, condition, maintenance,
repair, sale, return, abandonment, preparation, installation, storage,
redelivery, manufacture, leasing, subleasing, modification, rebuilding,
importation, reimportation, transfer of title, transfer of registration,
exportation, reexportation or other application or disposition of, or the
imposition of any Lien (or the incurrence of any liability to refund or pay over
any amount as the result of any Lien) on, the Serviced Aircraft, the Serviced
Airframe, and any Serviced Engine or any Serviced Part or interest therein, (B)
payments of Basic Rent or Supplemental Rent or the receipts or earnings arising
therefrom or received with respect to the Serviced Aircraft, the Serviced
Airframe, any Serviced Engine or any Serviced Part or interest therein, (C) the
Serviced Aircraft, any Serviced Airframe, any Serviced Engine or any Serviced
Part or interest therein, (D) otherwise with respect to or in connection with
the transactions contemplated by this Lease; and (E) any out-of-pocket
penalties, late payment fees, interest, costs and expenses fairly attributed to
any of the foregoing incurred by any Tax Indemnified Party.
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(b) Exclusions from General Tax Indemnity. The provisions of subsection
-------------------------------------
16(a) shall not apply to a Tax Indemnified Party in the case of:
(i) Taxes that are imposed on or measured by the net income, excess
profits, receipts (other than any excise or gross receipts tax imposed by
the State of Hawaii), franchises, capital or conduct of business of such
Tax Indemnified Party, other than any such taxes which are imposed in lieu
of any sales, use or value added taxes;
(ii) any other Taxes based on, or measured by, the net income of such
Tax Indemnified Party (other than (x) Taxes which are, or are in the nature
of, sales, use or rental taxes or (y) Taxes imposed by any Taxing Authority
(other than a taxing authority for the jurisdiction in which such Tax
Indemnified Party is doing business) as a result of a nexus between the
jurisdiction of the Taxing Authority and any Item of Equipment or any Part
or any part or the activities in the jurisdiction of the Taxing Authority
of Lessee, any sublessee or any other user of the Aircraft (other than
such Tax Indemnified Party or any Affiliate thereof) or any Affiliate of
any of the foregoing);
(iii) Taxes that are imposed as a result of (y) any voluntary sale,
assignment, transfer or other disposition by such Tax Indemnified Party of
any interest of such Tax Indemnified Party in the Aircraft, the Airframe,
any Serviced Engine, any Part, or any interest therein, unless such sale,
assignment, transfer or disposition results from (1) action taken by or on
behalf of such Tax Indemnified Party as provided in or permitted by this
Lease in connection with or by reason of any Lessee Event of Default that
has occurred and is continuing or any exercise by the Lessor of any of its
remedies in connection with any such Lessee Event of Default as provided in
or permitted by the Lease, or (2) any replacement or substitution by the
Lessee of any Engine or any Part; or (z) any involuntary transfer of any of
the foregoing interests in connection with any bankruptcy or other
proceeding for the relief of debtors in which such Tax Indemnified Party is
the debtor or any foreclosure by a creditor of such Tax Indemnified Party;
(iv) Taxes in the nature of penalties, additions to tax, interest or
fines resulting directly from the negligence of the Tax Indemnified Party
in connection with the preparation or filing of any tax return unless such
Tax Indemnified Party files any tax return in a manner requested by Lessee,
required to be filed by such Tax Indemnified Party without regard to the
transactions contemplated by this Lease, the payment of any taxes shown
thereon or the conduct of any proceeding in respect thereof, except to the
extent attributable to the failure of Lessee to perform its obligations or
to otherwise perform its duties and responsibilities pursuant to this
Lease, including, without limitation, the obligation to make payments
hereunder;
(v) so long as no Lessee Default or Event of Default shall be
continuing, Taxes imposed with respect to any period after (i) the
expiration of the Term and the return of the Aircraft to the Lessor in
accordance with Section 5 of this Lease or (ii) the earlier discharge in
full of Lessee's obligation to pay the Stipulated Loss Value and all other
amounts due under this Lease; provided, however, that this exception shall
not apply to Taxes (x) relating to events occurring or matters arising upon
or prior to such expiration and return or discharge,
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or (y) imposed on or with respect to any payments due after such expiration
and return or discharge until after such payments have been made;
(vi) Taxes to the extent of the excess of such Taxes over the amount
of such Taxes which would have been imposed and indemnified against had
there not been a sale, assignment, transfer or other disposition (whether
voluntary or, if resulting from bankruptcy, foreclosure (other than
foreclosure resulting from a Lessee Event of Default) or similar
proceedings in which such Tax Indemnified Party is the debtor, involuntary)
by a Tax Indemnified Party of any interest of such Tax Indemnified Party in
the Aircraft, the Airframe, any Serviced Engine, or any Part, unless such
transfer results from action taken by or on behalf of such Tax Indemnified
Party after a Lessee Event of Default has occurred and while it is
continuing or any exercise by the Lessor of any of its remedies in
connection with any such Lessee Event of Default;
(vii) Taxes arising out of or caused by any willful misconduct or
gross negligence of such Tax Indemnified Party;
(viii) with respect to any Tax Indemnified Party, any Tax that
results solely from such Tax Indemnified Party or a related Tax Indemnified
Party engaging in transactions other than those contemplated by this Lease
or any Long-Term Agreement, or those in which such Tax Indemnified Party is
currently engaged;
(ix) sales tax incurred by Lessor in connection with the maintenance
of the Serviced Aircraft pursuant to Attachment A to Exhibit E hereto,
other than any such tax, whether in the form of a sales tax, gross receipts
tax or other functional equivalent of a sales tax imposed by the State of
Hawaii; or
(x) any Tax to the extent such Tax would not have been imposed if a
Tax Indemnified Party or a related Tax Indemnified Party had not engaged in
activities in the jurisdiction imposing such Tax which activities are
unrelated to the transactions contemplated by the this Lease or the other
Long Term Agreements, but only to the extent such Tax would not have been
payable in the absence of such unrelated activities; or
(xi) any failure of a Tax Indemnified Party to comply with (I)
certification, information, documentation, reporting or other similar
requirements concerning the nationality, residence, identity or connection
with the jurisdiction imposing such Tax, if such compliance is required by
statute or by regulation of the jurisdiction imposing such Tax as a
precondition to relief or exemption from such Tax; or (II) any other
certification, information, documentation, reporting or other similar
requirements under the Tax laws or regulations of the jurisdiction imposing
such Tax that would establish entitlement to otherwise applicable relief or
exemption from such Tax; provided, however, that the exclusion set forth in
this subsection 16(a)(x) shall not apply if (v) such failure to comply was
due to a failure of the Lessee to provide such Tax Indemnified Party with
the information required to be supplied by the Lessee in order for such Tax
Indemnified Party to comply with such requirement or due to a failure of
the Lessee to notify such Tax Indemnified Party of such requirement and
such Tax Indemnified Party was not otherwise aware of such requirement; or
(w) such failure to
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comply was done upon the advice, concurrence and/or direction or with the
knowledge of the Lessee.
(c) Calculation of General Tax Indemnity Payments.
---------------------------------------------
(i) Lessee agrees that, with respect to any payment or indemnity to a
Tax Indemnified Party under Section 16 hereof, the Lessee's indemnity
obligations shall include the payment of an amount necessary to hold such
Tax Indemnified Party harmless on an after-tax basis from all Taxes
required to be paid by such Tax Indemnified Party with respect to such
payment or indemnity (including any payments made pursuant to this
subsection 16(c) under the laws of any Taxing Authority.
(ii) If any Tax Indemnified Party shall realize a current tax benefit
as a result of any Taxes paid or indemnified against by the Lessee under
this Section 16 (except to the extent previously taken into account in
computing the indemnity paid with respect to such Taxes), such Tax
Indemnified Party shall, so long as no Lessee Event of Default shall have
occurred and be continuing and no payment is due and owing by Lessee under
this Lease or any Long-Term Agreement, pay to the Lessee an amount which,
after subtraction of any further tax savings such Tax Indemnified Party
realizes as a result of the payment thereof, is equal to the amount of such
current tax benefit, but only after the Lessee shall have made all payments
then due and owing to such Tax Indemnified Party pursuant to this Lease and
the Long-Term Agreements; provided, that any subsequent loss of any tax
--------
benefit paid to the Lessee hereunder shall be treated as a Tax subject to
indemnification in accordance with subsection 16(a) (without regard to any
exclusions set forth in subsection 16(b) or the provisions of subsection
16(g); and provided, further, that such Tax Indemnified Party shall not be
-------- -------
obligated to make any payment pursuant to this subsection 16(c) to the
extent that the amount of such payment would exceed (x) the amount of all
prior payments by Lessee to such Tax Indemnified Party pursuant to this
subsection 16(c), less (y) the amount of all prior payments by such Tax
Indemnified Party to Lessee hereunder. Each such Tax Indemnified Party
shall in good faith use reasonable efforts in filing its tax returns and in
dealing with taxing authorities to seek and claim any such tax benefit.
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(d) Payment of General Tax Indemnity. Unless otherwise requested by a Tax
--------------------------------
Indemnified Party, or unless the Tax is being contested in accordance with the
provisions of subsections 16(g) hereof, the Lessee shall pay when due any Tax
for which it is liable pursuant to this Section 16 directly to the appropriate
Taxing Authority, or, upon written demand, shall reimburse a Tax Indemnified
Party for the payment of any such Tax made by such Tax Indemnified Party.
Within 30 days after the date of each payment by the Lessee of any Tax referred
to in the preceding sentence, the Lessee shall upon request furnish such Tax
Indemnified Party the original or a copy of the receipt for the Lessee's payment
of such Tax or such other evidence of payment of such Tax as is reasonably
acceptable to such Tax Indemnified Party. The Lessee shall also cause to be
furnished, promptly upon request, such data as such Tax Indemnified Party
reasonably may require that are within the reasonable control or possession of
Lessee and are not otherwise reasonably obtainable by such Tax Indemnified Party
to enable such Tax Indemnified Party to comply with the requirements of any
Taxing Authority in respect of any Tax referred to in subsection 16(a) hereof.
(e) Verification of Calculations. At the request of Lessee, the accuracy
----------------------------
of any calculation of the amount or amounts payable to a Taxing Authority or a
Tax Indemnified Party pursuant to this Section 16 shall be verified by
independent public accountants selected by such Tax Indemnified Party and
reasonably satisfactory to Lessee, and such verification shall be binding on
both the Tax Indemnified Party and Lessee. In order, and to the extent
necessary, to enable such independent accountants to verify such amounts, such
Tax Indemnified Party shall provide to such independent accountants (for their
confidential use and not to be disclosed to Lessee or any other person) all
information reasonably necessary for such verification. Such verification shall
be at the expense of Lessee.
(f) Reports. If any report, return or statement is required to be filed
-------
with respect to any Tax which is subject to indemnification under this Section
16, the Lessee shall timely file the same, except for any such report, return or
statement which a Tax Indemnified Party has notified the Lessee that it intends
to file. The Lessee shall either file such report, return or statement so as to
show the ownership of the Aircraft in the Lessor and send a copy of such report,
return or statement to such Tax Indemnified Party or, where the Lessee is not so
permitted to file in the name of such Tax Indemnified Party, shall notify such
Tax Indemnified Party of such requirements and cooperate reasonably with such
Tax Indemnified Party with respect thereto.
(g) General Tax Indemnity Contest Provisions.
----------------------------------------
(i) Notice. If a Tax Indemnified Party receives a written notice
------
regarding the imposition of a Tax, or if at the conclusion of any audit by
any Taxing Authority there is a proposed adjustment regarding any Tax which
if agreed to by such Tax Indemnified Party would result in the imposition
of a Tax for which such Tax Indemnified Party would seek indemnification
from the Lessee in an amount equal to or in excess of $25,000 pursuant to
this Section 16, such Tax Indemnified Party shall within the lesser of:
(A) 30 days after receipt of such written notice by a responsible officer
of such Tax Indemnified Party or promptly after the conclusion of such
audit; or (B) not less than ten (10) days prior to the expiration of the
statutory period to respond, so notify the Lessee in writing; provided,
however, that the failure so to notify the Lessee shall not diminish the
Lessee's obligations hereunder, except in the event that Lessee's rights to
contest such tax shall have been
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precluded by such failure, and after such contest, Lessor would not have
been liable for such taxes and except for any interest or penalties related
to any late or missed payment dates.
(ii) Contest Provisions. If requested by the Lessee in writing, a Tax
------------------
Indemnified Party shall in good faith contest in the name of such Tax
Indemnified Party or, if requested by the Lessee and if such contest does
not in such Tax Indemnified Party's reasonable discretion involve or
potentially involve taxes imposed on such Tax Indemnified Party that are
not indemnified against hereunder, to contest in the name of the Lessee (or
permit the Lessee, if requested by the Lessee, to contest in the name of
the Lessee or the Tax Indemnified Party) the validity, applicability and
amount of the imposition of any Tax or any proposed adjustment that would
give rise to the proposed imposition of any Tax by (a) resisting payment
thereof, if such Tax Indemnified Party in its sole and reasonable
discretion shall determine such course of action to be appropriate, (b) not
paying the same except under protest, if protest is necessary and proper,
or (c) if payment shall be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings;
provided, however, that (u) such Tax Indemnified Party shall not be
required to contest such imposition or proposed adjustment if the aggregate
amount of an indemnity on an after-tax basis, would be less than $25,000,
(v) no Lessee Event of Default has occurred and is continuing, (w) such Tax
Indemnified Party has been provided with an opinion of independent tax
counsel selected by such Tax Indemnified Party and reasonably acceptable to
the Lessee (the cost of which shall be borne by the Lessee) to the effect
that a reasonable basis in law or in fact exists that such Tax Indemnified
Party will prevail in such contest, (x) such Tax Indemnified Party, at its
sole option, may at any time forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority and, in
lieu thereof, continue to contest the claim in any permissible judicial
forum selected by such Tax Indemnified Party, (y) Lessee shall have agreed
to pay such Tax Indemnified Party (or, in the case of item (iii) below,
lend to such Tax Indemnified Party on an interest-free basis (and in such
case pay any additional amount as shall be required to hold such Tax
Indemnified Party harmless on a net after-tax basis from any adverse tax
consequences attributable to the loan), on demand, all reasonable out-of-
pocket costs and expenses which such Tax Indemnified Party incurs in
connection with and reasonably allocable to contesting such imposition or
adjustment, including, without limitation, (i) all legal, accountants' and
investigatory fees and disbursements, (ii) the amount of any interest,
penalties or additions to tax (to the date such payment is made) payable as
a result of contesting such adjustment, and (iii) if such contest is to be
initiated by the payment of, and the claiming of a refund for, the amount
of such imposition or adjustment, funds sufficient to make such payment of,
and the claiming of a refund for, the amount of such imposition or
adjustment, funds sufficient to make such payment (and in the event such
contest is finally determined adversely, the amount of such loan shall be
applied against the Lessee's obligation to indemnify such Tax Indemnified
Party for the Tax which was the subject of such contest); and (z) such
proceedings do not involve any risk (other than a remote risk) of the sale,
forfeiture or loss of the Aircraft, the Airframe, any Serviced Engine or
any Part or interest therein or, if there is such a risk, Lessee has
provided to such Tax Indemnified Party a bond in form and substance
reasonably satisfactory to such Tax Indemnified Party in an amount
sufficient to protect such Tax Indemnified Party from any detriment that
would be suffered by the Lessor as a result of such sale, forfeiture,
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or loss or has otherwise protected such Tax Indemnified Party in a manner
acceptable to such Tax Indemnified Party and there is no risk or the
imposition of criminal penalties. Such Tax Indemnified Party will consult
with Lessee regarding any contest and will consider in good faith any
suggestions made by Lessee with respect to the most favorable forum for,
and the conduct of, such contest; provided, however, that, unless such Tax
Indemnified Party elects to permit Lessee to conduct such contest, such
contest shall be controlled by such Tax Indemnified Party and conducted by
independent counsel selected by such Tax Indemnified Party or by "in-house"
counsel of such Tax Indemnified Party and reasonably acceptable to Lessee.
In the event that such Tax Indemnified Party elects to permit the Lessee to
conduct such contest, the independent counsel selected by the Lessee to
conduct such contest shall be reasonably satisfactory to such Tax
Indemnified Party. If requested by the Lessee in writing, such Tax
Indemnified Party will appeal (or, if desired by such Tax Indemnified
Party, permit the Lessee to appeal) any adverse judicial determination,
provided that, as a condition to the commencement of the appeal of such
adverse judicial determination, (a) such Tax Indemnified Party shall
receive, at the Lessee's expense, an opinion of independent counsel,
selected by such Tax Indemnified Party and reasonably satisfactory to
Lessee, to the effect that a more likely than not probability of success
exists for such appeal and (b) Lessee shall have acknowledged its liability
to such Indemnified Party for an indemnity payment as a result of such tax
claim if such Tax Indemnified Party shall not prevail in the contest;
provided, however, that such Tax Indemnified Party shall not be required to
appeal any adverse judicial determination to the United States Supreme
Court.
Notwithstanding anything contained in this subsection 16(g) to the
contrary, no Tax Indemnified Party shall be required to contest any claim if the
subject matter thereof shall be of a continuing nature and shall have previously
been decided pursuant to the contest provisions of this subsection 16(g)
(including a contest pursuant to the contest provisions hereof in which the Tax
Indemnified Party may be required to contest such a claim if there shall have
been a change in the law (including, without limitation, amendments to statutes
or regulations, administrative ruling and court decisions)) or Lessee shall have
provided new facts after such claim shall have been so previously decided, and
such Tax Indemnified Party shall have received an opinion of independent tax
counsel selected by such Tax Indemnified Party and approved by the Lessee (the
cost of which shall be borne by the Lessee) to the effect that, as a result of
such change or new facts, it is more likely than not that the position which
such Tax Indemnified Party or the Lessee, as the case may be, had asserted in
such previous contest, would prevail; provided, that the provisions of this
--------
paragraph shall not require an Tax Indemnified Party to file an amended tax
return or refund claim for any prior taxable period.
(h) Compromise or Settlement. A Tax Indemnified Party shall have the right
------------------------
to settle or compromise a contest if such Tax Indemnified Party has provided
Lessee a reasonable opportunity to review a copy of that portion of the
settlement or compromise proposal which relates to the Tax for which such Tax
Indemnified Party is seeking indemnification hereunder, provided that, if (i)
--------
such Tax Indemnified Party fails to provide the Lessee such a reasonable
opportunity to review such portion of such proposal or (ii) after such
reasonable opportunity to review such proposal the Lessee in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
the Lessee shall not be obligated to indemnify such Tax Indemnified Party
hereunder to the extent of the amount attributable to the Tax to which such
settlement or
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compromise relates as to which the Lessee has reasonably withheld its consent.
If such Tax Indemnified Party effects a settlement or compromise of such contest
without giving notice to the Lessee or, notwithstanding that the Lessee has
reasonably withheld its consent thereto, such Tax Indemnified Party shall repay
to the Lessee such amounts theretofore advanced by the Lessee pursuant to clause
(y)(iii) of subsection 16(g)(i) hereof as relate to such claim, to the extent
the Lessee has reasonably withheld its consent to the settlement or compromise
thereof.
(i) Refunds. If any Tax Indemnified Party shall obtain a refund of all or
-------
any part of any Taxes that the Lessee shall have paid for such Tax Indemnified
Party or for which the Lessee shall have reimbursed such Tax Indemnified Party,
such Tax Indemnified Party shall, so long as no Default or Lessee Event of
Default shall have occurred and be continuing and no payment is due and owing by
the Lessee under this Agreement or any Long-Term Agreement, pay to the Lessee an
amount which is equal to the sum of the amount of such refund, plus any interest
received attributable thereto net of any net taxes payable by such Tax
Indemnified Party with respect to the receipt or accrual of such interest and
the payment thereof to the Lessee, but only after the Lessee shall have made all
payments then due and owing to such Tax Indemnified Party pursuant to this
Section 16; provided, however, that any subsequent loss of any refund paid to
-------- -------
the Lessee hereunder shall be treated as a Tax subject to indemnification in
accordance with this Section 16 (without regard to any exclusions set forth in
subsection 16(b) or the provisions of subsection 16(g).
(j) Failure to Contest. Notwithstanding anything to the contrary contained
------------------
in this subsection 16(g), a Tax Indemnified Party may at any time decline to
take any further action with respect to a proposed adjustment or the imposition
of a Tax; provided, that if the Lessee has properly requested such action
--------
pursuant to, and is otherwise entitled to require any action to be taken by a
Tax Indemnified Party pursuant to the provisions of subsection 16(g), and such
Tax Indemnified Party has failed to contest, or permit the Lessee to contest,
such proposed adjustment or the imposition of such Tax, such Tax Indemnified
Party shall be deemed to have waived its right to any Indemnity payment that
would otherwise be payable by the Lessee pursuant to this Section 16 in respect
of such adjustment or the imposition of such Tax. In such event, such Tax
Indemnified Party shall reimburse the Lessee for all amounts previously advanced
by the Lessee to such Tax Indemnified Party with respect to such proposed
adjustment pursuant to clause (y)(iii) of subsection 16(g) hereof. If an Tax
Indemnified Party fails to contest or to permit a contest hereunder, such Tax
Indemnified Party will not be required to pay over the Lessee any amount
representing tax benefits described in subsection 16(c)(B) hereof which result
from the payment of Taxes as to which such Tax Indemnified Party has been deemed
to have waived its right to any indemnity payment hereunder.
(k) Interest. To the extent permitted by applicable law, interest at the
--------
Stipulated Interest Rate shall be paid, on demand, on any amount not paid when
due, pursuant to Section 16 until the same shall be paid. Such interest shall
be paid in the same manner as the unpaid amount in respect of which such
interest is due.
(l) Effect of Other Indemnities. The Lessee's obligations under the
---------------------------
indemnities provided for in this Agreement and the Long-Term Agreements shall be
those of a primary obligor whether or not the Person indemnified shall also be
indemnified with respect to the same matter under the terms of this Agreement,
any Lease or any Long-Term Agreement or any other document or instrument, and
the Person seeking indemnification from the Lessee pursuant to any provisions of
this Agreement
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<PAGE>
may proceed directly against the Lessee without first seeking to enforce any
other right of indemnification.
Section 17. Miscellaneous
-------------
(a) Construction; Governing Law. Any provision of this Lease which is
---------------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by Applicable Law, the parties hereby waive any provision of law which renders
any provisions hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by written instrument signed by the party against which the enforcement
of the change, waiver, discharge or termination is sought; and, in compliance
with Section 2A-208(b) of the Texas Business and Commerce Code requiring a
separate signature of this provision, Lessee has signed in the space provided
below. Any consent or approval specified herein of a party hereto may be
withheld entirely in such party's discretion unless it is herein expressly
provided that such consent may not be unreasonably withheld.
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<PAGE>
No waiver of a breach of any provision of this Lease Agreement by either
party shall constitute a waiver of any subsequent breach of the same or any
other provision hereof, and no waiver shall be effective unless in writing.
HAWAIIAN AIRLINES, INC.
By:
-------------------------------
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By:
-------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
The captions in this Lease are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof. THIS LEASE SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS (EXCLUDING THE CONFLICT OF LAW PROVISIONS THERETO), INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
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<PAGE>
(b) Notices. All notices, offers, acceptances, approvals, waivers,
-------
requests, demands and other communications hereunder or under any instrument,
certificate or other instrument delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (a) if delivered in person, (b) if sent by
overnight delivery service (including, without limitation, Federal Express, UPS,
Emery, Purolator, DHL, Air Borne, and other similar overnight delivery
services), (c) if sent by telecopier (upon receipt by the sender thereof of
evidence that a clean transmission of such telecopy was made to the recipient
thereof) and, in such case, dispatching a copy of such notice by the methods
described in clause (a) or (b) above. All notices shall be effective upon
delivery; provided that if any notice is tendered to an addressee, such notice
--------
shall be effective upon tender. For the purposes of notice the addresses of the
parties shall be as set forth below; provided, that any party shall have the
--------
right to change its address for notice hereunder to any other location by giving
thirty (30) days' notice to the other parties in the manner set forth
hereinabove. The initial addresses of the parties hereto are as follows:
If to Lessor: American Airlines, Inc.
- ------------- 4333 Amon Carter Boulevard
MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate Development
and Treasurer
Telecopier: (817) 967-2199
Telephone: (817) 967-1227; and
American Airlines, Inc.
Maintenance & Engineering Center
3900 N. Mingo Road
Tulsa, Oklahoma 74115
Attention: Senior Vice President,
Maintenance and Engineering
Telecopier: (918) 292-2203
Telephone: (918) 292-2612
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<PAGE>
With copies to: American Airlines, Inc.
- -------------- 4333 Amon Carter Boulevard
MD 5675
Ft. Worth, Texas 76155
Attention: Corporate Secretary
Telecopier: (817) 967-4313
Telephone: (817) 967-1254; and
Haynes and Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202-3789
Attention: Janice V. Sharry
Telecopier: (214 651-5940
Telephone: (214) 651-5000
If to Lessee: Hawaiian Airlines, Inc.
- ------------ 3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attn: Vice President-Finance
Telecopier: (808) 836-4795
Telephone: (808) 835-3075
With copies to: Hawaiian Airlines, Inc.
- -------------- 3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attn: Vice President-General Counsel
Telecopier: (808) 835-3690
Telephone: (808) 835-3610
If to Head Lease First Security Bank of Utah, National Association
- ---------------- 79 South Main Street
Lessor: Salt Lake City, Utah 84111
- ------ Attn: Corporate Trust Department
Telecopier: 801-246-5053
Telephone: 801-246-5819
If to Mortgagee: State Street Bank and Trust Company
2 International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department, 4th Floor
Telecopier: (617) 644-5371
Telephone: (617) 644-5667
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<PAGE>
With copies to: Polaris Investment Management Corporation
600 Montgomery Street
San Francisco, California 94111
Attn: President
Telecopier: (513)-243-2412
Telephone: (513)-243-5073
If to Seller Kanematsu USA Inc.
114 West 47th Street
New York, New York 10036
Attn: Hiro Takeda
Telecopier: (203)-629-4620
Telephone: (203)-629-8590
(c) Lessor's Right to Perform. If Lessee fails to perform any of its
-------------------------
obligations hereunder, Lessor may (but shall not be obligated to) discharge such
obligation, and the amount of the expenses of Lessor incurred in connection with
such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand
together with interest thereon at the Stipulated Interest Rate to but excluding
the date of payment. Lessor shall use its best efforts to give Lessee prior
notice of Lessor's intention to discharge any such obligation.
(d) Confidentiality.
----------------
(i) Confidential Information. For purposes of this Agreement,
------------------------
confidential information shall mean any and all (i) trade secrets, (ii)
confidential or other proprietary information of a party or its Affiliates
concerning past, present or future research, development, business
activities or affairs, finances, properties, methods of operation,
processes and systems, (iii) customer lists, and (iv) other customer
information, whether oral, written or contained in any magnetic, electronic
or other media; provided, that in order for a party's information to be
--------
considered confidential hereunder such information, if non-oral, must be
marked by such party as confidential; and provided further, that oral
-------- -------
information must be specified as confidential at the time of disclosure
(collectively, "Confidential Information"). Notwithstanding the foregoing,
the parties expressly acknowledge and agree that the terms and conditions
of this Agreement set forth in Exhibit E of this Agreement constitute
Confidential Information. Notwithstanding the foregoing, any information
regarding this Lease and the terms or provisions thereof provided to Head
Lease Lessor, Mortgagee, Seller or any Participant pursuant to the terms of
this Lease, the Participation Agreement, the Indenture or the Head Lease
shall not constitute Confidential Information. The party which receives
Confidential Information from the other party agrees to maintain such
information in secrecy at all times, using the same degree of care with
respect to such Confidential Information as it uses in protecting its own
proprietary information, trade secrets and similar items; provided, that
--------
Confidential Information may be used in an action by one party to this
Agreement against the other if subject to the conditions set forth in (ii)
below. Information of either party which would otherwise be considered
Confidential Information shall not be considered Confidential Information
if such information is in the public domain, or is placed
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<PAGE>
in the public domain through no violation of this Agreement, or is lawfully
obtained from another source free of restriction.
(ii) Use of Confidential Information. Except to the extent expressly
-------------------------------
permitted in Section 4(l) of Exhibit E, neither party shall sell, transfer,
publish, disclose, display or otherwise make available the Confidential
Information of the other party to any third party (and third parties shall
be deemed also to include Affiliates of the party so restricted which are
not parents or subsidiaries), except as may be required by Applicable Law
in which case the party from whom disclosure is sought shall promptly
notify the other party. To the extent that the other party objects to
disclosure of such Confidential Information, the party from which
disclosure is sought shall (i) use reasonable and lawful efforts to resist
making any disclosure of such Confidential Information, (ii) use reasonable
and lawful efforts to limit the amount of such Confidential Information to
be disclosed, and (iii) use all reasonable efforts to obtain a protective
order or other appropriate relief to minimize the further dissemination of
any Confidential Information to be disclosed. In addition, neither party
shall disclose the Confidential Information of the other party to any
employee or agent except on a need-to-know basis. Each party shall use
reasonable efforts to inform all such employees and agents that the
Confidential Information of the other party is subject to this non-
disclosure obligation. Furthermore, neither party shall use the
Confidential Information of the other party for any purpose other than as
expressly provided in this Agreement.
(iii) Termination. Upon termination of this Agreement for any cause or
-----------
reason, each party shall, within ninety (90) days of such termination,
either deliver to the other party or destroy all of such other party's
Confidential Information (including all copies thereof, other than copies
of this Agreement) at the option of the other party then in its possession
and shall purge any copies thereof encoded or stored on magnetic or other
electronic media or processors; provided, that neither Lessee nor Lessor
--------
shall be required to purge or destroy any Confidential Information that is
reasonably necessary in connection with the resolution of any disputes
which may have arisen pursuant to the terms of this Agreement.
(iv) No Adequate Remedy. Each party acknowledges and agrees that the
------------------
other party will have no adequate remedy at law if there is a breach or
threatened breach of this Section 17(d) and, accordingly, that the other
party shall be entitled to an injunction against such breach. Nothing
herein shall be construed as a waiver of any other legal or equitable
remedies that may be available to either party if the other party breaches
this Section 17(d).
(v) Survival. The restrictions of this Section 17(d) shall survive
--------
for a period of eight (8) years after the termination or expiration of this
Agreement.
(vi) Affiliates. The Affiliates of Lessor and Lessee shall comply in
----------
all respects with the restrictions of this Section 17(d) and Lessor and
Lessee, respectively, shall in all respects be responsible for their
compliance.
(vii) Other Confidentiality Agreements. The provisions of this Section
--------------------------------
17(d) are in addition to, and shall terms hereof may be deemed to be
inconsistent with the terms of the Confidentiality Agreement or such
Confidentiality Agreement shall be silent, this
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<PAGE>
Agreement shall control with respect to this Agreement and any Confidential
Information relating hereto. Upon the written consent of Lessor, which
consent shall not be unreasonably withheld, Lessee may provide this
Agreement to third party lenders or investors of Lessee; provided, that the
party receiving this Agreement shall, prior to obtaining it, enter into a
confidentiality agreement with Lessee for the benefit of Lessor in
substantially the form of this Section 17(d).
(e) Counterparts. This Lease and the Lease Supplement No. 1 may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all such counterparts shall constitute one and the same instrument. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked as the "Original" and containing
the receipt therefor executed by the applicable secured party on the signature
page thereof.
(f) Grant of Security Interest by Lessor. In compliance with the terms of
------------------------------------
this Section, Lessor may grant a security interest in this Lease as collateral
for a loan provided Lessor notifies Lessee at least ten (10) Business Days
before granting such security interest. The rights of Lessee under this Lease
shall be superior in all respects to the rights of any such lender and Lessor
shall require any such lender to agree in writing in form and substance
reasonably satisfactory to Lessee that such lender's rights in and to the
Aircraft and under the Lease shall be subject and subordinate to the terms of
this Lease to receive all such performance from Lessor as may from time to time
be required by the terms hereof. Lessee agrees to reasonably cooperate with
Lessor in connection with Lessor's efforts to grant such security interest and
to provide, at Lessor's cost and expense, such documents and certificates in
connection therewith as Lessor may reasonably request, provided, that anything
--------
in this Section 17(f) to the contrary notwithstanding, the consummation of any
such loan shall not increase the actual or potential responsibilities or
liabilities of the Lessee or deprive Lessee of any of its rights or privileges
under the Long-Term Agreements.
(g) Survival. Except as otherwise expressly set forth herein or in the
--------
Long-Term Agreements, the representations, warranties and covenants set forth in
this Agreement, and the obligations hereunder, shall survive any transfer of
title or possession of the Serviced Aircraft, any Serviced Engines or any
Serviced Part, any termination or expiration of this Agreement or any
impossibility of performance of this Agreement or frustration of purpose of this
Agreement.
(h) Assignment. SUBJECT TO THE TERMS HEREOF, THIS AGREEMENT SHALL BIND AND
----------
BENEFIT LESSOR, LESSEE, AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS.
LESSOR MAY ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL OF ITS
OBLIGATIONS HEREUNDER TO ANY AFFILIATE OF LESSOR; PROVIDED, THAT LESSOR SHALL
--------
NOT ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL OF ITS
OBLIGATIONS UNDER EXHIBIT E OR ANY RELATED PROVISIONS OF THIS AGREEMENT TO ANY
AFFILIATE THAT IS NOT CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES.
SUBJECT TO THE PROVISIONS OF SECTION 4(f) OF EXHIBIT E, LESSOR MAY SUBCONTRACT
CERTAIN SPECIFIC TYPES OF MAINTENANCE SERVICES CONSTITUTING LESS THAN ALL OR
SUBSTANTIALLY ALL OF THE MAINTENANCE SERVICES TO BE PERFORMED
-64-
<PAGE>
HEREUNDER, AND, IN CONNECTION THEREWITH, ASSIGN CERTAIN OF ITS RIGHTS AND
DELEGATE CERTAIN OF ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS
OF THIS AGREEMENT. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
LESSOR MAY ASSIGN ALL OR SUBSTANTIALLY ALL OF ITS RIGHTS AND/OR DELEGATE ALL OR
SUBSTANTIALLY ALL OF ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS
OF THIS AGREEMENT TO ANY PERSON CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE
SERVICES SUBJECT ONLY TO SECTION 3(f)(ii)(C) OF EXHIBIT E. LESSEE MAY NOT
(EITHER VOLUNTARILY OR INVOLUNTARILY) ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY
OF ITS OBLIGATIONS HEREUNDER.
(i) Transaction Expenses. Lessee agrees to pay the reasonable out-of-
--------------------
pocket costs and expenses incurred by Lessor in connection with the preparation,
execution and delivery of any amendments, modifications or waivers requested by
Lessee or resulting from any requests of Lessee under this Agreement. Except as
specifically set forth herein, each of Lessor and Lessee shall be responsible
for their own legal and out-of-pocket expenses arising from the transactions
contemplated herein.
(j) Entirety. This Lease Agreement, the Lease Supplements, the
--------
Confidentiality Agreement and the Letter of Credit embody the entire agreement
between the parties hereto and thereto concerning the subject hereof and thereof
and such agreements terminate and supersede all prior or contemporaneous
agreements, discussions, undertakings, and understandings, whether written or
oral, express or implied, between the parties hereto and thereto concerning the
subject hereof and thereof.
(k) Force Majeure. Lessor shall not be liable to Lessee for a failure or
-------------
delay in the performance of any obligation or agreement contained herein, if
such failure or delay arises from any cause beyond Lessor's reasonable control,
including any act, omission, or breach of this Lease Agreement by Lessee, acts
of God, action or regulation of any Governmental Authority, fire, the elements,
flood, earthquakes, explosions, accidents, mechanical or electrical failures,
acts of the public enemy, war, civil disturbance, rebellion, insurrection, work
stoppage, strikes (including any mechanic, flight attendant or pilot strike),
labor dispute or difference with workers, regardless of whether or not Lessor
(or its Affiliate) is capable of settling such labor problem, or any other
cause, whether similar or dissimilar, beyond Lessor's reasonable control;
provided, however, that, notwithstanding the foregoing, with respect to
- -------- -------
Maintenance Services and related obligations as provided in Exhibit E hereto,
the provisions of Section 4(c)(i) of Exhibit E shall apply.
(l) Independent Contractor; No Agency.
---------------------------------
Nothing in this Agreement is intended or shall be construed to create or
establish any agency, partnership, or joint venture or fiduciary relationship
between the parties and neither Lessee nor any of its Affiliates has any
authority to act for or to incur any obligations on behalf of or in the name of
Lessor or any of its Affiliates and neither Lessor nor any of its Affiliates has
any authority to act for or to incur any obligations on behalf of or in the name
of Lessee or any of its Affiliates by virtue of this Agreement. The parties
hereto acknowledge and agree that nothing contained herein creates any fiduciary
duties between the parties or their respective Affiliates.
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<PAGE>
(m) Certain Consents and Waivers of Lessee.
--------------------------------------
(i) Jurisdiction. Except as set forth in Section 6 of Exhibit E
------------
hereto,
(a) Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of: (i) the United States District Court for the Northern
District of Texas, and of the courts of the State of Texas in Tarrant
County, and (ii) to the United States District Court for the District of
Hawaii (other than the Court), and of the courts of the State of Hawaii in
Honolulu County, for the purposes of any suit, action or other proceeding
arising out of this Lease Agreement or the subject matter hereof brought by
any other party, and (iii) any federal, state or foreign court of competent
jurisdiction where the In-Use Aircraft may be located from time to time for
the purpose of Lessor exercising any rights and remedies under this Lease
Agreement, including, without limitation, repossession of the In-Use
Aircraft. Lessor and Lessee each agrees that neither of them will bring
any suit, action or other proceeding arising out of this Lease Agreement,
the subject matter herein, or any of the transactions described herein, in
any jurisdiction other than the jurisdictions described above.
(b) To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim (i) that it is
not personally subject to the jurisdiction of the above-named courts, (ii)
that the suit, action or proceeding is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or
its property, (iv) that the venue of the suit, action or proceeding is
improper, or (v) that this Lease Agreement or the subject matter hereof may
not be enforced in or by such courts;
(c) Lessee agrees to designate CT Corporation in Texas as its
agent for service of process in Texas, and Lessor agrees to designate CT
Corporation in Hawaii as its agent for service of process in Hawaii.
Lessor and Lessee each agrees that submission to jurisdiction and
designation of an agent for service of process set forth above is made
solely for the express benefit of the other party and is effective solely
for purposes of this Lease Agreement;
(d) Final judgment against a party in any suit in any court of
competent jurisdiction shall be conclusive, and may be enforced in other
jurisdictions, to the extent permitted by Applicable Law, by suit on the
judgment, a certified and true copy of which, to the extent permitted by
Applicable Law, shall be conclusive evidence of the fact and the amount of
any indebtedness or liability of the party therein described; and
(e) To the extent that any party or any of its property is or
becomes entitled at any time to any immunity on the grounds of sovereignty
or otherwise, from any legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of
execution, or from jurisdiction, that party for itself and its property
does hereby irrevocably and unconditionally waive, and agrees not to plead
or claim any such immunity with respect to its obligations, liabilities or
any other matter arising hereof. Such agreement shall be irrevocable and
not subject to withdrawal in any and all jurisdictions
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<PAGE>
including under the Foreign Sovereign Immunities Act of 1976 of the United
States of America.
(II) WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE TRIAL
--------------------
BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT OR ANY
MATTER RELATED HERETO.
(III) OTHER WAIVERS. LESSEE AGREES AND ACKNOWLEDGES THAT UPON THE
-------------
OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS LEASE AGREEMENT, LESSOR SHALL
SUFFER IRREPARABLE HARM FOR WHICH MONEY DAMAGES WILL NOT BE ADEQUATE OR CANNOT
BE READILY ASCERTAINED. IN FURTHERANCE THEREOF, LESSEE AGREES THAT IT WILL TAKE
NO ACTION TO HINDER, DELAY OR INTERFERE WITH ANY ACTIONS TAKEN BY LESSOR IN
CONNECTION WITH THE REPOSSESSION OF THE IN-USE AIRCRAFT. SPECIFICALLY, LESSEE
WILL NOT TAKE ANY ACTION WHICH WOULD REQUIRE THE LESSOR TO BREACH THE PEACE IN
CONNECTION WITH REPOSSESSION OF THE IN-USE AIRCRAFT. LESSEE CONSENTS TO THE
ISSUANCE OF ANY ORDER OF ANY COURT OF COMPETENT JURISDICTION ENABLING LESSOR TO
REPOSSESS THE IN-USE AIRCRAFT, FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT,
WITHOUT THE NECESSITY OF LESSOR POSTING OR ISSUING ANY BOND. IN ADDITION,
LESSEE AGREES THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN
SECTIONS 13A(I) OR (J) OF THE LEASE AGREEMENT, LESSEE SHALL NOT TAKE ADVANTAGE
OF ANY PERIODS SPECIFIED IN SECTIONS 365 OR 1110 OF THE BANKRUPTCY CODE DURING
WHICH IT MIGHT RETAIN POSSESSION OF THE IN-USE AIRCRAFT OR THE PROVISIONS OF THE
AUTOMATIC STAY SET FORTH IN SECTION 362 OF THE BANKRUPTCY CODE, AND, WITHOUT
LIMITING OTHER REMEDIES AVAILABLE TO LESSOR, SHALL EITHER IMMEDIATELY UPON THE
FILING OF ANY BANKRUPTCY PETITION TURN OVER THE IN-SERVICE AIRCRAFT TO LESSOR OR
PAY ALL AMOUNTS THEN DUE AND OWING HEREUNDER AND THEREAFTER ACCRUING UNDER THIS
LEASE AGREEMENT. IN THE EVENT THAT AN ORDER IS ISSUED GIVING LESSOR POSSESSION
OF ANY IN-USE AIRCRAFT, LESSEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO RETURN OF
POSSESSION OF SUCH AIRCRAFT, AND COVENANTS THAT IT WILL NOT SEEK ANY ORDER
PERMITTING IT TO RETAIN OR REPOSSESS SUCH AIRCRAFT, BY POSTING A BOND OR
OTHERWISE. IN THE EVENT THAT ANY COURT DECLINES TO ISSUE AN ORDER PERMITTING
LESSOR TO REPOSSESS ANY IN-USE AIRCRAFT UNLESS LESSOR POSTS OR ISSUES A BOND, OR
LESSOR ELECTS NOT TO REQUEST THAT THE REQUIREMENT FOR SUCH A BOND BE WAIVED,
LESSEE HEREBY AGREES THAT (IF LESSOR SO ELECTS) THE AMOUNT OF SUCH BOND SHALL
NOT BE REQUIRED TO EXCEED ONE YEAR'S BASIC RENT FOR SUCH AIRCRAFT.
(n) Offset. Until all Deferred Basic Rent is paid under the Long-Term
------
Lease Agreement (provided that on the date all Deferred Basic Rent is paid
thereunder, all other Rent then due and payable thereunder and hereunder has
also been paid; such date being the "Setoff Release Date") Lessor, AMRCG, SABRE
and AMS shall each have the right to setoff and recoup any sums payable
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to Lessee against any sums payable by Lessee to Lessor, AMRCG, SABRE or AMS
pursuant to this Lease Agreement, the other Long-Term Agreements or otherwise.
Until the Setoff Release Date Lessor shall also have the right to setoff and
recoup any amounts payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to
this Lease Agreement, or the other Long-Term Agreements by drawing upon any
letter of credit or withdrawing any portion or all of the Deposit (which may
constitute all or a portion of the Letter of Credit). Nothing set forth in this
Subsection 17(n) or Subsection 17(n) of the Long-Term Lease Agreement, the July
Lease Agreement or the November Lease Agreement shall otherwise limit Lessor's
right to draw upon or withdraw from the Letter of Credit to the extent otherwise
set forth herein or in any Long-Term Agreement.
Section 18. True Lease
----------
(a) Intent of the Parties. It is the intent of the parties to this lease
---------------------
that it will be a true lease and not a "finance lease" as defined in Section
168(f) of the Internal Revenue Code of 1954, as amended and in effect prior to
the Tax Reform Act of 1986 (P.L. 99-154) or a "conditional sale" as defined in
49 U.S.C. Section 40102(a)(18) (former 1301) and that the Lessor shall at all
times be considered to be the owner of the Aircraft which is the subject of this
Lease for the purposes of 49 U.S.C. Section 44103 (former 1401) and for all
Federal, state, city and local income taxes or for franchise taxes measured by
net income and that this Lease conveys to the Lessee no right, title or interest
in the Aircraft except as a lessee.
(b) Federal Bankruptcy Act. Without limiting the provisions of Section
----------------------
17(m)(iii), to the extent consistent with the provision of Title 11 U.S.C.
Section 1110, or any analogous section of the Federal bankruptcy laws, as
amended from time to time, it is expressly agreed that the title of Head Lessor
to the Airframe and any right of Head Lessor to take possession of such Airframe
in compliance with the provisions of the Head Lease, and the interest of the
Lessor in the Airframe and any right of the Lessor to take possession of such
Airframe in compliance with the terms of this Lease, shall not be affected by
the provisions of the Federal bankruptcy laws, as amended from time to time,
including, without limitation, the provisions of Section 362 or 363 of such
Title, or other analogous part of any superseding statute, as amended from time
to time.
Section 19. Enforceability in Jurisdictions. Any provision of this Lease
--------------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 20. No Third-Party Beneficiaries. Except for rights and benefits
----------------------------
conferred on certain of Lessor's Affiliates as set forth in this Lease
Agreement, all rights, remedies, and obligations of the parties hereunder shall
accrue or apply solely to the parties hereto or their permitted successors or
assigns and there is no intent to benefit any third parties.
Section 21. Maintenance Obligations. Lessee and Lessor agree that
-----------------------
notwithstanding the provisions of the Long-Term Lease Agreement, including
Exhibit F thereto, which by its terms relates to the provision of maintenance
services by Lessor of all DC10-10 aircraft leased by Lessor to Lessee, that the
terms of this Lease Agreement shall govern the maintenance of the Aircraft. The
Long-Term Lease Agreement, including Exhibit F thereto shall continue in full
force and effect as to all other
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<PAGE>
Serviced Aircraft (as defined in the Long-Term Lease Agreement) other than the
aircraft which is subject to the November Lease Agreement, which shall remain
subject to the maintenance provisions set forth in Exhibit E to the November
Lease Agreement, the aircraft which is subject to the July Lease Agreement,
which shall remain subject to the maintenance provisions set forth in Exhibit E
to the July Lease Agreement and the aircraft which is subject to the December
Lease Agreement, which shall remain subject to the maintenance provisions set
forth in Exhibit E of the December Lease Agreement.
Section 22. Amendment of Long-Term Lease Agreement. Lessor and Lessee
--------------------------------------
agree that the occurrence of any Lessee Event of Default hereunder shall
constitute a "Lessee Event of Default" under the Long-Term Lease Agreement, the
July Lease Agreement and the November Lease Agreement.
Section 23. Subordinate to Head Lease. Notwithstanding anything to the
-------------------------
contrary contained herein, this Lease in all respects is subject and subordinate
to all of the terms and provisions of the Head Lease and the Indenture,
including, without limitation, (i) the covenants contained in Section 7(a) of
the Head Lease, (ii) Head Lease Lessor's rights to repossession of the Airframe
pursuant to Section 15 of the Head Lease, including, without limitation, its
rights to avoid this Lease upon any such repossession and the Mortgagee's right
to possession pursuant to Section 4.02 and Article XII of the Indenture, and
(iii) the prohibition of the assignment or further subleasing or wet leasing of
the Airframe or any part thereof. Lessee agrees to take no action to impair Head
Lease Lessor's title to the Airframe. Lessee acknowledges that Lessor has
provided to it a copy of the Head Lease. All references herein to the Head
Lease shall be deemed to include any and all future modifications and amendments
thereto. Notwithstanding anything to the contrary contained herein, whether
express or implied, it is understood and agreed that Lessor is not granting or
purporting to grant, and that Lessee is not receiving and does not claim to have
or hold, any estate, right, privilege or interest in or to the Airframe except
as permitted or authorized under the terms of the Head Lease and this Lease.
[Next following page is the signature page.]
-69-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Agreement
to be duly executed as of the day and year first above written.
Lessor:
AMERICAN AIRLINES, INC.
By: /s/ Jefferey M. Jackson
-------------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
Lessee:
HAWAIIAN AIRLINES, INC.
By: /s/ C. J. David Davies
-------------------------------
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By: /s/ Rae A. Capps
-------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
-70-
<PAGE>
SCHEDULE I
This Schedule I has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT A TO LEASE AGREEMENT
----------------------------
LEASE SUPPLEMENT NO. 1
----------------------
THIS LEASE SUPPLEMENT NO. 1, dated January ____, 1996, between AMERICAN
AIRLINES, INC., a Delaware corporation ("Lessor"), and HAWAIIAN AIRLINES, INC.,
a Hawaii corporation ("Lessee").
W I T N E S S E T H:
--------------------
WHEREAS, Lessor and Lessee have heretofore entered into the Aircraft Lease
Agreement dated as of December 30, 1995 (the "Lease Agreement", defined terms
used herein are as therein defined), which provides in Section 2 for the
execution of a Lease Supplement substantially in the form hereof for the purpose
of leasing the Aircraft under the Lease Agreement on its Delivery Date in
accordance with the terms hereof; and
WHEREAS, the Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached to and made a part
of this Lease Supplement, and this Lease Supplement, together with such
attachment, is being filed for recordation on the date hereof with the FAA as
one document;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to Section 2 of the Lease Agreement, the Lessor and
Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts
and leases from Lessor, under the Lease Agreement as hereby supplemented, the
McDonnell Douglas DC10-10 aircraft (the "Aircraft") which consists of the
following components (which may or may not be attached to each other at the
moment of acceptance hereunder):
(i) airframe: U.S. registration number N161AA; manufacturer's serial no.
46942; and
(ii) three General Electric CF6-6K engines bearing manufacturer's serial
nos. 451255, 451515 and 451335 (each of which engines has 750 or more rated
takeoff horsepower or the equivalent of such horsepower).
2. The Term for the Aircraft commences on the date of this Lease
Supplement.
3. The Term shall commence on the date hereof and shall end on February 7,
1996, unless earlier terminated in accordance with the provisions of the Lease
Agreement.
4. Lessee hereby confirms its agreement to pay to Lessor Basic Rent for
the Aircraft throughout the Term in accordance with Section 3 of the Lease
Agreement and to pay Supplemental Rent pursuant to Exhibit E attached to the
Lease.
5. All of the provisions of the Lease Agreement are hereby incorporated by
reference in this Lease Supplement on and as of the date of this Lease
Supplement to the same extent as if fully set forth herein.
- 1 -
<PAGE>
6. This Lease Supplement is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
7. This Lease Supplement may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Lease Supplement constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Lease Supplement may be created through the transfer
or possession of any counterpart other than the counterpart marked as the
"Original".
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed and delivered as of the date and year first above
written.
AMERICAN AIRLINES, INC.
By:
-------------------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By:
-------------------------------------
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By:
-------------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
- 2 -
<PAGE>
EXHIBIT B
---------
This Exhibit B has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT C
---------
CONDITIONS PRECEDENT TO DELIVERY
--------------------------------
1. The Aircraft shall have been tendered for delivery to Lessee in the
condition required by the Lease at LAX or such other location as Lessor and
Lessee may have agreed to in writing.
2. On the Delivery Date, the representations and warranties of Lessor set
forth in the Lease Agreement shall be true and accurate as if made on such
date.
3. This Lease and Lease Supplement No. 1 shall have been executed and
delivered to Lessor for filing for information with the FAA in Oklahoma
City, Oklahoma.
4. The receipt by Lessor from Lessee not later than two (2) days prior to the
Delivery Date of the following, dated as of such Delivery Date, all of
which shall be satisfactory in form and substance to Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized
officer thereof;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform the Lease Agreement and the
transactions contemplated hereby, certified to be true and up to date
copies by a duly authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officers of Lessee setting out the names and signatures of
the person or persons authorized to sign the Lease Agreement;
(d) Opinion of in-house counsel to Lessee in form and substance reasonably
satisfactory to Lessor, and the opinion of independent counsel
confirming the applicability of the protections of Section 1110 of the
Bankruptcy Code to the Lease Agreement;
(e) certificate acceptable in form and substance to Lessor evidencing the
insurance required by Section 9 of the Lease Agreement;
(f) receipt by Lessor of the first installment of Basic Rent pursuant to
Section 3 of the Lease Agreement and Supplemental Rent pursuant to
Exhibit E to the Lease Agreement and payment of all amounts then due
under any Long-Term Agreement; and
(g) Execution and delivery by Lessee of any financing statements required
by Lessor.
5. Execution by Lessee of the Lease Termination relating to this Lease
Agreement.
6. The Final Order (as defined in the Long-Term Lease Agreement) confirming
the Plan shall be and remain in full force and effect.
C2-2
<PAGE>
7. The Long-Term Agreements and the Letter of Credit are in full force and
effect.
8. Amendment to the Letter of Credit, acceptable to Lessor.
9. No Default or Lessee Event of Default shall have occurred and be continuing
and no "Event of Default" or "Termination Event" shall have occurred and be
continuing under the Interim Definitive Agreements or Long-Term Agreements;
provided however, that the effectiveness of this Lease Agreement shall not
----------------
be deemed to be a waiver by either party to this Lease Agreement or any of
the Interim Definitive Agreements of any claims (whether or not disclosed)
such party may have against the other party under the Interim Definitive
Agreements or the Long Term Agreements.
EXHIBIT D
---------
TO LEASE AGREEMENT
------------------
DELIVERY AND RETURN CONDITIONS
------------------------------
The following conditions shall apply to the Aircraft upon delivery of the In-Use
Aircraft by Lessor to Lessee and upon return of Return Aircraft to the Lessor by
the Lessee pursuant to this Agreement.
CONDITION OF IN-USE AIRCRAFT UPON DELIVERY AND
----------------------------------------------
RETURN AIRCRAFT UPON RETURN
---------------------------
Lessor and Lessee agree that Lessor shall deliver the In-Use Aircraft to Lessee
AS-IS, WHERE-IS; and Lessee shall return the Return Aircraft to the Lessor in
compliance with all of the following provisions:
1. Inspection of "on-condition" and "condition monitored" components will have
been accomplished when due and all such items shall be serviceable.
2. It is the intent of the parties that the condition of the In-Use Aircraft
at the time of delivery of the Return Aircraft at the termination of the Lease
shall be to conform to that of the standards of international air
transportation, with the interior and exterior in good repair and appearance,
without significant corrosion, or structural maintenance work deferred, and with
all Airworthiness Directives in full compliance. It is further the intent of
the Lease that the Return Aircraft and its Serviced Engines will be readily
transferable to the registration of another carrier without having to undergo
significant repairs, refurbishment or modification being required on the Return
Aircraft. At the time of such return, the Return Aircraft shall comply with the
following conditions:
A. Upon return to Lessor, the Return Aircraft shall comply with Lessee's
FAA-approved maintenance program.
B. All deferred maintenance items and all deficiencies or discrepancies
which by their nature are outside Lessee's maintenance manual limits
for unrestricted
C2-3
<PAGE>
operation found prior to or during the return inspection or final
inspection or demonstration delivery flight(s) shall be corrected by
repair in accordance with the approved Lessee's maintenance manual.
C. The fuel, hydraulic, pneumatic, water and waste system leaks on the
Return Aircraft shall be within the limits allowable pursuant to
Lessee's maintenance manual. This is to be demonstrated by filling
all tanks and reservoirs to capacity and performance of a functional
and leak check of all related systems. The cost of such checks shall
be borne by the Lessee.
D. The Return Aircraft on return by Lessee and all parts installed shall
have all necessary FAA approved service tags or equivalent Lessee
documents approved by the Lessee's maintenance program.
E. Engines
a. Engine borescope inspections of compressor, burner and turbine
sections of each installed engine shall be conducted in
accordance with Lessor's engine borescope inspection cards #4930-
1, 4930-2 and 4930-3 [for inspections] (or any such replacement
card therefor). Each card shall have attached thereto findings
and comments along with visual records (photographic or video
data). Inspected engines shall meet the requirements of
manufacturer's maintenance manual. Borescope inspection findings
that result in inspection intervals being reduced to less than
400 hours will be corrected by engine replacement and/or repair
prior to the return of the Return Aircraft by Lessee.
Borescope inspections shall have been completed by Lessor/Lessee
or its authorized representative, at Lessee's expense. In the
event the APU fails to meet the pneumatic or electrical load
requirements, the APU shall be changed.
b. Each installed engine will be subject to completion of a power
assurance run and review of engine trend analysis with all engine
parameters being within limits in accordance with the appropriate
manufacturer's engine manual. Engine ground runs for the Return
Aircraft shall be conducted in accordance with Lessor's engine
ground run-up card number DR71-95-18 (or any such replacement
card therefor). Engine Exhaust Gas Temperature ("EGT") shall not
exceed a maximum of 925 (degrees) C during ground runs to max
power. In the event EGT exceeds 925 (degrees) C and adjustments
cannot be accomplished with the engine installed within eight
working hours to reduce EGT below 925 (degrees) C at max power,
the engine installed shall be rejected and a Replacement Engine
installed.
D-2
<PAGE>
c. No installed engine shall be on "watch" and each such engine
shall comply with the operations specification of Lessee without
waiver or exceptions.
In the event Lessor is no longer maintaining the In-Use Aircraft, the
expense of complying with this paragraph E shall be at Lessee's sole
expense. In the event Lessor is maintaining the In-Use Aircraft pursuant to
Exhibit E hereto, the cost of any repairs or replacements required by this
Paragraph E shall be borne by the parties in accordance with the other
terms of Exhibit E as if such repairs and replacements were made in the
normal course of the term of the Lease Agreement, except to the extent
specifically set forth in this Exhibit E.
F. The Return Aircraft on return by Lessee shall have a then current
weight and balance report in the final delivery configuration as
required by the FARs provided to Lessor and/or Lessee.
G. All required placards per Lessor's/Lessee's maintenance and operations
specifications must be current, in place and legible. (In English)
H. Fuselage
(1) Dents, corrosion and abrasions, or any loose, pulled or missing
rivets shall be within the limits of Lessee's maintenance
manual. External patches shall be of a type consistent with
industry standards and approved by Lessee's maintenance manual.
Each repair will have proper documentation of structural repair
manual reference and/or engineering repair drawings or
documentation as applicable.
(2) Windows shall be serviceable in accordance with Lessee's
maintenance manual. Visibility through windows will meet
standard industry standards.
(3) Doors shall be free moving, correctly rigged and be fitted with
serviceable seals, in accordance with Lessee's maintenance manual
limits.
(4) Exterior logos will be removed pursuant to Exhibit E hereto, by
stripping or sanding off the present logo, and repainting to
blend with existing exterior paint in accordance with standard
industry practices.
(5) Unpainted metal surfaces shall be clean and buffed.
I. Wings and Empennage
(1) All leading edges shall be serviceable in accordance with
Lessee's maintenance manual. Any repairs to leading edges shall
be in accordance with Lessee's maintenance manuals.
D-3
<PAGE>
(2) All control surfaces shall be clean by airline standards and free
of delamination in accordance with Lessee's maintenance manual.
(3) All unpainted cowlings and fairings shall be buffed and clean by
airline standards and tightly fitted in accordance with Lessee's
maintenance manual limits.
(4) Fuel leaks in the wings shall be within the limits allowed by
Lessee's FAA-approved maintenance program. Temporary fuel leak
repairs will be within the limits allowed, by Lessee's FAA-
approved maintenance program, and permanent repairs may be
deferred until the next C check.
(5) Fuel tanks shall be free from contaminates, as evidenced by
sumping the tanks externally.
J. Interior
(1) The Return Aircraft shall be delivered with Lessee's carpet,
flooring, drapes, tapestries and hard decor as last operated in
revenue service by Lessee, all of which items may be subsequently
used by Lessor in its sole discretion. Upon return, all logos and
markings of Lessee shall be tastefully removed, where reasonable.
Except as otherwise provided herein, Lessor may retain other
severable items that do not add to the value of the Return
Aircraft and that are not required to be installed in the
Aircraft by the FAA. Lessee shall deliver the Return Aircraft
with Lessor's seat covers.
(2) Ceilings, sidewalls and bulkhead panels shall be clean and free
of major cracks and stains by normal airline standards.
(3) All carpets and seat covers shall be in good condition, normal
wear and tear excepted, clean and stain-free by normal standards
and shall meet current FAA fire resistance regulations.
(4) All seats shall be serviceable in accordance with maintenance
manual limits in good condition, normal wear and tear excepted
and repainted as reasonably required.
(5) All signs and decals shall be clean and legible by normal lessee
standards.
(6) Floor panels shall be in good condition free of soft spots and
delamination. If field repairs are installed, permanent repairs
may be deferred to the next C Check.
(7) The aircraft interior shall be thoroughly cleaned to the
standards acceptable for passenger revenue flights.
D-4
<PAGE>
K. Cockpit
(1) All placard and decals shall be clean, secure and legible. (In
English)
(2) All fairing panels shall be free of major stains and major cracks
and shall be clean.
(3) Floor coverings shall be clean and effectively sealed as required
by Lessee's maintenance program.
(4) Seat covers shall be in good condition, free of major tears and
major stains, normal wear and tear excepted, and shall conform to
existing fire resistance regulations.
(5) Seats shall be fully serviceable, in good condition, normal wear
and tear excepted, and repainted as reasonably required.
L. Cargo Compartments
(1) All panels shall be in serviceable condition, normal wear and
tear excepted. All repairs to floor, ceilings or side walls shall
be in accordance with Lessee's maintenance manuals. If field
repairs are installed, permanent repairs may be deferred to the
next C Check.
(2) No cargo containers shall be delivered or returned.
(3) All cargo loading functions will be tested under load conditions
by utilizing one fully loaded cargo container.
(4) One ship set of onboard ovens/coffee makers shall be included.
M. Landing Gear and Wheel Wells
(1) Shall be clean, free from leaks and in good repair, normal wear
and tear excepted.
(2) All decals shall be clean, secure and legible. (In English)
(3) Brakes will be in good condition. No brake will have less than
one half (1/2) inch of wear remaining on wear indicator.
N. No structural repairs including corrosion, skin replacement, crack
propagation or SSI programs shall be overdue on the Return Aircraft at
time of redelivery, or be in a deferred status.
O. The Return Aircraft shall be made available on or before the
anticipated date of return by Lessee for an operation test flight, at
Lessee's expense, not to exceed one hour, which test flight shall be
conducted by Lessee using Lessee's standard flight test procedures.
Up to five persons designated by Lessor may participate in such flight
D-5
<PAGE>
as observers. The Lessor shall identify to the Lessee in writing any
claim of discrepancy between the required condition of the Return
Aircraft at return of the Return Aircraft to the Lessor and the Return
Aircraft's actual condition.
In the event Lessor is no longer maintaining the Return Aircraft, the
expense of correcting any discrepancy shall be at Lessee's sole
expense. In the event Lessor is maintaining the Return Aircraft
pursuant to Exhibit E hereto, the cost of correcting any discrepancy
required by this paragraph O(2) shall be borne by the parties in
accordance with the other terms of Exhibit E as is such actions were
taken in the course of the term of the Lease Agreement.
P. The Return Aircraft shall be in compliance with Stage III Noise
Regulations.
Q. Any FAA mandated corrosion control program will be current as
specified by the manufacturer's corrosion control document or approved
Lessee's corrosion control program.
R. The Return Aircraft shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by
the respective regulatory authorities.
Lessor shall not furnish any sets of cargo containers, catering modules,
catering carts and catering inserts to Lessee hereunder.
D-6
<PAGE>
Return Inspection and Acceptance Flight Ground Inspection
- ----------------------------------------------------------
The Return Aircraft shall be made available to Lessor on or before
return of the Return Aircraft, for ground inspection at either Tulsa, Oklahoma
Airport or another Airport satisfactory to Lessor on or before the due date for
return in order that Lessor may reasonably satisfy itself that the Return
Aircraft is in the condition required under this Agreement. The manuals and
technical records shall be made available to Lessor for inspection during such
period prior to return thereof as Lessor reasonably requires. Such inspection
shall be conducted in coordination with Lessee's and Lessor's respective
personnel and Lessor shall be allowed reasonable access to the Return Aircraft
to verify compliance with the conditions set forth in this Agreement. Lessor
shall immediately state orally and confirm in writing within four (4) hours of
the relevant inspection to Lessee each claim of discrepancy. To facilitate such
inspection Lessee will provide reasonable office accommodation at or near the
inspection site (equipped with a telephone and having access to a photocopier,
telecopier and word processing facilities) provided, however, that Lessor shall
indemnify Lessee for all out-of-pocket costs so incurred by Lessor.
D-7
<PAGE>
Documents Required for Return
- -----------------------------
Listed below are the documents or Lessee equivalent that will be required upon
delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft
by Lessee. All documents must be valid at time of return and shall incorporate
the most recent revisions issued by the documents controlling regulatory agency:
1. Standard Airworthiness Certificate
2. Certificate of Sanitary Construction
3. A copy of Maintenance Check Manual
4. Airworthiness Directive Compliance Status including Repetitive and Method
of Compliance
5. Status of Time Controlled and Life Limited Parts; Status of Time Controlled
and Life Limited Parts; Status of Airframe, Engines, Auxiliary Power Unit
and Land Gear
6. Report covering any Major Accidents or Repairs on the Aircraft with
Supporting Documentation
7. A review of the Aircraft Log Books
8 FAR Compliance Status including Method of Compliance
9. Alteration/Repair/Modification Records
10. Service Bulletin Status List
11. AOL/Service Letter Status List
12. Supplemental type Certificates issued for Aircraft and Equipment as held by
operator
13. List of Open Items
14. Weight and Balance Records
D-8
<PAGE>
The following manuals or Lessee equivalents will be furnished in hard copy
or reproducible film or in the then current form in which it is used by Lessee.
Unless otherwise indicated, one copy per In-Use Aircraft of each of the
following manuals or equivalents will be provided to Lessee. Additional copies
will be or have been provided pursuant to that certain Manuals Supplement
between Lessor and Lessee, the Interim Aircraft Lease Agreements, the Interim
Aircraft Maintenance Agreement or pursuant to the provisions hereof and all
copies of each of the following shall be returned. All manuals will be valid at
time of return and shall include the most recent revisions issued by the
documents controlling regulatory agency.
1. FAA Approved Flight Manual
2. Flight Crew Operational Manual
3. Performance Manual
4. Airframe Maintenance Manual
5. Airframe Illustrated Parts Catalog
6. Airframe Structures Repair Manual
7. Wiring Diagram Manual
8. Engine Maintenance Manual
9. Engine Illustrated Parts Manual
10. Weight and Balance Records
11. Minimum Equipment List
12. Part Number Conversation List - Operator to Manufacturer P/N
13. Red Book for each microfilm library
NOTE: All documents and manuals must be in English
D-9
<PAGE>
Return of Other Engines. In the event that any engine not owned or leased
- -----------------------
by Lessor shall be installed on the Return Airframe, such engine shall be an
engine suitable to be a Replacement Engine hereunder. Upon return of the Return
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens (other than any Head Lease Lessor's Liens or Lessor's
Liens) and, upon such conveyance, Lessee will furnish Lessor with a full
warranty bill of sale, in form and substance reasonably satisfactory to it, with
respect to such engine and take such other action as may be reasonably requested
in order that title to such engine may be duly and properly vested in Lessor to
the same extent as the Engine replaced thereby. Upon conveyance by Lessee of
good title to such engine to Lessor, and upon full compliance by Lessee with its
obligations hereunder, at Lessee's expenses, Lessor will transfer to Lessee all
rights, title and interest originally conveyed to Lessor in an Engine
constituting part of the Aircraft but not installed on the Return Airframe at
the time of the return of the Return Airframe "as-is, where-is", free and clear
of Head Lease Lessor's Liens and Lessor's Liens but otherwise without recourse
or warranty, express or implied to Lessee.
D-10
<PAGE>
SCHEDULE 4(d)(i)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-1
<PAGE>
SCHEDULE 4(d)(iv)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-2
<PAGE>
SCHEDULE 4(d)(v)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-3
<PAGE>
SCHEDULE 4(d)(vi)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-4
<PAGE>
SCHEDULE 4(d)(vii)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-5
<PAGE>
EXHIBIT E
---------
This Exhibit E has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT (10AA)
--------
AIRCRAFT
LEASE AGREEMENT
Dated as of December 15, 1995
Between
AMERICAN AIRLINES, INC., as
Lessor
and
HAWAIIAN AIRLINES, INC., as
Lessee
One (1) DC10-10 Aircraft
Registration No. N151AA
Serial Number 46706
with Three GE CF6-6K Engines
This Lease Agreement has been executed in several counterparts. To the extent,
if any, that this Lease Agreement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the original.
The counterpart to be deemed the original shall be the counterpart that is
designated on the signature pages thereof as the original counterpart and no
security interest in this Lease Agreement may be created through the transfer of
any counterpart other than such original counterpart. This is not the original
counterpart.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Section 1. Definitions.................................................................................. 1
-----------
Section 2. Delivery and Acceptance...................................................................... 14
-----------------------
(a) Time and Place............................................................................... 14
--------------
(b) Delivery Date................................................................................ 14
-------------
Section 3. Term and Rent................................................................................ 14
-------------
(a) Term......................................................................................... 14
----
(b) Basic Rent................................................................................... 14
----------
(c) Supplemental Rent............................................................................ 14
-----------------
(d) Prohibition Against Setoff, Etc.............................................................. 15
-------------------------------
(e) Payment to Lessor............................................................................ 15
-----------------
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain Agreements of Lessee,
------------------------------------------------------------------------------
Representations of Lessee.................................................................... 16
--------------------------
(a) Disclaimer................................................................................... 16
----------
(b) Quiet Enjoyment.............................................................................. 16
---------------
(c) Waiver of Warranties......................................................................... 17
--------------------
(d) Lessee's Representations and Warranties...................................................... 17
---------------------------------------
(e) Lessor's Representations and Warranties...................................................... 19
---------------------------------------
Section 5. Return of Airframe and Engines............................................................... 20
------------------------------
(a) Return of Airframe and Serviced Engines...................................................... 20
---------------------------------------
(b) Return of Other Engines...................................................................... 21
-----------------------
Section 6. Liens........................................................................................ 22
-----
Section 7. Registration, Maintenance and Operation; Possession; Insignia................................ 22
--------------------------------------------------------------
(a) Registration, Maintenance and Operation...................................................... 22
---------------------------------------
(b) Additional Maintenance Provisions............................................................ 23
---------------------------------
(c) Territorial Restrictions on Use of Aircraft.................................................. 23
-------------------------------------------
(d) Obligations Absolute......................................................................... 24
--------------------
(e) Possession................................................................................... 24
----------
(f) Registration and Insignia.................................................................... 24
-------------------------
(g) Replacement of Parts......................................................................... 24
--------------------
(h) ............................................................................................. 25
Alterations, Modifications and Additions.............................................................. 25
----------------------------------------
(i) Manuals and Technical Records................................................................ 26
-----------------------------
(j) Maintenance and Usage........................................................................ 26
---------------------
Section 8. Loss, Destruction, Requisition, Etc.......................................................... 26
-----------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
(a) Event of Loss to the Aircraft................................................................ 26
-----------------------------
(b) Event of Loss to a Serviced Engine........................................................... 27
----------------------------------
(c) Application of Payments for Requisition of Title............................................. 30
------------------------------------------------
(d) Requisition of Use of the Airframe........................................................... 31
----------------------------------
(e) Investment of Proceeds Pending Replacement................................................... 31
------------------------------------------
(f) Application of Payments During Default....................................................... 31
--------------------------------------
Section 9. Insurance.................................................................................... 32
---------
(a) Liability Insurance.......................................................................... 32
-------------------
(b) All Risk Hull Insurance...................................................................... 33
-----------------------
(c) War-Risk Insurance........................................................................... 34
------------------
(d) Application of Proceeds...................................................................... 34
-----------------------
(e) Reports, Etc................................................................................. 35
-------------
(f) Additional Insurance......................................................................... 35
--------------------
(g) Notice from Lessee; No Modification.......................................................... 35
-----------------------------------
(h) Reinsurance.................................................................................. 35
-----------
(i) Insurance of Lessor.......................................................................... 36
-------------------
(j) Insurance Relating to Allocated Parts........................................................ 36
-------------------------------------
(k) Compliance with Head Lease................................................................... 36
--------------------------
Section 10. Inspection; Financial Information; Letter of Credit.......................................... 36
---------------------------------------------------
(a) Inspection................................................................................... 36
----------
(b) Financial Information........................................................................ 37
---------------------
(c) Letter of Credit............................................................................. 38
----------------
Section 11. Lessee's Covenants........................................................................... 40
------------------
(a) Merger....................................................................................... 40
------
(b) Certificated Air Carrier..................................................................... 41
------------------------
Section 12. FAA Recordation and Further Assurances....................................................... 41
--------------------------------------
(a) FAA Recordation.............................................................................. 41
---------------
(b) Further Assurances........................................................................... 41
------------------
Section 13A. Lessee Events of Default....................................................................... 41
------------------------
Section 13B. Lessor Events of Default....................................................................... 43
------------------------
Section 14A. Lessor Remedies................................................................................ 44
---------------
Section 14B. Lessee Remedies................................................................................ 47
---------------
(a) Remedies..................................................................................... 47
--------
(b) Limitation on Damages........................................................................ 47
---------------------
(c) No Implied Waiver............................................................................ 47
-----------------
Section 15. INDEMNIFICATION.............................................................................. 48
---------------
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
(a) General...................................................................................... 48
-------
(b) Indemnification for Negligent Acts........................................................... 49
----------------------------------
(c) Defense of Claims; Settlement................................................................ 49
-----------------------------
(d) Indemnification by Lessor.................................................................... 51
-------------------------
(e) Survival..................................................................................... 51
--------
Section 16. General Tax Indemnity........................................................................ 51
---------------------
(a) Tax Indemnity................................................................................ 51
-------------
(b) Exclusions from General Tax Indemnity........................................................ 52
-------------------------------------
(c) Calculation of General Tax Indemnity Payments................................................ 54
---------------------------------------------
(d) Payment of General Tax Indemnity............................................................. 54
--------------------------------
(e) Verification of Calculations................................................................. 55
----------------------------
(f) Reports...................................................................................... 55
-------
(g) General Tax Indemnity Contest Provisions..................................................... 55
----------------------------------------
(h) Compromise or Settlement..................................................................... 57
------------------------
(i) Refunds...................................................................................... 58
-------
(j) Failure to Contest........................................................................... 58
------------------
(k) Interest..................................................................................... 58
--------
(l) Effect of Other Indemnities.................................................................. 58
---------------------------
Section 17. Miscellaneous................................................................................ 59
-------------
(a) Construction; Governing Law.................................................................. 59
----------------------------
(b) Notices...................................................................................... 61
-------
(c) Lessor's Right to Perform.................................................................... 62
-------------------------
(d) Confidentiality.............................................................................. 63
---------------
(e) Counterparts................................................................................. 64
------------
(f) Grant of Security Interest by Lessor......................................................... 65
------------------------------------
(g) Survival..................................................................................... 65
--------
(h) Assignment................................................................................... 65
----------
(i) Transaction Expenses......................................................................... 66
--------------------
(j) Entirety..................................................................................... 66
--------
(k) Force Majeure................................................................................ 66
-------------
(l) Independent Contractor; No Agency............................................................ 66
---------------------------------
(m) Certain Consents and Waivers of Lessee....................................................... 66
--------------------------------------
(n) Offset....................................................................................... 68
------
Section 18. True Lease................................................................................... 69
----------
(a) Intent of the Parties........................................................................ 69
---------------------
Section 19. Enforceability in Jurisdictions.............................................................. 69
--------------------------------
Section 20. No Third-Party Beneficiaries................................................................. 69
----------------------------
Section 21. Maintenance Obligations...................................................................... 69
-----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 22. Amendment of Long-Term Lease Agreement....................................................... 69
--------------------------------------
Section 23 Subordinate to Head Lease.................................................................... 69
-------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule I - Basic Rent
Exhibit A - Lease Supplement No. 1
Exhibit B - Stipulated Loss Value Schedule
Exhibit C - Conditions Precedent to Delivery
Exhibit D - Delivery and Return Conditions
Exhibit E - Supplemental Rent for Maintenance
Schedule 4(d)(i)
Schedule 4(d)(iv)
Schedule 4(d)(v)
Schedule 4(d)(vi)
Schedule 4(d)(vii)
</TABLE>
<PAGE>
AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT, dated as of December 15, 1995, between
AMERICAN AIRLINES, INC., a Delaware corporation, with its principal place of
business at Dallas/Fort Worth International Airport, Texas 75261-9616, and its
successors and assigns ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii
corporation with its principal place of business at 3375 Koapaka Street, Suite
G350, Honolulu, Hawaii 96819 ("Lessee").
WHEREAS, Manufacturer's Hanover Leasing Corporation, as lessor (the
"Original Lessor"), and the Lessor, as lessee have heretofore entered into that
certain Lease Agreement dated as of December 1, 1984 (as amended and
supplemented from time to time, the "Head Lease"), and that certain Lease
Supplement No. 1 dated December 14, 1984, pursuant to which Original Lessor
leased to Lessor, among other things, the Airframe (as hereinafter defined); and
WHEREAS, Mellon Financial Services Corporation #3 ("Head Lease Lessor") has
succeeded to the interest of the Original Lessor under the Head Lease; and
WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to
lease to Lessee, the Aircraft (as defined below) upon the terms and conditions
set forth herein; and
WHEREAS, the indebtedness, obligations and liabilities of Lessee to Lessor
hereunder will be secured by the Letter of Credit (as hereinafter defined); and
WHEREAS, Lessor is certificated under FAA Regulations Part 121 to inspect,
maintain, repair and overhaul the Aircraft with GE CF6-6K Engines; and
WHEREAS, Lessee has requested that Lessor perform certain repair,
maintenance and overhaul services with respect to the Aircraft, other than the
Lessee Assumed Services (as defined below), at a fixed cost per flight hour; and
WHEREAS, Lessee has further requested that Lessor perform certain
additional repair, modification, maintenance and overhaul services on a
time-and-materials basis; and
WHEREAS, Lessor desires to perform such maintenance services for Lessee;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree as follows:
Section 1. Definitions. Unless the context otherwise requires, the
-----------
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"AA Station" means HNL, LAS, LAX, SEA, SFO or TUL.
----------
<PAGE>
"ACARS" means the Aircraft Communications and Reporting System currently
-----
installed on the Aircraft.
"ADs" means Airworthiness Directives issued by the FAA.
---
"AD Effective Date" shall have the meaning assigned to such term in Section
-----------------
4(s) of Exhibit E.
"Additional Insured" shall have the meaning specified in Section 9 hereof.
------------------
"Additional Services" means the engineering, inspection, maintenance,
-------------------
repair and overhaul services that are necessary or appropriate (i) to correct
damage (including replacement at Lessee's expense if Lessor reasonably
determines that the damage (other than ordinary wear and tear) is beyond
economic repair) to the Serviced Aircraft, any Serviced Engines and/or any
Rotable Parts (including Serviced Parts removed during the delivery of
Maintenance Services other than Additional Services) that resulted from (a)
improper use, improper repairs by Persons other than Lessor or its
subcontractors, neglect (other than by Lessor or its subcontractors), or any
cause other than ordinary wear and tear or (b) Foreign Object Damage, (ii) to
complete modifications to the Serviced Aircraft and any Serviced Engines
requested by Lessee to customize the Serviced Aircraft in any manner that
deviates from Lessor's standard configuration (subject to the provisions of
Section 4(q) of Exhibit E which require Lessee to procure and provide certain
Serviced Parts prior to their installation on the Serviced Aircraft), (iii) to
complete modifications (including those modifications mandated by the FAA) to
the Serviced Aircraft the costs of which exceed $1,000 per Serviced Aircraft, or
(iv) to complete any inspections mandated by the FAA that are not included in
Lessor's existing maintenance program and are not related to aging aircraft and
corrosion prevention issues, but excluding Field Trip Maintenance Services, and
On-Call Maintenance Services.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" when used with respect to any specified
-------
Person means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
-----------
"controlled" have meanings correlative to the foregoing.
----------
"Aircraft" means the Airframe delivered and leased hereunder, together with
--------
the three Engines initially leased hereunder with the Airframe (or any Engine
substituted for any such Engine hereunder), whether or not any of such initial
or substituted Engines may from time to time be installed on the Airframe or may
be installed on any other airframe or on any other aircraft.
"Airframe" means (i) the McDonnell Douglas DC10-10 aircraft (except engines
--------
or Serviced Engines from time to time installed thereon) bearing the U.S.
Registration Number N151AA and Manufacturer's Serial Number 46706 and (ii) any
and all Parts so long as the same
2
<PAGE>
shall be incorporated or installed in or attached to the Airframe or so long as
title thereto shall remain vested in Lessor.
"Allocated Parts" shall have the meaning assigned to such term in the
---------------
Long-Term Lease Agreement.
"Allocated Spare Engine" shall have the meaning assigned to such term in
----------------------
Section 4(n) of Exhibit F of the Long-Term Lease Agreement.
"AMRCG" means AMR Training & Consulting Group, Inc., a Delaware
-----
corporation, and its successors and assigns.
"AMR Leasing" means AMR Aircraft Sales & Leasing Company, a Delaware
-----------
corporation, and its successors and assigns.
"Ancillary Agreements" means that certain Manuals Supplement, Amended and
--------------------
Restated Training Document and FOS Implementation Document, each dated as of
March 31, 1994, and entered into by and between Lessor and Lessee.
"A.O.G." means aircraft on the ground.
------
"Applicable Law" means all applicable laws of any Governmental Authority,
--------------
including securities laws, tax laws, tariff and trade laws, ordinances,
judgments, decrees, injunctions, writs and orders or like actions of any court,
arbitrator, judicial or quasi-judicial tribunal, governmental agency or
authority in any country and rules, regulations, orders, interpretations,
licenses and permits of any federal, state, county, municipal, regional or other
United States or foreign governmental body, instrumentality, agency or
authority.
"APU" means auxiliary power unit.
---
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
---------------
(S)101 et seq.), as amended from time to time and any successor statute.
- ---
"Base Maintenance Services" means the inspection, engineering,
-------------------------
maintenance, repair and overhaul services of the Serviced Aircraft, any Serviced
Engines and any Serviced Parts that are ordinarily performed at a Maintenance
Base as part of the scheduled maintenance of the Serviced Aircraft, any Serviced
Engines or any Serviced Parts to repair ordinary wear and tear including,
without limitation, all aircraft heavy maintenance checks and phase checks, but
excluding (i) the inspection, maintenance, repair and overhaul of Parts
described in Section 4(q) of Exhibit E and (ii) Additional Services, Field Trip
Maintenance Services, Line Maintenance Services and On-Call Maintenance
Services.
"Basic Rent" means the rent payable for the Aircraft pursuant to Section
----------
3(b), as the same may be adjusted pursuant to Section 16.
3
<PAGE>
"Basic Rent Payment Date" means the Delivery Date, and on and after the
-----------------------
Delivery Date, the dates for payment of Basic Rent described in Schedule I
attached hereto.
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banking institutions in New York City, New York, Fort Worth,
Texas or Honolulu, Hawaii are authorized or required by law, regulation or
executive order to be closed.
"Claims" means actual or threatened claims, demands and suits.
------
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and analogous provisions of any successor statute.
"Confidential Information" shall have the meaning assigned to such term in
------------------------
Section 17(d).
"Confidentiality Agreement" means that certain Confidentiality Agreement
-------------------------
dated November 8, 1993, between AMRCG and Lessee.
"Cycle" means, with respect to the Serviced Aircraft, one takeoff of such
-----
Serviced Aircraft and the next subsequent landing of such Serviced Aircraft.
"Default" means any event which with the passage of time or the giving of
-------
notice or both would become a Lessee Event of Default.
"Defect" shall have the meaning assigned to such term in Section 5(a) of
------
Exhibit E.
"Delivery Date" means the date on which the Aircraft is delivered by Lessor
-------------
to, and accepted by, Lessee.
"Discount Rate" means the Prime Rate.
-------------
"DOT" means the United States Department of Transportation, or any Person,
---
governmental department, bureau, commission, or agency succeeding to the
functions of such department.
"Engine" means (i) each of the three General Electric Model CF6-6K engines
------
listed by manufacturer's serial numbers in Lease Supplement No. 1, whether or
not from time to time installed on the Airframe or installed on any other
airframe or on any other aircraft and (ii) any Replacement Engine which may from
time to time be substituted pursuant to Section 8 for an Engine leased
hereunder; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto shall remain vested in Lessor in accordance with the terms of
Section 8 after removal from such Engine. Except as otherwise set forth herein,
at such time as a Replacement Engine shall be so substituted, such replaced
Engine shall cease to be an Engine hereunder. The term "Engines" means, as of
any date of determination, all Engines then leased hereunder.
4
<PAGE>
"Event of Loss" with respect to any Item of Equipment means any of the
-------------
following events with respect to such Item of Equipment: (i) loss of such Item
of Equipment or the use thereof due to theft, disappearance, destruction, damage
beyond repair or rendition of such Item of Equipment permanently unfit for
normal use for any reason whatsoever; (ii) any damage to such Item of Equipment
which results in an insurance settlement with respect to such Item of Equipment
on the basis of a total loss whether actual, constructive or arranged; (iii) the
condemnation, confiscation or seizure of, or requisition of title to such Item
of Equipment; (iv) the requisition of use of such Item of Equipment (other than
requisition for use by the Government); (v) the requisition of use of such Item
of Equipment by the Government for any period ending after the expiration of the
Term unless Lessor elects, upon 30 days' prior notice, not to treat such
requisition as an Event of Loss at the end of the Term; (vi) as a result of any
rule, regulation, order or other action by the FAA, DOT or other governmental
body of the United States having jurisdiction, the use of such Item of Equipment
in the normal course of air transportation of persons shall have been prohibited
for a period of six consecutive months, unless Lessee, prior to the expiration
of such six-month period, shall have undertaken and shall be diligently carrying
forward all steps which are necessary or desirable to permit the normal use of
such property by Lessee or, in any event, if such use shall have been prohibited
for a period of twelve consecutive months or if such use is prohibited at the
end of the Term, unless at the end of the Term such use has then been prohibited
for less than six consecutive months, then an Event of Loss shall not be deemed
to have occurred hereunder until the expiration of six consecutive months during
which the use of the Item of Equipment has been so prohibited, but only so long
as Lessee continues to pay Basic Rent to the Lessor on the first day of each
month, at the rate set forth in Schedule I attached hereto and Supplemental Rent
pursuant to Exhibit E hereto, and agrees to and does comply with all other
provisions hereof; or (vii) the operation or location of the Item of Equipment,
while under requisition for use by the Government, in any area excluded from
coverage by any insurance policy in effect with respect to the Item of Equipment
required by the terms of Section 9, if Lessee shall not have obtained indemnity
in lieu thereof from the Government, acceptable to Lessor; provided that if such
--------
property shall be returned to Lessee in such a condition that Lessee can within
30 days following the return thereof cause the Item of Equipment to comply with
the maintenance conditions set forth in Section 7 hereof, then such event shall,
at the option of Lessee, not constitute an Event of Loss. An Event of Loss with
respect to the Aircraft shall be deemed to have occurred if an Event of Loss
occurs with respect to the Airframe. In the case of clauses (i), (ii) (iii) and
(iv), the date of an Event of Loss shall be the date of destruction, damage,
requisition, loss, etc. to any Item of Equipment. In the cases of clauses (v),
(vi) and (vii), the date of an Event of Loss shall be respectively (A) such
180th day or last day of the applicable Term as the case may be, and (B) the
last day of such six month period or twelve month period, as the case may be and
(C) the first day of such operation or location.
"Expendable Parts" means (i) Serviced Parts used in the repair and overhaul
----------------
of the Serviced Airframe, any Serviced Engines and other Rotable Parts that are
assumed to have no potential for reuse and miscellaneous materials and supplies
consumed during the repair and overhaul process, and (ii) Serviced Parts that
have some potential for repair but that are customarily assumed to be expended.
5
<PAGE>
"Expenses" means liabilities, obligations, losses, damages, penalties,
--------
claims (including claims involving liability in tort, strict liability or
otherwise), actions, suits, judgments, costs, expenses and disbursements
(including legal fees and expenses and costs of investigation) of any kind and
nature whatsoever without any limitation as to amount, together with interest
thereon at the Stipulated Interest Rate from the date incurred until reimbursed
hereunder.
"FAA" means the United States Federal Aviation Administration, or any
---
person, governmental department, bureau, commission or agency succeeding to the
functions of such Administration.
"Federal Aviation Act" or "Act" means the Federal Aviation Act of 1958, as
-------------------- ---
amended.
"Field Trip Maintenance Services" means, with respect to the Serviced
-------------------------------
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at any
location where Lessor does not have on-site the necessary number of mechanics
trained to work on the particular malfunction experienced by the Serviced
Aircraft, any Serviced Engine or any Serviced Part.
"Flight Hour" means the amount of time (expressed in hours and rounded
-----------
upward to the nearest one-tenth (1/10th) of an hour) during the flight of a
Serviced Aircraft between "wheels off" on takeoff and "wheels on" on landing.
"Foreign Object Damage" means damage to a Serviced Engine or any component
---------------------
thereof caused by any object or material ingested into the Serviced Engine that
results in the breakage or destruction of a Serviced Engine component or a
notch, non-stress related crack, cut, indentation or other depression to the
surface of a Serviced Engine component in each case beyond specification limits
of the Lessor's maintenance program, but excluding the gradual erosion or
smoothing of any Serviced Engine component caused by numerous Flight Hours of
operation.
"Government" means the government of the United States of America, and any
----------
instrumentality or agency thereof.
"Governmental Authority" means any governmental department, court, bureau,
----------------------
commission, agency or any other entity, whether of the United States (including
any state or subdivision thereof) or any other country (including any political
subdivision thereof), having jurisdiction over this Lease, the transactions
contemplated hereby, or any document related hereto or thereto or delivered in
connection herewith or therewith, the Serviced Aircraft or the parties hereto.
"Head Lease Lessor's Liens" means any Lien arising as a result of (i)
-------------------------
Claims against or affecting Head Lease Lessor, not related to the transactions
contemplated by the Head Lease or this Lease; (ii) acts or omissions of Head
Lease Lessor, not related to the transactions contemplated by the Head Lease or
this Lease, or not permitted under the Head Lease; (iii) Taxes or Claims imposed
against Head Lease Lessor which are not indemnified against by Lessee pursuant
hereto; or (iv) Claims against Head Lease Lessor arising out of the voluntary or
6
<PAGE>
involuntary transfer by Head Lease Lessor (without the consent of Lessee) of any
of its interests in the Airframe, any Serviced Engine or any Engine, including,
without limitation, by means of granting a security interest therein, other than
a transfer of the Aircraft pursuant to Section 8 or 14A hereof.
"HNL" means Honolulu International Airport in Honolulu, Hawaii.
---
"IATA" means International Air Transport Association.
----
"Indemnified Party" shall have the meaning assigned to such term in Section
-----------------
15.
"Interim Aircraft Lease Agreements" means the Interim Aircraft Lease
---------------------------------
Agreements each dated as of December 30, 1993, May 20, 1994, August 10, 1994 or
August 31, 1994 between AMR Leasing and Lessee, as the same may be amended,
modified or supplemented from time to time.
"Interim Aircraft Maintenance Agreement" means the Interim Aircraft
--------------------------------------
Maintenance Agreement dated as of December 30, 1993 between Lessor and Lessee,
as the same may be amended, modified or supplemented from time to time.
"Interim Definitive Agreements" means the Interim Aircraft Lease
-----------------------------
Agreements, the Interim AAdvantage Participating Carrier Agreement dated as of
December 30, 1993 between Lessee and Lessor, the Interim Aircraft Maintenance
Agreement, the Interim Multihost Agreement dated as of December 30, 1993 between
Lessee and SABRE, the Interim Flight Operating System Agreement dated as of
December 30, 1993 between Lessee and SABRE, the Interim Equipment Master
Equipment Lease Agreement dated as of December 30, 1993 between Lessee and
SABRE, the Guaranty Agreement dated as of December 10, 1993 executed by HAL,
Inc. and West Maui Airport, Inc. in favor of Lessor, AMRCG, AMR Leasing and
SABRE and the Security Agreement dated as of December 10, 1993 between Lessee,
HAL, Inc. and West Maui Airport, Inc. as debtors and Lessor, AMRCG, AMR Leasing
and SABRE as secured parties, and all other agreements, instruments,
certificates or documents related thereto or executed or delivered in connection
therewith, as amended or modified from time to time.
"In-Use Aircraft" means the Airframe delivered and leased hereunder,
---------------
together with the three Serviced Engines or engines installed from time to time
thereon.
"Issuer Insolvency" shall have the meaning assigned thereto in Section 13A
-----------------
hereof.
"Item of Equipment" or "Item" means the Airframe or each of the Serviced
----------------- ----
Engines, and for purposes of the definition of "Event of Loss" as used in
Section 8(b)(3) hereof, shall mean each Engine.
"July Lease Agreement" means the Aircraft Lease Agreement dated as of
--------------------
July 5, 1995 between Lessor and Lessee and all other agreements, instruments,
certificates and documents
7
<PAGE>
related thereto or executed or delivered in connection therewith, all as
heretofore or from time to time amended, supplemented or modified.
"LAS" means McCarren International Airport in Las Vegas, Nevada.
---
"LAX" means Los Angeles International Airport in Los Angeles, California.
---
"Lease Agreement", "this Lease Agreement", "this Lease", "this Agreement",
--------------- -------------------- ---------- --------------
"herein", "hereunder", "hereby" or other like words mean this Lease Agreement as
------ --------- ------
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions hereof, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the applicable
provisions hereof.
"Lease Supplement" means Lease Supplement No. 1, substantially in the form
----------------
of Exhibit A hereto to be entered into between Lessor and Lessee for the purpose
of leasing the Aircraft under and pursuant to the terms of this Lease, or any
amendment hereto or to any other Lease Supplement entered into subsequent to the
Delivery Date.
"Lease Term" means the period from the Delivery Date of the Aircraft until
----------
February 7, 1996, unless earlier terminated in accordance with the provisions of
this Lease.
"Lessee Assumed Services" means those maintenance services set forth on
-----------------------
Attachment C to Exhibit E to be performed by Lessee at HNL during the Lease Term
- ------------
and any other maintenance services that the parties mutually agree pursuant to
Section 1 of Exhibit E that Lessee will assume and perform.
"Lessee Event of Default" shall have the meaning specified in Section 13A
-----------------------
hereof.
"Lessor Event of Default" shall have the meaning specified in Section 13B
-----------------------
hereof.
"Lessor Warranty" shall have the meaning assigned to such term in Section
---------------
5(a) of Exhibit E.
"Lessor's Liens" means any Lien arising as a result of (i) Claims against
--------------
or affecting Lessor, not related to the transactions contemplated by this Lease;
(ii) acts or omissions of Lessor, not related to the transactions contemplated
by this Lease, or not permitted under this Lease; (iii) Taxes or Claims imposed
against Lessor which are not indemnified against by Lessee pursuant hereto; or
(iv) Claims against Lessor arising out of the voluntary or involuntary transfer
by Lessor (without the consent of Lessee) of any of its interests in the
Airframe, any Serviced Engine or any Engine, including, without limitation, by
means of granting a security interest therein, other than a transfer of the
Aircraft pursuant to Section 8 or 14A hereof.
"Letter of Credit" means that certain Letter of Credit which has been
----------------
delivered pursuant to the Interim Definitive Agreements which meets the
requirements hereof or such other Letter of Credit which is either (A) an
irrevocable standby letter of credit issued in favor of Lessor by a
8
<PAGE>
financial institution acceptable to Lessor, which secures payment of Lessee's
obligations hereunder and under the Long-Term Agreements and under the Ancillary
Agreements and may be drawn upon the occurrence of a Lessee Event of Default or
as provided in the Long Term Agreements or in the Ancillary Agreements: (i)
which is in form and substance satisfactory to Lessor and its Affiliates; (ii)
whose initial expiry date is on or after the first anniversary of the Effective
Date; (iii) whose final expiry date is on or after December 31, 2001; and (iv)
which will provide that either the issuer thereof will renew the letter of
credit annually on or prior to 30 days preceding the expiry thereof, or the
letter of credit may be drawn; (v) which shall be freely assignable and
transferable; (vi) which shall provide for partial draws thereunder; (B) any
letter of credit provided in substitution therefor meeting the same
requirements; and/or (C) except as set forth in Section 10(c)(6) and (7) below,
a deposit, which is deposited with Lessor and/or one of its Affiliates and held
in an account in Lessor's or one of its Affiliates' names at a financial
institution(s) selected by Lessor or its Affiliates, except as set forth in
Section 10(c)(6) and (7) below, which secures payment of Lessee's obligations
hereunder and under the Long-Term Agreements and under the Ancillary Agreements,
upon terms and conditions acceptable to Lessor and its Affiliates; provided,
--------
that at all times the sum of: (x) the face amount of the letter of credit, less
the amount of any draws previously made under the letter of credit, plus (y) the
principal amount of the deposit, shall not be less than $2,000,000.
"Liabilities" means Claims, liabilities, losses, judgments, damages, fines,
-----------
penalties and costs, fees and expenses of any nature incident thereto
(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation), whether arising in tort, contract or
otherwise.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
exercise of rights, security interest or Claim.
"Line Maintenance Services" means all customary line maintenance services
-------------------------
to the Serviced Aircraft, any Serviced Engine or any Serviced Part, including
scheduled inspections and servicing of the Serviced Aircraft and related
repairs, but excluding (i) Additional Services, Base Maintenance Services, Field
Trip Maintenance Services and On-Call Maintenance Services and (ii) Lessee
Assumed Services.
"Long-Term Agreements" means the Long-Term Lease Agreement, the November
--------------------
Lease Agreement, the July Lease Agreement, the AAdvantage Participating Carrier
Agreement dated as of September 12, 1994 between Lessee and Lessor, the
Multihost Agreement dated as of September 12, 1994 between Lessee and SABRE, the
Flight Operating System Agreement dated as of September 12, 1994 between Lessee
and SABRE, the Equipment Master Lease Agreement dated as of September 12, 1994
between Lessee and SABRE, and all other agreements, instruments, certificates
and documents related thereto or executed or delivered in connection therewith,
all as amended or modified from time to time.
"Long-Term Lease Agreement" means the Aircraft Lease Agreement dated as of
-------------------------
September 12, 1994 between Lessor and Lessee, as amended, supplemented, modified
and renewed from time to time.
9
<PAGE>
"Loss Payment Date" shall have the meaning set forth in Section 8(a)
-----------------
hereof.
"MAGSA Rates" means the hourly rates applicable to participants in the
-----------
Mutual Assistance Ground Service Agreement among Lessor and other participating
IATA carriers as amended from time to time, or any comparable replacement
agreement.
"Maintenance Base" shall have the meaning assigned to such term in Section
----------------
2(a)(i) of Exhibit E.
"Maintenance Services" means Additional Services, Base Maintenance
--------------------
Services, Field Trip Maintenance Services, Line Maintenance Services and On-Call
Maintenance Services but excluding Lessee Assumed Services.
"Manual" means the Standard Practice Manual mutually prepared by Lessor and
------
Lessee for administration of this Agreement, a true and correct copy of which
has been provided to Lessor and Lessee, together with any amendments made
thereto from time to time by a party hereto with the consent of the other party
hereto (which consent shall not be unreasonably withheld).
"Manufacturer" means, collectively, the respective manufacturers of the
------------
Airframe, each Engine and each Serviced Engine.
"November Lease Agreement" means the Aircraft Lease Agreement dated as of
------------------------
November 20, 1994 between Lessor and Lessee and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, all as heretofore or from time to time amended,
supplemented or modified.
"NTF" means, with respect to the Serviced Aircraft, any Serviced Engine or
---
any Serviced Part upon which an inspection has been performed to determine the
existence of a suspected malfunction, that the results of such inspection
indicated there was "no trouble found."
"On-Call Field Stations" means (i) LAS, LAX, SEA and SFO and any other
----------------------
station requested by Lessee and agreed to in writing by Lessor, and in each
case, at which, pursuant to Section 1 of Exhibit E, Lessee has elected to
perform, and is performing, Line Maintenance Services at such location and (ii)
HNL.
"On-Call Maintenance Services" means, with respect to the Serviced
----------------------------
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at the
request of Lessee at any of the On-Call Field Stations but excluding Field Trip
Maintenance Services.
"Outside Services" shall have the meaning assigned to such term in Section
----------------
4(f) of Exhibit E.
10
<PAGE>
"Parts" means (i) any and all appliances, parts, instruments,
-----
appurtenances, accessories, furnishings, seats and other equipment of whatever
nature (other than complete engines or Serviced Engines), which may from time to
time be incorporated or installed in or attached to the Airframe or any Serviced
Engine, or having been so installed in or attached, are later removed therefrom,
so long as title thereto remains vested in Lessor, and (ii) all Allocated Parts
(other than the Allocated Spare Engine).
"Permitted Liens" means Liens referred to in clauses (i) through (vii) of
---------------
Section 6.
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or other
form of entity or any government or any agency or political subdivision thereof.
"Phased-Out Parts" means Serviced Parts of a type formerly utilized during
----------------
the Lease Term by Lessor but discontinued with respect to Lessor's fleet of
DC10-10 Aircraft that Lessee has properly elected without contravening Section 4
of Exhibit E to continue to utilize on the Serviced Aircraft.
"Pooling Agreement" means the Pooling Agreement dated the date hereof
-----------------
between Lessor and Lessee, as amended, supplemented and modified from time to
time.
"Prime Rate" means the per annum rate announced by The Chase Manhattan
----------
Bank, N.A. from time to time as its prime rate in New York, New York.
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Replacement Engine" means a GE CF6-6K engine (or an engine of the same or
------------------
another manufacturer of a comparable or an improved model and suitable for
installation and use on the Airframe) which shall have been leased hereunder
pursuant to Section 8, together with all Parts relating to such engine.
"Return Aircraft" means upon the return of the Aircraft to Lessor hereunder
---------------
pursuant to Section 5, 8, or 14A hereof, the Airframe constituting part of the
Aircraft and the engines or Serviced Engines attached thereto.
"Rotable Parts" means Serviced Parts that customarily have a potential for
-------------
reuse through inspection, repair, overhaul or calibration.
"SABRE" means SABRE Decision Technologies, a division of The SABRE Group,
-----
Inc. (formerly known as AMR Information Services, Inc.).
"SEA" means the Seattle/Tacoma International Airport in Seattle,
---
Washington.
"Serviced Aircraft" means the Aircraft.
-----------------
11
<PAGE>
"Serviced Airframe" means (i) the Serviced Aircraft (except Serviced
-----------------
Engines) and (ii) any and all Serviced Parts (except Serviced Parts that
comprise a Serviced Engine) so long as the same shall be incorporated or
installed in, or attached to, such Serviced Aircraft.
"Serviced Engines" means (i) each Engine, so long as Lessee has not
----------------
delivered possession of any such Engine to Lessor pursuant to the Pooling
Agreement; (ii) each of the GE CF6-6K engines delivered to Lessee by Lessor
pursuant to the Pooling Agreement so long as such engines have not been
redelivered by Lessee to Lessor under the Pooling Agreement, provided that, for
-------------
the purposes of Exhibit E attached hereto, an engine delivered by Lessee to
Lessor thereunder shall remain a Serviced Engine until all Maintenance Services
have been completed thereon; and (iii) the Allocated Spare Engine; and (iv) for
purposes of Exhibit E only, GE CF6-6K engines in transit between Lessor and
Lessee pursuant to Sections 3(d), 3(i) and 4(d)(iii) of Exhibit E.
"Serviced Part" means any Serviced Aircraft component, including any APU,
-------------
landing gear, part, equipment, accessory, instrument, avionics or system and
miscellaneous materials and supplies consumed during operation or inspection,
maintenance, repair and overhaul services.
"SFO" means the San Francisco International Airport in San Francisco,
---
California.
"Stipulated Interest Rate" means the rate of ten percent (10%) per annum.
------------------------
"Stipulated Loss Value" payable with respect to an Event of Loss for the
---------------------
Airframe and its Serviced Engines shall mean, as of any date of determination,
the amounts set forth in Exhibit B hereto.
"Supplemental Rent" means all amounts, liabilities and obligations (other
-----------------
than Basic Rent) which Lessee assumes or agrees to pay hereunder to Lessor or
others, including, without limitation, all Monthly Supplemental Rent Payments
and all other amounts, liabilities and obligations of Lessee to Lessor set
forth in Exhibit E attached hereto.
"Taxes" means any and all fees (including license, documentation and
-----
registration fees), taxes (including income, gross receipts, preferences, sales,
use, turnover, value added, property (tangible and intangible), excise and stamp
taxes), licenses, levies, imposts, duties, charges, surcharges, assessments or
withholdings of any nature whatsoever, together with any and all penalties,
fines, additions to tax and interest thereon in each case imposed by a Taxing
Authority.
"Taxing Authority" means any Federal, state or local government or other
----------------
taxing authority in the United States or any political subdivision or territory
or possession thereof, any international authority and any taxing authority of
any other government or political subdivision or territory or possession
thereof.
"Term" means the period for which the Aircraft is leased pursuant to
----
Section 3(a) hereof and Section 3 of the Lease Supplement.
"TUL" means Tulsa International Airport in Tulsa, Oklahoma.
---
12
<PAGE>
"Turn Time" means, with respect to any particular Maintenance Services, the
---------
period of time ordinarily required by Lessor, exerting its reasonable efforts,
to complete such Maintenance Services in accordance with its customary practices
and procedures or such specified period of time agreed to in writing by Lessor
and Lessee for the performance of any particular Maintenance Services.
"Warranty Claim" means a written notice delivered to Lessor by Lessee of a
--------------
Defect in Maintenance Services performed by Lessor, which Defect is claimed to
be within the scope of the warranty provided by Lessor in Section 5(a) of
Exhibit E, such notice specifying in detail the nature of the Defect.
"Warranty Period" means, with respect to the Serviced Aircraft, any
---------------
Serviced Engine or any Serviced Part upon which Maintenance Services were
performed, that period of time commencing upon redelivery to Lessee of such
Serviced Aircraft, Serviced Engine or Serviced Part after performance of
Maintenance Services thereon and expiring on the first to occur of the
following: (i) the expiration of one hundred twenty (120) days after redelivery
of such Serviced Aircraft, Serviced Engine or Serviced Part to Lessee, or (ii)
the completion of four hundred (400) Flight Hours of operation of such Serviced
Aircraft, Serviced Engine or Serviced Part after redelivery to Lessee.
"Weekly Supplemental Rent Payment" shall have the meaning assigned to such
--------------------------------
term in Section 3(f) of Exhibit E.
"Weekly Supplemental Rent Payment Date" shall have the meaning assigned to
--------------------------------------
such term in Section 3(f) of Exhibit E.
Rules of Interpretation. The following rules of interpretation apply to
-----------------------
this Lease Agreement:
(1) "or" is not exclusive and "include" and "including" are not limiting;
(2) "hereby", "herein", "hereof", "hereunder", "this Lease", "this
Agreement", "Lease Agreement", or other like words refer to this
Aircraft Lease Agreement;
(3) a reference to any agreement or other contract includes permitted
supplements and amendments;
(4) a reference to a law includes any amendment or modification to such
law and any rules or regulations issued thereunder or any law enacted
in substitution or replacement therefor;
(5) a reference to a Person includes its permitted successors and assigns;
13
<PAGE>
(6) a reference herein to an Article, Section, Exhibit or Schedule is to
the relevant Article, Section, Exhibit or Schedule of this Lease
Agreement;
(7) any right may be exercised at any time and from time to time;
(8) all obligations are continuing obligations;
(9) time shall be of the essence in the performance of all payment
obligations;
(10) the heading of the Articles, Sections, Exhibits, Schedules and
subsections are for the convenience of reference only and shall not
affect the meaning of this Lease Agreement; and
(11) no term or provision herein may be changed, waived, discharged or
terminated orally, but only by written instrument signed by the party
against which the enforcement of the change, waiver, discharge or
termination is sought.
Section 2. Delivery and Acceptance.
-----------------------
(a) Time and Place. Lessor hereby agrees (subject to satisfaction of the
--------------
conditions set forth in Exhibit C attached hereto) to lease to Lessee hereunder
and Lessee hereby agrees to lease from Lessor hereunder, on the Delivery Date,
the Aircraft, as evidenced by the execution by Lessor and Lessee of Lease
Supplement No. 1 hereunder. Delivery of the Aircraft by Lessor and acceptance
thereof by Lessee shall occur at LAX, or such other location agreed on by Lessor
and Lessee.
(b) Delivery Date. The Delivery Date for the Aircraft shall occur on or
-------------
about December 15, 1995.
Lessor shall deliver the In-Use Aircraft in the condition set forth in Exhibit D
attached hereto, provided that such delivery and fulfillment of delivery
conditions shall, subject to the execution and delivery of Lease Supplement
No. 1 (and satisfaction of the conditions set forth in Exhibit C attached
hereto), be deemed to have been met. Lessor shall use its reasonable efforts to
deliver the In-Use Aircraft on the Delivery Date, but if Lessor is unable to
deliver the In-Use Aircraft on the Delivery Date, it shall deliver the In-Use
Aircraft to Lessee as soon thereafter as possible without any penalty, charge or
damages for late delivery.
Section 3. Term and Rent.
-------------
(a) Term. Except as otherwise provided herein (including, without
----
limitation, pursuant to the definition of Event of Loss), the Term for the
Aircraft shall commence on the Delivery Date and end on February 7, 1996.
14
<PAGE>
(b) Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for the
----------
Aircraft throughout the Term, in advance in the amounts set forth in Schedule I,
on each Basic Rent Payment Date, commencing on the Delivery Date.
(c) Supplemental Rent. Lessee also agrees to pay to Lessor, or to
-----------------
whosoever shall be entitled thereto, any and all Supplemental Rent promptly as
the same shall become due and owing, including on each Monthly Supplemental Rent
Payment Date (as defined in Exhibit E attached hereto) (or on demand if no due
date is specified), and in the event of any failure on the part of Lessee to pay
any Supplemental Rent, Lessor shall have all rights, powers and remedies
provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. In addition, Lessee shall pay, on demand, as
Supplemental Rent, to the extent permitted by applicable law, an amount equal to
interest at the Stipulated Interest Rate on any part of any installment of Basic
Rent not paid when due for any period for which the same shall be overdue and on
any payment of Supplemental Rent not paid when due or demanded, as the case may
be, for the period until the same shall be paid. The expiration or other
termination of Lessee's obligations to pay Basic Rent hereunder shall not limit
or modify the obligations of Lessee with respect to Supplemental Rent. All
Supplemental Rent to be paid pursuant to this Section 3(c) shall be payable in
the type of funds and in the manner set forth in Section 3(e).
(d) Prohibition Against Setoff, Etc. Except as set forth in Section
--------------------------------
4(c)(i)(D) of Exhibit E attached hereto, this Lease is a net lease and Lessee's
obligation to pay Rent hereunder shall be absolute and unconditional and shall
not be affected by any circumstance including (i) any claim which Lessee may
have against Head Lease Lessor or Lessor or anyone else for any reason
whatsoever (whether in connection with the transactions contemplated hereby or
any other transactions), including any breach by Lessor or any of its
Affiliates, of any of its warranties, agreements or covenants contained herein
or in any of the Long-Term Agreements or any of the documents related hereto or
thereto or performance, or nonperformance by Lessor of any of its duties or
obligations to Lessee set forth in Exhibit E attached hereto, (ii) any defect in
the title, registration, airworthiness, condition, design, operation, or fitness
for use of, or any damage to or loss or destruction of, the Airframe, any
Serviced Engine or any Engine, or any interruption or cessation in or including
any such interruption, cessation or prohibition of the use or possession thereof
by Lessee for any reason whatsoever, resulting from the act of any Governmental
Authority; and (iii) any other circumstance, happening or event whatsoever,
whether or not foreseen or similar to the foregoing; provided, that Lessee's
--------
obligations to pay Basic Rent and Supplemental Rent shall cease with respect to
the Aircraft, except with respect to Rent accrued at such time upon (i)
redelivery of the Aircraft by Lessee to Lessor in accordance with the provisions
of Sections 5 hereof; and/or (ii) repossession of the Aircraft by Head Lease
Lessor or Lessor pursuant to Section 14A hereof, but subject to Lessee's
payments of sums specified under said Section 14A; and/or (iii) with respect to
any Item of Equipment, payment by or on behalf of Lessee to Lessor in full of
the Stipulated Loss Value and other sums specified in Section 8 hereof to be
paid by Lessee pursuant to an Event of Loss with respect to such Item of
Equipment. Lessee hereby waives, and hereby agrees to waive at any future time
at the request of Lessor, to the extent now or then permitted by Applicable Law,
any and all rights which it may now have or which at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease except in accordance with the express terms hereof. Each
15
<PAGE>
payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee.
Lessee shall not seek to recover all or any part of any such payment of Rent
from Lessor for any reason whatsoever except manifest error. The parties agree
that nothing contained in this Section 3(d) shall affect or limit any right of
Lessee to collect damages for the breach of any covenant or representation by
Lessor hereunder, including Section 4 hereto or Exhibit E hereto or by any
Affiliate of Lessor under any Long-Term Agreement. Lessee shall pay all costs
and expenses of every character, whether seen or unforeseen, ordinary or
extraordinary or structural or nonstructural, in connection with the delivery,
use, operation, maintenance, return, and repair and reconstruction of the
Airframe and each Serviced Engine by Lessee, including the costs and expenses
particularly set forth in this Lease, except as may be otherwise expressly set
forth in the other documents related hereto.
(e) Payment to Lessor. All Rent shall be paid by Lessee to Lessor by wire
-----------------
transfer of immediately available funds in U. S. Dollars, to such account as
Lessor shall designate to Lessee in writing. Such funds shall be available to
Lessor not later than 3:00 p.m., New York City time on the date of payment.
Whenever any payment of Rent is due on a day other than a Business Day, such
payment shall be made on the next preceding Business Day. All Rent to be paid
by Lessee hereunder shall be paid in full without any deduction or withholding
with respect to Taxes of any nature imposed by any Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall comply with Section 16 below.
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain
--------------------------------------------------------
Agreements of Lessee, Representations of Lessee.
-----------------------------------------------
(a) Disclaimer. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS,
----------
WHERE-IS", AND LESSOR DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE, AND
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY
OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE OF ANY ITEM OF EQUIPMENT OR
ENGINE OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS
TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP IN ANY ITEM OF EQUIPMENT OR ENGINE OR ANY
OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT
THERETO, except for the representations of Lessor set forth in Section 4(e)
below, and that Lessor represents that (i) it has good title to the Engines
free of Lessor's Liens and the lawful right to lease the Engines to Lessee in
accordance with the terms hereof, (ii) Lessee shall have the same leasehold
interest in the Airframe that was conveyed to Lessor by Head Lease Lessor
pursuant to the Head Lease, subject to the terms of the Head Lease, (iii) Lessor
has the lawful right to lease the Airframe to Lessee in accordance with the
terms hereof, and (iv) that Lessor is a citizen of the United States of America
as defined in Section 40102(a)(15) (former 101(16)) of the Act. LESSOR SHALL
NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY OTHER PERSON WITH
RESPECT TO (I) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE
16
<PAGE>
CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF EQUIPMENT OR ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCES
IN CONNECTION THEREWITH; (II) THE USE, OPERATION OR PERFORMANCE OF ANY ITEM OF
EQUIPMENT OR ENGINE OR ANY RISKS RELATING THERETO; (III) ANY INTERRUPTION OF
SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR SPECIAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES; OR (IV) THE DELIVERY HEREUNDER, OPERATION, SERVICING,
MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY ITEM OF EQUIPMENT EXCEPT AS EXPRESSLY
PROVIDED IN THE PROVISIONS OF EXHIBIT E HERETO RELATING TO THE SERVICING,
MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY SERVICED ENGINE OR SERVICED AIRCRAFT;
PROVIDED THAT NOTHING CONTAINED IN THIS SECTION 4(a) SHALL IN ANY WAY LIMIT THE
- --------
RIGHTS OF LESSEE AGAINST ANY AFFILIATE OF LESSOR UNDER ANY LONG-TERM AGREEMENT.
(b) Quiet Enjoyment. Notwithstanding any other term or provision of this
---------------
Agreement, Lessor covenants that, so long as no Lessee Event of Default shall
have occurred and be continuing, it shall not take any action contrary to
Lessee's rights under this Lease, or otherwise through its own actions or
inactions in any way interfere with the quiet enjoyment of the use and
possession of the Aircraft, the Airframe or any Serviced Engines by Lessee;
provided, that no performance or failure by Lessor to perform its obligations
- --------
under Exhibit E hereto shall be deemed a breach of this Section 4(b).
(c) Waiver of Warranties. LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES
--------------------
THE BENEFIT OF ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS ON THE PART
OF LESSOR WHICH ARE EXPRESSED OR WOULD OR MIGHT BE IMPLIED IN THIS AGREEMENT
WHETHER BY LAW OR OTHERWISE AND RELATING IN ANY WAY TO THE STATE, CONDITION OR
AIRWORTHINESS OF AN ITEM OF EQUIPMENT OR ENGINE. LESSEE ACKNOWLEDGES THAT THE
PROVISIONS OF SECTIONS 4(a) AND 4(b) HAVE BEEN THE SUBJECT OF FULL DISCUSSION
AND NEGOTIATION BETWEEN LESSEE AND LESSOR AND THAT THE BASIC RENT AND ALL OTHER
AGREEMENTS OF LESSEE AND LESSOR CONTAINED IN THIS AGREEMENT WERE ARRIVED AT IN
CONSIDERATION OF THE PROVISIONS OF SECTIONS 4(a) AND 4(b) SPECIFICALLY INCLUDING
THE DISCLAIMER BY LESSOR SET FORTH IN SECTION 4(a) AND THE WAIVER, RELEASE AND
RENUNCIATION BY LESSEE SET FORTH IN THIS SECTION 4(c).
(d) Lessee's Representations and Warranties. To induce Lessor to enter
---------------------------------------
into this Lease Agreement, and any documents contemplated hereby, Lessee makes
the following representations and warranties, each of which shall survive the
execution and delivery of this Lease Agreement and the Delivery Date:
(i) Lessee is a corporation duly incorporated under the laws of the
Territory of Hawaii and is validly existing in good standing under the laws
of the State of Hawaii and has its chief executive office in Honolulu,
Hawaii. Except as set forth on Schedule 4(d)(i)
17
<PAGE>
hereto Lessee has all requisite corporate power and authority to carry on
its business as now conducted, and to execute, deliver and perform its
obligations under this Lease and each Lease Supplement. Lessee is a duly
certificated "air carrier" under Section 41102 (former Section 401) and
Section 44705 (former Section 604) of the Federal Aviation Act and
possesses all necessary licenses or permits required by any Governmental
Authority having jurisdiction over Lessee or the Aircraft to permit Lessee
to engage in air transportation and to perform and comply with its
obligations under this Lease, and is duly qualified to do business as a
foreign corporation, and is in good standing, in each jurisdiction in which
its failure to so qualify would adversely and materially affect it or its
ability to carry out its obligations under this Lease;
(ii) this Lease has been duly authorized by all necessary corporate
action on the part of Lessee, does not require any approval of stockholders
of Lessee (or if such approval is required, such approval has been
obtained), and the execution and delivery hereof, and/or the consummation
of the transactions contemplated hereby, and/or compliance by Lessee with
any of the terms and provisions hereof, do not contravene any provisions of
the Articles of Incorporation or By-laws of Lessee, or result in any breach
of, or constitute any default under, or result in the creation of any Lien
upon any assets or property of Lessee under, any (A) indenture, mortgage,
lease, chattel mortgage, deed of trust, conditional sales contract, bank
loan, credit agreement or other material agreement or instrument to which
Lessee is a party or by which Lessee or its properties may be bound or
affected other than the Lien under this Lease and Permitted Liens, or (B)
Applicable Law;
(iii) the execution and delivery by Lessee of this Lease, and the
performance by Lessee of any of the transactions contemplated hereby do not
require the consent or approval of, or registration with, or the giving or
prior notice to any Person, including any federal, state or foreign
governmental authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Lease, and (B) routine reporting requirements of the
Securities and Exchange Commission, the FAA, the DOT or other Governmental
Authorities after the Delivery Date;
(iv) this Lease has been duly executed and delivered by Lessee, and
this Lease, together with Lease Supplement No. 1 when executed and
delivered by Lessee, will constitute legal, valid and binding obligations
of Lessee, fully enforceable, except as set forth on Schedule 4(d)(iv), in
accordance with their respective terms;
(v) except as set forth on Schedule 4(d)(v), there are no pending
or, to the knowledge of Lessee, threatened investigations, suits or
proceedings against it or affecting it or its properties or operations,
that, if determined adversely, would materially adversely affect it, the
consummation of the transactions described in, or the performance of its
obligations under, this Lease Agreement or affect the right, title or
interest of Lessor in the Aircraft;
18
<PAGE>
(vi) except as set forth on Schedule 4(d)(vi), Lessee is not in
violation of, or in default under, any law, ordinance, order, regulation or
authorization of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that could have a material
adverse effect on the business or condition (financial or otherwise) of
Lessee;
(vii) except as set forth in Schedule 4(d)(vii), Lessee is not in
default, and no condition exists that with notice or lapse of time or both
would constitute a default, under any mortgage, deed of trust, indenture,
or other instrument or agreement to which it is a party, or by which it or
any of its properties or assets may be bound, that would have a material
adverse effect on any of the actions described in, or on its ability to
perform its obligations under, this Lease, and it is not in breach of any
Applicable Law that would have a material adverse effect on it, or any of
the actions described in, or on its ability to perform its obligations
under, this Lease;
(viii) except for the filing for recordation of this Lease, and Lease
Supplement No. 1, and the placing on the Aircraft and on each Engine of the
plates containing the legends referred to in Section 7(f) hereof, no
further filing or recording of this Lease or of any other document
(including any financing statement under Article 9 of the Uniform
Commercial Code) and no further action is necessary or advisable, under the
laws of the United States of America or the State of Hawaii, in order to
fully protect and establish Lessor's title to, and interest in, the
Aircraft and the Engines as against Lessee or any third parties;
(ix) the financial and written information furnished by Lessee in
connection with this Agreement, and the transactions contemplated hereby
does not contain any untrue statement of a material fact or omit to state a
material fact;
(x) No Default or Lessee Event of Default has occurred and is
continuing hereunder;
(xi) Lessee has assets in excess of $5,000,000.00 according to its
most recent financial statement prepared in accordance with generally
accepted accounting principles and is not a "consumer" as that term is
defined in Section 17.45 of the Texas Deceptive Trade Practices-Consumer
Protection Act;
(xii) Lessee is not a consumer as defined by Hawaii Revised Statutes
Section 480-1 (1992 Supp.), and therefore has no right to bring an action
or pursue damages based upon unfair or deceptive acts or practices under
that Section;
(xiii) Lessee is an air carrier under 14 C.F.R. Part 121; and
(xiv) Lessor shall be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to its rights of repossession of the Aircraft,
any Engines, any appliances
19
<PAGE>
or spare parts, each as defined in such Section 1110 of the Bankruptcy
Code, pursuant to Section 14A hereof.
(e) Lessor's Representations and Warranties. To induce Lessee to enter
---------------------------------------
into this Lease Agreement, Lessor makes the following representations and
warranties each of which shall survive the execution and delivery of this Lease
Agreement and the Delivery Date:
(i) the execution and delivery by Lessor of this Agreement have
been duly authorized by all necessary corporate action on the part of
Lessor, do not require any approval of stockholders of Lessor (or if such
approval is required, such approval has been obtained), and the execution
and delivery hereof, and/or the consummation by Lessor of the transactions
contemplated hereby, and/or compliance by Lessor with any of the terms and
provisions hereof, do not contravene any provisions of the Certificate of
Incorporation or By-laws of Lessor, or result in any breach of, or
constitute any default under, or result in the creation of any Lien upon
any assets or property of Lessor under, any (A) indenture, mortgage, lease,
chattel mortgage, deed of trust, conditional sales contract, bank loan,
credit agreement or other material agreement or instrument to which Lessor
is a party or by which Lessor or its properties may be bound or materially
affected, which breach or default would have a material adverse effect on
its ability to perform the transactions contemplated by this Agreement, or
(B) any Applicable Law binding on Lessor, which breach or default would
have a material adverse effect on its ability to perform the transactions
contemplated by this Agreement;
(ii) the execution and delivery by Lessor of this Agreement and the
performance by Lessor of its obligations under this Agreement do not
require the consent or approval of, or registration with, or the giving of
prior notice to, any Person including any federal, state or foreign
Governmental Authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Agreement, (B) routine reporting requirements of the
Securities and Exchange Commission, the FAA, the DOT or other Governmental
Authorities after the Effective Date and (C) any such consent required by
the Head Lease, which consent has been obtained;
(iii) this Agreement has been duly executed and delivered by Lessor
and, assuming due authorization, execution and delivery by Lessee,
constitutes the legal, valid and binding obligation of Lessor, fully
enforceable against Lessor in accordance with its terms;
(iv) Lessor is not in default, and no condition exists that with
notice or lapse of time or both would constitute a default, under any
material mortgage, deed of trust, indenture, or other instrument or
agreement to which it is a party, or by which it or any of its properties
or assets may be bound, that would have a material adverse effect on its
ability to perform its obligations under this Agreement;
20
<PAGE>
(v) there are no pending or, to the knowledge of Lessor, threatened
investigations, suits or proceedings against it or affecting it or its
properties or operations, that, if determined adversely, would materially
adversely affect the consummation by Lessor of the transactions described
in, or the performance of its obligations under, this Agreement;
(vi) Lessor is not in violation of, or in default under, any
Applicable Law, of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that would have a material
adverse effect on its ability to perform its obligations under this
Agreement;
(vii) Lessor is certificated under 14 C.F.R. Part 121 to perform
Maintenance Services; and
(viii) Lessor has the right to transfer possession and use of the
Serviced Engines to Lessee.
Section 5. Return of Airframe and Engines.
------------------------------
(a) Return of Airframe and Serviced Engines. Upon the termination of this
---------------------------------------
Lease at the end of the Term or pursuant to Sections 8 or 14A hereof, Lessee
shall return the Return Aircraft by delivering the same, at its own expense, to
Tulsa, Oklahoma (TUL), Marana, Arizona (MZJ), Amarillo, Texas (AMA), Dallas/Fort
Worth International Airport (DFW), or Los Angeles International Airport (LAX) at
Lessor's sole option. Upon the expiration of the Term or pursuant to Sections 8
or 14A, as the case may be, Lessee shall make the redelivered Return Aircraft
available for inspection by Lessor and its representatives and designees. At the
time of the return of the Return Aircraft:
(i) the Return Aircraft shall be in compliance with the Return
Conditions as set forth in Exhibit D;
(ii) the Return Aircraft shall be in compliance with Lessee's
FAA-approved maintenance program;
(iii) each Item of Equipment and Engine shall be free and clear of
all Liens (except any Head Lease Lessor's Liens or Lessor's Liens);
(iv) the Return Aircraft shall be in the same passenger
configuration as when delivered to Lessee, and each Item of Equipment shall
be in as good an operating condition as when delivered to the Lessee on the
Delivery Date, ordinary wear and tear excepted;
(v) Upon the return of the Airframe, either at the end of the Term,
pursuant to Section 8 hereof or pursuant to Section 14A, (i) Lessee shall
have no obligation with respect to the amount of fuel or oil contained in
the Airframe and all fuel or oil remaining
21
<PAGE>
on board the Airframe shall be the property of Lessor without charge and
(ii) Lessee shall deliver or cause to be delivered to Lessor all logs,
manuals and data, and inspection, modification and overhaul records
required to be maintained with respect thereto under applicable rules and
regulations of the FAA;
(vi) Subject to the availability of storage space, upon the
termination of the Lease as to the Aircraft, upon request of Lessor, Lessee
shall provide Lessor with storage facilities for such Return Aircraft for a
period not exceeding ninety (90) days in accordance with the applicable
manufacturer's recommendations for storage and FAA regulations and shall
arrange for insurance and maintenance (performance of such maintenance
subject to the availability of Lessee's employees) for such Return Aircraft
during such storage period. The Lessor shall pay Lessee's direct costs for
such storage, maintenance and insurance without mark-up; and
(vii) Any Serviced Engines returned by Lessee on any Return Aircraft
are deemed to be Engines for the purpose of compliance with Return
Conditions.
So long as Lessor is maintaining the Aircraft pursuant to Exhibit E
attached hereto, the Return Conditions set forth in Exhibit D (other than
Sections 2F(a) and (b), k, 2M(2), (4) and (5) and 2P thereof and the obligation
to return all documents required for return set forth in Exhibit D and the
obligation to return the Aircraft clean) shall be deemed to be satisfied with
respect to the Aircraft.
(b) Return of Other Engines. In the event that any engine that is not a
-----------------------
Serviced Engine shall be installed on the Airframe returned, such engine shall
be an engine suitable to be a Replacement Engine hereunder. Upon return of the
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor
with a full warranty bill of sale, in form and substance reasonably satisfactory
to it, with respect to such engine and take such other action as may be
reasonably requested in order that title to such engine may be duly and properly
vested in Lessor to the same extent as the Engine replaced thereby. Upon
conveyance of good title to such engine to Lessor, and upon full compliance by
Lessee with its obligations hereunder, at Lessee's expenses, Lessor will
transfer to Lessee all rights, title and interest originally conveyed to Lessor
in an Engine constituting part of the Aircraft but not installed on the Airframe
at the time of the return of the Airframe "as-is, where-is", free and clear of
any Head Lease Lessor's Liens and Lessor's Liens but otherwise without recourse
or warranty, express or implied to Lessee.
Section 6. Liens. Lessee shall not directly or indirectly create,
-----
incur, assume or suffer to exist any Lien on or with respect to the Airframe or
any Engine or any Serviced Engine or any Parts, title thereto or any interest
therein or in this Lease except (i) the respective rights of Lessor and Lessee
as herein provided and of Head Lease Lessor and Lessor as provided in the Head
Lease, (ii) the rights of others under agreements or arrangements to the extent
expressly permitted by the terms of Sections 7(e) and 7(h), (iii) Head Lease
Lessor's Liens or Lessor's Liens, (iv) Liens for Taxes either not yet due or
being contested in good faith (and the payment of which has been bonded to the
satisfaction of Lessor) by appropriate proceedings so long as such
22
<PAGE>
proceedings do not involve any danger of the sale, forfeiture or loss of the
Airframe or any Engine or any Serviced Engine or interest therein, (v)
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
liens arising in the ordinary course of business for amounts the payment of
which is either not yet delinquent or is being contested in good faith (and the
payment of which has been bonded to the satisfaction of Lessor) by appropriate
proceedings so long as such proceedings do not involve any danger of the sale,
forfeiture or loss of the Airframe or any Engine or any Serviced Engine or
interest therein, (vi) liens arising out of judgments or awards against Lessee
with respect to which at the time an appeal or proceeding for review is being
prosecuted in good faith and with respect to which there shall have been secured
a stay of execution pending such appeal or proceeding for review, (vii) the
Pooling Agreement and (viii) the Head Lease. Notwithstanding the foregoing,
however, Lessee shall not, in any event, create, incur, assume or suffer to
exist any Lien on or with respect to the Airframe, title thereto or any interest
therein in violation of the terms of the Head Lease. Lessee shall promptly, at
its own expense, take such action as may be necessary duly to discharge (by
bonding or otherwise) any such Lien not excepted above if the same shall arise
at any time.
Section 7. Registration, Maintenance and Operation; Possession;
----------------------------------------------------
Insignia.
--------
(a) Registration, Maintenance and Operation. Lessee, at its own cost and
---------------------------------------
expense, shall:
(i) maintain, service, repair, overhaul and test or cause to be
maintained, serviced, repaired, overhauled and tested each Item of
Equipment in accordance with Lessee's FAA approved maintenance program, so
as to keep each Item of Equipment (A) in at least as good an operating
condition as when delivered, ordinary wear and tear excepted, and within
the acceptable limits of performance provided in the Manufacturer's
manuals, (B) in conformity with any Manufacturer's operating manual,
instructions and service bulletins and all mandatory service bulletins and
such other non-mandatory Manufacturer's service bulletins reasonably
requested by Lessor and by the Manufacturer, (C) in conformity with all
AD's that are required to be performed with respect to any Item of
Equipment during the Lease Term, (D) in conformity with the requirements of
any other Governmental Authority having jurisdiction over the Item of
Equipment, (E) in such condition that the Airframe and each Serviced Engine
will comply with the FAA type certificate (as in effect from time to time)
issued to the Manufacturer of the Airframe or such Serviced Engine and in
compliance with a maintenance program approved by the FAA so long as such
maintenance program conforms to the maintenance program (as in effect from
time to time) established by the applicable FAA-approved maintenance review
board report for airframes and engines of the same type, and (F) in such
condition as may be necessary to enable the airworthiness certification of
the In-Use Aircraft to be maintained in good standing at all times (and, in
the case of any Engine when it is not installed on the Airframe, so as to
keep such Engine serviceable at all times except when such Engine is
awaiting overhaul, maintenance, repair, inspection or servicing in the
normal course of Lessee's FAA-approved or compatible maintenance program)
under the rules and regulations of the FAA. All maintenance on the Airframe
and Serviced Engines shall be performed by Lessee in accordance with the
standards set forth above. Lessee
23
<PAGE>
shall promptly notify Lessor of any material change in the maintenance
program in respect of the In-Use Aircraft from that in effect on the
Delivery Date;
(ii) not permit the Airframe, any Serviced Engine, or any Part to be
maintained, serviced, repaired, overhauled, tested, used or operated in
violation of any Applicable Law of any Governmental Authority having
jurisdiction or in violation of any airworthiness certificate, license or
registration relating to the Airframe, any Serviced Engine or any Part
issued by any such Governmental Authority. In the event that any such
Applicable Law requires alteration of the Airframe, any Serviced Engine, or
any Part, Lessee will conform thereto or obtain conformance therewith at no
expense to Lessor and will maintain the Airframe, such Serviced Engine or
such Part in proper operating condition under such Applicable Laws;
(iii) maintain or cause to be maintained all records, logs and other
materials required by the FAA or other applicable Governmental Authority to
be maintained in respect of the In-Use Aircraft; and
(iv) promptly furnish to Lessor such information as may be required
to enable Lessor to file any reports required to be filed by Lessor with
any Governmental Authority because of Lessor's ownership of the Aircraft.
(b) Additional Maintenance Provisions. Lessee covenants and agrees that
---------------------------------
it shall use, operate, maintain, service, repair, overhaul and test or cause to
be used, operated, maintained, serviced, repaired, overhauled and tested, the
Airframe, each Serviced Engine and any Part in at least as good manner and with
at least as much care as used by Lessee with respect to other airframes, engines
and parts of the same type or utility owned, leased or operated by Lessee and
that it will not discriminate against the Airframe, any Serviced Engine or any
Part (as compared to other airframes, engines or parts of the same type or
utility owned, leased or operated by Lessee) in the use, operation, maintenance,
service, repair, overhaul or testing of the Airframe, each Serviced Engine or
any Part.
(c) Territorial Restrictions on Use of Aircraft. Lessee agrees not to
-------------------------------------------
operate or locate any Item of Equipment, or suffer such Item to be operated, (A)
unless such Item is covered by insurance as required by the provisions of
Section 9, (B) contrary to the terms of the insurance required by the provisions
of Section 9 of this Lease or section 11 of the Head Lease, (C) in any war zone
or recognized or threatened area of hostilities unless covered to Lessor's
satisfaction by war risk insurance, (D) to or from any airport which is at such
time the subject of a prohibition order of any Governmental Authority of the
United States or of any international authority or treaty organization of which
the United States is a member, (E) to or from any airport that the aircraft
leased by Lessee from Lessor pursuant to the Long-Term Lease are not operated to
or from or (F) contrary to the terms of the Head Lease.
(d) Obligations Absolute. Nothing herein, including Exhibit E hereto,
--------------------
shall be deemed to affect Lessee's obligations pursuant to this Section 7 or to
impose on Lessor the obligation to pay for or be responsible for the payment of
any maintenance, repair or overhaul. It is understood
24
<PAGE>
and agreed that Lessee shall be responsible for all of its obligations under
this Section 7 hereof, regardless of the performance or non-performance by
Lessor of its obligations described in Exhibit E hereto; provided that nothing
--------
contained in this Lease shall prohibit Lessee from maintaining a separate action
against Lessor for any default by Lessor of its obligations described on Exhibit
E attached hereto. So long as Lessor is required to maintain the Aircraft
pursuant to Exhibit E hereto, the maintenance requirements of this Section 7
shall be deemed to have been satisfied to the extent such maintenance has been
provided by Lessor pursuant to Exhibit E hereto.
(e) Possession. Except for the delivery of the Airframe or any Serviced
----------
Engine to Lessor pursuant to Exhibit E hereto or delivery of any Serviced
Engines pursuant to the Pooling Agreement, Lessee shall not sublease or
otherwise in any manner deliver, transfer or relinquish possession of the
Airframe, and shall not, without the prior written consent of Lessor, sublease
or otherwise in any manner deliver, transfer or relinquish possession of any
Serviced Engine or install any Serviced Engine, or permit any Serviced Engine to
be installed, on any airframe other than the Airframe.
(f) Registration and Insignia. Lessee shall maintain in the cockpit of
-------------------------
the Airframe adjacent to the airworthiness certificate therein the metal
nameplate bearing the Head Lease Lessor's name, as owner and lessor. Lessee
shall affix as promptly as practicable after the Delivery Date and thereafter to
maintain on each Engine a metal nameplate bearing the inscription "AMERICAN
AIRLINES, INC., OWNER AND LESSOR". Lessee may place its customary colors and
insignia on the Airframe or Engines so long as no polished portion of the In-Use
Aircraft is painted. The placement of and colors or insignia on the In-Use
Aircraft shall be performed by Lessor. Provided that Lessor shall (i) remain a
citizen of the United States of America as defined in Section 40102(a)(15)
(former 101(16)) of the Act and (ii) cooperate with the Lessee, Lessee shall
maintain continued registration of the Airframe in Head Lease Lessor's name
under the Act. Except as set forth in Section 7(h) below, no additional
modifications may be made to the Aircraft or any Serviced Engines without the
prior written consent of Lessor.
(g) Replacement of Parts. Subject to the provisions of Exhibit E hereof,
--------------------
Lessee at its own cost and expense, shall promptly replace (or cause to be
replaced) all Parts which may from time to time be incorporated or installed in
or attached to the Airframe or any Serviced Engine and which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8. In addition, Lessee may, at its own
cost and expense, remove or cause to be removed in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damages beyond repair or
permanently rendered unfit for use; provided that Lessee, except as otherwise
--------
provided in Section 8, will, at its own cost and expense, replace such Parts as
promptly as possible. All replacement Parts shall be free and clear of all Liens
(except for Permitted Liens), and shall be in as good operating condition as,
and shall have a value and utility at least equal to, the Parts replaced,
assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof. All Parts at any time removed from the Airframe
or any Serviced Engine shall remain the property of Lessor (or Head Lease
Lessor, as the case may be), no matter where
25
<PAGE>
located. Immediately upon any replacement Part becoming incorporated or
installed in or attached to the Airframe or any Serviced Engine as above
provided, without further act, (i) title to the replacement Part shall thereupon
vest in Lessor free and clear of all Liens (except for Permitted Liens); and
(iii) such replacement Part shall become subject to this Lease and be deemed
part of the Airframe or such Serviced Engine for all purposes to the same extent
as the Parts originally incorporated or installed in or attached to the Airframe
or such Serviced Engine. Any Parts replaced or supplied by Lessor pursuant to
Exhibit E attached hereto shall be deemed to satisfy the conditions of this
Section.
(h) Alterations, Modifications and Additions. Subject to the provisions
----------------------------------------
of Section 7(a) hereof, and, in addition, so long as Lessor is maintaining the
Aircraft pursuant to Exhibit E attached hereto, in compliance with Exhibit E
attached hereto, Lessee, at its own expense, will make (or cause to be made)
such alterations and modifications in and additions to the Airframe and the
Serviced Engines as may be required from time to time to meet the standards of
the FAA or other Governmental Authority having jurisdiction. In addition and
subject to the terms of Exhibit E hereto, Lessee, at its own expense, may from
time to time make (or cause to be made) such alterations and modifications in
and additions to the Airframe or any Serviced Engine as Lessee may deem
desirable in the proper conduct of its business, including, without limitation,
removal of Parts which Lessee deems obsolete or no longer suitable or
appropriate for use in the Airframe or any Serviced Engine, provided that (i) no
--------
such alteration, modification, addition or removal shall diminish the fair
market value, utility or remaining useful life of the Airframe or such Serviced
Engine, or impair the condition or airworthiness thereof below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification, addition or removal assuming the Airframe or such
Serviced Engine was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this Lease; and (ii) no
structural modification shall be made without the prior written consent of
Lessor. Title to all Parts incorporated or installed in or attached or added to
the Airframe or any Serviced Engine as the result of such alteration,
modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 7(h), so long as no
Default or Lessee Event of Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part, provided that (i) such Part
--------
is in addition to, and not in replacement of or substitution for, (x) any Part
originally incorporated or installed in or attached to the Airframe or any
Serviced Engine at the time of delivery thereof hereunder, or (y) any Part in
replacement of or substitution for any such Part, (ii) such Part is not required
to be incorporated or installed in or attached or added to the Airframe or any
Serviced Engine pursuant to the terms of this Section 7(h), and (iii) such Part
can be removed from the Airframe or such Serviced Engine without causing
material damage to the Airframe or such Serviced Engine and without diminishing
or impairing the value, utility, condition or airworthiness required to be
maintained by the terms of this Lease which the Airframe or such Serviced Engine
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any Part as provided in the immediately
preceding sentence, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Airframe or such Serviced Engine
from which it was removed. Any Part not removed by Lessee as provided in such
sentence prior to the return of the Airframe or such Serviced Engine to Lessor
hereunder shall remain the property of Lessor.
26
<PAGE>
(i) Manuals and Technical Records.
-----------------------------
Lessee undertakes that:
(1) Throughout the Lease Term, Lessee shall keep, or cause to be
kept, accurate, complete and current records of all flights made
by the Aircraft and each Serviced Engine and of all maintenance
and repairs carried out to the Airframe and each Serviced Engine
and shall allow the Lessor or its agents to examine and make
reasonable copies of the records at any reasonable time upon
giving reasonable notice to Lessee.
(2) The records so kept shall conform with Lessee's approved
maintenance program.
(3) The records so kept shall be part of the manuals and technical
records and shall be the property of Lessor and that at the end
of the relevant Lease Term or upon the repossession or redelivery
of the Aircraft, Lessee shall deliver the relevant records to the
Lessor, provided that Lessee shall be entitled to take and retain
copies thereof.
(4) The Lessee shall provide to the Lessor or its authorized
representative each month a status report containing engine and
airframe utilization in hours and cycles, and other information
which Lessor may reasonably request.
(5) All original records shall be maintained in their original paper
form and shall be the property of the Lessor upon lease
termination.
(j) Maintenance and Usage. Except as otherwise expressly provided herein,
---------------------
throughout the Lease Term, Lessor and Lessee each agrees to perform its
obligations, duties and liabilities set forth in Exhibit E attached hereto.
Section 8. Loss, Destruction, Requisition, Etc.
-----------------------------------
(a) Event of Loss to the Aircraft. Upon the occurrence of an Event of
-----------------------------
Loss with respect to the In-Use Aircraft Lessee shall (i) forthwith (and in any
event within five days after such occurrence) give to Head Lease Lessor and
Lessor written notice of such Event of Loss and (ii) comply with Section
8(a)(1):
(1) Payment of Stipulated Loss Value and Rent. On or before the
-----------------------------------------
Business Day before the earlier of (i) the 60th day following the date of
the occurrence of such Event of Loss with respect to the In-Use Aircraft;
or (ii) five days following the receipt of insurance proceeds with respect
to such occurrence (the "Loss Payment Date"), Lessee shall pay to Lessor,
-----------------
in the manner and in funds of the type specified in Section 3(e), an amount
equal to the sum of (i) the
27
<PAGE>
Stipulated Loss Value for the In-Use Aircraft calculated as of the Basic
Rent Payment Date next following the Event of Loss (or if the date of such
Event of Loss is a Basic Rent Payment Date, as of such Basic Rent Payment
Date (the "Loss Computation Date")) less any payment of Basic Rent paid by
Lessee after the date of such Event of Loss and on or prior to the Loss
Payment Date, (ii) any installment of Basic Rent due and owing prior to the
Loss Payment Date, (iii) all Supplemental Rent then due and owing for the
Aircraft on the Loss Payment Date, and (iv) interest on the amounts
described in clause (i) and (ii) hereof from the Loss Computation Date to
the Loss Payment Date at the Prime Rate.
(2) Termination Upon Payment of Stipulated Loss Value. Upon payment
-------------------------------------------------
in full of the amounts required pursuant to Section 8(a)(1), (i) Lessee's
obligation to pay Basic Rent hereunder with respect to the Aircraft for any
period commencing after the Loss Payment Date shall terminate (but Lessee
shall remain liable for all payments of Rent, including Basic Rent and
Supplemental Rent, including, without limitation, the Supplemental Rent
pursuant to Exhibit E hereto, for the Aircraft, due through and including
the date of such payment), (ii) the Term for the Aircraft shall end, and
(iii) Lessor shall (subject to the rights of any insurer) transfer to
Lessee all of Lessor's right, title and interest in the Airframe and the
Serviced Engines, if any, which were subject to the Event of Loss "as-is,
where-as", free and clear of Lessor's Liens, but otherwise without recourse
or warranty, express or implied.
(b) Event of Loss to a Serviced Engine.
----------------------------------
(1) Event of Loss. Upon the occurrence of an Event of Loss with
-------------
respect to a Serviced Engine not then installed on the Airframe, or upon
the occurrence of an Event of Loss with respect to a Serviced Engine
installed on the Airframe but not involving an Event of Loss with respect
to the Airframe, Lessee shall give Lessor prompt written notice thereof and
shall: (i) within sixty (60) days after the occurrence of such Event of
Loss, convey or cause to be conveyed to Lessor, as replacement for the
Serviced Engine with respect to which such Event of Loss occurred, title to
a replacement Serviced Engine free and clear of Liens (other than Permitted
Liens) or (ii) if mutually agreed between Lessor and Lessee, Lessee shall
in lieu of replacing such Serviced Engine pursuant to this Section 8(b)(1),
pay or cause to be paid to Lessor hereunder, within ten (10) days after
such agreement, the Stipulated Loss Value for such Serviced Engine,
computed as of the Basic Rent Payment Date next following the date of such
Event of Loss.
(2) Conditions, Lessee's Obligations. Lessee's right to replace
--------------------------------
contemplated by Section 8(b)(1) shall be subject to the fulfillment, in
addition to the requirements contained in Section 9(b), of the conditions
precedent set forth below:
28
<PAGE>
(i) No Default or Lessee Event of Default shall be continuing on
the replacement date;
(ii) Lessee will promptly (all writings referred to below to be
reasonably satisfactory in form and substance to Lessor):
(a) furnish Lessor a bill of sale duly conveying to Lessor
such replacement Serviced Engine, together with such evidence of
title as Lessor may reasonably request;
(b) if the replaced Serviced Engine is an Engine hereunder,
cause a Lease Supplement, subjecting such Replacement Engine to
this Lease, duly executed by Lessee, to be delivered to Lessor
for execution and, upon such execution, to be duly filed for
recordation with the FAA;
(c) furnish Lessor with such evidence of compliance with
the insurance provisions of Section 9 with respect to such
replacement Serviced Engine as Lessor may reasonably request;
(d) furnish Lessor with a certificate or certification of a
qualified aircraft engineer reasonably satisfactory to Lessor
certifying that such replacement Serviced Engine has a value,
utility and remaining useful life at least equal to the Serviced
Engine so replaced (assuming such Serviced Engine was in the
condition and repair required by the terms hereof immediately
prior to the occurrence of such Event of Loss), provided that in
--------
addition to such certificate or certification, Lessor shall have
the right to inspect such replacement Serviced Engine and shall
be reasonably satisfied that it has a value, utility and
remaining useful life at least equal to the Serviced Engine so
replaced (assuming such Serviced Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss); and
(e) On or before such replacement date, Lessee shall (i)
furnish Lessor with an opinion of independent counsel reasonably
satisfactory to Lessor, that Lessor will suffer no adverse tax
consequences as a result of such replacement or (ii) have agreed
to pay to Lessor as an indemnity such amount or amounts as may be
necessary to hold harmless, on an after-tax basis, Lessor against
any and all adverse tax consequences as may result from such
replacement and shall have provided to Lessor satisfactory
assurances regarding Lessee's ability to pay such indemnity; and
29
<PAGE>
(f) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request in
order that such replacement Serviced Engine be duly and properly
titled in Lessor and leased hereunder to the same extent as the
Serviced Engine replaced thereby.
(3) Event of Loss to an Engine, Not a Serviced Engine. Upon the
-------------------------------------------------
occurrence of an Event of Loss to an Engine which is not a Serviced Engine,
Lessor shall give Lessee prompt written notice thereof and shall within
sixty (60) days after the occurrence of such Event of Loss, lease hereunder
to Lessee a Replacement Engine with respect to such Engine to which such
Event of Loss occurred, free and clear of Liens (other than Permitted
Liens). Lessor shall furnish Lessee with a certificate or certification of
a qualified aircraft engineer reasonably satisfactory to Lessee certifying
that such Replacement Engine has a value, utility and remaining useful life
at least equal to the Engine so replaced, provided that in addition to such
--------
certificate or certification, Lessee shall have the right to inspect such
Replacement Engine and shall be reasonably satisfied that it has a value,
utility and remaining useful life at least equal to the Engine so replaced
(assuming such Engine was in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of Loss).
(4) Conditions, Lessor's Obligations. Lessor's obligation to replace
--------------------------------
contemplated by Section 8(b)(3) shall be subject to the fulfillment of the
conditions precedent that Lessee and Lessor will promptly:
(i) cause a Lease Supplement, subjecting such Replacement Engine
to this Lease, duly executed by Lessee and Lessor, to be delivered to
Lessor for execution and, upon such execution, to be duly filed for
recordation with the FAA; and
(ii) take such other actions and furnish such other certificates
and documents as Lessor may reasonably request in order that such
Replacement Engine be duly and properly titled in Lessor and leased
hereunder to the same extent as the Engine replaced thereby;
provided, that Lessor shall have no obligation to deliver possession of a
--------
Replacement Engine to Lessee so long as a Default or Lessee Event of
Default has occurred and is continuing hereunder.
(5) Recordation and Opinions. Promptly after the recordation of the
------------------------
Lease Supplement covering any such Replacement Engine pursuant to the
Federal Aviation Act (or in case the Aircraft was at the time of the Event
of Loss subject to registration under the laws of a country other than the
United States, pursuant to the laws of such country), Lessee shall cause to
be delivered to Lessor an
30
<PAGE>
opinion of counsel reasonably satisfactory to Lessor as to the due
recordation of such Lease Supplement pursuant to the Act (or such other
laws).
(6) Conveyance; Replacement Engine. Upon compliance by Lessee with
------------------------------
the terms of this Section 8(b), Lessor will (subject to the rights of any
insurer) transfer (other than in the case of the replacement of an Engine
which was not upon the occurrence of the Event of Loss, a Serviced Engine)
to Lessee all of Lessor's right, title and interest as of the delivery date
of such replacement Serviced Engine in the replaced Serviced Engine, "as-
is, where-is", free and clear of Lessor's Liens but otherwise without
recourse or warranty, express, implied or otherwise.
(7) No Reduction of Basic Rent. No Event of Loss with respect to a
--------------------------
Serviced Engine or an Engine under the circumstance contemplated by this
Section 8(b) shall result in any reduction of Basic Rent. Upon the payment
by Lessee to Lessor of the Stipulated Loss Value of any Serviced Engine,
Lessor, shall provide Lessee with a replacement Serviced Engine.
(8) If Lessor furnishes the replacement Serviced Engine, then the
conditions set forth in Sections 8(b)(2)(ii)(a) and (d) shall be deemed to
be fulfilled.
(c) Application of Payments for Requisition of Title. Any payments (other
------------------------------------------------
than insurance proceeds the application of which is provided for in Section 9)
received at any time by Lessor, Lessee or from any Governmental Authority or
other Person with respect to any Event of Loss, other than a requisition for use
by the Government not constituting an Event of Loss, will be applied as follows:
(1) Replacement of Serviced Engine. If such payments are received as
------------------------------
a result of an Event of Loss to a Serviced Engine under circumstances
contemplated by Section 8(b), and the Serviced Engine is replaced, so much
of such payments remaining after reimbursement of Lessor for reasonable
costs and expenses, if any, theretofore incurred by Lessor related to such
replacement shall be paid over to, or retained by, Lessee, provided that
Lessee shall have fully performed, or concurrently therewith will perform,
the terms of Section 8(b) with respect to the Event of Loss for which such
payments are made.
(2) Loss of Airframe. If such payments are received as a result of
----------------
an Event of Loss to the Airframe or the Airframe or Serviced Engines then
installed thereon, so much of such payments as shall not exceed the amounts
payable pursuant to 8(a)(1) shall be applied to pay such amounts (or
reimburse Lessee for its payment of such amounts), and the balance, if any,
of such payment remaining thereafter shall, first, to the extent of the
value of Lessee's interest in such payment, be paid over to Lessee, and,
second, the remainder, if any, shall be retained by Lessor. For purposes of
this clause (2), the value of Lessee's interest in
31
<PAGE>
a payment shall be the amount of the Basic Rent due in regard to the
leasing of the Aircraft for the remainder of the applicable Term.
(d) Requisition of Use of the Airframe. In the event of the requisition
----------------------------------
for use of the Airframe or any Serviced Engines installed on the Airframe during
the Term not constituting an Event of Loss including without limitation,
pursuant to CRAF, Lessee shall promptly notify Lessor of such requisition and
all of Lessee's obligations under this Lease shall continue to the same extent
as if such requisition had not occurred, except to the extent that any failure
or delay in Lessee's performance or observance of such obligations (other than
obligations for the payment of Rent) is caused by such requisition. Unless
Lessor elects to treat such requisition as an Event of Loss, Lessee shall be
obligated to return the Airframe and such Serviced Engines to Lessor pursuant
to, and in all other respects in compliance with the provisions of, Section 5
promptly at the later of the end of the Term or, if Lessor consents, the date of
such return by any such Governmental Authority. All payments received by Lessor
or Lessee from any Governmental Authority for the use of the Airframe and
Serviced Engines during the Term (so long as no Lessee Event of Default shall
have occurred and be continuing) shall be paid over to, or retained by, Lessee;
and all payments received by Lessor or Lessee from the Government for the use of
the Airframe and such Serviced Engines after the Term (or so long as a default
or a Lessee Event of Default shall have occurred and be continuing) shall be
paid over to, or retained by, Lessor, unless such requisition for use by any
Governmental Authority is treated as an Event of Loss in which case all such
payments shall be applied in accordance with Section 8(c)(2).
(e) Investment of Proceeds Pending Replacement. If an Event of Loss
------------------------------------------
shall occur with respect to a Serviced Engine and the provisions of Section 8(b)
apply, or Lessor receives any insurance proceeds pending completion of repairs
by Lessee to the Airframe or a Serviced Engine, Lessor shall, if requested by
Lessee and if no Lessee Event of Default shall have occurred and be continuing,
use its reasonable efforts to invest, at the request, direction and risk of
Lessee, any payments received theretofore or thereafter with respect to the
Airframe or such Serviced Engine from any insurer under insurance required to be
maintained hereunder or from Lessee or from any Governmental Authority or other
person with respect to the applicable Event of Loss or otherwise. Any such
investments shall be in obligations of the United States or obligations
guaranteed as to principal and interest by the Government or certificates of
deposit issued in the United States by a commercial bank or banks each having a
combined capital, surplus, and undivided profits of at least $250,000,000, in
each case having a stated maturity not later than one year from the date of the
acquisition thereof by Lessor. Lessee will pay to Lessor on demand the amount of
any loss incurred in connection with any such investment. All profits and losses
on such investments and any taxes in respect thereof shall be for the account of
Lessee. In order to make the payments to Lessee provided for in Section 8 or 9
hereof, Lessor is authorized to sell any obligations purchased as aforesaid; and
Lessor shall not be required to make such payments to Lessee until Lessor shall
have had a reasonable time to sell such obligations and to obtain the sale
proceeds therefrom.
(f) Application of Payments During Default. Any amount for requisition
--------------------------------------
of title or requisition of use of any Item of Equipment referred to in this
Section 8 which is payable to or retainable by Lessee shall not be paid to or
retained by Lessee if at the time of such payment or
32
<PAGE>
retention a Default or a Lessee Event of Default shall have occurred and be
continuing, but shall be held by or paid to Lessor and applied against the
obligations of Lessee under this Lease, and at such time as there shall not be
continuing any such Default or Lessee Event of Default, such amount shall be
paid to Lessee to the extent not previously applied in accordance with this
sentence.
Section 9. Insurance.
---------
(a) Liability Insurance. During the Lease Term and during the next three
-------------------
years thereafter, Lessee shall maintain (or cause to be maintained) at no
expense to Head Lease Lessor or Lessor the following insurance, on a worldwide
basis with no territorial restrictions, except as may be specifically consented
to from time to time by Lessor and Head Lease Lessor, such consent not to be
unreasonably withheld, with insurers of recognized responsibility approved by
Lessor through nationally recognized aviation insurance brokers: comprehensive
aviation liability insurance (including third party legal liability, public
liability, passenger legal liability, personal injury liability, passenger's
baggage and personal effects (checked and unchecked) liability, cargo legal
liability, mail legal liability, premises liability, products/completed
operations, hangarkeepers (ground and in-flight) liability and war risks
liability (Lloyd's of London Clause AV.52 or its equivalent), insurance of the
indemnification obligations set forth in Section 15 hereof, and property damage
liability insurance with respect to the In-Use Aircraft in an amount not less
than that carried by Lessee on similar equipment owned or leased by Lessee,
provided that such liability insurance shall in no event be less than
- --------
$850,000,000 for any one accident, or series of accidents arising out of any one
event. Lessee shall not self-insure with respect to any public liability
coverage with the exception of baggage, cargo and mail liabilities. Any policies
of insurance carried in accordance with this Section 9(a) and any policies taken
out in substitution or replacement for any of such policies shall: (1) name Head
Lease Lessor and Lessor and their respective Affiliates and directors, officers,
employees, servants and agents as an additional insured (each such Person an
"Additional Insured"), as their respective interests may appear; (2) provide
------------------
that in respect of the interest of each Additional Insured in such policies, the
insurance shall not be invalidated by any action or inaction of Lessee or any
other insured or any person having temporary possession of the Aircraft while
under the contract with Lessee to perform maintenance, repair, alteration or
similar work on the Aircraft, and shall insure each Additional Insured
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by Lessee; (3) provide that if the insurers cancel
such insurance for any reason whatever, or if there is any substantial change in
policy terms and conditions or coverage, such cancellation, lapse or change
shall not be effective as to any Additional Insured until thirty days (seven
days, or such other period as may from time to time be customarily obtainable in
the industry, in the case of war risk and allied perils coverage) after receipt
by such Additional Insured of written notice from such insurers of such
cancellation, lapse or change, and shall permit Lessor and Head Lease Lessor, at
either's option, to make payments to effect the continuation of such insurance
coverage upon notice of cancellation due to nonpayment of premium; and (4)
provide that no Additional Insured shall have any obligation or liability for
premiums, commissions, assessments or calls in connection with such insurance.
Each liability policy shall (i) be primary without right of contribution from
any other insurance which is carried by any Additional Insured, (ii) expressly
provide that all of the provisions thereof, except the limits of
33
<PAGE>
liability, shall operate in the same manner as if there were a separate policy
covering any Additional Insured, and (iii) waive any right of the insurers to
any subrogation, set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any liability of any Additional Insured
or Lessee to the extent of any moneys due to such Additional Insureds. In the
case of the requisition for use of the In-Use Aircraft or any Serviced Engine by
the Government, a valid agreement by the Government to indemnify Lessee in a
manner satisfactory to Lessor and Head Lease Lessor against any of the risks
which Lessee is required hereunder to insure against in an amount at least equal
to the amount of insurance required to be maintained for the Aircraft under this
Section 9 from time to time shall, to the extent such indemnity from the
Government complies with the requirements set forth in Section 7(g) hereof, be
considered adequate insurance to the extent of the risks and in the amounts that
are the subject of any such agreement to indemnify.
(b) All Risk Hull Insurance. During the relevant Terms, Lessee shall
-----------------------
maintain (or cause to be maintained) at no expense to Head Lease Lessor or
Lessor the following insurance, on a worldwide basis with no territorial
restrictions with insurers of recognized responsibility (A) all-risks (ground,
taxing, flight and ingestion) hull insurance covering the In-Use Aircraft; and
(B) all risks (including transit) Aviation Spare Parts (including Engine and
Equipment) Insurance and (C) at all times that any In-Use Aircraft or any
Serviced Engine is not covered by the insurance described in Section 9(c),
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any vandalism, malicious act or act of sabotage, and (iii)
hijacking, or any unlawful seizure or wrongful exercise of control of the In-Use
Aircraft or crew in flight made by any person or persons on board the In-Use
Aircraft without the consent of the insured other than hijacking committed by
persons engaged in a program of irregular warfare for terrorist purposes, in
each case to the extent insured by the standard "buy-back" provisions to the
Airline War Exclusion Clause (AV48B) or its equivalent. Such insurance shall be
for an Agreed Value basis which shall be in an amount not less than the
Stipulated Loss Value. Lessee may self-insure only with the prior written
consent of Head Lease Lessor and Lessor, and in the event such consent is
granted, only by way of standard market deductibles, the risks required to be
insured against pursuant to the preceding two sentences in such amounts as are
acceptable to Lessor and Head Lease Lessor in their sole discretion. Any
policies carried in accordance with this Section 9(b) covering the In-Use
Aircraft and any policies taken out in substitution or replacement for any such
policies shall (1) name Head Lease Lessor and Lessor as loss payees as their
interests may appear; (2) provide that the entire amount of any loss shall be
paid to Head Lease Lessor or its order; (3) provide that if such insurance is
canceled for any reason whatsoever, or any substantial change is made in policy
terms, conditions or coverage, or the same is allowed to lapse for non-payment
of premium, such cancellation, change or lapse shall not be effective as to Head
Lease Lessor or Lessor until thirty days (seven days or such other period as may
from time to time be customarily obtainable in the industry, in the case of war
risk and allied perils coverage), after receipt by Head Lease Lessor or Lessor,
respectively, of written notice from such insurers of such cancellation or lapse
or change in policy terms, conditions or coverage, and shall permit Lessor and
Head Lease Lessor, at their option, to make payments to effect the continuation
of such insurance coverage upon notice of cancellation due to nonpayment of
premium; (4) provide that losses shall be adjusted with Lessor and Head Lease
Lessor, as appropriate; (5) provide that in respect of Head Lease Lessor and
Lessor, such insurance shall not be invalidated by any action or inaction of
34
<PAGE>
Lessee or any other insured and shall insure such parties regardless of any
breach contained in such policies by Lessee or any other insured; (6) be primary
without right of contribution from any other insurance which is carried by Head
Lease Lessor or Lessor with respect to its interest in the In-Use Aircraft; (7)
waive any right of subrogation of the insurers against Head Lease Lessor or
Lessor; (8) waive any right of the insurers to set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any liability
of Head Lease Lessor, Lessor or Lessee to the extent of any moneys due to Head
Lease Lessor or Lessor, as the case may be; and (9) provide that neither Head
Lease Lessor nor Lessor shall have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. If the
insurance required to be carried pursuant to Sections 9(b) and 9(c) is effected
under separate policies, the insurers shall agree that if a disagreement arises
as to whether a claim is covered by the all-risk insurance or the war-risk
insurance, the insurers will settle such claims on the basis of a 50-50 claim
funding arrangement. In the case of the requisition for use of the In-Use
Aircraft or any Serviced Engine by the Government, a valid agreement by the
Government, satisfactory to Head Lease Lessor and Lessor, to indemnify Lessee
against any of the risks which Lessee is required hereunder to insure against in
an amount at least equal to the amount of insurance required to be maintained
for the In-Use Aircraft under this Section 9 from time to time shall, to the
extent such indemnity from the Government complies with the requirements set
forth in Section 7(g) hereof, be considered adequate insurance to the extent of
the risks and in the amounts that are the subject of any such agreement to
indemnify.
(c) War-Risk Insurance. During the Lease Term, Lessee shall maintain
------------------
(or cause to be maintained), at no expense to Head Lease Lessor or Lessor
War-Risk and Allied Perils Aviation Hull (including Spare Parts, Engines and
Equipment) Insurance on an Agreed Value basis, which shall be not less than the
Stipulated Loss Value. Such policy shall (i) insure against those perils
excluded under Lessee's All Risks Hull and Spares policy(ies) by virtue of
Lloyd's of London Exclusion Clause AVN.48B ("War, Hijacking and Other Perils
Exclusion Clause") or its equivalent (other than paragraph (b) thereof relating
to nuclear perils), (ii) provide for payment in U.S. Dollars, (iii) contain a
50/50 clause in accordance with Lloyd's of London Aviation Clause AVS.103 or its
equivalent, (iv) be endorsed to include coverage for confiscation, requisition,
nationalization, seizure, restraint, detention, appropriation, requisition of
title or for use by any Governmental Authority (except for the government of
registry) of the In-Use Aircraft, (v) provide coverage on a worldwide basis
(subject only to such geographical limits as may be imposed by the hull, war and
allied perils insurance) and (vi) be endorsed to include provisions identical to
those contained in clauses (1), (2), (3), (4), (5), (6), (7), (8), and (9) of
Section 9(b).
(d) Application of Proceeds. Provided no Lessee Event of Default shall
-----------------------
have occurred and be continuing, all insurance payments received under policies
required to be maintained by Lessee pursuant to Section 9 as the result of the
occurrence of an Event of Loss shall be applied in accordance with Section
8(c)(1) or Section 8(c)(2). Insurance payments relating to any property damage
or loss to the In-Use Aircraft or any Serviced Engine not constituting an Event
of Loss with respect thereto will be applied in payment for repairs or for
replacement property in accordance with the terms of Section 8(c) hereof, if not
already paid for by Lessee, and any balance remaining after compliance with such
Sections with respect to such loss shall be paid to Lessee. Any amount
representing proceeds of insurance required to be maintained by Lessee
35
<PAGE>
hereunder which is payable to or retainable by Lessee shall not be paid to or
retained by Lessee if at the time of such payment a Default or a Lessee Event of
Default shall have occurred and be continuing, but shall be held by or paid to
Lessor as security for the obligations of Lessee under this Lease and such
amount (to the extend not previously applied against such obligations) shall be
paid to Lessee at such time s there no longer exists any Default or Lessee Event
of Default.
(e) Reports. Etc. On or before the Delivery Date (except, with respect to
-------------
the insurance required by Section 9(j), prior to the date hereof), and no less
than five (5) Business Days prior to the expiration of any insurance required
pursuant to this Section 9, Lessee shall furnish to Lessor and Head Lease Lessor
(i) appropriate certification by each insurer or its authorized signatories and
(ii) a report signed by a firm of independent insurance brokers, then retained
by Lessee, attaching certificates evidencing the insurance and reinsurance then
carried and maintained with respect to the In-Use Aircraft and Allocated Parts
and stating that in the opinion of such firm the insurance then carried and
maintained with respect to the In-Use Aircraft and Serviced Engines or Parts
complies with the terms hereof. Lessee will cause such firm to advise Lessor and
Head Lease Lessor in writing promptly of any material default in the payment of
any premium and of any other act or omission on the part of Lessee of which they
have knowledge which might invalidate or render unenforceable, in whole or in
part, any insurance on the In-Use Aircraft or any Serviced Engine or Parts.
Lessee also shall cause such firm to advise Head Lease Lessor and Lessor in
writing at least thirty (30) days (seven (7) days, or such other period as may
from time to time be customarily obtainable in the industry, in the case of war
risk and allied perils coverage), prior to he expiration termination of any
insurance policy carried or maintained with respect to the In-Use Aircraft or
any Serviced Engine any Parts pursuant to this Section 9.
(f) Additional Insurance. Lessee at its option and at its sole cost and
--------------------
expense may obtain insurance with respect to its interest in the In-Use
Aircraft, provided that such insurance does not prevent Lessee from obtaining
--------
the insurance required by this Section 9; and provided, further, that such
-------- -------
additional insurance does not prevent Head Lease Lessor or Lessor, as the case
may be, from obtaining insurance for its own account with respect to the In-Use
Aircraft in excess of Stipulated Loss Value. No such insurance shall be subject
to this Section 9. Head Lease Lessor and Lessor may each carry for its own
account at its sole cost and expense insurance with respect to its interest
in the In-Use Aircraft but in no event shall such insurance prevent Lessee from
carrying insurance required by this Section 9 or adversely affect the cost
thereof.
(g) Notice from Lessee; No Modification. Lessee shall forthwith notify
-----------------------------------
Head Lease Lessor and Lessor of any event which may give rise to a claim under
the insurance required pursuant to this Section 9.
(h) Reinsurance. In the event of any reinsurance of the risks set forth in
-----------
Section 9(b) the following clause shall be incorporated into such reinsurance
policies:
"Reinsurers hereby agree that notwithstanding the insolvency, liquidation,
bankruptcy, dissolution of or similar proceedings affecting Insurers in
respect of a total loss or other claim whereas provided by the Lease such
claim will be paid to
36
<PAGE>
the person or persons named as loss payee under the primary insurance and
that Reinsurers shall in lieu of payment to the Insured, its successors in
interest and assigns, pay to the person named as loss payee under the
primary insurance that portion of any loss due for which the reinsurers
would otherwise be liable to pay the Insurers (subject to proof of loss),
it being understood and agreed that any such payment by the Reinsurers
shall (to the extent of such payment) fully discharge and release the
Reinsurers from any and all further liability in connection therewith,
subject to such clause not contravening any law of the government of
registration."
(i) Insurance of Lessor. Lessor agrees to maintain throughout the Lease
-------------------
Term Hangarkeeper's Legal Liability Insurance that, in accordance with the terms
and conditions of the policy, covers the Serviced Aircraft during periods in
which the Serviced Aircraft is within custody and control of Lessor for an
amount not less than the Stipulated Loss Value.
(j) Insurance Relating to Allocated Parts. During the Term, Lessee shall
-------------------------------------
maintain (or cause to be maintained) at no expense to Lessor the following
insurance with respect to the Allocated Parts with insurers of recognized
responsibility satisfactory to Lessor: (A) All Risks Property Insurance and (B)
coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances or (ii) vandalism, malicious acts or acts of sabotage. Such
insurance shall be for an aggregate amount of no less than $1,600,000. With the
written consent of Lessor, Lessee may self-insure, only by way of deductibles,
the risks required to be insured against pursuant to the preceding two sentences
in such amounts as are acceptable to Lessor in its sole discretion. Any policies
carried in accordance with this Section 9(j) covering the Allocated Parts and
any policies taken out in substitution or replacement for any such policies
shall (1) name Lessor as sole loss payee; (2) provide that the entire amount of
any loss be paid to Lessor or its order; (3) provide that if such insurance is
canceled for any reason whatsoever, or any substantial adverse change is made in
policy terms, conditions or coverage, or the same is allowed to lapse for
non-payment of premium, such cancellation, change or lapse shall not be
effective as to Lessor until thirty (30) days after receipt by Lessor of written
notice from such insurers of such cancellation or lapse or change in policy
terms, conditions or coverage; (4) provide that losses shall be adjusted with
Lessor; (5) provide that in respect of Lessor such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and shall
insure such parties regardless of any breach contained in such policies by
Lessee or any other insured; (6) waive any rights to subrogation of the insurers
against Lessor; (7) waive any right of the insurers to set-off or counterclaim
or any other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (8)
provide that Lessor shall not have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. Lessee
shall bear the risk of loss to the extent of any deficiency in any effective
insurance coverage with respect to loss or damage to all or any portion of the
Allocated Parts.
(k) Compliance with Head Lease. Notwithstanding anything to the contrary
--------------------------
contained in this Section 9, Lessee agrees that it will additionally comply with
and abide by all of the covenants and other obligations of Lessor, as lessee in
Section 11 of the Head Lease; provided, in
37
<PAGE>
no event will Lessee maintain insurance in amounts or coverages less than the
amounts and coverages required by Section 11 of the Head Lease or such lesser
amounts as may be consented to by Head Lease Lessor.
Section 10. Inspection; Financial Information; Letter of Credit.
---------------------------------------------------
(a) Inspection. During the Lease Term, Lessee shall furnish to Head
----------
Lease Lessor and Lessor such information concerning the location, condition, use
and operation of the In-Use Aircraft as such party may reasonably request.
Lessee shall permit any person designated in writing by Head Lease Lessor or
Lessor, at such designating party's expense, to visit and inspect (at any
reasonable time, provided that such inspection shall not unreasonably interfere
in any material respect with Lessee's business operations or operation or
maintenance of the In-Use Aircraft) the In-Use Aircraft and the records
maintained in connection therewith and, at such designating party's expense, to
make copies of such records as such party may reasonably designate. Neither Head
Lease Lessor nor Lessor shall have any duty to make any such inspection and
shall not incur any liability or obligation by reason of making or not making
any such inspection. Any such inspection of the In-Use Aircraft shall be a
visual, walk-around inspection which may include going on board the In-Use
Aircraft and shall not include opening any panels, bays, or the like, provided,
--------
that any such designee of Head Lease Lessor and/or Lessor, as the case
may be, shall be entitled to be present during any maintenance check of the In-
Use Aircraft at which any panels, bays or the like may be opened and shall have
the right to inspect such items during such maintenance check. Upon written
request from Head Lease Lessor or Lessor, as the case may be, Lessee shall
provide such requesting party with the anticipated dates of any scheduled major
maintenance checks (including any "C", heavy "C" or "D" check) occurring within
the six-month period following such request.
(b) Financial Information. Lessee also agrees to furnish to Lessor
---------------------
during the Lease Term:
(1) as soon as possible and in any event within ten (10) days after
the occurrence of a Default or Lessee Event of Default, a certificate of
Lessee, signed by a vice president of Lessee, setting forth in detail the
nature of such Default or Lessee Event of Default and the action which the
Lessee proposes to take with respect thereto;
(2) from time to time, such information as Lessor may reasonably
request with respect to the operations of Lessee in order to determine
whether the covenants, terms and provisions of this Lease have been
complied with by Lessee;
(3) such information as may be required to enable Lessor to file any
reports required to be filed with any Governmental Authority because of
Lessor's ownership of the Items of Equipment;
38
<PAGE>
(4) as soon as available, quarterly and year-end unaudited Reports of
Financial and Operating Statistics for Large Certified Air Carriers (U.S.
Department of Transportation Form 41 Schedule A); and
(5) as soon as available, and in any event within sixty (60) days
after the end of each of the first three fiscal quarters, an unaudited
balance sheet of the Lessee and its consolidated subsidiaries, as of the
end of such quarter and related unaudited statements of income and retained
earnings of the Lessee and its consolidated subsidiaries, setting forth in
each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year;
(6) as soon as available, and in any event within 120 days after the
end of each fiscal year of Lessee, a financial report for the Lessee for
such year, including therein a balance sheet of Lessee as of the end of
such fiscal year and related statements of income and retained earnings and
changes in financial position of the Lessee for such fiscal year, setting
forth in each case in comparative form corresponding figures for the
preceding fiscal year, all in reasonable detail and as certified by the
Lessee's public accountants, including their certificate and accompanying
comments; and
(7) promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by Lessee to
stockholders generally and of each regular or periodic report, registration
statement or prospectus filed by Lessee with any securities exchange or the
Securities and Exchange Commission or any successor agency, and of any
order issued by any Governmental Authority in any proceeding in which
Lessee is a party; and
(8) from time to time, such statistical information concerning the
In-Use Aircraft as Lessor may reasonably request to enable Lessor to
evaluate, calculate and/or report any Taxes.
(c) Letter of Credit.
----------------
(1) Lessee shall take whatever action may be necessary to maintain
the Letter of Credit (whether in the form of a letter of credit or a
deposit) in full force and effect, which shall secure Lessee's obligations
hereunder and under the Long-Term Agreements and the Ancillary Agreements.
(2) In the event any issuer of any letter of credit constituting all
or a portion of the Letter of Credit fails to renew such letter of credit
at least thirty (30) days prior to the then effective expiry date thereof,
then Lessor may draw, or may cause such letter of credit to be drawn. The
proceeds of such draws made under the letters of credit will be deposited
with Lessor and/or one of its Affiliates as set forth in Section 10(c)(4)
below.
39
<PAGE>
(3) In the event Lessor withdraws or causes to be withdrawn any
amount from the deposit constituting all or a portion of the Letter of
Credit (the "Deposit"), Lessor shall promptly thereafter deliver a
certificate (the "Withdrawal Certificate") to Lessee certifying the date
and amount of the withdrawal and that Lessor was entitled to make such
withdrawal. Lessee shall on or before the fifth Business Day following
receipt of such Withdrawal Certificate, provide Lessor with all or one of
the following in the amount of such withdrawal (the "Replacement Letter of
Credit) from the Deposit: (i) a letter of credit, complying with the
definition of Letter of Credit set forth herein; or (ii) immediately
available funds to be maintained as a Deposit as set forth herein.
(4) In the event Lessee elects at any time to maintain all or any
portion of the Letter of Credit as a Deposit or any amount drawn under any
Letter of Credit pursuant to 10(c)(2) above is to be held as a Deposit,
then Lessor or one of its Affiliates shall hold such money in an account in
Lessor's or one of its Affiliates' names at a financial institution(s)
selected by Lessor or one of its Affiliates. Lessee hereby agrees with
respect to any Deposit which forms a part of the Letter of Credit
(including the Deposit previously made pursuant to the Interim Definitive
Agreements which shall now be deemed a Deposit hereunder), that: (i) Lessor
and its Affiliates shall have the right of recoupment against such Deposit
and the proceeds thereof with respect to any amount payable by Lessee to
Lessor or its Affiliates pursuant to this Lease or the Long-Term Agreements
and the Ancillary Agreements; and (ii) Lessor and its Affiliates shall have
a valid security interest in such Deposit and the proceeds thereof to
secure its obligations, indebtedness and liabilities hereunder, under the
Long-Term Agreements and the Ancillary Agreements; (iii) the Deposit will
be held in the name of Lessor or an Affiliate, may be commingled with other
funds of Lessor and its Affiliates and may be invested or held uninvested
at the sole discretion of Lessor and its Affiliates; and (iv) that Lessor
is holding such money as a Deposit pursuant to the terms of this Lease
Agreement and the Long-Term Agreements and the Ancillary Agreements. Lessee
shall execute or deliver any other document or instrument or take any other
action necessary to effectuate the foregoing, and shall take any action
reasonably requested by Lessor to perfect Lessor's security interest in the
Deposit.
(5) Lessee shall have the right at any time and from time to time to
replace any portion of the Letter of Credit consisting of a Deposit with a
letter of credit or a letter of credit with a Deposit, provided such
substitute Deposit meets the requirements of Section 10(c)(4) or the
substitute letter of credit meets the requirements of a Letter of Credit
and the aggregate amount of all such Deposits and letters of credit is
$2,000,000. In the case of substitution of a Deposit for a letter of
credit, Lessor shall simultaneously with the delivery of the Deposit and
execution and delivery of an agreement as required by Section 10(c)(4),
deliver to Lessee the original letter of credit for which the substitution
is being made.
(6) Notwithstanding the provisions of Section 10(c)(4) above, in the
event the rating (the "Rating") assigned by Standard & Poor's Corporation
to publicly traded, long-term debt securities issued by Lessor becomes CCC+
or lower, then upon receipt of
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written request from Lessee, Lessor shall cause the Deposit to be
maintained in a segregated account at a financial institution acceptable to
Lessee, which Deposit shall otherwise continue to comply with, and be
subject to the provisions of this Section 10(c). Lessor agrees to give
Lessee prompt written notice of any such downgrading of its Rating.
(7) In the event Lessor draws upon any letter of credit or withdraws
any Deposit (which constitutes all or a portion of the Letter of Credit),
and Lessee in good faith, reasonably disputes such drawing or withdrawal,
then Lessee must nevertheless continue to maintain the Letter of Credit in
an amount not less than $2,000,000. However, Lessee may cause any
Replacement Letter of Credit which constitutes a deposit ("Replacement
Deposit") to be maintained in a segregated account at a financial
institution acceptable to Lessee, in the names of Lessee and Lessor, which
Deposit must otherwise comply with Sections 10(c)(4) hereof. Lessor may not
make a withdrawal from such Replacement Deposit until the earlier to occur
of the following: (1) resolution of the dispute concerning the earlier
drawing of the Letter of Credit or withdrawal of the Deposit, or (2) a
Lessee Event of Default under Section 13A(i) or (j). In the event and to
the extent it is finally determined pursuant hereto or is otherwise agreed
by Lessee and Lessor, that any drawing upon any Letter of Credit or any
withdrawal from any Deposit (a "Withdrawal") was not authorized under this
Lease Agreement or any Long-Term Agreement, then to the extent such
withdrawal was not authorized, the applicable portion of the replacement
Deposit shall be returned to Lessee and the remainder shall be delivered to
Lessor in accordance with Section 10(c)(4) above.
(8) Upon payment and satisfaction in full of all of Lessee's
obligations, indebtedness and liabilities under this Lease Agreement and
the Long-Term Agreements and the Ancillary Agreements ("Final Payment"),
Lessor shall or shall cause all Letters of Credit to be returned to Lessee.
Upon the substitution of a Letter of Credit for a Deposit or a portion
thereof, pursuant to Section 10(c)(5) above, or upon Final Payment, Lessee
shall return any Deposit, or portion thereof, as applicable, to Lessee,
together with interest on such Deposit or returned portion thereof, from
September 12, 1994 to, but not including, the date of return of the Deposit
or such returned portion, such interest to be calculated at the rate of
four percent (4%) per annum (calculated on the basis of a year of 365 days)
compounded annually beginning on September 12, 1995 and on each September
12 thereafter.
Section 11. Lessee's Covenants.
------------------
(a) Merger. Lessee shall not consolidate with or merge into any other
------
corporation, or convey, transfer or lease all or substantially all of its assets
to any Person, unless (i) the corporation formed by such consolidation or into
which Lessee is merged or the Person who acquires by conveyance, transfer or
lease all or substantially all of the assets of Lessee (the "Successor"): (A)
remains entitled to the benefits of Section 1110 of the Bankruptcy Code with
respect to this Lease; and (B) shall execute and deliver to Lessor an agreement
containing an assumption by such Successor of the due and punctual performance
and observance of each
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covenant and condition of this Lease Agreement to be performed or observed by
Lessee; (ii) immediately after giving effect to such transaction, no Default or
Lessee Event of Default shall have occurred and be continuing hereunder and
shall not violate the terms of the Head Lease, including, without limitation,
Section 7(b) of the Head Lease; (iii) Lessee shall have delivered to Lessor, an
officer's certificate and an opinion of independent counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and the assumption
agreement described in clause (i) above comply with this Section 11(a) and that
all conditions precedent herein provided for relating to such transaction have
been complied with (except that such opinion need not cover the matters referred
to in clause (ii) above and may rely, as to factual matters, on an officer's
certificate of Lessee) and, in the case of such opinion, that such assumption
agreement has been duly authorized, executed and delivered by the Successor,
constitutes its legal, valid and binding obligation and is enforceable against
such Successor in accordance with its terms, that Lessor shall continue to be
entitled to the benefits and protections set forth in Section 1110 of the
Bankruptcy Code, and any such actions shall not constitute an event of default
under the Head Lease as stated in an opinion of independent counsel; (iv) Lessor
shall retain all the benefits of the Letter of Credit; and (v) neither Head
Lease Lessor nor Lessor shall suffer any adverse tax consequences as a result of
such consolidation, merger or transfer which is not indemnified by Lessee in
accordance with the terms hereof or against which Head Lease Lessor and Lessor
are each otherwise indemnified in form and substance reasonably satisfactory to
Head Lease Lessor and Lessor.
Upon any consolidation or merger, or any conveyance, transfer or lease of
all or substantially all of the assets of Lessee as an entirety in accordance
with this Section 11(a), the Successor shall succeed to, be substituted for, and
may exercise every right and power of, and shall assume every obligation and
liability of, Lessee under this Lease Agreement with the same effect as if the
Successor had been named as Lessee herein and therein. No such consolidation or
merger or conveyance, transfer or lease of all or substantially all of the
assets of Lessee shall have the effect of releasing Lessee or any Successor
which shall theretofore have become such in the manner prescribed in this
Section 11(a) from its liability hereunder. Nothing contained herein shall
permit any lease, sublease or other arrangement for the use, operation or
possession of the In-Use Aircraft or Engines except in compliance with the
applicable provisions of this Lease.
(b) Certificated Air Carrier. Lessee will continue to be a certificated
------------------------
air carrier authorized to engage in scheduled air transportation under the
Federal Aviation Act.
Section 12. FAA Recordation and Further Assurances.
--------------------------------------
(a) FAA Recordation. Lessee shall cause this Lease, all Lease Supplements
---------------
and any and all additional instruments which shall be executed pursuant to the
terms hereof so far as permitted by Applicable Laws or regulations, to be duly
kept, filed and recorded, and maintained of record, in accordance with the
applicable law of the government of registry of the Aircraft, which shall be in
the office of the FAA. The cost of all such action shall be borne by Lessor.
(b) Further Assurances. Each party hereto shall, at its expense, prompt
------------------
and duly execute and deliver to the other party such further documents and
promptly take such further action not inconsistent with the terms hereof as the
other party may from time to time reasonably
42
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request in order more effectively to carry out the intent and purpose of this
Lease or to perfect and protect the rights and, with respect to Lessor, remedies
created or intended to be created hereunder.
Section 13A. Lessee Events of Default. The following events shall
------------------------
constitute Lessee Events of Default (each a "Lessee Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessee Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied or
waived by Lessor in writing:
(a) Lessee shall fail to make any payment of Basic Rent or Supplemental
Rent due pursuant to Exhibit E hereto, as and when due or shall fail to make any
other payment of Supplemental Rent within five (5) Business Days after delivery
to Lessee of notice from Lessor that the amount shall have become due hereunder;
or
(b) Lessee shall fail to procure, carry and maintain any insurance
required by Section 9 hereof; provided that in the case of insurance with
--------
respect to which cancellation, change or lapse for nonpayment of premium shall
not be effective as to Head Lease Lessor or Lessor for 30 days (five days in the
case of any war risk and allied perils coverage, or if shorter, such other
period as may be customary in the industry for such notice of cancellation)
after receipt of notice by Head Lease Lessor or Lessor, respectively, of such
cancellation, change or lapse, no such failure to carry and maintain insurance
shall constitute a Lessee Event of Default hereunder until the earlier of (i)
the date such insurance is no longer in effect as to Head Lease Lessor or
Lessor, or (ii) the date such failure shall have continued unremedied for a
period of 20 days (five days in the case of any war risk and allied perils
coverage, or if shorter, such other period as may be customary in the industry
for such notice of cancellation) after receipt by Lessor of the notice of
cancellation, change or lapse; or
(c) Lessee shall fail to perform or observe, breach or be in default under
Sections 5, 7(c), 10(c), or 11 hereof; or
(d) Lessee shall fail to perform or observe, breach or be in default
under any other covenant, condition or agreement to be performed or observed by
it hereunder and such failure shall continue unremedied for a period of thirty
(30) Business Days after written notice thereof by Lessor; or
(e) any material representation or warranty made by Lessee herein or in
any document or certificate furnished by Lessee in connection herewith or
pursuant hereto shall prove to have been incorrect in any material respect when
made; or
(f) Lessee shall fail to pay any sums which are or become due and owing
under any Interim Aircraft Lease Agreement, the Interim Aircraft Maintenance
Agreement, the Long-Term Lease Agreement, the July Lease Agreement or the
November Lease Agreement or shall fail to
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perform under any indemnification obligations contained in any Interim Aircraft
Lease Agreement, the Long-Term Lease Agreement, the November Lease Agreement,
the July Lease Agreement or the Interim Aircraft Maintenance Agreement; or
(g) the Letter of Credit (to the extent it is not a Deposit) shall,
subsequent to the effectiveness thereof, cease to be a legal, valid, binding
agreement enforceable against the issuer thereof, if any, or shall in any way be
terminated or become or be declared ineffective or inoperative or shall in any
way whatsoever cease to give or provide to Lessor or its Affiliates the
respective Liens, security interest, rights, titles, interest, remedies, powers
or privileges intended to be created thereby for any reason whatsoever other
than due to a breach by Lessor (or its Affiliates, as the case may be) of any of
its obligations thereunder (if any such obligations exist) or if the Deposit, if
any, constituting the Letter of Credit, or any portion thereof, is encumbered,
reduced, depleted or otherwise ceases to secure Lessee's obligations hereunder,
other than one or more withdrawals from the Deposit or draws under the Letter of
Credit pursuant to this Lease Agreement or any Long-Term Agreement so long as
Lessee complies with Section 10(c)(iii) hereof, and other than an encumbrance,
reduction, depletion or cessation of security arising by, through or under
Lessor or its Affiliates unrelated to the transactions contemplated by this
Lease Agreement and the Long-Term Agreements; or
(h) all or substantially all of Lessee's airline operations are suspended
for more than two days; or
(i) Lessee shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Lessee shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee in any such proceeding,
or Lessee by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Lessee shall take any corporate action to authorize any of the foregoing; or
(j) a petition against Lessee in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and any
decree or order adjudging Lessee a bankrupt or insolvent in such proceeding
shall remain in force undismissed and unstayed for a period of sixty (60) days
after such adjudication or, in case the approval of such petition by a court of
competent jurisdiction is required, the petition as filed or amended shall be
approved by such a court as properly filed and such approval shall not be
withdrawn and the proceeding shall not be dismissed within sixty (60) days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to Lessee, any court of competent
jurisdiction shall enter an order or decree assuming custody or control of
Lessee or of any substantial part of its property and such custody or control
remains in force unrelinquished, unstayed and unterminated for a period of
thirty (30) days; or
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(k) obligations of Lessee for the payment of borrowed money shall not be
paid when the same become due after the expiration of any applicable grace
period, if the effect of such default is to cause obligations in excess of
$20,000,000 to be accelerated or otherwise declared to be due and unpaid prior
to their stated maturity; or
(l) the issuer, if any, of the Letter of Credit becomes insolvent, or a
receiver, trustee, custodian or similar entity is appointed or otherwise takes
control of the issuer or of the whole or any part of its property (an "Issuer
Insolvency"), and Lessee is unable to secure a substitute letter of credit of an
issuer acceptable to Lessor and its Affiliates or make a deposit in the
applicable amount within thirty (30) days of the occurrence of an Issuer
Insolvency.
Section 13B. Lessor Events of Default. The following events shall
------------------------
constitute Lessor Events of Default (each a "Lessor Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessor Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied, or
waived by Lessee in writing:
(a) Lessor shall fail to procure, carry and maintain any insurance
required by Section 9(i) to be carried and maintained by Lessor;
(b) Lessor shall fail to perform or observe, breach or be in default
under any other covenant, condition or agreement to be performed or
observed by Lessor hereunder and such failure shall continue unremedied for
a period of thirty (30) Business Days after written notice thereof by the
Lessee; provided, the existence of any Defect shall not constitute a Lessor
--------
Event of Default so long as Lessor promptly commences and diligently
complies with its warranty obligations under Section 5 of Exhibit E;
(c) Any material representation or warranty made by Lessor herein or
in any document or certificate furnished by Lessor in connection herewith
or pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) Lessor shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a
substantial part of its property, or Lessor shall be unable to pay its
debts generally as they become due, or shall make a general assignment for
the benefit of creditors, or Lessor shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against
Lessor in any such proceeding, or such party by voluntary petition, answer
or consent shall seek relief as debtor under the provisions of any other
present or future bankruptcy or other similar law providing for the
reorganization or winding-up of corporations, or providing for an
agreement,
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<PAGE>
composition, extension or adjustment with its creditors or Lessor shall
take any corporate action to authorize any of the foregoing;
(e) A petition against Lessor in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and
any decree or order adjudging Lessor a bankrupt or insolvent in such
proceeding shall remain in force undismissed and unstayed for a period of
sixty (60) days after such adjudication or, in case the approval of such
petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as properly filed and
such approval shall not be withdrawn and the proceeding shall not be
dismissed within sixty (60) days thereafter, or if, under the provisions of
any law providing for reorganization or winding-up of corporations which
may apply to Lessor, any court of competent jurisdiction shall enter an
order or decree assuming custody or control of such party or of any
substantial part of its property and such custody or control remains in
full force unrelinquished, unstayed and unterminated for a period of thirty
(30) days; or
(f) Repossession by the Head Lease Lessor pursuant to the terms of
the Head Lease of the Airframe.
Section 14A. Lessor Remedies. Upon the occurrence of any Lessee Event of
---------------
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare this Lease to be in default by a written
notice to Lessee and Lessor may concurrently therewith or at any time
thereafter, as part of the same or a separate written notice, declare this Lease
to be terminated, and immediately proceed to do any one or more of the following
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect; provided that upon the occurrence of any Lessee Event of Default
--------
described in Section 13A(i) or (j) above, this Lease Agreement shall
automatically be in default, and Lessor may elect to do any of the following,
without prior notice to Lessee:
(a) Lessor may terminate this Lease;
(b) Lessor may cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return promptly the
In-Use Aircraft and any Serviced Engines, as Lessor may so demand to Lessor
or its order in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 5, as if the Airframe and
Engines were being returned at the end of the Term, or Lessor, at its
option, may enter upon the premises where the Airframe or Engine is located
and take immediate possession of and remove the same (together with any
engine or any part which is not an Engine but which is installed on an
Airframe, subject to all of the rights of the Head Lease Lessor or any
owner, lessor, lienor or secured party of such engine or the Airframe; it
being agreed that such engine or airframe, as the case may be, shall be
held for the account of the Head Lease Lessor or any such owner, lessor,
lienor or secured party, or, if such engine is owned by Lessee, may, at the
option of Lessor, be exchanged with Lessee for an Engine in accordance with
the provisions of Section 8(b))
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without the necessity for first instituting proceedings, or by summary
proceedings or otherwise, all without liability accruing to Head Lease
Lessor or Lessor for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or
otherwise;
(c) Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof;
(d) Lessor or Head Lease Lessor, as the case may be and to the extent
permitted by applicable law, may with or without taking possession thereof,
sell any Airframe or Engine at public or private sale, as Head Lease Lessor
or Lessor, as applicable, may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle all or the Airframe or Engine as
Head Lease Lessor or Lessor, as the case may be, in its sole discretion,
may determine, all free and clear of any rights of Lessee except as
hereinafter set forth in this Section 14A and without any duty to account
to Lessee with respect to such action or inaction or for any proceeds with
respect thereto;
(e) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights specified above with respect to all
or the Airframe or Engine, Lessor, by written notice to Lessee specifying a
payment ten days from such written notice, may demand that the Lessee pay
to Lessor, and Lessee shall pay to Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the Basic Rent for the Aircraft due for periods
commencing on or after the date specified for payment in such notice), any
unpaid Basic Rent for the Aircraft due for periods prior to the payment
date specified in such notice plus an amount equal to the excess, if any,
of the present worth of the aggregate unpaid Basic Rent due under this
Lease for the Airframe or Engine, discounted quarterly at the Discount
Rate, over the fair market rental value therefor, discounted in like
manner;
(f) in the event Head Lease Lessor or Lessor, pursuant to paragraph
(d) above, shall have sold all or any Airframe or Engine, Lessor, in lieu
of exercising its rights under paragraph (e) above with respect to the
Airframe or such Engine or part thereof, may, if it shall so elect, demand
that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the date of
such sale as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the installments of Basic Rent for the Aircraft due after the
Basic Rent Payment Date preceding such date of sale) any unpaid Basic Rent
with respect to the Aircraft due prior to such date plus the amount of any
----
deficiency between the net proceeds of such sale (after deduction of all
reasonable costs of sale) and the Stipulated Loss Value of the Aircraft,
computed as of the Basic Rent Payment Date on or immediately succeeding the
date of such sale together with interest, if any, on the amount of such
deficiency, at the Stipulated Interest Rate, from the date of such sale to
the date of actual payment of such amount;
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(g) Lessor may exercise any rights or remedies under the Letter of
Credit, including drawing under the Letter of Credit, or withdrawing money
from the Deposits, and apply, any drawings made under or withdrawals of the
Letter of Credit, as the case may be, to any amount then due and payable
hereunder;
(h) Lessor may rescind this Lease as to any or all Airframe and any
or all Engines, or may exercise any other right or remedy which may be
available to it under applicable law; and
(i) Lessee shall be liable for any and all unpaid Rent and for all
legal fees and other costs and expenses incurred by reason of the
occurrence of any Lessee Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs or expenses incurred in
connection with the return of any Item of Equipment in accordance with the
terms of Section 5 hereof or in placing such Item of Equipment in the
condition and with airworthiness certificates as required by Section 5.
(j) No remedy referred to in this Section 14A is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Head Lease Lessor or Lessor or
its Affiliates at law or in equity, and the exercise by Lessor of any one
or more of such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all of such other remedies under either this
Lease or any other agreement between Lessor or its Affiliates and Lessee.
No express or implied waiver by Lessor of any Lessee Event of Default shall
in any way be, or be construed to be a waiver of any future or further
Lessee Event of Default. To the extent permitted by Applicable Law, Lessee
hereby waives any and all rights to notice and to a judicial hearing with
respect to the repossession of any Item of Equipment by Lessor upon the
occurrence of a Lessee Event of Default.
Section 14B. Lessee Remedies.
---------------
(a) Remedies. Upon the occurrence of a Lessor Event of Default and at any
--------
time thereafter so long as the same shall be continuing, Lessee may, at its
option, declare a default by a written notice to Lessor; provided, that Lessee's
--------
remedies shall in all respects be limited as set forth in Section 5(b) and 5(g)
of Exhibit E and this Section 14B. At any time after delivery of such written
notice to Lessor, so long as Lessor shall not have remedied all outstanding
Lessor Events of Default Lessee may proceed pursuant to Section 6 of Exhibit E
to enforce performance by Lessor of its covenants and obligations under Exhibit
E to this Agreement and to recover damages for the breach thereof, but only to
the extent permitted under Section 14B(b) and Section 5(b) and 5(g) of Exhibit
E. Subject to Section 5(b) and 5(g) of Exhibit E and Section 14B(b), Lessor
shall be liable for any and all unpaid amounts due from it hereunder and for all
legal fees and other costs and expenses incurred by reason of the occurrence of
any Lessor Event of Default or the exercise of Lessee's remedies with respect
thereto.
(b) Limitation on Damages. WITHOUT LIMITING THE PROVISIONS OF SECTION 4
---------------------
OF THIS AGREEMENT AND NOTWITHSTANDING ANYTHING CONTAINED
48
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HEREIN TO THE CONTRARY, HEAD LEASE LESSOR AND LESSOR SHALL HAVE NO OBLIGATION OR
LIABILITY WHETHER ARISING IN CONTRACT (INCLUDING WARRANTY), TORT (INCLUDING
ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR GROSS NEGLIGENCE) OR STRICT LIABILITY
OR OTHERWISE FOR LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY BREACH OF THIS
AGREEMENT OR THE PROCEDURES SET FORTH IN THE MANUAL (OR ANY MANUAL REFERENCED
THEREIN) OR ANY NONCONFORMANCE OR DEFECT IN ANY SERVICE OR WORKMANSHIP OR ANY
SERVICED PART OR OTHER MATERIAL, COMPONENT, ACCESSORY, EQUIPMENT OR PRODUCT
PROVIDED OR DELIVERED PURSUANT TO THIS AGREEMENT. FURTHERMORE, LESSOR'S
LIABILITY FOR DAMAGES, IF ANY, ARISING AS A RESULT OF ANY BREACH OF, OR DEFAULT
BY LESSOR UNDER, THIS AGREEMENT (INCLUDING ANY BREACH OF WARRANTY) SHALL IN NO
EVENT EXCEED LESSEE'S DIRECT, ACTUAL AND REASONABLE DAMAGES (AFTER TAKING INTO
ACCOUNT AMOUNTS THAT WOULD HAVE BEEN PAID TO LESSOR AS SUPPLEMENTAL RENT BUT FOR
SUCH BREACH OR DEFAULT) SUFFERED BY LESSEE TO OBTAIN SUBSTITUTE COMPARABLE
MAINTENANCE SERVICES FOR THE AIRCRAFT FOR THE REMAINDER OF THE LEASE TERM AFTER
THE DATE OF SUCH BREACH OR DEFAULT.
(c) No Implied Waiver. No express or implied waiver by Lessee of any
-----------------
Lessor Event of Default shall in any way be, or be construed to be a waiver of
any future or further Lessor Event of Default.
Section 15. INDEMNIFICATION.
---------------
(a) General. LESSEE DOES HEREBY ASSUME LIABILITY FOR, AND DOES HEREBY
-------
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS HEAD LEASE LESSOR AND LESSOR AND
ANY AFFILIATE OF HEAD LEASE LESSOR OR LESSOR AND THEIR RESPECTIVE SUCCESSORS,
PERMITTED ASSIGNS, SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
SERVANTS (EACH THEREOF, WITH ITS RESPECTIVE AFFILIATES, SUCCESSORS, PERMITTED
ASSIGNS, AGENTS AND SERVANTS REFERRED TO HEREIN AS AN "INDEMNIFIED PARTY") FROM
-----------------
AND AGAINST, AND ON WRITTEN DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED
PARTY FOR THE PAYMENT OF, AS THE CASE MAY BE, ANY AND ALL EXPENSES OR
LIABILITIES IMPOSED ON, CHARGED TO, RECOVERED FROM, INCURRED BY OR ASSERTED
AGAINST ANY INDEMNIFIED PARTY AS A RESULT OF ANY CLAIM BY A PERSON (OTHER THAN
LESSEE UNDER SECTION 5(a) OF EXHIBIT E AND 14B HEREOF) RELATING TO OR ARISING
OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE INTERIM AIRCRAFT LEASE
AGREEMENTS, THE INTERIM AIRCRAFT MAINTENANCE AGREEMENT, THE POOLING AGREEMENT,
THE MANUAL (OR ANY OTHER LESSOR MANUAL REFERENCED THEREIN) OR ANY MAINTENANCE
SERVICES, OUTSIDE SERVICES, SERVICED ENGINES OR SERVICED PARTS PROVIDED
HEREUNDER, OR ANY FAILURE BY LESSEE OR LESSOR TO PERFORM HEREUNDER, INCLUDING
CLAIMS FOR INJURY TO OR DEATH OF PERSONS (INCLUDING ANY EMPLOYEES OR
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AGENTS OF LESSEE WHO ENTER LESSOR'S PREMISES PURSUANT TO SECTION 4(g) OF EXHIBIT
E AND ALL INVITEES, GUESTS, PASSENGERS, SHIPPERS, EMPLOYEES AND AGENTS OF
LESSEE), AND DAMAGE TO OR DESTRUCTION OF PROPERTY (INCLUDING PROPERTY OF LESSEE
AND OF ITS INVITEES, GUESTS, PASSENGERS, EMPLOYEES AND AGENTS AND PROPERTY OF
EACH INDEMNIFIED PARTY). THE FOREGOING INDEMNITY OBLIGATIONS SHALL INCLUDE THE
OBLIGATION OF LESSEE TO INDEMNIFY EACH INDEMNIFIED PARTY FROM AND AGAINST, AND
ON WRITTEN DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT
OF, AS THE CASE MAY BE, ANY AND ALL EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST ANY INDEMNIFIED PARTY RELATING TO OR ARISING OUT OF (i) ANY ACTION OR
INACTION OF LESSEE; (ii) THE MANUFACTURE OF THE AIRFRAME AND SERVICED ENGINES
(INCLUDING LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AND PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT); (iii) THE OWNERSHIP OF THE AIRCRAFT AND,
EXCEPT AS PROVIDED IN SECTION 15(d) BELOW, SERVICED ENGINES, DURING THE TERM OF
THIS LEASE, (iv) THE DELIVERY, NONDELIVERY, REDELIVERY, LEASE, REGISTRATION,
ASSIGNMENT, TRANSFER, POSSESSION, USE, OPERATION, CONDITION, SALE OR RETURN OR
OTHER DISPOSITION OF THE AIRFRAME AND SERVICED ENGINES AND PARTS BY LESSEE
(INCLUDING INJURY, DEATH OR PROPERTY DAMAGE SUFFERED BY PASSENGERS, SHIPPERS OR
OTHERS), AND ENVIRONMENTAL CONTROL, NOISE AND POLLUTION REGULATIONS; (v) THE
CONDITION UPON RETURN OF THE AIRFRAME AND SERVICED ENGINES AND PARTS, TO THE
EXTENT SUCH CONDITION DOES NOT COMPLY WITH SECTION 5 HEREOF OR (vi) (WITHOUT
LIMITING ANY OF THE FOREGOING) ANY BREACH BY LESSEE OF, NONCOMPLIANCE BY LESSEE
WITH, OR MISREPRESENTATION BY LESSEE MADE OR DEEMED MADE IN, UNDER OR IN
CONNECTION WITH, THIS LEASE OR ANY OTHER DOCUMENT REQUIRED TO BE DELIVERED
PURSUANT HERETO, OR ANY WARRANTY, CERTIFICATE OR AGREEMENT MADE OR DELIVERED IN,
UNDER OR IN CONNECTION HEREWITH OR THEREWITH. THE FOREGOING INDEMNITY
OBLIGATIONS OF LESSEE SHALL NOT INCLUDE THE OBLIGATION TO INDEMNIFY (i)
EMPLOYEES OF LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE
ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR
OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES OR (ii) SUBCONTRACTORS TO
LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING
FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY
SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES. LESSEE ALSO SHALL NOT BE REQUIRED TO
INDEMNIFY ANY INDEMNIFIED PARTY FOR (i) LIABILITIES RESULTING FROM ACTS
(INCLUDING FAILURE TO ACT) OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNIFIED PARTY, (ii) DAMAGE TO OR DESTRUCTION OF PROPERTY OF AN INDEMNIFIED
PARTY, WHILE WITHIN SUCH INDEMNIFIED PARTY'S SOLE CARE, CUSTODY AND CONTROL, TO
THE EXTENT RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF
LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES,
(iii) ACTS, OMISSIONS OR
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EVENTS THAT OCCUR AFTER FULL AND FUNAL COMPLIANCE BY LESSEE WITH THE TERMS OF
THIS LEASE OR AFTER AN AIRCRAFT, ANY SERVICED ENGINE OR AN ENGINE WHICH IS NOT A
SERVICED ENGINE OR PART HAS BEEN RETURNED TO LESSOR PURSUANT TO THE TERMS
HEREOF, OR THE POOLING AGREEMENT AS SUCH ACTS, OMISSIONS OR EVENTS RELATE TO
SUCH RETURN AIRCRAFT, ANY SERVICED ENGINE, OR ANY ENGINE WHICH IS NOT A SERVICED
ENGINE OR PART AFTER ITS RETURN; OR (iv) ANY TAX EXCEPT TO THE EXTENT AND AS SET
FORTH IN SECTION 16 HEREOF AND SECTION 3(h) OF EXHIBIT E.
(B) INDEMNIFICATION FOR NEGLIGENT ACTS. WITHOUT LIMITING SECTION 15(A),
----------------------------------
LESSOR AND LESSEE EXPRESSLY INTEND THAT LESSEE SHALL HOLD HARMLESS, DEFEND AND
INDEMNIFY EACH INDEMNIFIED PARTY AGAINST CLAIMS (OTHER THAN CLAIMS THAT ARE
EXPRESSLY EXCEPTED IN SECTION 15(A)) THAT ARISE AS A RESULT OF THE NEGLIGENCE
(WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR, HEAD LEASE LESSOR OR ANY OTHER
INDEMNIFIED PARTY AND AS A RESULT OF THE JOINT OR CONCURRENT NEGLIGENCE (WHETHER
ACTIVE, PASSIVE OR IMPUTED) OF LESSOR, HEAD LEASE LESSOR, ANY OTHER INDEMNIFIED
PARTY AND LESSEE.
(c) Defense of Claims; Settlement. IF ANY INDEMNIFIED PARTY SHALL HAVE
-----------------------------
KNOWLEDGE OF ANY CLAIM OR LIABILITY REQUIRED TO BE INDEMNIFIED AGAINST UNDER
THIS SECTION 15, SUCH INDEMNIFIED PARTY SHALL GIVE REASONABLY PROMPT WRITTEN
NOTICE THEREOF TO LESSEE AFTER BECOMING AWARE OF SUCH CLAIM, BUT THE FAILURE OF
SUCH INDEMNIFIED PARTY SO TO NOTIFY LESSEE SHALL NOT RELIEVE LESSEE FROM ANY
LIABILITY THAT IT WOULD OTHERWISE HAVE TO SUCH INDEMNIFIED PARTY HEREUNDER
EXCEPT TO THE EXTENT, AND ONLY TO THE EXTENT, THAT LESSEE DEMONSTRATES THAT THE
DEFENSE OF SUCH CLAIM OR LIABILITY IS PREJUDICED THEREBY. LESSEE AND LESSEE'S
INSURERS SHALL HAVE THE RIGHT, AT THEIR SOLE COST AND EXPENSE, TO INVESTIGATE,
DEFEND OR, EXCEPT AS LIMITED HEREINAFTER, COMPROMISE ANY CLAIM FOR WHICH
INDEMNIFICATION IS SOUGHT UNDER THIS SECTION 15 UPON ACKNOWLEDGMENT BY LESSEE OR
SUCH INSURER OF ITS LIABILITIES TO EACH INDEMNIFIED PARTY IN RESPECT THEREOF.
LESSEE SHALL ASSUME ALL RESPONSIBILITY FOR ANY CLAIM COVERED BY THE FOREGOING
INDEMNITY, AND THE INDEMNIFIED PARTY SHALL PROVIDE REASONABLE ASSISTANCE AND
COOPERATION DURING THE DEFENSE OR SETTLEMENT OF THE CLAIM. EXCEPT AS LIMITED
HEREAFTER, LESSEE SHALL HAVE COMPLETE CONTROL OF THE DEFENSE OR SETTLEMENT OF
SUCH CLAIM OR COMPROMISE THEREOF; PROVIDED, THAT COUNSEL SELECTED BY LESSEE
--------
SHALL BE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY. NO COMPROMISE OR
SETTLEMENT OF ANY CLAIM MAY BE EFFECTED BY LESSEE WITHOUT THE INDEMNIFIED
PARTY'S CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, NO
--------
CONSENT SHALL BE REQUIRED IF (i) THERE IS NO FINDING OR ADMISSION OF ANY
VIOLATION OF ANY LAW BY THE INDEMNIFIED PARTY OR ANY VIOLATION OF THE RIGHTS OF
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ANY PERSON BY THE INDEMNIFIED PARTY, (ii) THERE IS NO EFFECT ON ANY CLAIM THAT
MAY BE MADE BY THE INDEMNIFIED PARTY, AND (iii) THE RELIEF PROVIDED IS THE SOLE
RESPONSIBILITY OF LESSEE. EACH INDEMNIFIED PARTY SHALL HAVE THE RIGHT, BUT NOT
THE DUTY, AT ITS OWN EXPENSE, TO PARTICIPATE IN THE DEFENSE AND/OR SETTLEMENT OF
ANY CLAIM WITH COUNSEL OF ITS OWN CHOOSING WITHOUT RELIEVING LESSEE OF ANY
OBLIGATIONS HEREUNDER. LESSEE AND ITS COUNSEL SHALL COOPERATE WITH THE
INDEMNIFIED PARTY'S COUNSEL AND SHALL SUPPLY THE INDEMNIFIED PARTY WITH SUCH
INFORMATION REASONABLY REQUESTED BY THE INDEMNIFIED PARTY AS IS NECESSARY OR
ADVISABLE FOR THE INDEMNIFIED PARTY TO PARTICIPATE IN ANY PROCEEDING TO THE
EXTENT PERMITTED BY THIS SECTION 15, BUT CONTROL OF THE MATTER SHALL REMAIN WITH
LESSEE.
ANY PAYMENT OR INDEMNITY PURSUANT TO THIS SECTION 15 SHALL INCLUDE THE
AMOUNT, IF ANY, NECESSARY TO HOLD THE INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX
BASIS (TAKING INTO ACCOUNT ANY CURRENT TAX BENEFITS TO WHICH ANY SUCH
INDEMNIFIED PARTY IS ENTITLED) AS A RESULT OF THE MATTER INDEMNIFIED AGAINST
UNDER THIS SECTION 15 FROM ALL TAXES REQUIRED TO BE WITHHELD BY LESSEE OR PAID
BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH PAYMENT OR INDEMNITY UNDER THE
LAWS OF ANY FEDERAL, STATE OR LOCAL GOVERNMENT OR TAXING AUTHORITY IN THE UNITED
STATES OR ANY TERRITORY, COMMONWEALTH OR POSSESSION OF THE UNITED STATES OR BY
ANY FOREIGN GOVERNMENT OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF.
(d) Indemnification by Lessor. IF A PERSON WHICH HAS A LIEN ON ANY
-------------------------
SERVICED ENGINE TAKES POSSESSION OF OR INTERFERES WITH LESSEE'S QUIET ENJOYMENT
OR USE OF A SERVICED ENGINE, LESSOR SHALL INDEMNIFY AND HOLD HARMLESS LESSEE
FROM ANY AND ALL COSTS, LIABILITIES AND DAMAGES INCURRED BY LESSEE RELATING TO
OR ARISING THEREFROM.
(e) Survival. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
--------
SECTION 15 SHALL SURVIVE ANY TRANSFER OF TITLE OR POSSESSION OF THE SERVICED
AIRCRAFT, ANY SERVICED ENGINE OR ANY SERVICED PART, ANY TERMINATION OR
EXPIRATION OF THIS AGREEMENT OR ANY IMPOSSIBILITY OF PERFORMANCE OF THIS
AGREEMENT OR FRUSTRATION OF PURPOSE OF THIS AGREEMENT.
Section 16. General Tax Indemnity.
---------------------
(a) Tax Indemnity. (i) Except as provided in Section 16(b), Lessee agrees
-------------
that each payment of Rent and any other amounts payable to Lessor (with any
affiliate of Lessor and their respective successors, permitted assigns,
shareholders, directors, officers, employees, agents and servants referred to
herein as a "Tax Indemnified Party") by Lessee under this Lease shall be paid in
---------------------
full without any deduction or withholding with respect to Taxes of any nature
whatsoever
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<PAGE>
imposed by the United States or any other Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall (a) ensure that the deduction or withholding does not exceed the minimum
amount legally required; (b) immediately pay to Lessor or any other Person
entitled to receive such payment an additional amount (as Supplemental Rent) in
such amount, net of any Taxes thereon, and at such time as shall result in the
net amount actually received by Lessor or such other Person being, after all
deductions or withholdings, equal to the full amount which would have been
received by Lessor or such other Person had such deduction or withholding not
been made and shall be free of expense to the Lessor or such other Person for
collection or other charges; (c) pay to the relevant Taxing Authority within the
period for payment permitted by Applicable Law the full amount of all deductions
or withholdings; and (d) upon the request of Lessor or such other Person furnish
to Lessor or such other Person, as the case may be, within the period for
payment permitted by Applicable Law, an official receipt of the relevant Taxing
Authority for all amounts deducted or withheld as aforesaid; and
(ii) Except as provided in Section 16(b) hereof, Lessee shall pay,
protect, save, and on written demand shall indemnify and hold harmless on an
after-tax basis each Tax Indemnified Party from and against any and all Taxes
imposed against any Tax Indemnified Party, Lessee or the Serviced Aircraft by
any Taxing Authority in connection with or relating to (A) the construction,
financing, refinancing, purchase, acquisition, acceptance, rejection, delivery,
nondelivery, transport, ownership, registration, reregistration, assembly,
possession, repossession, operation, location, use, condition, maintenance,
repair, sale, return, abandonment, preparation, installation, storage,
redelivery, manufacture, leasing, subleasing, modification, rebuilding,
importation, reimportation, transfer of title, transfer of registration,
exportation, reexportation or other application or disposition of, or the
imposition of any Lien (or the incurrence of any liability to refund or pay over
any amount as the result of any Lien) on, the Serviced Aircraft, the Serviced
Airframe, and any Serviced Engine or any Serviced Part or interest therein, (B)
payments of Basic Rent or Supplemental Rent or the receipts or earnings arising
therefrom or received with respect to the Serviced Aircraft, the Serviced
Airframe, any Serviced Engine or any Serviced Part or interest therein, (C) the
Serviced Aircraft, any Serviced Airframe, any Serviced Engine or any Serviced
Part or interest therein, (D) otherwise with respect to or in connection with
the transactions contemplated by this Lease; and (E) any out-of-pocket
penalties, late payment fees, interest, costs and expenses fairly attributed to
any of the foregoing incurred by any Tax Indemnified Party.
(b) Exclusions from General Tax Indemnity. The provisions of subsection
-------------------------------------
16(a) shall not apply to a Tax Indemnified Party in the case of:
(i) Taxes that are imposed on or measured by the net income, excess
profits, receipts (other than any excise or gross receipts tax imposed by
the State of Hawaii), franchises, capital or conduct of business of such
Tax Indemnified Party, other than any such taxes which are imposed in lieu
of any sales, use or value added taxes;
(ii) any other Taxes based on, or measured by, the net income of
such Tax Indemnified Party (other than (x) Taxes which are, or are in the
nature of, sales, use or rental taxes or (y) Taxes imposed by any Taxing
Authority (other than a taxing authority
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for the jurisdiction in which such Tax Indemnified Party is doing business)
as a result of a nexus between the jurisdiction of the Taxing Authority and
any Item of Equipment or any Part or any part or the activities in the
jurisdiction of the Taxing Authority of Lessee, any sublessee or any other
user of the Aircraft (other than such Tax Indemnified Party or any
Affiliate thereof) or any Affiliate of any of the foregoing);
(iii) Taxes that are imposed as a result of (y) any voluntary sale,
assignment, transfer or other disposition by such Tax Indemnified Party of
any interest of such Tax Indemnified Party in the Aircraft, the Airframe,
any Serviced Engine, any Part, or any interest therein, unless such sale,
assignment, transfer or disposition results from (1) action taken by or on
behalf of such Tax Indemnified Party as provided in or permitted by this
Lease in connection with or by reason of any Lessee Event of Default that
has occurred and is continuing or any exercise by the Lessor of any of its
remedies in connection with any such Lessee Event of Default as provided in
or permitted by the Lease, or (2) any replacement or substitution by the
Lessee of any Engine or any Part; or (z) any involuntary transfer of any of
the foregoing interests in connection with any bankruptcy or other
proceeding for the relief of debtors in which such Tax Indemnified Party is
the debtor or any foreclosure by a creditor of such Tax Indemnified Party;
(iv) Taxes in the nature of penalties, additions to tax, interest or
fines resulting directly from the negligence of the Tax Indemnified Party
in connection with the preparation or filing of any tax return unless such
Tax Indemnified Party files any tax return in a manner requested by Lessee,
required to be filed by such Tax Indemnified Party without regard to the
transactions contemplated by this Lease, the payment of any taxes shown
thereon or the conduct of any proceeding in respect thereof, except to the
extent attributable to the failure of Lessee to perform its obligations or
to otherwise perform its duties and responsibilities pursuant to this
Lease, including, without limitation, the obligation to make payments
hereunder;
(v) so long as no Lessee Default or Event of Default shall be
continuing, Taxes imposed with respect to any period after (i) the
expiration of the Term and the return of the Aircraft to the Lessor in
accordance with Section 5 of this Lease or (ii) the earlier discharge in
full of Lessee's obligation to pay the Stipulated Loss Value and all other
amounts due under this Lease; provided, however, that this exception shall
not apply to Taxes (x) relating to events occurring or matters arising upon
or prior to such expiration and return or discharge, or (y) imposed on or
with respect to any payments due after such expiration and return or
discharge until after such payments have been made;
(vi) Taxes to the extent of the excess of such Taxes over the amount
of such Taxes which would have been imposed and indemnified against had
there not been a sale, assignment, transfer or other disposition (whether
voluntary or, if resulting from bankruptcy, foreclosure (other than
foreclosure resulting from a Lessee Event of Default) or similar
proceedings in which such Tax Indemnified Party is the debtor, involuntary)
by a Tax Indemnified Party of any interest of such Tax Indemnified Party in
the Aircraft, the Airframe, any Serviced Engine, or any Part, unless such
transfer results from action taken
54
<PAGE>
by or on behalf of such Tax Indemnified Party after a Lessee Event of
Default has occurred and while it is continuing or any exercise by the
Lessor of any of its remedies in connection with any such Lessee Event of
Default;
(vii) Taxes arising out of or caused by any willful misconduct or
gross negligence of such Tax Indemnified Party;
(viii) with respect to any Tax Indemnified Party, any Tax that
results solely from such Tax Indemnified Party or a related Tax Indemnified
Party engaging in transactions other than those contemplated by this Lease
or any Long-Term Agreement, or those in which such Tax Indemnified Party is
currently engaged;
(ix) sales tax incurred by Lessor in connection with the maintenance
of the Serviced Aircraft pursuant to Attachment A to Exhibit E hereto,
other than any such tax, whether in the form of a sales tax, gross receipts
tax or other functional equivalent of a sales tax imposed by the State of
Hawaii; or
(x) any Tax to the extent such Tax would not have been imposed if a
Tax Indemnified Party or a related Tax Indemnified Party had not engaged in
activities in the jurisdiction imposing such Tax which activities are
unrelated to the transactions contemplated by the this Lease or the other
Long Term Agreements, but only to the extent such Tax would not have been
payable in the absence of such unrelated activities; or
(xi) any failure of a Tax Indemnified Party to comply with (I)
certification, information, documentation, reporting or other similar
requirements concerning the nationality, residence, identity or connection
with the jurisdiction imposing such Tax, if such compliance is required by
statute or by regulation of the jurisdiction imposing such Tax as a
precondition to relief or exemption from such Tax; or (II) any other
certification, information, documentation, reporting or other similar
requirements under the Tax laws or regulations of the jurisdiction imposing
such Tax that would establish entitlement to otherwise applicable relief or
exemption from such Tax; provided, however, that the exclusion set forth in
this subsection 16(a)(x) shall not apply if (v) such failure to comply was
due to a failure of the Lessee to provide such Tax Indemnified Party with
the information required to be supplied by the Lessee in order for such Tax
Indemnified Party to comply with such requirement or due to a failure of
the Lessee to notify such Tax Indemnified Party of such requirement and
such Tax Indemnified Party was not otherwise aware of such requirement; or
(w) such failure to comply was done upon the advice, concurrence and/or
direction or with the knowledge of the Lessee.
(c) Calculation of General Tax Indemnity Payments.
---------------------------------------------
(i) Lessee agrees that, with respect to any payment or indemnity to
a Tax Indemnified Party under Section 16 hereof, the Lessee's indemnity
obligations shall include the payment of an amount necessary to hold such
Tax Indemnified Party harmless on an after-tax basis from all Taxes
required to be paid by such Tax Indemnified Party with
55
<PAGE>
respect to such payment or indemnity (including any payments made pursuant
to this subsection 16(c) under the laws of any Taxing Authority.
(ii) If any Tax Indemnified Party shall realize a current tax
benefit as a result of any Taxes paid or indemnified against by the Lessee
under this Section 16 (except to the extent previously taken into account
in computing the indemnity paid with respect to such Taxes), such Tax
Indemnified Party shall, so long as no Lessee Event of Default shall have
occurred and be continuing and no payment is due and owing by Lessee under
this Lease or any Long-Term Agreement, pay to the Lessee an amount which,
after subtraction of any further tax savings such Tax Indemnified Party
realizes as a result of the payment thereof, is equal to the amount of such
current tax benefit, but only after the Lessee shall have made all payments
then due and owing to such Tax Indemnified Party pursuant to this Lease and
the Long-Term Agreements; provided, that any subsequent loss of any tax
--------
benefit paid to the Lessee hereunder shall be treated as a Tax subject to
indemnification in accordance with subsection 16(a) (without regard to any
exclusions set forth in subsection 16(b) or the provisions of subsection
16(g); and provided, further, that such Tax Indemnified Party shall not be
-------- -------
obligated to make any payment pursuant to this subsection 16(c) to the
extent that the amount of such payment would exceed (x) the amount of all
prior payments by Lessee to such Tax Indemnified Party pursuant to this
subsection 16(c), less (y) the amount of all prior payments by such Tax
Indemnified Party to Lessee hereunder. Each such Tax Indemnified Party
shall in good faith use reasonable efforts in filing its tax returns and in
dealing with taxing authorities to seek and claim any such tax benefit.
(d) Payment of General Tax Indemnity. Unless otherwise requested by a Tax
--------------------------------
Indemnified Party, or unless the Tax is being contested in accordance with the
provisions of subsections 16(g) hereof, the Lessee shall pay when due any Tax
for which it is liable pursuant to this Section 16 directly to the appropriate
Taxing Authority, or, upon written demand, shall reimburse a Tax Indemnified
Party for the payment of any such Tax made by such Tax Indemnified Party. Within
30 days after the date of each payment by the Lessee of any Tax referred to in
the preceding sentence, the Lessee shall upon request furnish such Tax
Indemnified Party the original or a copy of the receipt for the Lessee's payment
of such Tax or such other evidence of payment of such Tax as is reasonably
acceptable to such Tax Indemnified Party. The Lessee shall also cause to be
furnished, promptly upon request, such data as such Tax Indemnified Party
reasonably may require that are within the reasonable control or possession of
Lessee and are not otherwise reasonably obtainable by such Tax Indemnified Party
to enable such Tax Indemnified Party to comply with the requirements of any
Taxing Authority in respect of any Tax referred to in subsection 16(a) hereof.
(e) Verification of Calculations. At the request of Lessee, the accuracy
----------------------------
of any calculation of the amount or amounts payable to a Taxing Authority or a
Tax Indemnified Party pursuant to this Section 16 shall be verified by
independent public accountants selected by such Tax Indemnified Party and
reasonably satisfactory to Lessee, and such verification shall be binding on
both the Tax Indemnified Party and Lessee. In order, and to the extent
necessary, to enable such independent accountants to verify such amounts, such
Tax Indemnified Party shall provide to
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<PAGE>
such independent accountants (for their confidential use and not to be disclosed
to Lessee or any other person) all information reasonably necessary for such
verification. Such verification shall be at the expense of Lessee.
(f) Reports. If any report, return or statement is required to be filed
-------
with respect to any Tax which is subject to indemnification under this Section
16, the Lessee shall timely file the same, except for any such report, return or
statement which a Tax Indemnified Party has notified the Lessee that it intends
to file. The Lessee shall either file such report, return or statement so as to
show the ownership of the Aircraft in the Lessor and send a copy of such report,
return or statement to such Tax Indemnified Party or, where the Lessee is not so
permitted to file in the name of such Tax Indemnified Party, shall notify such
Tax Indemnified Party of such requirements and cooperate reasonably with such
Tax Indemnified Party with respect thereto.
(g) General Tax Indemnity Contest Provisions.
----------------------------------------
(i) Notice. If a Tax Indemnified Party receives a written notice
------
regarding the imposition of a Tax, or if at the conclusion of any audit by
any Taxing Authority there is a proposed adjustment regarding any Tax which
if agreed to by such Tax Indemnified Party would result in the imposition
of a Tax for which such Tax Indemnified Party would seek indemnification
from the Lessee in an amount equal to or in excess of $25,000 pursuant to
this Section 16, such Tax Indemnified Party shall within the lesser of:
(A) 30 days after receipt of such written notice by a responsible officer
of such Tax Indemnified Party or promptly after the conclusion of such
audit; or (B) not less than ten (10) days prior to the expiration of the
statutory period to respond, so notify the Lessee in writing; provided,
however, that the failure so to notify the Lessee shall not diminish the
Lessee's obligations hereunder, except in the event that Lessee's rights to
contest such tax shall have been precluded by such failure, and after such
contest, Lessor would not have been liable for such taxes and except for
any interest or penalties related to any late or missed payment dates.
(ii) Contest Provisions. If requested by the Lessee in writing, a
------------------
Tax Indemnified Party shall in good faith contest in the name of such Tax
Indemnified Party or, if requested by the Lessee and if such contest does
not in such Tax Indemnified Party's reasonable discretion involve or
potentially involve taxes imposed on such Tax Indemnified Party that are
not indemnified against hereunder, to contest in the name of the Lessee (or
permit the Lessee, if requested by the Lessee, to contest in the name of
the Lessee or the Tax Indemnified Party) the validity, applicability and
amount of the imposition of any Tax or any proposed adjustment that would
give rise to the proposed imposition of any Tax by (a) resisting payment
thereof, if such Tax Indemnified Party in its sole and reasonable
discretion shall determine such course of action to be appropriate, (b) not
paying the same except under protest, if protest is necessary and proper,
or (c) if payment shall be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings;
provided, however, that (u) such Tax Indemnified Party shall not be
required to contest such imposition or proposed adjustment if the aggregate
amount of an indemnity on an after-tax basis, would be less than $25,000,
(v) no Lessee Event of Default has occurred and is continuing, (w) such Tax
Indemnified
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Party has been provided with an opinion of independent tax counsel selected
by such Tax Indemnified Party and reasonably acceptable to the Lessee (the
cost of which shall be borne by the Lessee) to the effect that a reasonable
basis in law or in fact exists that such Tax Indemnified Party will prevail
in such contest, (x) such Tax Indemnified Party, at its sole option, may at
any time forego any and all administrative appeals, proceedings, hearings
and conferences with any Taxing Authority and, in lieu thereof, continue to
contest the claim in any permissible judicial forum selected by such Tax
Indemnified Party, (y) Lessee shall have agreed to pay such Tax Indemnified
Party (or, in the case of item (iii) below, lend to such Tax Indemnified
Party on an interest-free basis (and in such case pay any additional amount
as shall be required to hold such Tax Indemnified Party harmless on a net
after-tax basis from any adverse tax consequences attributable to the
loan), on demand, all reasonable out-of-pocket costs and expenses which
such Tax Indemnified Party incurs in connection with and reasonably
allocable to contesting such imposition or adjustment, including, without
limitation, (i) all legal, accountants' and investigatory fees and
disbursements, (ii) the amount of any interest, penalties or additions to
tax (to the date such payment is made) payable as a result of contesting
such adjustment, and (iii) if such contest is to be initiated by the
payment of, and the claiming of a refund for, the amount of such imposition
or adjustment, funds sufficient to make such payment of, and the claiming
of a refund for, the amount of such imposition or adjustment, funds
sufficient to make such payment (and in the event such contest is finally
determined adversely, the amount of such loan shall be applied against the
Lessee's obligation to indemnify such Tax Indemnified Party for the Tax
which was the subject of such contest); and (z) such proceedings do not
involve any risk (other than a remote risk) of the sale, forfeiture or loss
of the Aircraft, the Airframe, any Serviced Engine or any Part or interest
therein or, if there is such a risk, Lessee has provided to such Tax
Indemnified Party a bond in form and substance reasonably satisfactory to
such Tax Indemnified Party in an amount sufficient to protect such Tax
Indemnified Party from any detriment that would be suffered by the Lessor
as a result of such sale, forfeiture, or loss or has otherwise protected
such Tax Indemnified Party in a manner acceptable to such Tax Indemnified
Party and there is no risk or the imposition of criminal penalties. Such
Tax Indemnified Party will consult with Lessee regarding any contest and
will consider in good faith any suggestions made by Lessee with respect to
the most favorable forum for, and the conduct of, such contest; provided,
however, that, unless such Tax Indemnified Party elects to permit Lessee to
conduct such contest, such contest shall be controlled by such Tax
Indemnified Party and conducted by independent counsel selected by such Tax
Indemnified Party or by "in-house" counsel of such Tax Indemnified Party
and reasonably acceptable to Lessee. In the event that such Tax Indemnified
Party elects to permit the Lessee to conduct such contest, the independent
counsel selected by the Lessee to conduct such contest shall be reasonably
satisfactory to such Tax Indemnified Party. If requested by the Lessee in
writing, such Tax Indemnified Party will appeal (or, if desired by such Tax
Indemnified Party, permit the Lessee to appeal) any adverse judicial
determination, provided that, as a condition to the commencement of the
appeal of such adverse judicial determination, (a) such Tax Indemnified
Party shall receive, at the Lessee's expense, an opinion of independent
counsel, selected by such Tax Indemnified Party and reasonably satisfactory
to Lessee, to the effect that a more likely than not probability of success
exists for such appeal and (b)
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Lessee shall have acknowledged its liability to such Indemnified Party for
an indemnity payment as a result of such tax claim if such Tax Indemnified
Party shall not prevail in the contest; provided, however, that such Tax
Indemnified Party shall not be required to appeal any adverse judicial
determination to the United States Supreme Court.
Notwithstanding anything contained in this subsection 16(g) to the
contrary, no Tax Indemnified Party shall be required to contest any claim if the
subject matter thereof shall be of a continuing nature and shall have previously
been decided pursuant to the contest provisions of this subsection 16(g)
(including a contest pursuant to the contest provisions hereof in which the Tax
Indemnified Party may be required to contest such a claim if there shall have
been a change in the law (including, without limitation, amendments to statutes
or regulations, administrative ruling and court decisions)) or Lessee shall have
provided new facts after such claim shall have been so previously decided, and
such Tax Indemnified Party shall have received an opinion of independent tax
counsel selected by such Tax Indemnified Party and approved by the Lessee (the
cost of which shall be borne by the Lessee) to the effect that, as a result of
such change or new facts, it is more likely than not that the position which
such Tax Indemnified Party or the Lessee, as the case may be, had asserted in
such previous contest, would prevail; provided, that the provisions of this
--------
paragraph shall not require an Tax Indemnified Party to file an amended tax
return or refund claim for any prior taxable period.
(h) Compromise or Settlement. A Tax Indemnified Party shall have the
------------------------
right to settle or compromise a contest if such Tax Indemnified Party has
provided Lessee a reasonable opportunity to review a copy of that portion of the
settlement or compromise proposal which relates to the Tax for which such Tax
Indemnified Party is seeking indemnification hereunder, provided that, if (i)
--------
such Tax Indemnified Party fails to provide the Lessee such a reasonable
opportunity to review such portion of such proposal or (ii) after such
reasonable opportunity to review such proposal the Lessee in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
the Lessee shall not be obligated to indemnify such Tax Indemnified Party
hereunder to the extent of the amount attributable to the Tax to which such
settlement or compromise relates as to which the Lessee has reasonably withheld
its consent. If such Tax Indemnified Party effects a settlement or compromise of
such contest without giving notice to the Lessee or, notwithstanding that the
Lessee has reasonably withheld its consent thereto, such Tax Indemnified Party
shall repay to the Lessee such amounts theretofore advanced by the Lessee
pursuant to clause (y)(iii) of subsection 16(g)(i) hereof as relate to such
claim, to the extent the Lessee has reasonably withheld its consent to the
settlement or compromise thereof.
(i) Refunds. If any Tax Indemnified Party shall obtain a refund of all or
-------
any part of any Taxes that the Lessee shall have paid for such Tax Indemnified
Party or for which the Lessee shall have reimbursed such Tax Indemnified Party,
such Tax Indemnified Party shall, so long as no Default or Lessee Event of
Default shall have occurred and be continuing and no payment is due and owing by
the Lessee under this Agreement or any Long-Term Agreement, pay to the Lessee an
amount which is equal to the sum of the amount of such refund, plus any interest
received attributable thereto net of any net taxes payable by such Tax
Indemnified Party with respect to the receipt or accrual of such interest and
the payment thereof to the Lessee, but only after the Lessee shall have made all
payments then due and owing to such Tax Indemnified Party pursuant to this
59
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Section 16; provided, however, that any subsequent loss of any refund paid to
-------- -------
the Lessee hereunder shall be treated as a Tax subject to indemnification in
accordance with this Section 16 (without regard to any exclusions set forth in
subsection 16(b) or the provisions of subsection 16(g).
(j) Failure to Contest. Notwithstanding anything to the contrary
------------------
contained in this subsection 16(g), a Tax Indemnified Party may at any time
decline to take any further action with respect to a proposed adjustment or the
imposition of a Tax; provided, that if the Lessee has properly requested such
--------
action pursuant to, and is otherwise entitled to require any action to be taken
by a Tax Indemnified Party pursuant to the provisions of subsection 16(g), and
such Tax Indemnified Party has failed to contest, or permit the Lessee to
contest, such proposed adjustment or the imposition of such Tax, such Tax
Indemnified Party shall be deemed to have waived its right to any Indemnity
payment that would otherwise be payable by the Lessee pursuant to this Section
16 in respect of such adjustment or the imposition of such Tax. In such event,
such Tax Indemnified Party shall reimburse the Lessee for all amounts previously
advanced by the Lessee to such Tax Indemnified Party with respect to such
proposed adjustment pursuant to clause (y)(iii) of subsection 16(g) hereof. If
an Tax Indemnified Party fails to contest or to permit a contest hereunder, such
Tax Indemnified Party will not be required to pay over the Lessee any amount
representing tax benefits described in subsection 16(c)(B) hereof which result
from the payment of Taxes as to which such Tax Indemnified Party has been deemed
to have waived its right to any indemnity payment hereunder.
(k) Interest. To the extent permitted by applicable law, interest at the
--------
Stipulated Interest Rate shall be paid, on demand, on any amount not paid when
due, pursuant to Section 16 until the same shall be paid. Such interest shall
be paid in the same manner as the unpaid amount in respect of which such
interest is due.
(l) Effect of Other Indemnities. The Lessee's obligations under the
---------------------------
indemnities provided for in this Agreement and the Long-Term Agreements shall be
those of a primary obligor whether or not the Person indemnified shall also be
indemnified with respect to the same matter under the terms of this Agreement,
any Lease or any Long-Term Agreement or any other document or instrument, and
the Person seeking indemnification from the Lessee pursuant to any provisions of
this Agreement may proceed directly against the Lessee without first seeking to
enforce any other right of indemnification.
Section 17. Miscellaneous
-------------
(a) Construction; Governing Law. Any provision of this Lease which is
----------------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by Applicable Law, the parties hereby waive any provision of law which renders
any provisions hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be
60
<PAGE>
changed, waived, discharged or terminated orally, but only by written instrument
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought; and, in compliance with Section 2A-208(b) of
the Texas Business and Commerce Code requiring a separate signature of this
provision, Lessee has signed in the space provided below. Any consent or
approval specified herein of a party hereto may be withheld entirely in such
party's discretion unless it is herein expressly provided that such consent may
not be unreasonably withheld.
61
<PAGE>
No waiver of a breach of any provision of this Lease Agreement by either
party shall constitute a waiver of any subsequent breach of the same or any
other provision hereof, and no waiver shall be effective unless in writing.
HAWAIIAN AIRLINES, INC.
By:
__________________________________________
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By:
__________________________________________
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
The captions in this Lease are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. THIS LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF TEXAS (EXCLUDING THE CONFLICT OF LAW PROVISIONS THERETO), INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
62
<PAGE>
(b) Notices. All notices, offers, acceptances, approvals, waivers,
-------
requests, demands and other communications hereunder or under any instrument,
certificate or other instrument delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (a) if delivered in person, (b) if sent by
overnight delivery service (including, without limitation, Federal Express, UPS,
Emery, Purolator, DHL, Air Borne, and other similar overnight delivery
services), (c) if sent by telecopier (upon receipt by the sender thereof of
evidence that a clean transmission of such telecopy was made to the recipient
thereof) and, in such case, dispatching a copy of such notice by the methods
described in clause (a) or (b) above. All notices shall be effective upon
delivery; provided that if any notice is tendered to an addressee, such notice
--------
shall be effective upon tender. For the purposes of notice the addresses of the
parties shall be as set forth below; provided, that any party shall have the
--------
right to change its address for notice hereunder to any other location by giving
thirty (30) days' notice to the other parties in the manner set forth
hereinabove. The initial addresses of the parties hereto are as follows:
If to Lessor: American Airlines, Inc.
- ------------
4333 Amon Carter Boulevard
MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate Development and Treasurer
Telecopier: (817) 967-2199
Telephone: (817) 967-1227; and
American Airlines, Inc.
Maintenance & Engineering Center
3900 N. Mingo Road
Tulsa, Oklahoma 74115
Attention: Senior Vice President,
Maintenance and Engineering
Telecopier: (918) 292-2203
Telephone: (918) 292-2612
With copies to: American Airlines, Inc.
- --------------
4333 Amon Carter Boulevard
MD 5675
Ft. Worth, Texas 76155
Attention: Corporate Secretary
Telecopier: (817) 967-4313
Telephone: (817) 967-1254; and
Haynes and Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202-3789
63
<PAGE>
Attention: Janice V. Sharry
Telecopier: (214 651-5940
Telephone: (214) 651-5000
If to Lessee: Hawaiian Airlines, Inc.
- ------------
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attn: Vice President-Finance
Telecopier: (808) 836-4795
Telephone: (808) 835-3075
With copies to: Hawaiian Airlines, Inc.
- --------------
3375 Koapaka Street
Honolulu, Hawaii 96819
Attn: Vice President-General Counsel
Telecopier: (808) 835-3690
Telephone: (808) 835-3610
If to Head Lease
- ----------------
Lessor: Mellon Financial Services Corporation #3
- -------
Suite 1111
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
Attn: President and Chief Executive Officer
Telecopier: (412) 234-3948
Telephone: (412) 234-0929
(c) Lessor's Right to Perform. If Lessee fails to perform any of its
-------------------------
obligations hereunder, Lessor may (but shall not be obligated to) discharge such
obligation, and the amount of the expenses of Lessor incurred in connection with
such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand
together with interest thereon at the Stipulated Interest Rate to but excluding
the date of payment. Lessor shall use its best efforts to give Lessee prior
notice of Lessor's intention to discharge any such obligation.
(d) Confidentiality.
---------------
(i) Confidential Information. For purposes of this Agreement,
------------------------
confidential information shall mean any and all (i) trade secrets, (ii)
confidential or other proprietary information of a party or its Affiliates
concerning past, present or future research, development, business
activities or affairs, finances, properties, methods of operation,
processes and systems, (iii) customer lists, and (iv) other customer
information, whether oral, written or contained in any magnetic, electronic
or other media; provided, that in order for a party's information to be
--------
considered confidential hereunder such information, if
<PAGE>
non-oral, must be marked by such party as confidential; and provided
--------
further, that oral information must be specified as confidential at the
-------
time of disclosure (collectively, "Confidential Information").
Notwithstanding the foregoing, the parties expressly acknowledge and agree
that the terms and conditions of this Agreement set forth in Exhibit E of
this Agreement constitute Confidential Information. Notwithstanding the
foregoing, any information regarding this Lease and the terms or provisions
thereof provided to Head Lease Lessor pursuant to the terms of this Lease
or the Head Lease shall not constitute Confidential Information. The party
which receives Confidential Information from the other party agrees to
maintain such information in secrecy at all times, using the same degree of
care with respect to such Confidential Information as it uses in protecting
its own proprietary information, trade secrets and similar items; provided,
--------
that Confidential Information may be used in an action by one party to this
Agreement against the other if subject to the conditions set forth in (ii)
below. Information of either party which would otherwise be considered
Confidential Information shall not be considered Confidential Information
if such information is in the public domain, or is placed in the public
domain through no violation of this Agreement, or is lawfully obtained from
another source free of restriction.
(ii) Use of Confidential Information. Except to the extent expressly
-------------------------------
permitted in Section 4(l) of Exhibit E, neither party shall sell, transfer,
publish, disclose, display or otherwise make available the Confidential
Information of the other party to any third party (and third parties shall
be deemed also to include Affiliates of the party so restricted which are
not parents or subsidiaries), except as may be required by Applicable Law
in which case the party from whom disclosure is sought shall promptly
notify the other party. To the extent that the other party objects to
disclosure of such Confidential Information, the party from which
disclosure is sought shall (i) use reasonable and lawful efforts to resist
making any disclosure of such Confidential Information, (ii) use reasonable
and lawful efforts to limit the amount of such Confidential Information to
be disclosed, and (iii) use all reasonable efforts to obtain a protective
order or other appropriate relief to minimize the further dissemination of
any Confidential Information to be disclosed. In addition, neither party
shall disclose the Confidential Information of the other party to any
employee or agent except on a need-to-know basis. Each party shall use
reasonable efforts to inform all such employees and agents that the
Confidential Information of the other party is subject to this non-
disclosure obligation. Furthermore, neither party shall use the
Confidential Information of the other party for any purpose other than as
expressly provided in this Agreement.
(iii) Termination. Upon termination of this Agreement for any cause
-----------
or reason, each party shall, within ninety (90) days of such termination,
either deliver to the other party or destroy all of such other party's
Confidential Information (including all copies thereof, other than copies
of this Agreement) at the option of the other party then in its possession
and shall purge any copies thereof encoded or stored on magnetic or other
electronic media or processors; provided, that neither Lessee nor Lessor
--------
shall be required to purge or destroy any Confidential Information that is
reasonably necessary in
65
<PAGE>
connection with the resolution of any disputes which may have arisen
pursuant to the terms of this Agreement.
(iv) No Adequate Remedy. Each party acknowledges and agrees that
------------------
the other party will have no adequate remedy at law if there is a breach or
threatened breach of this Section 17(d) and, accordingly, that the other
party shall be entitled to an injunction against such breach. Nothing
herein shall be construed as a waiver of any other legal or equitable
remedies that may be available to either party if the other party breaches
this Section 17(d).
(v) Survival. The restrictions of this Section 17(d) shall survive
--------
for a period of eight (8) years after the termination or expiration of this
Agreement.
(vi) Affiliates. The Affiliates of Lessor and Lessee shall comply
----------
in all respects with the restrictions of this Section 17(d) and Lessor and
Lessee, respectively, shall in all respects be responsible for their
compliance.
(vii) Other Confidentiality Agreements. The provisions of this
--------------------------------
Section 17(d) are in addition to, and shall not be deemed to affect the
terms and provisions of, the Confidentiality Agreement. To the extent the
terms hereof may be deemed to be inconsistent with the terms of the
Confidentiality Agreement or such Confidentiality Agreement shall be
silent, this Agreement shall control with respect to this Agreement and any
Confidential Information relating hereto. Upon the written consent of
Lessor, which consent shall not be unreasonably withheld, Lessee may
provide this Agreement to third party lenders or investors of Lessee;
provided, that the party receiving this Agreement shall, prior to obtaining
--------
it, enter into a confidentiality agreement with Lessee for the benefit of
Lessor in substantially the form of this Section 17(d).
(e) Counterparts. This Lease and the Lease Supplement No.1 may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all such counterparts shall constitute one and the same instrument. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked as the "Original" and containing
the receipt therefor executed by the applicable secured party on the signature
page thereof.
(f) Grant of Security Interest by Lessor. In compliance with the terms of
------------------------------------
this Section, Lessor may grant a security interest in this Lease as collateral
for a loan provided Lessor notifies Lessee at least ten (10) Business Days
before granting such security interest. The rights of Lessee under this Lease
shall be superior in all respects to the rights of any such lender and Lessor
shall require any such lender to agree in writing in form and substance
reasonably satisfactory to Lessee that such lender's rights in and to the
Aircraft and under the Lease shall be subject and subordinate to the terms of
this Lease to receive all such performance from Lessor as may from time to time
be required by the terms hereof. Lessee agrees to reasonably cooperate with
Lessor in connection
66
<PAGE>
with Lessor's efforts to grant such security interest and to provide, at
Lessor's cost and expense, such documents and certificates in connection
therewith as Lessor may reasonably request, provided, that anything in this
--------
Section 17(f) to the contrary notwithstanding, the consummation of any such loan
shall not increase the actual or potential responsibilities or liabilities of
the Lessee or deprive Lessee of any of its rights or privileges under the Long-
Term Agreements. Notwithstanding anything in this Section or this Agreement to
the contrary, Lessor may, without written notice to or the consent of Lessee,
assign or otherwise grant a security interest in Lessor's interest in this Lease
to Head Lease Lessor or any lender or mortgagee of Head Lease Lessor.
(g) Survival. Except as otherwise expressly set forth herein or in the
--------
Long-Term Agreements, the representations, warranties and covenants set forth in
this Agreement, and the obligations hereunder, shall survive any transfer of
title or possession of the Serviced Aircraft, any Serviced Engines or any
Serviced Part, any termination or expiration of this Agreement or any
impossibility of performance of this Agreement or frustration of purpose of this
Agreement.
(h) Assignment. SUBJECT TO THE TERMS HEREOF, THIS AGREEMENT SHALL BIND
----------
AND BENEFIT LESSOR, LESSEE, AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED
ASSIGNS. LESSOR MAY ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL
OF ITS OBLIGATIONS HEREUNDER TO ANY AFFILIATE OF LESSOR; PROVIDED, THAT LESSOR
--------
SHALL NOT ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL OF ITS
OBLIGATIONS UNDER EXHIBIT E OR ANY RELATED PROVISIONS OF THIS AGREEMENT TO ANY
AFFILIATE THAT IS NOT CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES.
SUBJECT TO THE PROVISIONS OF SECTION 4(f) OF EXHIBIT E, LESSOR MAY SUBCONTRACT
CERTAIN SPECIFIC TYPES OF MAINTENANCE SERVICES CONSTITUTING LESS THAN ALL OR
SUBSTANTIALLY ALL OF THE MAINTENANCE SERVICES TO BE PERFORMED HEREUNDER, AND, IN
CONNECTION THEREWITH, ASSIGN CERTAIN OF ITS RIGHTS AND DELEGATE CERTAIN OF ITS
OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, LESSOR MAY ASSIGN
ALL OR SUBSTANTIALLY ALL OF ITS RIGHTS AND/OR DELEGATE ALL OR SUBSTANTIALLY ALL
OF ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT
TO ANY PERSON CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES SUBJECT
ONLY TO SECTION 3(f)(ii)(C) OF EXHIBIT E. LESSEE MAY NOT (EITHER VOLUNTARILY OR
INVOLUNTARILY) ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS
HEREUNDER.
(i) Transaction Expenses. Lessee agrees to pay the reasonable out-of-
--------------------
pocket costs and expenses incurred by Lessor in connection with the preparation,
execution and delivery of any amendments, modifications or waivers requested by
Lessee or resulting from any requests of Lessee under this Agreement. Except as
specifically set forth herein, each of Lessor and Lessee shall be responsible
for their own legal and out-of-pocket expenses arising from the transactions
contemplated herein.
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<PAGE>
(j) Entirety. This Lease Agreement, the Lease Supplements, the
--------
Confidentiality Agreement and the Letter of Credit embody the entire agreement
between the parties hereto and thereto concerning the subject hereof and thereof
and such agreements terminate and supersede all prior or contemporaneous
agreements, discussions, undertakings, and understandings, whether written or
oral, express or implied, between the parties hereto and thereto concerning the
subject hereof and thereof.
(k) Force Majeure. Lessor shall not be liable to Lessee for a failure or
-------------
delay in the performance of any obligation or agreement contained herein, if
such failure or delay arises from any cause beyond Lessor's reasonable control,
including any act, omission, or breach of this Lease Agreement by Lessee, acts
of God, action or regulation of any Governmental Authority, fire, the elements,
flood, earthquakes, explosions, accidents, mechanical or electrical failures,
acts of the public enemy, war, civil disturbance, rebellion, insurrection, work
stoppage, strikes (including any mechanic, flight attendant or pilot strike),
labor dispute or difference with workers, regardless of whether or not Lessor
(or its Affiliate) is capable of settling such labor problem, or any other
cause, whether similar or dissimilar, beyond Lessor's reasonable control;
provided, however, that, notwithstanding the foregoing, with respect to
- -------- -------
Maintenance Services and related obligations as provided in Exhibit E hereto,
the provisions of Section 4(c)(i) of Exhibit E shall apply.
(l) Independent Contractor; No Agency.
---------------------------------
Nothing in this Agreement is intended or shall be construed to create or
establish any agency, partnership, or joint venture or fiduciary relationship
between the parties and neither Lessee nor any of its Affiliates has any
authority to act for or to incur any obligations on behalf of or in the name of
Lessor or any of its Affiliates and neither Lessor nor any of its Affiliates has
any authority to act for or to incur any obligations on behalf of or in the name
of Lessee or any of its Affiliates by virtue of this Agreement. The parties
hereto acknowledge and agree that nothing contained herein creates any fiduciary
duties between the parties or their respective Affiliates.
(m) Certain Consents and Waivers of Lessee.
--------------------------------------
(i) Jurisdiction. Except as set forth in Section 6 of Exhibit E
------------
hereto,
(a) Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of: (i) the United States District Court for the
Northern District of Texas, and of the courts of the State of Texas in
Tarrant County, and (ii) to the United States District Court for the
District of Hawaii (other than the Court), and of the courts of the State
of Hawaii in Honolulu County, for the purposes of any suit, action or other
proceeding arising out of this Lease Agreement or the subject matter hereof
brought by any other party, and (iii) any federal, state or foreign court
of competent jurisdiction where the In-Use Aircraft may be located from
time to time for the purpose of Lessor exercising any rights and remedies
under this Lease Agreement, including, without limitation, repossession of
the In-Use Aircraft. Lessor and Lessee each agrees that neither of them
will bring any suit, action or other proceeding arising out of this Lease
Agreement, the
68
<PAGE>
subject matter herein, or any of the transactions described herein, in any
jurisdiction other than the jurisdictions described above.
(b) To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim (i) that it is
not personally subject to the jurisdiction of the above-named courts, (ii)
that the suit, action or proceeding is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or
its property, (iv) that the venue of the suit, action or proceeding is
improper, or (v) that this Lease Agreement or the subject matter hereof may
not be enforced in or by such courts;
(c) Lessee agrees to designate CT Corporation in Texas as its
agent for service of process in Texas, and Lessor agrees to designate CT
Corporation in Hawaii as its agent for service of process in Hawaii.
Lessor and Lessee each agrees that submission to jurisdiction and
designation of an agent for service of process set forth above is made
solely for the express benefit of the other party and is effective solely
for purposes of this Lease Agreement;
(d) Final judgment against a party in any suit in any court of
competent jurisdiction shall be conclusive, and may be enforced in other
jurisdictions, to the extent permitted by Applicable Law, by suit on the
judgment, a certified and true copy of which, to the extent permitted by
Applicable Law, shall be conclusive evidence of the fact and the amount of
any indebtedness or liability of the party therein described; and
(e) To the extent that any party or any of its property is or
becomes entitled at any time to any immunity on the grounds of sovereignty
or otherwise, from any legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of
execution, or from jurisdiction, that party for itself and its property
does hereby irrevocably and unconditionally waive, and agrees not to plead
or claim any such immunity with respect to its obligations, liabilities or
any other matter arising hereof. Such agreement shall be irrevocable and
not subject to withdrawal in any and all jurisdictions including under the
Foreign Sovereign Immunities Act of 1976 of the United States of America.
(II) WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE TRIAL
--------------------
BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT OR ANY
MATTER RELATED HERETO.
(III) OTHER WAIVERS. LESSEE AGREES AND ACKNOWLEDGES THAT UPON THE
-------------
OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS LEASE AGREEMENT, LESSOR SHALL
SUFFER IRREPARABLE HARM FOR WHICH MONEY DAMAGES WILL NOT BE ADEQUATE OR CANNOT
BE READILY ASCERTAINED. IN FURTHERANCE THEREOF, LESSEE AGREES THAT IT WILL
69
<PAGE>
TAKE NO ACTION TO HINDER, DELAY OR INTERFERE WITH ANY ACTIONS TAKEN BY LESSOR IN
CONNECTION WITH THE REPOSSESSION OF THE IN-USE AIRCRAFT. SPECIFICALLY, LESSEE
WILL NOT TAKE ANY ACTION WHICH WOULD REQUIRE THE LESSOR TO BREACH THE PEACE IN
CONNECTION WITH REPOSSESSION OF THE IN-USE AIRCRAFT. LESSEE CONSENTS TO THE
ISSUANCE OF ANY ORDER OF ANY COURT OF COMPETENT JURISDICTION ENABLING LESSOR TO
REPOSSESS THE IN-USE AIRCRAFT, FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT,
WITHOUT THE NECESSITY OF LESSOR POSTING OR ISSUING ANY BOND. IN ADDITION, LESSEE
AGREES THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN SECTIONS
13A(I) OR (J) OF THE LEASE AGREEMENT, LESSEE SHALL NOT TAKE ADVANTAGE OF ANY
PERIODS SPECIFIED IN SECTIONS 365 OR 1110 OF THE BANKRUPTCY CODE DURING WHICH IT
MIGHT RETAIN POSSESSION OF THE IN-USE AIRCRAFT OR THE PROVISIONS OF THE
AUTOMATIC STAY SET FORTH IN SECTION 362 OF THE BANKRUPTCY CODE, AND, WITHOUT
LIMITING OTHER REMEDIES AVAILABLE TO LESSOR, SHALL EITHER IMMEDIATELY UPON THE
FILING OF ANY BANKRUPTCY PETITION TURN OVER THE IN-SERVICE AIRCRAFT TO LESSOR OR
PAY ALL AMOUNTS THEN DUE AND OWING HEREUNDER AND THEREAFTER ACCRUING UNDER THIS
LEASE AGREEMENT. IN THE EVENT THAT AN ORDER IS ISSUED GIVING LESSOR POSSESSION
OF ANY IN-USE AIRCRAFT, LESSEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO RETURN OF
POSSESSION OF SUCH AIRCRAFT, AND COVENANTS THAT IT WILL NOT SEEK ANY ORDER
PERMITTING IT TO RETAIN OR REPOSSESS SUCH AIRCRAFT, BY POSTING A BOND OR
OTHERWISE. IN THE EVENT THAT ANY COURT DECLINES TO ISSUE AN ORDER PERMITTING
LESSOR TO REPOSSESS ANY IN-USE AIRCRAFT UNLESS LESSOR POSTS OR ISSUES A BOND, OR
LESSOR ELECTS NOT TO REQUEST THAT THE REQUIREMENT FOR SUCH A BOND BE WAIVED,
LESSEE HEREBY AGREES THAT (IF LESSOR SO ELECTS) THE AMOUNT OF SUCH BOND SHALL
NOT BE REQUIRED TO EXCEED ONE YEAR'S BASIC RENT FOR SUCH AIRCRAFT.
(n) Offset. Until all Deferred Basic Rent is paid under the Long-Term
------
Lease Agreement (provided that on the date all Deferred Basic Rent is paid
thereunder, all other Rent then due and payable thereunder and hereunder has
also been paid; such date being the "Setoff Release Date") Lessor, AMRCG, SABRE
and AMS shall each have the right to setoff and recoup any sums payable to
Lessee against any sums payable by Lessee to Lessor, AMRCG, SABRE or AMS
pursuant to this Lease Agreement, the other Long-Term Agreements or otherwise.
Until the Setoff Release Date Lessor shall also have the right to setoff and
recoup any amounts payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to
this Lease Agreement, or the other Long-Term Agreements by drawing upon any
letter of credit or withdrawing any portion or all of the Deposit (which may
constitute all or a portion of the Letter of Credit). Nothing set forth in this
Subsection 17(n) or Subsection 17(n) of the Long-Term Lease Agreement, the July
Lease Agreement or the November Lease Agreement shall otherwise limit Lessor's
right to draw upon
70
<PAGE>
or withdraw from the Letter of Credit to the extent otherwise set forth herein
or in any Long-Term Agreement.
Section 18. True Lease
----------
(a) Intent of the Parties. It is the intent of the parties to this lease
---------------------
that it will be a true lease and not a "finance lease" as defined in Section
168(f) of the Internal Revenue Code of 1954, as amended and in effect prior to
the Tax Reform Act of 1986 (P.L. 99-154) or a "conditional sale" as defined in
49 U.S.C. Section 40102(a)(18) (former 1301) and that the Lessor shall at all
times be considered to be the owner of the Aircraft which is the subject of this
Lease for the purposes of 49 U.S.C. Section 44103 (former 1401) and for all
Federal, state, city and local income taxes or for franchise taxes measured by
net income and that this Lease conveys to the Lessee no right, title or interest
in the Aircraft except as a lessee.
Section 19. Enforceability in Jurisdictions. Any provision of this
--------------------------------
Lease which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 20. No Third-Party Beneficiaries. Except for rights and
----------------------------
benefits conferred on certain of Lessor's Affiliates as set forth in this Lease
Agreement, all rights, remedies, and obligations of the parties hereunder shall
accrue or apply solely to the parties hereto or their permitted successors or
assigns and there is no intent to benefit any third parties.
Section 21. Maintenance Obligations. Lessee and Lessor agree that
-----------------------
notwithstanding the provisions of the Long-Term Lease Agreement, including
Exhibit F thereto, which by its terms relates to the provision of maintenance
services by Lessor of all DC10-10 aircraft leased by Lessor to Lessee, that the
terms of this Lease Agreement shall govern the maintenance of the Aircraft. The
Long-Term Lease Agreement, including Exhibit F thereto shall continue in full
force and effect as to all other Serviced Aircraft (as defined in the Long-Term
Lease Agreement) other than the aircraft which is subject to the November Lease
Agreement, which shall remain subject to the maintenance provisions set forth in
Exhibit E to the November Lease Agreement and the aircraft which is subject to
the July Lease Agreement, which shall remain subject to the maintenance
provisions set forth in Exhibit E to the July Lease Agreement
Section 22. Amendment of Long-Term Lease Agreement. Lessor and Lessee
--------------------------------------
agree that the occurrence of any Lessee Event of Default hereunder shall
constitute a "Lessee Event of Default" under the Long-Term Lease Agreement, the
July Lease Agreement and the November Lease Agreement.
Section 23. Subordinate to Head Lease. Notwithstanding anything to the
-------------------------
contrary contained herein, this Lease in all respects is subject and subordinate
to all of the terms and provisions of the Head Lease, including, without
limitation, (i) the covenants contained in Section 7(a) thereof,
(ii) Head Lease Lessor's rights to repossession of the Airframe pursuant to
Section
71
<PAGE>
15 of the Head Lease, including, without limitation, its rights to avoid this
Lease upon any such repossession, and (iii) to prohibit the assignment or
further subleasing or wet leasing of the Airframe or any part thereof. Lessee
agrees to take no action to impair Head Lease Lessor's title to the Airframe.
Lessee acknowledges that Lessor has provided to it a copy of the Head Lease. All
references herein to the Head Lease shall be deemed to include any and all
future modifications and amendments thereto. Notwithstanding anything to the
contrary contained herein, whether express or implied, it is understood and
agreed that Lessor is not granting or purporting to grant, and that Lessee is
not receiving and does not claim to have or hold, any estate, right, privilege
or interest in or to the Airframe except as permitted or authorized under the
terms of the Head Lease and this Lease.
[Next following page is the signature page.]
72
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Agreement
to be duly executed as of the day and year first above written.
Lessor:
AMERICAN AIRLINES, INC.
By: /s/ Jeffery M. Jackson
_______________________________________________
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
Lessee:
HAWAIIAN AIRLINES, INC.
By: /s/ C. J. David Davies
_______________________________________________
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By: /s/ Rae A. Capps
_______________________________________________
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
<PAGE>
SCHEDULE I
This Schedule I has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT A TO LEASE AGREEMENT
----------------------------
LEASE SUPPLEMENT NO.1
---------------------
THIS LEASE SUPPLEMENT NO. 1, dated December ____, 1995, between AMERICAN
AIRLINES, INC., a Delaware corporation ("Lessor"), and HAWAIIAN AIRLINES, INC.,
a Hawaii corporation ("Lessee").
W I T N E S S E T H:
--------------------
WHEREAS, Lessor and Lessee have heretofore entered into the Aircraft Lease
Agreement dated as of December 15, 1995 (the "Lease Agreement", defined terms
used herein are as therein defined), which provides in Section 2 for the
execution of a Lease Supplement substantially in the form hereof for the purpose
of leasing the Aircraft under the Lease Agreement on its Delivery Date in
accordance with the terms hereof; and
WHEREAS, the Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached to and made a part
of this Lease Supplement, and this Lease Supplement, together with such
attachment, is being filed for recordation on the date hereof with the FAA as
one document;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to Section 2 of the Lease Agreement, the Lessor and
Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts
and leases from Lessor, under the Lease Agreement as hereby supplemented, the
McDonnell Douglas DC10-10 aircraft (the "Aircraft") which consists of the
following components (which may or may not be attached to each other at the
moment of acceptance hereunder):
(i) airframe: U.S. registration number N151AA; manufacturer's serial
no 46706; and
(ii) three General Electric CF6-6K engines bearing manufacturer's
serial nos. 451521, 451189 and 451551 (each of which engines has 750
or more rated takeoff horsepower or the equivalent of such
horsepower).
2. The Term for the Aircraft commences on the date of this Lease
Supplement.
3. The Term shall commence on the date hereof and shall end on February
7, 1996, unless earlier terminated in accordance with the provisions of the
Lease Agreement.
<PAGE>
4. Lessee hereby confirms its agreement to pay to Lessor Basic Rent for
the Aircraft throughout the Term in accordance with Section 3 of the Lease
Agreement and to pay Supplemental Rent pursuant to Exhibit E attached to the
Lease.
5. All of the provisions of the Lease Agreement are hereby incorporated
by reference in this Lease Supplement on and as of the date of this Lease
Supplement to the same extent as if fully set forth herein.
6. This Lease Supplement is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
7. This Lease Supplement may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Lease Supplement constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Lease Supplement may be created through the transfer
or possession of any counterpart other than the counterpart marked as the
"Original".
-2-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed and delivered as of the date and year first above
written.
AMERICAN AIRLINES, INC.
By: ____________________________________
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By: ____________________________________
C. J. David Davies
Senior Vice President - Finance
and Chief Financial Officer
By: ____________________________________
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
-3-
<PAGE>
EXHIBIT B
---------
This Exhibit B has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
B-1
<PAGE>
EXHIBIT C
---------
CONDITIONS PRECEDENT TO DELIVERY
--------------------------------
1. The Aircraft shall have been tendered for delivery to Lessee in the
condition required by the Lease at LAX or such other location as Lessor and
Lessee may have agreed to in writing.
2. On the Delivery Date, the representations and warranties of Lessor set
forth in the Lease Agreement shall be true and accurate as if made on such
date.
3. This Lease and Lease Supplement No. 1 shall have been executed and
delivered to Lessor for filing for information with the FAA in Oklahoma
City, Oklahoma.
4. The receipt by Lessor from Lessee not later than two (2) days prior to the
Delivery Date of the following, dated as of such Delivery Date, all of
which shall be satisfactory in form and substance to Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized
officer thereof;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform the Lease Agreement and the
transactions contemplated hereby, certified to be true and up to date
copies by a duly authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officers of Lessee setting out the names and signatures of
the person or persons authorized to sign the Lease Agreement;
(d) Opinion of in-house counsel to Lessee in form and substance reasonably
satisfactory to Lessor, and the opinion of independent counsel
confirming the applicability of the protections of Section 1110 of the
Bankruptcy Code to the Lease Agreement;
(e) certificate acceptable in form and substance to Lessor evidencing the
insurance required by Section 9 of the Lease Agreement;
(f) receipt by Lessor of the first installment of Basic Rent pursuant to
Section 3 of the Lease Agreement and Supplemental Rent pursuant to
Exhibit E to the Lease Agreement and payment of all amounts then due
under any Long-Term Agreement; and
C2-1
<PAGE>
(g) Execution and delivery by Lessee of any financing statements required
by Lessor.
5. Execution by Lessee of the Lease Termination relating to this Lease
Agreement.
6. The Final Order (as defined in the Long-Term Lease Agreement) confirming
the Plan shall be and remain in full force and effect.
7. The Long-Term Agreements and the Letter of Credit are in full force and
effect.
8. Amendment to the Letter of Credit, acceptable to Lessor.
9. No Default or Lessee Event of Default shall have occurred and be continuing
and no "Event of Default" or "Termination Event" shall have occurred and be
continuing under the Interim Definitive Agreements or Long-Term Agreements;
provided however, that the effectiveness of this Lease Agreement shall not
----------------
be deemed to be a waiver by either party to this Lease Agreement or any of
the Interim Definitive Agreements of any claims (whether or not disclosed)
such party may have against the other party under the Interim Definitive
Agreements or the Long Term Agreements.
C2-2
<PAGE>
EXHIBIT D
---------
TO LEASE AGREEMENT
------------------
DELIVERY AND RETURN CONDITIONS
------------------------------
The following conditions shall apply to the Aircraft upon delivery of the In-Use
Aircraft by Lessor to Lessee and upon return of Return Aircraft to the Lessor by
the Lessee pursuant to this Agreement.
CONDITION OF IN-USE AIRCRAFT UPON DELIVERY AND
----------------------------------------------
RETURN AIRCRAFT UPON RETURN
---------------------------
Lessor and Lessee agree that Lessor shall deliver the In-Use Aircraft to Lessee
AS-IS, WHERE-IS; and Lessee shall return the Return Aircraft to the Lessor in
compliance with all of the following provisions:
1. Inspection of "on-condition" and "condition monitored" components will have
been accomplished when due and all such items shall be serviceable.
2. It is the intent of the parties that the condition of the In-Use Aircraft
at the time of delivery of the Return Aircraft at the termination of the Lease
shall be to conform to that of the standards of international air
transportation, with the interior and exterior in good repair and appearance,
without significant corrosion, or structural maintenance work deferred, and with
all Airworthiness Directives in full compliance. It is further the intent of
the Lease that the Return Aircraft and its Serviced Engines will be readily
transferable to the registration of another carrier without having to undergo
significant repairs, refurbishment or modification being required on the Return
Aircraft. At the time of such return, the Return Aircraft shall comply with the
following conditions:
A. Upon return to Lessor, the Return Aircraft shall comply with Lessee's
FAA-approved maintenance program.
B. All deferred maintenance items and all deficiencies or discrepancies
which by their nature are outside Lessee's maintenance manual limits
for unrestricted operation found prior to or during the return
inspection or final inspection or demonstration delivery flight(s)
shall be corrected by repair in accordance with the approved Lessee's
maintenance manual.
C. The fuel, hydraulic, pneumatic, water and waste system leaks on the
Return Aircraft shall be within the limits allowable pursuant to
Lessee's maintenance manual. This is to be demonstrated by filling
all tanks and reservoirs to capacity and performance of a functional
and leak check of all related systems. The cost of such checks shall
be borne by the Lessee.
D-1
<PAGE>
D. The Return Aircraft on return by Lessee and all parts installed shall
have all necessary FAA approved service tags or equivalent Lessee
documents approved by the Lessee's maintenance program.
E. Engines
a. Engine borescope inspections of compressor, burner and turbine
sections of each installed engine shall be conducted in
accordance with Lessor's engine borescope inspection cards #4930-
1, 4930-2 and 4930-3 [for inspections] (or any such replacement
card therefor). Each card shall have attached thereto findings
and comments along with visual records (photographic or video
data). Inspected engines shall meet the requirements of
manufacturer's maintenance manual. Borescope inspection findings
that result in inspection intervals being reduced to less than
400 hours will be corrected by engine replacement and/or repair
prior to the return of the Return Aircraft by Lessee.
Borescope inspections shall have been completed by Lessor/Lessee
or its authorized representative, at Lessee's expense. In the
event the APU fails to meet the pneumatic or electrical load
requirements, the APU shall be changed.
b. Each installed engine will be subject to completion of a power
assurance run and review of engine trend analysis with all engine
parameters being within limits in accordance with the appropriate
manufacturer's engine manual. Engine ground runs for the Return
Aircraft shall be conducted in accordance with Lessor's engine
ground run-up card number DR71-95-18 (or any such replacement
card therefor). Engine Exhaust Gas Temperature ("EGT") shall not
exceed a maximum of 925 degrees C during ground runs to max
power. In the event EGT exceeds 925 degrees C and adjustments
cannot be accomplished with the engine installed within eight
working hours to reduce EGT below 925 degrees C at max power, the
engine installed shall be rejected and a Replacement Engine
installed.
c. No installed engine shall be on "watch" and each such engine
shall comply with the operations specification of Lessee without
waiver or exceptions.
In the event Lessor is no longer maintaining the In-Use Aircraft, the
expense of complying with this paragraph E shall be at Lessee's sole
expense. In the event Lessor is maintaining the In-Use Aircraft
pursuant to Exhibit E hereto, the cost of any repairs or replacements
required by this
D-2
<PAGE>
Paragraph E shall be borne by the parties in accordance with the other
terms of Exhibit E as if such repairs and replacements were made in
the normal course of the term of the Lease Agreement, except to the
extent specifically set forth in this Exhibit E.
F. The Return Aircraft on return by Lessee shall have a then current
weight and balance report in the final delivery configuration as
required by the FARs provided to Lessor and/or Lessee.
G. All required placards per Lessor's/Lessee's maintenance and operations
specifications must be current, in place and legible. (In English)
H. Fuselage
(1) Dents, corrosion and abrasions, or any loose, pulled or missing
rivets shall be within the limits of Lessee's maintenance manual.
External patches shall be of a type consistent with industry
standards and approved by Lessee's maintenance manual. Each
repair will have proper documentation of structural repair manual
reference and/or engineering repair drawings or documentation as
applicable.
(2) Windows shall be serviceable in accordance with Lessee's
maintenance manual. Visibility through windows will meet standard
industry standards.
(3) Doors shall be free moving, correctly rigged and be fitted with
serviceable seals, in accordance with Lessee's maintenance manual
limits.
(4) Exterior logos will be removed pursuant to Exhibit E hereto, by
stripping or sanding off the present logo, and repainting to
blend with existing exterior paint in accordance with standard
industry practices.
(5) Unpainted metal surfaces shall be clean and buffed.
I. Wings and Empennage
(1) All leading edges shall be serviceable in accordance with
Lessee's maintenance manual. Any repairs to leading edges shall
be in accordance with Lessee's maintenance manuals.
(2) All control surfaces shall be clean by airline standards and free
of delamination in accordance with Lessee's maintenance manual.
D-3
<PAGE>
(3) All unpainted cowlings and fairings shall be buffed and clean by
airline standards and tightly fitted in accordance with Lessee's
maintenance manual limits.
(4) Fuel leaks in the wings shall be within the limits allowed by
Lessee's FAA-approved maintenance program. Temporary fuel leak
repairs will be within the limits allowed, by Lessee's FAA-
approved maintenance program, and permanent repairs may be
deferred until the next C check.
(5) Fuel tanks shall be free from contaminates, as evidenced by
sumping the tanks externally.
J. Interior
(1) The Return Aircraft shall be delivered with Lessee's carpet,
flooring, drapes, tapestries and hard decor as last operated in
revenue service by Lessee, all of which items may be subsequently
used by Lessor in its sole discretion. Upon return, all logos and
markings of Lessee shall be tastefully removed, where reasonable.
Except as otherwise provided herein, Lessor may retain other
severable items that do not add to the value of the Return
Aircraft and that are not required to be installed in the
Aircraft by the FAA. Lessee shall deliver the Return Aircraft
with Lessor's seat covers.
(2) Ceilings, sidewalls and bulkhead panels shall be clean and free
of major cracks and stains by normal airline standards.
(3) All carpets and seat covers shall be in good condition, normal
wear and tear excepted, clean and stain-free by normal standards
and shall meet current FAA fire resistance regulations.
(4) All seats shall be serviceable in accordance with maintenance
manual limits in good condition, normal wear and tear excepted
and repainted as reasonably required.
(5) All signs and decals shall be clean and legible by normal lessee
standards.
(6) Floor panels shall be in good condition free of soft spots and
delamination. If field repairs are installed, permanent repairs
may be deferred to the next C Check.
D-4
<PAGE>
(7) The aircraft interior shall be thoroughly cleaned to the
standards acceptable for passenger revenue flights.
K. Cockpit
(1) All placard and decals shall be clean, secure and legible. (In
English)
(2) All fairing panels shall be free of major stains and major cracks
and shall be clean.
(3) Floor coverings shall be clean and effectively sealed as required
by Lessee's maintenance program.
(4) Seat covers shall be in good condition, free of major tears and
major stains, normal wear and tear excepted, and shall conform to
existing fire resistance regulations.
(5) Seats shall be fully serviceable, in good condition, normal wear
and tear excepted, and repainted as reasonably required.
L. Cargo Compartments
(1) All panels shall be in serviceable condition, normal wear and
tear excepted. All repairs to floor, ceilings or side walls shall
be in accordance with Lessee's maintenance manuals. If field
repairs are installed, permanent repairs may be deferred to the
next C Check.
(2) No cargo containers shall be delivered or returned.
(3) All cargo loading functions will be tested under load conditions
by utilizing one fully loaded cargo container.
(4) One ship set of onboard ovens/coffee makers shall be included.
M. Landing Gear and Wheel Wells
(1) Shall be clean, free from leaks and in good repair, normal wear
and tear excepted.
(2) All decals shall be clean, secure and legible. (In English)
(3) Brakes will be in good condition. No brake will have less than
one half ( 1/2) inch of wear remaining on wear indicator.
D-5
<PAGE>
N. No structural repairs including corrosion, skin replacement, crack
propagation or SSI programs shall be overdue on the Return Aircraft at
time of redelivery, or be in a deferred status.
O. The Return Aircraft shall be made available on or before the
anticipated date of return by Lessee for an operation test flight, at
Lessee's expense, not to exceed one hour, which test flight shall be
conducted by Lessee using Lessee's standard flight test procedures.
Up to five persons designated by Lessor may participate in such flight
as observers. The Lessor shall identify to the Lessee in writing any
claim of discrepancy between the required condition of the Return
Aircraft at return of the Return Aircraft to the Lessor and the Return
Aircraft's actual condition.
In the event Lessor is no longer maintaining the Return Aircraft, the
expense of correcting any discrepancy shall be at Lessee's sole
expense. In the event Lessor is maintaining the Return Aircraft
pursuant to Exhibit E hereto, the cost of correcting any discrepancy
required by this paragraph O(2) shall be borne by the parties in
accordance with the other terms of Exhibit E as is such actions were
taken in the course of the term of the Lease Agreement.
P. The Return Aircraft shall be in compliance with Stage III Noise
Regulations.
Q. Any FAA mandated corrosion control program will be current as
specified by the manufacturer's corrosion control document or approved
Lessee's corrosion control program.
R. The Return Aircraft shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by
the respective regulatory authorities.
Lessor shall not furnish any sets of cargo containers, catering modules,
catering carts and catering inserts to Lessee hereunder.
D-6
<PAGE>
Return Inspection and Acceptance Flight Ground Inspection
- ----------------------------------------------------------
The Return Aircraft shall be made available to Lessor on or before
return of the Return Aircraft, for ground inspection at either Tulsa, Oklahoma
Airport or another Airport satisfactory to Lessor on or before the due date for
return in order that Lessor may reasonably satisfy itself that the Return
Aircraft is in the condition required under this Agreement. The manuals and
technical records shall be made available to Lessor for inspection during such
period prior to return thereof as Lessor reasonably requires. Such inspection
shall be conducted in coordination with Lessee's and Lessor's respective
personnel and Lessor shall be allowed reasonable access to the Return Aircraft
to verify compliance with the conditions set forth in this Agreement. Lessor
shall immediately state orally and confirm in writing within four (4) hours of
the relevant inspection to Lessee each claim of discrepancy. To facilitate such
inspection Lessee will provide reasonable office accommodation at or near the
inspection site (equipped with a telephone and having access to a photocopier,
telecopier and word processing facilities) provided, however, that Lessor shall
indemnify Lessee for all out-of-pocket costs so incurred by Lessor.
D-7
<PAGE>
Documents Required for Return
- -----------------------------
Listed below are the documents or Lessee equivalent that will be required upon
delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft
by Lessee. All documents must be valid at time of return and shall incorporate
the most recent revisions issued by the documents controlling regulatory agency:
1. Standard Airworthiness Certificate
2. Certificate of Sanitary Construction
3. A copy of Maintenance Check Manual
4. Airworthiness Directive Compliance Status including Repetitive and Method
of Compliance
5. Status of Time Controlled and Life Limited Parts; Status of Time Controlled
and Life Limited Parts; Status of Airframe, Engines, Auxiliary Power Unit
and Land Gear
6. Report covering any Major Accidents or Repairs on the Aircraft with
Supporting Documentation
7. A review of the Aircraft Log Books
8 FAR Compliance Status including Method of Compliance
9. Alteration/Repair/Modification Records
10. Service Bulletin Status List
11. AOL/Service Letter Status List
12. Supplemental type Certificates issued for Aircraft and Equipment as held by
operator
13. List of Open Items
14. Weight and Balance Records
D-8
<PAGE>
The following manuals or Lessee equivalents will be furnished in hard copy or
reproducible film or in the then current form in which it is used by Lessee.
Unless otherwise indicated, one copy per In-Use Aircraft of each of the
following manuals or equivalents will be provided to Lessee. Additional copies
will be or have been provided pursuant to that certain Manuals Supplement
between Lessor and Lessee, the Interim Aircraft Lease Agreements, the Interim
Aircraft Maintenance Agreement or pursuant to the provisions hereof and all
copies of each of the following shall be returned. All manuals will be valid at
time of return and shall include the most recent revisions issued by the
documents controlling regulatory agency.
1. FAA Approved Flight Manual
2. Flight Crew Operational Manual
3. Performance Manual
4. Airframe Maintenance Manual
5. Airframe Illustrated Parts Catalog
6. Airframe Structures Repair Manual
7. Wiring Diagram Manual
8. Engine Maintenance Manual
9. Engine Illustrated Parts Manual
10. Weight and Balance Records
11. Minimum Equipment List
12. Part Number Conversation List - Operator to Manufacturer P/N
13. Red Book for each microfilm library
NOTE: All documents and manuals must be in English
D-9
<PAGE>
Return of Other Engines. In the event that any engine not owned or leased by
- -----------------------
Lessor shall be installed on the Return Airframe, such engine shall be an engine
suitable to be a Replacement Engine hereunder. Upon return of the Return
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens (other than any Head Lease Lessor's Liens or Lessor's
Liens) and, upon such conveyance, Lessee will furnish Lessor with a full
warranty bill of sale, in form and substance reasonably satisfactory to it, with
respect to such engine and take such other action as may be reasonably requested
in order that title to such engine may be duly and properly vested in Lessor to
the same extent as the Engine replaced thereby. Upon conveyance by Lessee of
good title to such engine to Lessor, and upon full compliance by Lessee with its
obligations hereunder, at Lessee's expenses, Lessor will transfer to Lessee all
rights, title and interest originally conveyed to Lessor in an Engine
constituting part of the Aircraft but not installed on the Return Airframe at
the time of the return of the Return Airframe "as-is, where-is", free and clear
of Head Lease Lessor's Liens and Lessor's Liens but otherwise without recourse
or warranty, express or implied to Lessee.
D-10
<PAGE>
EXHIBIT E
---------
This Exhibit E has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
SCHEDULE 4(d)(i)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-1
<PAGE>
SCHEDULE 4(d)(iv)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-2
<PAGE>
SCHEDULE 4(d)(v)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-3
<PAGE>
SCHEDULE 4(d)(vi)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-4
<PAGE>
SCHEDULE 4(d)(vii)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-5
<PAGE>
Exhibit 10(ab)
LEASE AMENDMENT NO. 7
---------------------
THIS LEASE AMENDMENT NO. 7 (herein called "Amendment No. 7"), dated as of
December 8, 1995 between AMERICAN AIRLINES, INC., a Delaware corporation
("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee").
WITNESSETH:
-----------
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of September 12, 1994 (as amended and
supplemented from time to time, the "Lease Agreement", defined terms used herein
as therein defined), which provides for the execution of a Lease Amendment for
the purpose of, among other things, amending the Lease Agreement and any Lease
Supplements thereto; and
WHEREAS, the Lease Agreement was modified and amended by those certain
Lease Supplements No. 1 through 6, each dated as of September 12, 1994, recorded
with the Lease Agreement, with the Federal Aviation Administration (the "FAA")
on September 16, 1994 as Conveyance No. P98874; by that certain Lease Supplement
No. 7 dated as of September 21, 1994, recorded with the FAA on October 26, 1994
as Conveyance No. II00230; by that certain Lease Supplement No. 8 dated as of
October 6, 1994, recorded with the FAA on October 31, 1994 as Conveyance No.
LL08311; by that certain Amendment to Lease Agreement, Lease Supplements and
Lease Supplement No. 9, dated as of November 12, 1994, recorded with the FAA on
November 21, 1994 as Conveyance No. NN007458; by that certain Lease Supplement
No. 10 dated November 21, 1994, recorded by the FAA on March 15, 1995 as
Conveyance No. YY010872; by that certain Lease Amendment No. 2 dated April 13,
1995 ("Lease Amendment No. 2"), recorded by the FAA on May 26, 1995 as
Conveyance No. D06501; by that certain Lease Amendment No. 3 dated June 1, 1995
("Lease Amendment No. 3"), recorded by the FAA on June 8, 1995 as Conveyance No.
E19773; by that certain Lease Amendment No. 4 dated August 22, 1995 ("Lease
Amendment No. 4"), recorded by the FAA on September 27, 1995 as Conveyance No.
JJ14862; by that certain Lease Amendment No. 5 dated October 6, 1995 ("Lease
Amendment No. 5"), recorded by the FAA on ____________________, 1995 as
Conveyance No. ____________, and by that certain Lease Amendment No. 6 dated
November 20, 1995 ("Lease Amendment No. 6), recorded by the FAA on
________________, 1995 as Conveyance No. ____________ ; and
WHEREAS, Lessee has failed to make certain payments of Deferred Basic Rent
due and payable on or prior to the date hereof, and Lessor has agreed to defer
payment of the overdue Deferred Basic Rent and certain additional rents as set
forth herein; and
<PAGE>
WHEREAS, Lessor's agreement to the additional deferrals as set forth herein
is conditioned upon Lessee's performance of its obligations under this Lease
Amendment No. 7.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to the Lease Agreement, the Lessor and Lessee hereby
amend the Lease Agreement as follows:
A. AMENDMENT TO THE LEASE AGREEMENT.
--------------------------------
1. The following definitions set forth in Section 1 of the Lease
Agreement shall be amended in their entirety as follows:
"'Deferred Basic Rent Payment Dates' means March 31, 1995, April 7, 14
---------------------------------
and 21, 1995, May 1, 1995 and December 9, 19 and 22, 1995."
Further, the following new definitions shall be added to Section 1 of the
Lease Agreement:
"'Additional Deferral Period' shall have the meaning set forth in
--------------------------
Schedule I attached hereto.
'Additional Deferred Rent' shall have the meaning set forth in
------------------------
Schedule I attached hereto.
'Deferral Notice' shall have the meaning set forth in Schedule I
---------------
attached hereto.
'Deferral Interest' shall have the meaning set forth in Schedule I
-----------------
attached hereto.
'Maximum Deferral' shall have the meaning set forth in Schedule I
----------------
attached hereto."
2. The first sentence of Subsection 3(b) of the Lease Agreement shall be
amended in its entirety to read as follows:
"Lessee hereby agrees to pay Lessor (i) Basic Rent (except Deferred Basic
Rent and Additional Deferred Rent) for each Aircraft throughout the Term in the
amounts set forth in Schedule I on the day prior to each applicable Basic Rent
Payment Date commencing on the day prior to the applicable Delivery Date, and
(ii) Deferred Basic Rent and Additional Deferred Rent for all the Aircraft
throughout the applicable Terms in the amounts and on the dates set forth in
Schedule I. Notwithstanding anything to the contrary contained in this Lease
Agreement, Lessee shall have the option to defer the payment of Basic Rent as
provided in Schedule I hereto.
2
<PAGE>
3. Subsection 13A(a) of the Lease Agreement shall be amended in its
entirety to read as follows:
"(a) Lessee shall (i) fail to make any payment of Basic Rent, Deferred
Basic Rent, Additional Deferred Rent, and Deferral Interest or Supplemental Rent
due pursuant to Exhibit F hereto, as and when due; or (ii) fail to make any
other payment of Supplemental Rent within five (5) Business Days after delivery
to Lessee of notice from Lessor that the amount shall have been due hereunder;
or"
4. Subsection 14A(e) of the Lease Agreement shall be amended by inserting
the words ", Additional Deferred Rent and Deferral Interest" immediately after
the words "Deferred Basic Rent" on the tenth line and after the words "Deferred
Rent" on the twelfth line.
5. Section A., paragraph 8. of Amendment No. 2 shall be amended by
inserting the words "Additional Deferred Rent or Deferral Interest" after the
words "Deferred Basic Rent" on the first and third lines.
6. Section 3(g) of Exhibit F of the Lease Agreement shall be amended by
adding the following to the end thereof: "(v) Notwithstanding anything to the
contrary contained in this Exhibit F, Lessee shall have the option to defer the
payment of Weekly Supplemental Rent as provided in Schedule I attached hereto."
7. Schedule I to the Lease Agreement shall be amended in its entirety to
read as set forth in Schedule I attached hereto.
B. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 7.
--------------------------------------------------------------
This Amendment No. 7 shall become effective upon the fulfillment of the
following conditions precedent:
1. On the effective date of this Amendment No. 7 (the "Amendment
Effective Date"), the representations and warranties of Lessee set forth in the
Lease Agreement shall be true and accurate as if made on such date.
2. The Lease Amendment and the applicable Lease Supplements shall have
been executed and filed for information with the FAA in Oklahoma City, Oklahoma.
3. The receipt by Lessor from Lessee not later than two (2) days prior to
the Amendment Effective Date of the following, dated as of such Amendment
Effective Date, all of which shall be satisfactory in form and substance to
Lessor:
3
<PAGE>
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized officer thereof
or certifying no changes or amendments thereto since the date they were last
certified to Lessor by Lessee;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform this Amendment No. 7 and the transactions
contemplated hereby, certified to be true and up to date copies by a duly
authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of duly authorized
officers of Lessee setting out the names and signatures of the person or persons
authorized to sign the Lease Agreement;
(d) receipt by Lessor of the installments of Basic Rent pursuant to
Section 3 of the Lease Agreement, as amended hereby, and Supplemental Rent
pursuant to Exhibit F to this Lease Agreement, as amended hereby, and payment of
all amounts then due under any other Long-Term Agreement.
4. The Final Order confirming the Plan shall be and remain in full force
and effect.
5. The Long-Term Agreements and the Letter of Credit shall be in full
force and effect.
6. No Default or Lessee Event of Default shall have occurred and be
continuing after giving effect to this Lease Amendment and no "Event of Default"
or "Termination Event" shall have occurred and be continuing under the Long-Term
Agreements.
7. Lessee shall have entered into a Stock Purchase Agreement with
Airlines Investor Partners, L.P., in form and scope acceptable to Lessor.
8. Lessee shall have entered into a tentative agreement with its labor
unions (pending ratification by such union's members) extending and modifying
its collective bargaining agreements so as to generate at least $5,000,000 cost
savings per year for each of the five years commencing January 1, 1996, as
measured against Lessee's current contractually determined labor costs as if
extended through the year 2000, in form and scope acceptable to Lessor.
9. Lessee shall have proposed a new plan concerning its creditors'
participation in the restructuring of Lessee's business, in form and scope
acceptable to Lessor.
4
<PAGE>
C. MISCELLANEOUS.
-------------
1. Except as set forth herein, all terms and provisions contained in the
Lease Agreement shall remain in full force and effect. Nothing contained in
this Lease Amendment No. 7 shall be deemed a waiver by Lessor of any amounts due
and owing under the Lease or of any rights of Lessor existing on the date hereof
under the Lease; provided, however, that the amount of Deferred Basic Rent
represents the unpaid Rent due and owing on the date hereof (the "Unpaid Rent").
Lessor hereby waives any Event of Default under the Lease Agreement arising
solely from Lessee's failure to pay the Unpaid Rent. Lessee's failure to pay
the Deferred Basic Rent, Additional Deferred Rent or Deferral Interest in
accordance with the terms of this Amendment No. 7 shall constitute an Event of
Default under the Lease Agreement and entitle Lessor to enforce all rights and
remedies under Section 14A of the Lease.
2. Lessee hereby confirms its agreement to pay to Lessor Basic Rent,
Deferred Basic Rent, Additional Deferred Rent, Deferral Interest and
Supplemental Rent for the Aircraft throughout the Term in accordance with the
Lease Agreement, as amended.
3. This Amendment No. 7 is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
4. This Amendment No. 7 may be executed in several counterparts, each of
which shall be deemed an original, and all such counterparts shall constitute
one and the same instrument. To the extent that this Amendment No. 7 constitutes
chattel paper, as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction, no security interest in this Amendment
No. 7 may be created through the transfer or possession of any counterpart other
than the counterpart marked as the "Original."
SIGNATURE PAGE FOLLOWS
5
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Amendment No. 7 to be
duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: /s/ Jeffery M. Jackson
-----------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES SIGNATURE ON FOLLOWING PAGE
6
<PAGE>
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
--------------------------------
Bruce R. Nobles
President and Chief Executive
Officer
By: /s/ Rae A. Capps
--------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
7
<PAGE>
SCHEDULE I
This Schedule I has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
8
<PAGE>
EXHIBIT 10 (ac)
---------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
HAWAIIAN AIRLINES, INC.
AND
AIRLINE INVESTORS PARTNERSHIP, L.P.
_________________________
Dated as of December 8, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS........................................................ 1
2. CLOSING............................................................ 7
2.1 Time and Place of the Closing................................. 7
2.2 Transactions at the Closing................................... 7
3. CONDITIONS TO THE CLOSING.......................................... 7
3.1 Conditions Precedent to the Obligations of the Purchaser...... 8
3.1.1 Compliance by the Company.............................. 8
3.1.2 Shareholder Approval................................... 8
3.1.3 Amendment to Articles and Bylaws....................... 8
3.1.4 Board of Directors..................................... 8
3.1.5 Consents............................................... 8
3.1.6 Hart-Scott-Rodino...................................... 8
3.1.7 Absence of Material Adverse Effect; Existing
Litigation............................................. 8
3.1.8 Registration Rights Agreement.......................... 9
3.1.9 Restructuring Agreements, Stock Option Amendment and
Warrant Holder Amendment............................... 9
3.1.10 Legal Opinions......................................... 9
3.1.11 Officer's Certificate................................. 9
3.1.12 Corporate Secretary's Certificate..................... 9
3.1.13 No Injunction......................................... 9
3.2 Conditions Precedent to Obligations of the Company............ 9
3.2.1 Compliance by the Purchaser............................ 10
3.2.2 Shareholder Approval................................... 10
3.2.3 Consents............................................... 10
3.2.4 Hart-Scott-Rodino...................................... 10
3.2.5 Legal Opinion.......................................... 10
3.2.6 General Partner's Certificate.......................... 10
3.2.7 No Injunction.......................................... 10
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... 11
4.1 Corporate Existence and Power................................. 11
4.2 Power and Authority........................................... 11
4.3 Affiliate Transactions........................................ 11
4.4 No Contravention, Conflict, Breach, Etc....................... 11
4.5 Consents 12
4.6 Capitalization of the Company................................. 12
4.7 Rights Plan................................................... 13
4.8 Registration Rights........................................... 13
4.9 No Subsidiaries............................................... 13
4.10 SEC Documents................................................. 13
i
<PAGE>
4.11 Financial Statements......................................... 13
4.12 No Existing Violation, Default, Etc.......................... 14
4.13 Licenses and Permits......................................... 14
4.14 Title to Properties.......................................... 15
4.15 Leases....................................................... 15
4.16 Intellectual Property........................................ 15
4.17 Environmental Matters........................................ 16
4.18 Taxes........................................................ 17
4.19 Litigation................................................... 18
4.20 Labor Matters................................................ 18
4.21 Employee Benefits............................................ 19
4.22 Contracts.................................................... 20
4.23 Contingent Liabilities....................................... 20
4.24 No Material Adverse Change................................... 20
4.25 Finder's Fees................................................ 20
4.26 Investment Company........................................... 20
4.27 Exemption from Registration; Restrictions on Offer
and Sale of Same or Similar Securities....................... 21
4.28 Full Disclosure.............................................. 21
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................... 21
5.1 Partnership Existence and Power............................... 21
5.2 Power and Authority........................................... 21
5.3 No Contravention, Conflict, Breach, Etc....................... 21
5.4 Consents...................................................... 22
5.5 Acquisition for Own Account................................... 22
5.6 Ownership of Common Stock..................................... 22
5.7 Hart-Scott-Rodino Filing...................................... 22
5.8 Available Funds............................................... 22
6. COVENANTS OF THE PARTIES........................................... 22
6.1 Shareholder Meeting; Proxy Material; Articles and
Bylaws Amendments............................................. 22
6.2 Pre-Closing Activities........................................ 23
6.3 Hart-Scott-Rodino............................................. 24
6.4 Access and Confidentiality.................................... 24
6.5 Publicity..................................................... 25
6.6 Acquisition Proposals......................................... 25
6.7 Certificates for Shares To Bear Legends....................... 25
6.8 Use of Proceeds............................................... 26
6.9 Rights Offering............................................... 26
6.10 Purchaser Vote................................................ 26
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.............. 26
8. INDEMNIFICATION.................................................... 27
8.1 Indemnification by the Company................................ 27
ii
<PAGE>
8.2 Notification.................................................. 27
8.3 Registration Rights Agreement................................. 28
9. TERMINATION........................................................ 28
9.1 Termination................................................... 28
9.2 Fees and Expenses............................................. 29
9.3 Effect of Termination......................................... 31
10. MISCELLANEOUS...................................................... 31
10.1 Performance; Waiver.......................................... 31
10.2 Successors and Assigns....................................... 31
10.3 Notices...................................................... 32
10.4 Governing Law................................................ 32
10.5 Severability................................................. 33
10.6 Headings; Interpretation..................................... 33
10.7 Entire Agreement............................................. 33
10.8 No Third Party Rights........................................ 33
10.9 Counterparts................................................. 33
EXHIBITS
A. Form of Amendment to the By-Laws of the Company
B-1. Form of Legal Opinion of Gibson, Dunn & Crutcher
B-2. Form of Legal Opinion of Rae A. Capps, General Counsel of the
Company
C. Form of Legal Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
D. The terms and conditions set forth in that certain letter dated
December 8, 1995
E. Letter relating to Lender participation
F. Term sheets with unions
G. Form of Registration Rights Agreement
H. Rights Plan Amendment
I. Stock Option Amendment
J. Confidentiality Agreement
K. Warrant Holder Waiver
L. Articles Amendment
iii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("AGREEMENT"), dated as of December 8, 1995,
between Hawaiian Airlines, Inc., a Hawaiian corporation (the "Company"), and
Airline Investors Partnership, L.P., a Delaware limited partnership (the
"Purchaser").
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase, an aggregate of 18,181,818 shares of Class A
common stock, par value $.01 per share, of the Company (the "Class A Common
Stock"), at a purchase price equal to $1.10 per Share (the "Purchase Price Per
Share") (or $20,000,000 in the aggregate) and 1 share of special preferred
stock, par value $1.10 per share, of the Company (the "Special Preferred
Stock"), at a purchase price equal to the Purchase Price Per Share upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the Company and the Purchaser agree as follows:
1. DEFINITIONS.
The terms defined in this Section 1 shall have the following
meanings for all purposes of this Agreement:
"AA" means American Airlines Inc.
"Acquisition Proposal" means any proposal or offer to the Company or
shareholders of the Company with respect to a merger, consolidation, tender
offer (including a self tender offer), exchange offer, recapitalization,
liquidation, dissolution or similar transaction involving the Company, any
purchase of, or option to purchase, any equity securities (or securities
convertible into equity securities) of the Company or any purchase of, or option
to purchase, any of the assets of the Company (other than (i) sales of any
assets of the Company and/or sales of any Voting Securities or preferred stock
or securities convertible into Voting Securities or preferred stock by the
Company in one or a series of transactions (whether related or unrelated) for
aggregate consideration (taking into account all such sales of assets and/or
securities) of less than $10,000,000 and (ii) grants and exercises of options
under the Stock Option Plan).
"Act" means the Securities Act of 1933, as amended, or any superseding
Federal statute, and the rules and regulations promulgated thereunder, all as
the same shall be in effect from time to time. References to a particular
section of the Securities Act of 1933, as amended, shall include a reference to
the comparable section, if any, of any such superseding Federal statute.
An "Affiliate" of, or a person "affiliated" with, a specified Person,
means a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. The term "control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise. No owner of a limited partnership interest of the Purchaser shall be
deemed an affiliate of, or a Person "affiliated" with, the Purchaser solely by
reason of such ownership.
<PAGE>
"Aircraft Equipment" has the meaning set forth in Section 4.15.
"Aircraft Equipment Leases" has the meaning set forth in Section 4.15.
"Aircraft Equipment Services Agreements" has the meaning set forth in
Section 4.15.
"Annual Report" means the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 as filed with the SEC (including all exhibits and
schedules thereto and documents incorporated by reference therein).
"Articles" means the Amended Articles of Incorporation of the Company,
as in effect on the date hereof.
"Articles Amendment" means the proposed amendment to the Articles in
the form of Exhibit L hereto.
"Benefit Plans" has the meaning set forth in Section 4.21.
"Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.
"Bylaws" means the Amended Bylaws of the Company, as amended through
the date hereof.
"Bylaws Amendment" means the proposed amendment to the Bylaws
substantially in the form of Exhibit A hereto, with such changes thereto as
shall be agreed upon by the parties, including changes required by the
Restructuring Agreements with the Unions.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended.
-- ----
"Change of Control" means the acquisition by any Person or 13D Group
(other than the Purchaser and its Affiliates or any transferee thereof) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
Voting Securities representing 35% or more of the outstanding Voting Securities.
"Class A Common Stock" has the meaning set forth in the first recital
of this Agreement.
"Class B Common Stock" means the Class B Common Stock, par value $.01
per share, of the Company.
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" is the collective reference to the Class A Common Stock
and the Class B Common Stock.
"Company" has the meaning set forth in the preamble to this Agreement.
"Contaminant" means any toxic waste, pollutant, contaminants,
hazardous substance, toxic substance, Hazardous Waste, petroleum or petroleum-
derived substance or
2
<PAGE>
waste, radioactive substance or waste, or any hazardous constituent of any such
substance or waste, or any other substance defined by, or regulated under, any
Environmental Law.
"Disclosure Letter" has the meaning set forth in Article 4.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of related transactions.
"Disinterested Shareholder" means, with respect to any transaction or
series of related transactions, a holder of Common Stock who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of related transactions, other than its pro rata interest
as a shareholder of the Company.
"Encumbrance" means any mortgage, pledge, lien, security interest,
restriction upon voting or transfer, claim or other encumbrance of any kind.
"Environment" shall have the meaning set forth in CERCLA at 42 U.S.C.
(S) 9601(8).
"Environmental, Health and Safety Permit" means any authorization,
permit, license or similar requirement, necessary for the lawful operation of
the Company or its Subsidiaries under or pursuant to Environmental Laws and/or
Worker Health and Safety Laws.
"Environmental Laws" means all Laws and Orders, in effect as of the
Closing Date, that relate to pollution or protection of the Environment, or the
emission, discharge, release or threatened release of pollutants, contaminants,
toxic or hazardous substances or wastes into the environment, including, without
imitation, CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. (S)
6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., the
-- ---- -- ----
Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., the Clean Air
-- ----
Act, 42 U.S.C. (S) 7401 et seq., the Federal Insecticide, Fungicide and
-- ----
Rodenticide Act, 7 U.S.C. (S) 121 et seq., the Asbestos Hazard Emergency
-- ----
Response Act, 15 U.S.C. (S) 2601 et seq., the Safe Drinking Water Act, 42 U.S.C.
-- ----
(S) 300f et seq., the Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq., and
-- ---- -- ----
the analogous state acts.
"ERISA" has the meaning set forth in Section 4.21.
"Evaluation Material" means all information and documents, whether in
written or oral form, which the Company furnishes or otherwise discloses to the
Purchaser or any of the Representatives pursuant to Section 6.4 or which the
Company has previously furnished to the Purchaser or any of the Representatives
pursuant to the Letter Agreement dated November 6, 1995 between the Company and
Airline Investors Partnership, together with all analyses, compilations, studies
or other documents, records or data prepared by the Purchaser or any of the
Representatives which contain or otherwise reflect or are generated from such
information and documents; provided, that the term "Evaluation Material" does
--------
not include any information which (i) at the time of disclosure is or becomes
generally available to and known by the public (other than as a result of a
disclosure directly or indirectly by the Purchaser or any of the
Representatives) or (ii) was available to the Purchaser on a non-confidential
basis from a source other than the Company, that to the knowledge of the
Purchaser is not and was not bound by a confidentiality agreement with the
Company or otherwise prohibited from transmitting the
3
<PAGE>
information to the Purchaser on a non-confidential basis by a contractual, legal
or fiduciary obligation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of such superseding
Federal statute.
"Existing Indebtedness" means the indebtedness of the Company for
money borrowed existing on the date hereof.
"Governmental Authority" means the government of any nation or state,
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Waste" shall have the meaning set forth in the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, at 42
U.S.C. (S) 6903(5).
"Intellectual Property" has the meaning set forth in Section 4.16(A).
"Investment Proposal" has the meaning set forth in Section 6.1.
"IP Licenses" has the meaning set forth in Section 4.16(B).
"Knowledge of the Company" means the knowledge of the senior
executives of the Company after due inquiry.
"Law" means any law, treaty, rule or regulation of a Governmental
Authority or legally binding judgment, order, writ, injunction or determination
of an arbitrator or a court or other Governmental Authority.
"Lenders" means CIT Group Credit Finance, Inc., GPA Group PLC and
Kawasaki Enterprise Inc.
"Liabilities" has the meaning set forth in Section 8.1.
"Licenses" means any certificates, permits, licenses, franchises,
consents, approvals, orders, authorizations and clearances from appropriate
Governmental Authorities.
"Material Adverse Effect" means a material adverse effect on the
assets, results of operations, business, prospects or condition (financial or
otherwise) of the Company.
"1994 Audited Financial Statements" has the meaning set forth in
Section 4.11.
"Non-Purchaser Director" means any person nominated for election to
the Board of Directors or serving as a member of the Board of Directors who has
been nominated in accordance with Section 3.02 of the Bylaws, or elected to fill
a vacancy or newly created directorship in accordance with Section 3.12 of the
Bylaws, as amended by the Bylaws Amendment.
"Person" means any individual, firm, corporation, partnership, limited
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint
4
<PAGE>
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.
"Proxy Statement" means the proxy statement of the Company on Schedule
14A to be filed with the SEC in connection with the Shareholder Meeting, as
amended or supplemented (including all exhibits and schedules thereto and
documents incorporated by reference therein).
"Purchase Price Per Share" has the meaning set forth in the first
recital of this Agreement.
"Purchaser" has the meaning set forth in the preamble to this
Agreement.
"Purchaser General Partner" means AIP General Partner, Inc. (or any
other Person that is the general partner of the Purchaser).
"Purchaser Director" means any person designated for election to the
Board of Directors or serving as a member of the Board of Directors who has been
designated by the Purchaser in accordance with this Agreement or designated in
accordance with Section 3.02 of the Bylaws, or elected to fill a vacancy or
newly created directorship in accordance with Section 3.12 of the Bylaws, of the
Bylaws, as amended by the Bylaws Amendment.
"Quarterly Reports" means the Company's Quarterly Report on Form 10-Q
for the quarters ended March 31, June 30 and September 30, 1995 each as filed
with the SEC.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser, substantially in the form of
Exhibit G hereto, with such changes thereto as shall be agreed upon by the
parties, including changes that may be required to conform such agreement to
other registration rights agreements of the Company.
"Release" shall have the meaning set forth in CERCLA at 42 U.S.C. (S)
9601(22).
"Remedial Action" shall have, collectively, the meaning of Remedial
Action set forth in CERCLA at 42 U.S.C. (S) 9601(24) and the meaning of Removal
Action set forth in CERCLA at 42 U.S.C. (S) 9601(23).
"Representatives" shall mean the partners of the Purchaser and the
employees, counsel, accountants and other authorized representatives of the
Purchaser or any of their respective Affiliates.
"Restructuring Agreements" means the Agreements between the Company
and each of AA, the Lenders and the Unions, each in form and substance
reasonably satisfactory to the Purchaser consistent with the terms thereof set
forth in Exhibits D, E, and F, respectively, and containing such waivers of the
provisions of any existing agreements with such parties as shall be necessary in
the reasonable judgment of the Purchaser to permit the consummation of the
transactions contemplated hereby.
"Rights" has the meaning set forth in Section 6.9.
"Rights Offering" has the meaning set forth in Section 6.9.
5
<PAGE>
"Rights Plan" means that certain agreement, dated as of December 23,
1994, by and between the Company and Chemical Trust Company of California, as
amended by Amendment No. 1 thereto dated as of December 23, 1994.
"Rights Plan Amendment" means the amendment of the Rights Plan
substantially in the form of Exhibit H hereto.
"Scheduled Closing Date" has the meaning set forth in Section 2.1.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the Annual Report and all documents (including
the Annual Report) filed by the Company with the SEC (including all exhibits and
schedules thereto and documents incorporated by reference therein) since January
1, 1994 and prior to the date hereof, but shall not include any portion of any
document which is not deemed to be filed under applicable SEC rules and
regulations.
"Shareholder Meeting" has the meaning set forth in Section 6.1.
"Shares" means the collective reference to the 18,181,818 shares of
Class A Common Stock and the 1 share of Special Preferred Stock to be purchased
by the Purchaser pursuant to this Agreement.
"Special Preferred Stock" has the meaning set forth in the first
recital of this Agreement.
"Stock Option Amendment" means the amendment to the Company's Stock
Option Plan substantially in the form of Exhibit I hereto.
"Stock Option Plan" means the Company's 1994 Stock Option Plan, as
amended through the date hereof.
"Subsidiary" means, with respect to any Person, any corporation,
limited or general partnership, joint venture, association, limited liability
company or partnership, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which 50% or more of the
equity ownership (whether voting stock or comparable interest) is, at the time,
owned, directly or indirectly, by such Person.
"Successor Transaction" means, with respect to any transaction
contemplated by an Acquisition Proposal, an alternative transaction that is
agreed to, or accepted by, the Company or that is proposed or publicly announced
by any Person, in each case, prior to the termination of an agreement or
negotiations relating to the transaction contemplated by the Acquisition
Proposal or another alternative transaction to such transaction.
"Tax" or "Taxes" has the meaning set forth in Section 4.18.
"13D Group" means any partnership, limited partnership, syndicate or
other "group" (as such term is used in Section 13(d)(3) of the Exchange Act).
"Transaction Expenses" means, with respect to the Purchaser and its
Affiliates, the expenses of such Person or Persons (whether or not incurred
prior to the date hereof) arising out of, relating to or incidental to the
discussion, evaluation, negotiation, documentation and closing or potential
closing of the transactions contemplated hereby (including, without limitation,
the
6
<PAGE>
fees, disbursements and other expenses of lawyers, accountants, actuaries,
investment bankers and any other advisors thereto) and any filing fees incurred
in connection with such transactions; provided, that Transaction Expenses shall
--------
not include any fees or expenses payable to investment bankers.
"Unaffiliated Director" means (i) a Non-Purchaser Director who is not
an officer or employee of the Company or (ii) a Purchaser Director who is not an
officer or employee of the Company, who is not a partner of the Purchaser, who
is not an Affiliate of the Purchaser or any of its partners, who is not a
director, officer or employee of the Purchaser, any of its partners or any of
its or their Affiliates, and who has no material business relationship with the
Purchaser or any of its partners or its or their Affiliates.
"Unions" means the collective reference to the International
Association of Machinists and Aerospace Workers (AFL-CIO), the Air Line Pilots
Association International, the Association of Flight Attendants, and the
Transport Workers Union of America.
"Voting Securities" means any securities of the Company entitled to
vote generally in the election of directors, or securities convertible into or
exercisable or exchangeable for such securities.
"Warrant Holder Waiver" means the waiver by the holders of the
Company's outstanding warrants of, among other things, the antidilution
protections provided for in the warrants to the extent such provisions may be
triggered by the Rights Offering or the issuance to AA of warrants as
contemplated by the Restructuring Agreements with AA, such waiver to be in the
form attached as Exhibit K hereto.
"Worker Health and Safety Laws" means all Laws, orders, rules and
regulations relating to employee health and safety, or health and safety in the
workplace including, without limitation, the Occupational Safety and Health Act,
29 U.S.C. (S) 651 et seq. and any analogous state or local laws.
-- ----
2. CLOSING.
2.1 Time and Place of the Closing. Subject to the terms and
-----------------------------
conditions of this Agreement, the closing of the sale and purchase of the Shares
contemplated hereby (the "Closing") shall take place at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New
York 10019-6064, at 10:00 A.M., New York time, on a date to be mutually agreed
upon by the parties, which date shall be no later than the first business day
after the satisfaction or waiver of all conditions set forth in Section 3 (such
date, the "scheduled Closing Date"). The "Closing Date" shall be the date the
Closing occurs.
2.2 Transactions at the Closing. At the Closing, subject to the
---------------------------
terms and conditions of this Agreement, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase, the Shares at the Purchase Price
Per Share. At the Closing, the Company shall deliver to the Purchaser
certificates representing the Shares, each registered in the name of the
Purchaser or its nominees, against payment of the Purchase Price Per Share with
respect thereto by wire transfer of immediately available funds to an account or
accounts previously designated by the Company.
3. CONDITIONS TO THE CLOSING.
7
<PAGE>
3.1 Conditions Precedent to the Obligations of the Purchaser. The
--------------------------------------------------------
obligations of the Purchaser to be discharged under this Agreement on or prior
to the Closing are subject to satisfaction of the following conditions at or
prior to the Closing (unless expressly waived in writing by the Purchaser at or
prior to the Closing):
3.1.1 Compliance by the Company. All of the terms, covenants and
-------------------------
conditions of this Agreement to be complied with and performed by the Company at
or prior to the Closing shall have been complied with and performed by it in all
material respects, and the representations and warranties made by the Company in
this Agreement shall be true and correct in all material respects at and as of
the Closing, with the same force and effect as though such representations and
warranties had been made at and as of the Closing, except for changes expressly
contemplated by this Agreement and except for representations and warranties
that are made as of a specific time, which shall be true and correct only as of
such time.
3.1.2 Shareholder Approval. The sale of the Shares to the Purchaser
--------------------
pursuant to this Agreement shall have been duly approved by the holders of the
Common Stock at the Shareholder Meeting.
3.1.3 Amendment to Articles and Bylaws. The Board of Directors shall
--------------------------------
have duly approved the Articles Amendment and the Bylaws Amendment and the
Bylaws Amendment shall be in full force and effect.
3.1.4 Board of Directors. The holders of the Common Stock shall
------------------
have duly elected a new Board of Directors at the Shareholder Meeting, which
shall take office effective upon the Closing and shall consist of eleven
members, (A) six of whom shall be designated by the Purchaser in writing to the
Company prior to the mailing of the definitive Proxy Statement to the holders of
the Common Stock and (B) five of whom shall be selected by the existing Board of
Directors.
3.1.5 Consents. All consents, approvals, authorizations, orders,
--------
registrations, filings and qualifications of or with any (A) Governmental
Authority including, without limitation, the Department of Transportation, the
Federal Aviation Administration and the Federal Communications Commission, (B)
stock exchange on which the securities of the Company are traded and (C) other
Persons (whether acting in an individual, fiduciary or other capacity) necessary
or required to be made or obtained by the Company or any of its Subsidiaries for
the consummation of the transactions contemplated by this Agreement or the
Registration Rights Agreement (except for such approvals and filings as may be
required under the Act and State securities laws in connection with the
performance by the Company of its obligations under the Registration Rights
Agreement), shall have been made or obtained, as the case may be, and shall be
in full force and effect, and the Purchaser shall have been furnished with
appropriate evidence thereof.
3.1.6 Hart-Scott-Rodino. The waiting period under the Hart-Scott-
-----------------
Rodino Antitrust Improvements Act of 1976 shall have expired or been terminated,
to the extent applicable.
3.1.7 Absence of Material Adverse Effect; Existing Litigation. No
-------------------------------------------------------
event or events shall have occurred after September 30, 1995 that individually
or in the aggregate has had or would reasonably be expected to have a Material
Adverse Effect. In the event that any
8
<PAGE>
action is taken in connection with the case of Brokerage Maui, Limited v.
--------------------------
Hawaiian Airlines, Inc. on or after the date hereof and prior to the Closing
- -----------------------
Date, the Purchaser shall have reasonably determined that such litigation could
not have a Material Adverse Effect.
3.1.8 Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered to the Purchaser a Registration Rights Agreement.
3.1.9 Restructuring Agreements, Stock Option Amendment and Warrant
------------------------------------------------------------
Holder Amendment. The Restructuring Agreements in the form to be executed and
- ----------------
delivered at the Closing shall have been delivered to the Purchaser on or prior
to January 15, 1996. As of the Closing Date, the Restructuring Agreements shall
have been executed and delivered by the Company and the other parties thereto
and shall be in full force and effect and all conditions precedent contained
therein shall have been complied with or waived. The Stock Option Amendment
shall have been executed and delivered by the Company and the other parties
thereto and shall be in full force and effect. The holders of the Company's
outstanding warrants shall have executed and delivered the Warrant Holder Waiver
and the Warrant Holder Waiver shall be in full force and effect as of the
Closing Date.
3.1.10 Legal Opinions. The Company shall have furnished to the
--------------
Purchaser on the Closing Date the opinions of (i) Gibson, Dunn & Crutcher,
special counsel for the Company, dated the Closing Date, substantially in the
form of Exhibit B-1 hereto and (ii) Rae A. Capps, Vice President, General
Counsel and Corporate Secretary of the Company, dated the Closing Date,
substantially in the form of Exhibit B-2 hereto.
3.1.11 Officer's Certificate. The Purchaser shall have received a
---------------------
certificate, dated the Closing Date and signed by the Chairman of the Board of
Directors or the President of the Company, certifying that the conditions set
forth in this Section 3.1 have been satisfied on and as of such date.
3.1.12 Corporate Secretary's Certificate. The Purchaser shall have
---------------------------------
received a certificate, dated the Closing Date and signed by the Corporate
Secretary of the Company, certifying the truth and correctness of attached
copies of the Articles (including amendments thereto), the Bylaws (including
amendments thereto), and resolutions of the Board of Directors and the holders
of the Common Stock approving the sale of the Shares to the Purchaser and the
other transactions contemplated hereby.
3.1.13 No Injunction. There shall be no judgment, injunction, order
-------------
or decree enjoining the Company or the Purchaser from consummating the
transactions contemplated by this Agreement to be consummated at or before the
Closing and there shall be no pending or threatened action, suit or proceeding
seeking such a judgment, injunction, order or decree; provided, that in the case
--------
of such a threatened action, suit or proceeding, the Purchaser shall have
reasonably determined that it is likely that such action, suit or proceeding
will be instituted.
3.2 Conditions Precedent to Obligations of the Company. The
--------------------------------------------------
obligations of the Company to be discharged under this Agreement on or prior to
the Closing are subject to satisfaction of the following conditions at or prior
to the Closing (unless expressly waived in writing by the Company at or prior to
the Closing):
9
<PAGE>
3.2.1 Compliance by the Purchaser. All of the terms, covenants and
---------------------------
conditions of this Agreement to be complied with and performed by the Purchaser
at or prior to the Closing, shall have been complied with and performed by the
Purchaser in all material respects and the representations and warranties made
by the Purchaser in this Agreement shall be true and correct in all material
respects at and as of the Closing, with the same force and effect as though such
representations and warranties had been made at and as of the Closing, except
for changes contemplated by this Agreement.
3.2.2 Shareholder Approval. The sale of the Shares to the Purchaser
--------------------
shall have been duly approved by the holders of the Common Stock at the
Shareholder Meeting.
3.2.3 Consents. All consents, approvals, authorizations, orders,
--------
registrations, filings and qualifications of or with any (A) Governmental
Authority, including, without limitation, the Department of Transportation, the
Federal Aviation Administration and the Federal Communications Commission, and
(B) other Persons (whether acting in an individual, fiduciary or other capacity)
necessary or required to be made or obtained by the Purchaser for the
consummation of the transactions contemplated by this Agreement or the
Registration Rights Agreement (except for such approvals and filings as may be
required under the Act and state securities laws in connection with the
performance by the Company of its obligations under the Registration Rights
Agreement), shall have been made or obtained, as the case may be, and shall be
in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
3.2.4 Hart-Scott-Rodino. The waiting period under the Hart-Scott-
-----------------
Rodino Antitrust Improvements Act of 1976 shall have expired or been terminated,
to the extent applicable.
3.2.5 Legal Opinion. The Purchaser shall have furnished to the
-------------
Company on the Closing Date the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, special counsel for the Purchaser, dated the Closing Date,
substantially in the form of Exhibit C hereto.
3.2.6 General Partner's Certificate. The Company shall have received
-----------------------------
a certificate, dated the Closing Date and signed by the general partner of the
Purchaser, certifying that the conditions set forth in this Section 3.2 have
been satisfied on and as of such date.
3.2.7 No Injunction. There shall be no judgment, injunction, order
-------------
or decree enjoining the Company or the Purchaser from consummating the
transactions contemplated by this Agreement to be consummated at or before the
Closing and there shall be no pending or threatened action, suit or proceeding
seeking such judgment, injunction, order or decree; provided, that in the case
--------
of any such threatened action, suit or proceeding, the Company shall have
reasonably determined that it is likely that such action, suit or proceeding
will be instituted.
10
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser that,
except as disclosed in the SEC Documents or in writing by the Company to the
Purchaser in a letter specifically with respect to this Article 4 (the
"Disclosure Letter") delivered to the Purchaser on or prior to the date hereof:
4.1 Corporate Existence and Power.
-----------------------------
(A) The Company is a corporation duly organized under the territory
of Hawaii and is validly existing and in good standing under the laws of the
State of Hawaii. The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
SEC Documents and as currently conducted. The Company is duly qualified to
transact business as a foreign corporation and is in good standing (if
applicable) in each jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such qualification, other
than any failure to be so qualified or in good standing as would not singly or
in the aggregate with all such other failures reasonably be expected to have a
Material Adverse Effect.
(B) True and complete copies of the Articles and the Bylaws as in
effect on the date hereof have been provided by the Company to the Purchaser.
The minute books of the Company contain in all material respects true and
complete records of all meetings and consents in lieu of meetings of the Board
of Directors (and any committees thereof) and of the shareholders of the
Company.
4.2 Power and Authority. The Company has the full corporate power
-------------------
and authority to execute and deliver this Agreement and the Registration Rights
Agreement and, subject to approval by the shareholders at the Shareholder
Meeting, to perform its obligations under this Agreement and the Registration
Rights Agreement. The execution, delivery and performance by the Company of
this Agreement and the Registration Rights Agreement and the consummation by the
Company of the transactions contemplated hereby and thereby have been duly
authorized and approved by the Board of Directors and no further corporate
action on the part of the Company (other than the actions described in Sections
3.1.2 and 3.1.4, the filing of the Articles Amendment with the Hawaiian
Department of Commerce and Consumer Affairs and filings and other actions in
connection with the performance by the Company of its obligations under the
Registration Rights Agreement) is necessary to authorize the execution, delivery
and performance by the Company of such agreements or the consummation by the
Company of the transactions contemplated hereby. Subject to shareholder
approval, the Board of Directors shall have duly adopted the Articles Amendment.
Each of this Agreement and the Registration Rights Agreement has been duly
executed and delivered by the Company and is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
4.3 Affiliate Transactions. The Company has not entered into any
----------------------
material transaction or material series of transactions with any shareholder,
director, officer, employee or Affiliate of the Company.
4.4 No Contravention, Conflict, Breach, Etc. The execution, delivery
----------------------------------------
and performance of each of this Agreement and the Registration Rights Agreement
by the
11
<PAGE>
Company and the consummation of the transactions contemplated hereby will
not conflict with, contravene or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, or result in the
creation or imposition of any Encumbrance upon any assets or properties of the
Company or cause the Company to be required to redeem, repurchase or offer to
repurchase any of their respective indebtedness under (A) the Articles, the
Bylaws or other organizational document of the Company, (B) any material Law of
any Governmental Authority having jurisdiction over the Company or any of its
assets, properties or operations or (C) any indenture, mortgage, loan agreement,
note or other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any material lease, permit,
license or other material agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the assets, properties
or operations of the Company is subject.
4.5 Consents. No consent, approval, authorization, order,
--------
registration, filing or qualification of or with any (A) Governmental Authority,
(B) stock exchange on which the securities of the Company are traded or (C)
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by the Company for the execution, delivery and
performance by the Company of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby, except
the actions described in Sections 3.1.2 and 3.1.4 and such approvals and filings
as may be required under the Act and state securities laws in connection with
the performance by the Company of its obligations under the Registration Rights
Agreement and except consents which are not material to the business or
operations of the Company.
4.6 Capitalization of the Company. As of the date hereof, the
-----------------------------
authorized capital stock of the Company consists of: (A) 43,050,000 shares of
Common Stock of which 40,000,000 shares are Class A Common Stock and 3,050,000
shares are Class B Common Stock and of which 6,619,769 shares of Class A Common
Stock and 1,894,955 shares of Class B Common Stock are outstanding and (B)
2,000,000 shares of Preferred Stock, of which 20,000 shares have been designated
as Series A Junior Participating Cumulative Preferred Stock, par value $.01 per
share and of which none is outstanding. Except as contemplated by the
Restructuring Agreements with the Unions, no other class of capital stock of the
Company is, or at the Closing will be, authorized or issued. From the date
hereof until the Closing, except for the issuance of the Shares and the exercise
of any options or warrants described in the Disclosure Letter, the Company will
not issue any shares of its capital stock. All outstanding shares of capital
stock of the Company have been duly authorized, are validly issued, fully paid
and nonassessable and have been issued in compliance with applicable federal and
state securities laws. At the Closing, all of the Shares will be duly
authorized and, when issued in accordance with this Agreement, will be validly
issued, fully paid and nonassessable. The shareholders of the Company have no
preemptive or similar rights with respect to the Shares or other securities of
the Company. There are no outstanding (i) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the Company,
(ii) warrants, rights or options to subscribe for or purchase from the Company
any such capital stock or any such convertible or exchangeable securities or
obligations or (iii) obligations of the Company to issue such capital stock, any
such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
12
<PAGE>
4.7 Rights Plan. The Rights Plan Amendment has been duly adopted by
-----------
the Board of Directors of the Company and has been duly executed and delivered
by the Company and the Rights Agent (as defined in the Rights Plan) prior to the
execution and delivery of this Agreement. The amendments to the Rights Plan
intended to be effected by the Rights Plan Amendment are permitted to be made by
the Company pursuant to Section 27(a) of the Rights Plan without the consent of
any holder of Rights (as defined in the Rights Plan). The Purchaser has not and
will not become a 10% Shareholder (as defined in the Rights Plan, as amended by
the Rights Plan Amendment) solely as a result of the execution and delivery of
this Agreement or the acquisition by the Purchaser of the Shares and the
transactions contemplated hereby do not constitute a triggering event under the
Rights Plan.
4.8 Registration Rights. The Company has not previously entered into
-------------------
any agreement granting any registration rights to any Person, whether consistent
or inconsistent with the rights to be granted to the Purchaser in the
Registration Rights Agreement.
4.9 No Subsidiaries. The Company has no Subsidiaries. The Company
---------------
holds no equity, partnership, joint venture or other similar interest in any
Person.
4.10 SEC Documents.
-------------
(A) The Company has delivered true and complete copies of all SEC
Documents to the Purchaser.
(B) As of its filing date, each SEC Document filed, and each SEC
Document that will be filed by the Company prior to the Closing Date, as amended
or supplemented prior to the Closing Date, if applicable, pursuant to the
Exchange Act (i) complied or will comply in all material respects with the
applicable requirements of the Exchange Act and (ii) did not or will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(C) At the time the Proxy Statement is first mailed to the
shareholders of the Company, and at the time such shareholders vote on approval
of the transactions contemplated hereby, the Proxy Statement, as then amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of circumstances under which they were made, not misleading; provided
that the Company makes no representation or warranty with respect to (i) any
statement or omissions included in the Proxy Statement based upon information
furnished in writing to the Company by the Purchaser specifically for use
therein or (ii) any portion thereof which is not deemed to be filed under
applicable SEC rules and regulations.
4.11 Financial Statements. The audited consolidated financial
--------------------
statements and related schedules and notes included in the SEC Documents comply
in all material respects with the requirements of the Exchange Act and the Act
and the rules and regulations of the SEC thereunder, were prepared in accordance
with generally accepted accounting principles and except as noted in the SEC
Documents, consistently applied throughout the period involved and fairly
present in all material respects the financial condition, results of operations,
cash flows and changes in shareholders' equity of the Company at the dates and
for the periods presented. The Company previously delivered true and complete
copies of the audited consolidated financial
13
<PAGE>
statements and related schedules and notes of the Company as of December 31,
1994 and December 31, 1993 and for each of the three years in the period ended
December 31, 1994 (the "1994 Audited Financial Statements"). The 1994 Audited
Financial Statements comply in all material respects with the requirements of
the Exchange Act and the Act and the rules and regulations of the SEC
thereunder, were prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved and fairly
present in all material respects the financial condition, results of operations,
cash flows and changes in shareholders' equity of the Company at the dates and
for the periods presented. The unaudited quarterly consolidated financial
statements and the related notes included in the SEC Documents fairly present in
all material respects the financial condition, results of operations and cash
flows of the Company at the dates and for the periods to which they relate,
subject to year-end adjustments (consisting only of normal recurring accruals),
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis except as otherwise stated therein and
have been prepared on a basis consistent with that of the audited financial
statements referred to above except as otherwise stated therein.
4.12 No Existing Violation, Default, Etc. The Company is not (A) in
------------------------------------
violation of any provision of the Articles, Bylaws or other organizational
documents or (B) in violation of any applicable Law, stock exchange rule or
regulation, which violation has had or would reasonably be expected to have a
Material Adverse Effect. No breach, event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists under any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any lease, permit, license or other agreement
to which the Company is a party or by which the Company is bound or to which any
of the properties, assets or operations of the Company is subject, which breach,
event of default, or event that, but for the giving of notice or the lapse of
time or both, would constitute an event of default, has had or would reasonably
be expected to have a Material Adverse Effect. Except as set forth in the
Disclosure Letter, without giving effect to any waiver previously granted, (i)
no event of default, (ii) no event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default and (iii) no event
that would require the Company to prepay, redeem, repurchase or offer to
repurchase any of its indebtedness exists under the Existing Indebtedness.
4.13 Licenses and Permits. The Company has such Licenses as are
--------------------
necessary to own, lease or operate its properties and to conduct its businesses
in the manner described in the SEC Documents and as currently owned or leased
and conducted and all such Licenses are valid and in full force and effect
except such Licenses that the failure to have or to be in full force and effect
individually or in the aggregate has not had, and would not reasonably be
expected to have, a Material Adverse Effect. The Company has not received any
written notice that any violations are being or have been alleged in respect of
any such License and no proceeding is pending or, to the Knowledge of the
Company, threatened, to suspend, revoke or limit any such License the effect of
which would reasonably be expected to have a Material Adverse Effect. The
Company is in compliance with its obligations under such Licenses, with such
exceptions as individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such
14
<PAGE>
Licenses, except such events as have not had, or would not reasonably be
expected to have, a Material Adverse Effect.
4.14 Title to Properties. The Company has sufficient title to all
-------------------
material properties (real and personal) owned by the Company that are necessary
for the conduct of the business of the Company as described in the SEC Documents
and as currently conducted, free and clear of any Encumbrance that may
materially interfere with the conduct of its business, and all properties held
under lease by the Company are held under valid, subsisting and enforceable
leases except for such leases the loss of which would not reasonably be expected
to have a Material Adverse Effect.
4.15 Leases. Supplementing Sections 4.14 and 4.22, the Disclosure
------
Letter includes a true, complete and correct list of (a) all lease agreements
covering all aircraft and aircraft engines (the "Aircraft Equipment"), used or
held by the Company in connection with the operation of its business (the
"Aircraft Equipment Leases") and (b) all material service agreements pursuant to
which any Person provides any services in connection with the maintenance of the
Aircraft Equipment (the "Aircraft Equipment Services Agreements"). True and
complete copies of all such Aircraft Equipment Leases and Aircraft Equipment
Services Agreements have been delivered by the Company to the Purchaser. All
such Aircraft Equipment Leases and Aircraft Equipment Services Agreements are in
full force and effect and the Company is not in breach of or in default under
any such agreement and, to the Knowledge of the Company, no other party to any
such agreement is in material breach of or in material default under any such
agreement.
4.16 Intellectual Property.
---------------------
(A) The Company owns or is licensed to use all (i) patents,
trademarks, trade names, service marks, copyrights and any applications therefor
and (ii) trade secrets, know-how, computer software programs and proprietary
information, in each case, that have been utilized since September 30, 1995 in
the conduct of the business of the Company as described in the SEC Documents and
as currently conducted, free and clear of any Encumbrance that may materially
interfere with the conduct of its business ("Intellectual Property").
(B) The Disclosure Letter lists (i) all Intellectual Property
described in Section 4.16(A)(i) owned by the Company, specifying as to each
item, as applicable: (a) the category of Intellectual Property, (b) the owner of
the item; (c) the jurisdictions in which the item is recognized or registered,
or in which any application for registration has been filed, including the
registration or application number; (d) the issue date and expiration date of
the item, and (e) with respect to any trademarks or service marks, the type of
goods or services on which such mark is or is intended to be used; and (ii) all
material licenses, sublicenses and other agreements ("IP Licenses") under which
the Company is either a licensor or licensee of any Intellectual Property. True
and complete copies of all material documents evidencing Intellectual Property
as in effect on the date hereof have been delivered by the Company to the
Purchaser.
(C) The Company is not in breach of or default under, and to the
Knowledge of the Company, no other party is in material breach of or material
default under, any IP License. Each IP License is now, and immediately
following the consummation of the transactions herein contemplated will be,
valid and in full force and effect.
15
<PAGE>
(D) No litigation is pending or, to the Knowledge of the Company,
threatened, that challenges the validity, enforceability or ownership of, or
right to use or license, any Intellectual Property, nor does the Company have
Knowledge of any valid grounds for any such claim.
(E) No item of Intellectual Property is subject to any outstanding
order, ruling, judgment, decree or agreement restricting the use thereof by the
Company except for agreements made in the ordinary course of business of the
Company. The Company has not agreed to indemnify any person against any charge
of infringement or other violation with respect to any Intellectual Property
owned or used by the Company except in the ordinary course of business.
(F) To the Knowledge of the Company, the Company has not infringed
upon or otherwise violated the intellectual property rights of third parties
which would reasonably be expected to have a Material Adverse Effect. The
Company has not received any written complaint or notice alleging any such
infringement or other violation.
(G) To the Company's Knowledge, no third party is infringing upon or
otherwise violating the Intellectual Property rights of the Company, which
infringement or violation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(H) All material patents and registered trademarks and copyrights held
by the Company are valid and subsisting. The Company has taken all necessary
action to maintain and protect the Intellectual Property that it owns or uses
other than such actions taken in the ordinary course of business of the Company
that would not reasonably be expected to have a material adverse effect on any
of the Intellectual Property.
(I) To the Knowledge of the Company, all material trade secrets of the
Company are protected against the use of such trade secrets by other persons to
an extent and in a manner customary in the industry in which the Company
operates.
4.17 Environmental Matters. To the Knowledge of the Company:
---------------------
(A) The Company and its operations and properties are and have been in
compliance with all applicable Environmental Laws except for such failures
which, individually and in the aggregate, have not had, and would not reasonably
be expected to result in a Loss to the Company in excess of $50,000.
(B) The Company has obtained all Environmental, Health and Safety
Permits necessary for its operation, and all such permits are in effect, no
appeal is pending therefrom, nor is any action to revoke the same pending, and
the Company is in material compliance with all terms and conditions of such
permits;
(C) With respect to facilities currently or formerly owned or operated
by the Company, the Company (and any of its former Subsidiaries or Affiliates)
is not subject to any outstanding written notice, demand, suit, investigation,
or order from or agreement with any Governmental Authority or other Person in
respect to which the Company (a) may be required to take any Remedial Action
which is likely, either indirectly or in the aggregate with other Remedial
Actions, to result in Losses to the Company in excess of $50,000 or (b) may
incur
16
<PAGE>
any Loss arising from the Release or threatened Release of a Contaminant into
the environment that could result in Losses to the Company in excess of $50,000.
(D) The Company has not filed any notice required under any
Environmental Law indicating past or present treatment, storage for in excess of
90 days or disposal of a Hazardous Waste on any property currently or formerly
owned or operated by the Company.
(E) The Company has not filed any written notice under any applicable
Environmental Law reporting a Release of a Contaminant into the environment
arising out of the current or former operations of the Company.
(F) There is not now at, on or in the real property or any portion
thereof or any other property of the Company:
(1) any treatment, recycling, storage in excess of 90 days or disposal of
any Hazardous Waste requiring a permit under the Resource Conservation and
Recovery Act;
(2) any underground storage tank, dump, surface impoundment, or
uncontained waste disposal area, and
(3) any visible sign of any material Releases of a Contaminant, at, upon,
under, or within the properties currently or formerly owned or operated by
the Company.
4.18 Taxes. (a) The Company has timely filed or caused to be
-----
filed, or will timely file, or has properly filed extensions for, all
material Tax returns that are required to be filed on or before the Closing
Date and all such returns are true, correct and complete. The Company has
timely paid or caused to be paid or will timely pay on or before the
Closing Date all material Taxes as shown on said returns and on all
material assessments received by it to the extent that such Taxes have
become due, except Taxes the validity or amount of which is being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves, in accordance with generally accepted accounting principles, have
been established. The Company has timely paid or caused to be paid, or
will timely pay, or have established reserves that the Company reasonably
believes to be adequate in all material respects for, all Tax liabilities
applicable to the Company for all fiscal years or portions thereof ending
on or before the Closing Date that have not been examined and reported on
by the taxing authorities (or closed by applicable statutes). United States
Federal income tax returns of the Company have been examined and closed
through the fiscal year ended December 28, 1991. For purposes of this
Section 4.18, "Tax" or "Taxes" means any federal, state, county, local,
foreign and other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts,
franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll and property
taxes, import duties and other governmental charges and assessments),
whether or not measured in whole or in part by net income, and including
deficiencies, interest, additions to tax or interest, and penalties with
respect thereto, and including expenses incurred in connection with
contesting any proposed adjustments related to any of the foregoing.
17
<PAGE>
(b) The Company has, on or prior to September 15, 1995, properly
elected pursuant to Section 382(1)(6) of the Code, to be subject to the annual
limitation rules with respect to net operating loss carryforwards set forth in
such Section.
(c) The Company is not a party to any extension or waiver that is
currently in effect of the statute of limitations in respect of the assessment
or collection of any material Tax due or in respect of any adjustment to any
material Tax return.
(d) The Company has not filed a consent under Section 341(f) of the
Code.
(e) The Company is not a party to any Tax allocation or Tax sharing
agreement or has any liability for the Taxes of any person (i) under Treasury
Regulation (S) 1.1502-6 (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(f) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the withholding of Taxes and
have timely collected or withheld and paid over (and up to the Closing Date will
have timely collected or withheld and paid over) to the proper Governmental
Authority all amounts required to be so collected or withheld and paid over for
all periods or portions thereof though the Closing Date under all applicable
laws.
4.19 Litigation. There are no pending actions, suits, proceedings,
----------
arbitrations or investigations against or affecting the Company or any of its
properties, assets or operations, or with respect to which the Company is
responsible by way of indemnity or otherwise, that are required under the
Exchange Act to be described in such SEC Documents or that, if successful, could
singly, or in the aggregate, with all such other actions, suits, investigations
or proceedings, reasonably be expected to have, a Material Adverse Effect and,
to the Knowledge of the Company, no such actions, suits, proceedings or
investigations are threatened.
4.20 Labor Matters. The Company currently does not have or at any
-------------
time during the past two years has not had nor, to the Knowledge of the Company,
is there now threatened, any walkout, strike, union activity, picketing, work
stoppage, work slowdown or any other similar occurrence that has or may have a
Material Adverse Effect. The Company has complied in all material respects with
all applicable laws (including, without limitation, the Railway Labor Act, as
amended), rules and regulations, as relates to the employment of labor,
including those relating to wages, hours, unemployment insurance, collective
bargaining and the payment and withholding of taxes, and the Company has
withheld all amounts required by law or agreement to be withheld from the wages
or salaries of the employees of the Company (the "Employees") and the Company is
not liable for any arrears of wages or other taxes or penalties for failure to
comply with any of the foregoing. There are no material controversies pending
or to the Knowledge of the Company, threatened between the Company and any of
the Employees or any labor union or other collective bargaining unit
representing any of the Employees. Except for the Unions, no union or other
collective bargaining unit is certified or recognized by the Company as
representing any of the Employees and, except as set forth in the Disclosure
Letter, to the Knowledge of the Company, there has not been any attempt by any
union to organize or represent the Employees within the last two years. Except
as set forth in the Disclosure Letter, no approval
18
<PAGE>
of any union or other collective bargaining unit is required in connection with
the execution, delivery or performance of this Agreement, or any other agreement
contemplated hereby.
4.21 Employee Benefits. (A) Except for the plans set forth in the
-----------------
Disclosure Letter (the "Benefit Plans"), there are no employee benefit plans or
arrangements of any type (including, without limitation, plans described in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder ("ERISA")), under which the Company has or in the
future could have directly, or indirectly through a Commonly Con trolled Entity
(within the meaning of Code Sections 414(b), (c), (m) and (o)), any liability
with respect to any current or former employee of the Company or any Commonly
Controlled Entity. No such Benefit Plan is a "multiemployer plan" (within the
meaning of ERISA Section 4001(a)(3)).
(B) With respect to each Benefit Plan: to the extent applicable, the
Company has delivered or made available to the Purchaser complete and accurate
copies of (i) all plan texts and agreements (as amended or modified to date),
(ii) all summary plan descriptions and similar material employee communications,
(iii) the most recent annual report (Form 5500 including, if applicable,
Schedule B thereto), (iv) the most recent annual and periodic accounting of plan
assets, (v) the most recent determination of qualification received from the
Internal Revenue Service and (vi) the most recent actuarial valuation.
(C) With respect to each Benefit Plan: (i) such Benefit Plan has been
maintained and administered at all times in material compliance with its terms
and applicable law and regulation; (ii) to the Knowledge of the Company, no
event has occurred or is continuing under which the Company could directly, or
indirectly through a Commonly Controlled Entity, incur any material liability
under ERISA, the Code or otherwise (other than routine claims for benefits and
other liabilities arising in the ordinary course pursuant to the normal
operation of such Benefit Plan); (iii) there are no actions, suits or claims
(other than routine claims for benefits) pending or, to the Knowledge of the
Company, threatened, with respect to any Benefit Plan or against the assets of
any Benefit Plan with respect to which suits the Company could incur any
material liability; (iv) all contributions and premiums due and owing to any
Benefit Plan have been made or paid on a timely basis to the extent permitted by
law, and no "accumulated funding deficiency", as defined in Code Section 412,
has been incurred, whether or not waived; (v) all contributions made under any
Benefit Plan have met the requirements for deductibility under the Code, and all
contributions that have not been made have been properly recorded on the books
of the Company or a Commonly Controlled Entity thereof in accordance with
generally accepted accounting principles and (vi) if such Benefit Plan is
intended to be qualified under Code Section 401(a), such Benefit Plan is the
subject of a favorable determination of qualification from the Internal Revenue
Service and a recognition of exemption from Federal income taxation under Code
Section 501(a) has been received for each such Benefit Plan and no event has
occurred since the date of such determinations, including effective changes in
laws or regulations or modifications to the Benefit Plans, that would adversely
affect such qualification or exemption.
(D) The Accumulated Postretirement Benefit Obligation (as defined in
Statement of Financial Accounting Standards No. 106) in respect of post-
retirement health and medical benefits for current and former employees of the
Company, calculated as of December 31, 1994, on the basis of reasonable
actuarial assumptions in accordance with generally accepted accounting
principles, does not exceed $22,015,000.
19
<PAGE>
(E) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment by the Company of any amount that
would not be deductible pursuant to the terms of Code Section 280G.
(F) No employee or former employee of the Company will become
entitled, pursuant to the collective bargaining agreements with the Unions or
otherwise, to any bonus, retirement, severance, job security or similar benefit
or enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby.
4.22 Contracts. All of the material contracts of the Company that
---------
are required to be described in the SEC Documents or to be filed as exhibits
thereto are described in the SEC Documents or filed as exhibits thereto and are
in full force and effect in accordance with their terms. True and complete
copies of all such material contracts have been delivered by the Company to the
Purchaser. Neither the Company nor, to the Knowledge of the Company, any other
party is in breach of or in default under any such contract except for such
breaches and defaults as in the aggregate have not had, and would not reasonably
be expected to have, a Material Adverse Effect.
4.23 Contingent Liabilities. Except as fully reflected or reserved
----------------------
against in the 1994 Audited Financial Statements, or disclosed in the footnotes
contained in such financial statements, the Company had no liabilities
(including tax liabilities) at the date of such financial statements, absolute
or contingent, that were material either individually or in the aggregate to the
Company.
4.24 No Material Adverse Change. Except as set forth in the
--------------------------
Disclosure Letter, since September 30, 1995: (A) the Company has not incurred
any material liability or obligation (indirect, direct or contingent), or
entered into any material oral or written agreement or other transaction, that
is not in the ordinary course of business or that would reasonably be expected
to result in a Material Adverse Effect; (B) the Company has not sustained any
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance) that
has had or that would reasonably be expected to have a Material Adverse Effect;
(C) there has been no material change in the indebtedness of the Company; (D)
there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock; (E) the Company has not made (nor
does it propose to make) (i) any material change in its accounting methods or
practices or (ii) any material change in the depreciation or amortization
policies or rates adopted by it, in either case, except as may be required by
law or applicable accounting standards; and (F) there has been no event causing
a Material Adverse Effect, nor any development that would, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
4.25 Finder's Fees. Except for Jefferies & Company, Inc., no broker,
-------------
finder or other party is entitled to receive from the Company any brokerage or
finder's fee for the transactions contemplated by this Agreement as a result of
the actions of the Company or any of its Affiliates.
4.26 Investment Company. The Company is not an "investment company"
------------------
within the meaning of the Investment Company Act of 1940, as amended.
20
<PAGE>
4.27 Exemption from Registration; Restrictions on Offer and Sale of
--------------------------------------------------------------
Same or Similar Securities. Assuming the representations and warranties of the
- --------------------------
Purchaser set forth in Section 5.5 hereof are true and correct in all material
respects, the offer and sale of the Shares made pursuant to this Agreement will
be exempt from the registration requirements of the Act. Neither the Company
nor any Person acting on its behalf has, in connection with the offering of the
Shares, engaged in (A) any form of general solicitation or general advertising
(as those terms are used within the meaning of Rule 502(c) under the Act), (B)
any action involving a public offering within the meaning of Section 4(2) of the
Act, or (C) any action that would require the registration under the Act of the
offering and sale of the Shares pursuant to this Agreement or that would violate
applicable state securities or "blue sky" laws. As used herein, the terms
"offer" and "sale" have the meanings specified in Section 2(3) of the Act.
4.28 Full Disclosure. To the Knowledge of the Company, no statement
---------------
by the Company contained in this Agreement, the Disclosure Letter, the SEC
Documents or any other documents listed in the Disclosure Letter, or any
certificates, notices or consents delivered to the Purchaser in connection with
the purchase and sale of the Shares at or prior to the Closing, taken as a
whole, in light of the circumstances in which made, contains (or will contain)
an untrue statement of a material fact or omits (or will omit) to state a
material fact required to be stated therein or necessary to make the statements
made, in the light of the circumstances in which made, not materially false or
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company that:
5.1 Partnership Existence and Power. The Purchaser is a limited
-------------------------------
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to conduct its business as currently conducted
and as proposed to be conducted.
5.2 Power and Authority. The Purchaser has the full power and
-------------------
authority to execute and deliver this Agreement and the Registration Rights
Agreement and to perform its obligations under this Agreement and the
Registration Rights Agreement. The execution, delivery and performance by the
Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly authorized. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Purchaser and is a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its respective terms.
5.3 No Contravention, Conflict, Breach, Etc. The execution, delivery
----------------------------------------
and performance of each of this Agreement and the Registration Rights Agreement
by the Purchaser and the consummation of the transactions contemplated hereby
will not conflict with, contravene or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, (A) the partnership
agreement or other organizational documents of the Purchaser, (B) any Law of any
Governmental Authority having jurisdiction over the Purchaser or (iii) any
agreement to which the Purchaser is a party.
21
<PAGE>
5.4 Consents. No consent, approval, authorization, order,
--------
registration, filing, or qualification of or with any (A) Governmental Authority
or (B) other Person (whether acting in an individual, fiduciary or other
capacity) is required to be made or obtained by the Purchaser for the
consummation of the transactions contemplated hereby except for compliance with
any applicable requirements of (i) the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and (ii) the United States Department of Transportation, the Federal
Aviation Administration and the Federal Communications Commission.
5.5 Acquisition for Own Account. The Shares to be acquired by the
---------------------------
Purchaser pursuant to this Agreement are being acquired by it for its own
account and with no intention of distributing or reselling the Shares in any
transaction that would be in violation of the Act or the securities laws of any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of the Shares under an effective
registration statement under the Act, under an exemption from such registration
available under the Act, and subject, nevertheless, to the disposition of the
Purchaser's property being at all times within its control. The Purchaser (A)
has such knowledge, sophistication and experience in business and financial
matters that it is capable of evaluating the merits and risks of an investment
in the Shares, (B) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (C) can bear the
economic risk of an investment in the Shares and can afford a complete loss of
such investment. The Purchaser acknowledges receipt of the SEC Documents, the
Disclosure Letter and all documents delivered in accordance therewith and that
it has been afforded the opportunity to ask such questions as it deemed
necessary of, and to receive answers from, representatives of the Company
concerning the merits and risks of investing in the Shares and to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy and
completeness of the information contained in the SEC Documents. Notwithstanding
the foregoing, nothing contained in this Section 5.5 shall affect or be deemed
to modify any representation or warranty made by the Company.
5.6 Ownership of Common Stock. Except as otherwise disclosed in
-------------------------
writing to the Company prior to the execution of this Agreement, the Purchaser
owns beneficially (within the meaning of Rule 13d-3 of the Exchange Act) no
shares of Common Stock.
5.7 Hart-Scott-Rodino Filing. Neither the annual net sales nor the
------------------------
total assets of the Purchaser's "ultimate parent entity" as defined in the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), as such terms
are defined in the coverage rules promulgated under the HSR Act, exceed
$10,000,000.
5.8 Available Funds. The Purchaser has capital that is sufficient to
---------------
purchase the Shares pursuant to this Agreement.
6. COVENANTS OF THE PARTIES.
6.1 Shareholder Meeting; Proxy Material; Articles and Bylaws
--------------------------------------------------------
Amendments. The Company shall cause a meeting of its shareholders to be duly
- ----------
called and held as soon as practicable, subject to the Company's right to
adjourn such meeting at any time or from time to time if in the Board of
Directors' good faith judgment such action is desirable to effectuate the
transactions contemplated hereunder, for the purpose of voting on (A) the
approval of the purchase of the Shares by the Purchaser pursuant to the terms of
this Agreement and the election
22
<PAGE>
of the Board of Directors following the Closing (collectively, the "Investment
Proposal"), (B) the increase of the number of shares of Class A Common Stock
that the Company is authorized to issue to 60 million shares and (C) transacting
such other business as may properly come before the meeting or any adjournment
thereof (the "Shareholder Meeting"). The Board of Directors shall recommend
approval and adoption of the Investment Proposal unless the Board of Directors
shall have determined in good faith, based upon advice of outside counsel, that
not taking such actions is necessary for the Board of Directors to comply with
its fiduciary duties under Hawaii law, in which case Sections 9.1(C) and 9.2
shall be applicable. In connection with the Shareholder Meeting, the Company:
(A) shall promptly prepare and file with the SEC in accordance with the Exchange
Act the Proxy Statement, shall use all reasonable efforts to have the Proxy
Statement and/or any amendment or supplement thereto cleared by the SEC and
shall thereafter mail to its shareholders as promptly as practicable the Proxy
Statement; (B) shall use all reasonable efforts to obtain the necessary
approvals by its shareholders of the Investment Proposal (unless the Board of
Directors shall have determined in good faith, based upon advice of outside
counsel, that not taking such actions is necessary for the Board of Directors to
comply with its fiduciary duties under Hawaii law, in which case Sections 9.1
and 9.2 shall be applicable); and (C) shall otherwise comply with all legal
requirements applicable to such meeting. The Company shall make available to the
Purchaser prior to the filing thereof with the SEC copies of the preliminary
Proxy Statement and any amendments or supplements thereto and shall make any
changes therein reasonably requested by the Purchaser insofar as such changes
relate to any matters relating to the Purchaser or the description of the
transactions contemplated by this Agreement.
6.2 Pre-Closing Activities. From and after the date of this
----------------------
Agreement until the Closing, each of the Company and the Purchaser shall act
with good faith towards, and shall use its reasonable efforts to consummate, the
transactions contemplated by this Agreement, and neither the Company nor the
Purchaser will take any action that would prohibit or impair its ability to
consummate the transactions contemplated by this Agreement, subject to the
fiduciary duties of the Board of Directors under Hawaii law, in which case
Sections 9.1 and 9.2 shall be applicable. From the date hereof until the
Closing, the Company shall conduct its business in the ordinary course and shall
use all reasonable efforts to preserve intact its business organization and
relationships with third parties and, except as otherwise provided herein, to
keep available the services of the present directors, officers and key
employees. Without limiting the generality of the foregoing, from the date
hereof until the Closing, except as contemplated by this Agreement or as
permitted by Section 6.6 or as disclosed in the Disclosure Letter, without the
Purchaser's prior written consent which shall not be unreasonably withheld:
(A) the Company shall not adopt or propose (or agree to commit
to) any change in the Articles or its Bylaws, except for the Articles
Amendment and the Bylaws Amendment;
(B) the Company shall not (i) enter into any loan agreement or
other agreement pursuant to which the Company incurs indebtedness for
borrowed money or (ii) amend any such existing agreement;
(C) the Company shall not sell any of the assets of the Company
(or the securities of entities holding the same) in one transaction or a
series of related transactions (other than in the ordinary course of
business of the Company);
23
<PAGE>
(D) the Company shall not acquire any assets of any other Person
or Persons or acquire any equity, partnership or other interests in any
other Person or Persons;
(E) except scheduled repayments of Existing Indebtedness required
to be made or repayments required to be made under the Company's revolving
credit facility, the Company shall not repay, redeem or repurchase any
indebtedness of the Company or any shares of capital stock of the Company;
(F) the Company shall not enter into any transaction with any
director, executive officer or Affiliate of the Company other than in the
ordinary course of its business;
(G) the Company shall not (i) grant to any employee any increase
in salary or other remuneration or any increase in severance or termination
pay; (ii) grant or approve any general increase in salaries of all or a
substantial portion of its employees; (iii) pay or award any bonus,
incentive compensation, service award or other like benefit for or to the
credit of any employee except in accordance with written agreements
referred to in the Disclosure Letter; or (iv) enter into any employment
contract or severance arrangement with any employee or adopt or amend in
any material respect any employee benefit plans except as required by law;
(H) the Company shall not take or agree to commit to take any
action that would make any representation or warranty of the Company
hereunder required to be true at and as of the Closing as a condition to
the Purchaser's obligations to consummate the transactions contemplated
hereby, inaccurate at the Closing;
(I) the Company shall not agree to expend, commit or otherwise
obligate itself to make any capital expenditures;
(J) the Company shall not amend or agree to amend in any respect
the Aircraft Equipment Leases, the Aircraft Equipment Services Agreement,
the collective bargaining agreements with the Unions or the agreements and
instruments governing any material indebtedness of the Company; and
(K) the Company shall not agree or commit to do any of the
foregoing.
6.3 Hart-Scott-Rodino. To the extent applicable, the Company
-----------------
and the Purchaser shall make all filings and furnish all information
required with respect to the transactions contemplated by this Agreement by
the HSR Act and shall use their reasonable best efforts to obtain the early
termination of the waiting period thereunder.
6.4 Access and Confidentiality.
--------------------------
(A) Upon reasonable notice prior to the Closing, the Company shall
afford the Purchaser and the Representatives reasonable access during normal
business hours to its properties, books, contracts and records and personnel and
advisors (who will be instructed by the Company to cooperate), and the Company
shall furnish promptly to the Purchaser all information concerning its business,
properties and personnel as the Purchaser or the Representatives may reasonably
request, provided that any review will be conducted in a way that will not
interfere unreasonably with the conduct of the Company's business, and provided,
further,
24
<PAGE>
that no review pursuant to this Section 6.4 shall affect or be deemed to modify
any representation or warranty made by the Company.
(B) The Purchaser covenants and agrees to abide by the terms of the
Confidentiality Agreement attached as Exhibit J hereto.
6.5 Publicity. Except as required by law, regulation or stock
---------
exchange requirements, neither (A) the Company or any of its Affiliates nor (B)
the Purchaser or any of its Affiliates shall, without the consent of the other,
make any public announcement or issue any press release with respect to the
transactions contemplated by this Agreement. In no event will either (i) the
Company or any of its Affiliates or (ii) the Purchaser or any of its Affiliates
make any public announcement or issue any press release without consulting with
the other party, to the extent feasible, as to the content of such public
announcement or press release, and in no event will the Company or any of its
Affiliates or the Purchaser or any of its Affiliates make any public
announcement or press release concerning the identity of the other party without
the prior agreement of the other party.
6.6 Acquisition Proposals. From the date hereof until the earlier of
---------------------
the Closing or the termination of this Agreement, the Company shall not,
directly or indirectly, take (nor shall the Company authorize or permit its
officers, directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or Affiliates, to take) any action to: solicit or
initiate the submission of any Acquisition Proposal, or, subject to the
fiduciary duties of the directors of the Company under Hawaii law based upon a
good faith determination by Board of Directors after taking into account the
advice of counsel and independent investment advisors (as to financial terms and
availability of financing) with respect thereto (in which case Sections 9.1 and
9.2 shall be applicable), enter into any agreement with respect to or propose
any Acquisition Proposal or participate in any way in discussions or
negotiations with, or furnish any information to, any Person (other than the
Purchaser or any of its partners or officers, directors, employees,
representatives, investment bankers, attorneys, accountants, other agents or
Affiliates) in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal. The Company shall give immediate
telephonic notice to the Purchaser (promptly followed by written notice) of its
receipt of any Acquisition Proposal or of any inquiry or request for information
contemplating an Acquisition Proposal. The Company shall keep the Purchaser
informed, on a current basis, of the status of any Acquisition Proposal and any
negotiations or discussions relating to such a proposal.
Except as required by law, the Company agrees that it shall not
disclose to any Person any written information furnished to it by the Purchaser
or any of its Representatives (including, without limitation, Paul, Weiss,
Rifkind, Wharton & Garrison).
6.7 Certificates for Shares To Bear Legends.
---------------------------------------
(A) So long as the Shares are not sold pursuant to an effective
registration statement under the Act or pursuant to Rule 144 under the Act, the
Shares shall be subject to a stop-transfer order and the certificates therefor
shall bear the following legend by which each holder thereof shall be bound:
25
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER."
(B) After the termination of the legend requirements of Section
6.7(A), the Company shall, upon the written request of the holders of the Shares
and receipt by the Company of evidence reasonably satisfactory to it that such
requirement has terminated (including a written opinion of outside counsel),
issue certificates for such Shares that do not bear all or part of the legend
described in Section 6.7(A).
6.8 Use of Proceeds. The net proceeds of the sale of the Shares will
---------------
be used by the Company as determined by the Board of Directors as constituted
immediately following the Closing.
6.9 Rights Offering. The Purchaser agrees that as soon as
---------------
practicable following the Closing Date it shall use its best efforts to cause
the Company to make a rights offering to such persons and with such terms and
conditions as the Board of Directors as at such time constituted shall
determine, but including the following (the "Rights Offering"):
(a) Each shareholder and option holder shall be entitled to the right
(a "Right") to acquire one share of Class A Common Stock for each share of
Common Stock owned, or subject to an option owned, by such Person; and
(b) Each Right shall be exercisable for twenty (20) days at a discount
equal to at least 30% of the Market Price for the Class A Common Stock measured
over a period of time (as determined by the Board of Directors as at such time
constituted) prior to the exercise date, subject to a minimum exercise price of
$1.10 per share.
6.10 Purchaser Vote. In the event that the vote required under the
--------------
Articles and Hawaiian law to approve the Articles Amendment is not obtained,
then the Purchaser hereby agrees that promptly following the Closing, it will
deliver to the Corporate Secretary of the Company a written request that the
Corporate Secretary call a special meeting of shareholders to approve the
Articles Amendment, and the Purchaser further agrees that it will vote the Class
A Common Stock acquired by it hereunder in favor of the Articles Amendment at
such meeting of shareholders.
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations and warranties and all covenants and agreements
contained herein shall survive the execution and delivery of this Agreement and
the Closing hereunder and continue in effect thereafter through, to and
including December 8, 1997, at which time they shall terminate except with
respect to claims asserted for any breach or inaccuracy prior to December 8,
1997; provided, that following the Closing Date, the Purchaser shall have a
--------
claim pursuant to a breach of the representation and warranty contained in
Section 4.17 only if the facts and circumstances giving rise to such breach have
had, or would be reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect.
26
<PAGE>
8. INDEMNIFICATION.
8.1 Indemnification by the Company. In addition to all other sums
------------------------------
due hereunder or provided for in this Agreement, the Company agrees to indemnify
and hold harmless the Purchaser, its partners and their respective Affiliates
and the respective officers, directors, agents, employees, subsidiaries,
partners, advisors, representatives and controlling Persons of each of the
foregoing (each, an "indemnified party") to the fullest extent permitted by law
from and against any and all losses, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel) or other
liabilities ("Liabilities") resulting from any legal, administrative or other
actions brought by any Person or entity (including actions brought by the
Company or any equity or debt holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the
transactions contemplated hereby, or any indemnified party's role therein or in
the transactions contemplated hereby; provided, that the Company shall not be
--------
liable under this Section 8.1 to an indemnified party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
willful malfeasance of such indemnified party; and provided, further, that if
-------- -------
and to the extent that such indemnification is unenforceable for any reason
other than the immediately preceding proviso, the Company shall make the maximum
contribution to the payment and satisfaction of such indemnified Liabilities
that shall be permissible under applicable laws. In connection with the
obligation of the Company to indemnify for Liabilities as set forth above, the
Company further agrees to reimburse each indemnified party for all such expenses
(including reasonable fees, disbursements and other charges of counsel) as they
are incurred by such indemnified party provided that each such indemnified party
shall have undertaken to repay any such amounts in the event that it is finally
judicially determined that the Company is not liable under this Section 8.1 for
such Liabilities.
8.2 Notification. Each indemnified party under this Section 8 will,
------------
promptly after the receipt of notice of the commencement of any action or other
proceeding against such indemnified party in respect of which indemnity may be
sought from the Company under Section 8, notify the Company in writing of the
commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability that
it may have to such indemnified party unless the Company is materially
prejudiced thereby. In case any such action or other proceeding shall be
brought against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that any
-------- -------
indemnified party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action or
proceeding in which both the Company and an indemnified party is, or is
reasonably likely to become, a party, such indemnified party shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such indemnified party, there are or may be legal defenses available to such
indemnified party or to other indemnified parties that are different from or
additional to those available to the Company which, if the Company and such
indemnified party were to be represented by the same counsel, would constitute a
conflict of interest for such counsel or materially prejudice the prosecution of
the
27
<PAGE>
defenses available to such indemnified party; provided, however, that in no
-------- -------
event shall the Company be required to pay fees and expenses under this Article
8 for more than one firm of attorneys representing the indemnified parties
(together, if appropriate, with one firm of local counsel per jurisdiction) in
any one legal action or group of related legal actions. The Company shall not
be liable for any settlement of such action or proceeding effected without its
prior written consent, not to be unreasonably withheld. The Company agrees that
the Company will not, without the prior written consent of the Purchaser, not to
be unreasonably withheld, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
any matter subject to indemnification hereunder unless such settlement,
compromise or consent includes an unconditional release of the Purchaser and
each other indemnified party from all Liabilities and the Purchaser and each
other indemnified party are not obligated to take or forego taking any action,
including the payment of money, thereunder. The rights accorded to indemnified
parties hereunder shall be in addition to any rights that any indemnified party
may have at common law, under federal and state securities laws, by separate
agreement or otherwise.
8.3 Registration Rights Agreement. Notwithstanding anything to the
-----------------------------
contrary in this Section 8, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
9. TERMINATION.
9.1 Termination. Subject to Section 9.2, this Agreement may be
-----------
terminated at any time prior to the Closing:
(A) by the Company if, after complying with Section 6.6, (i) the
Company enters into a definitive agreement to effect a transaction contemplated
by an Acquisition Proposal, (ii) pursuant to action of the Board of Directors,
the Board of Directors accepts, or recommends to the shareholders of the
Company, an Acquisition Proposal, or (iii) a tender offer or exchange offer for
Voting Securities of the Company is commenced, which would result in a Change of
Control, and the Board of Directors recommends that the shareholders of the
Company tender their Voting Securities in such tender or exchange offer;
(B) by the Purchaser if (i) the Company enters into a letter of intent
or a definitive agreement to effect a transaction contemplated by an Acquisition
Proposal, (ii) pursuant to action of the Board of Directors, the Board of
Directors accepts, or recommends to the shareholders of the Company, an
Acquisition Proposal, (iii) a tender offer or exchange offer for Voting
Securities of the Company is commenced, which would result in a Change of
Control, and the Board of Directors (a) recommends that the shareholders of the
Company tender their Voting Securities in such tender or exchange offer or (b)
states that it is neutral with respect to such tender or exchange offer, or (iv)
a Change of Control occurs;
(C) by the Purchaser if the Board of Directors determines not to give,
withdraws, modifies or changes its approval or recommendation of the sale of the
Shares to the Purchaser or any of the other matters contemplated by Sections
3.1.2, 3.1.3 and 3.1.4;
(D) by the Purchaser or the Company if the Shareholder Meeting is held
to consider the transactions contemplated hereby and the shareholders fail to
28
<PAGE>
approve the sale of the Shares to the Purchaser or any of the other matters
contemplated by Sections 3.1.2 and 3.1.4;
(E) by the Purchaser if there has been a material breach of any
representation, warranty, covenant or agreement of the Company contained in this
Agreement, which breach is incurable or has not been cured by the Company within
30 days after written notice from the Purchaser; provided, however, that no
-------- -------
pending or threatened action, suit, proceeding or investigation questioning the
validity of this Agreement or the Registration Rights Agreement or any action to
be taken pursuant hereto or thereto or seeking to enjoin consummation of any of
the transactions contemplated hereby or thereby, shall give the Purchaser any
right to terminate this Agreement under this Section 9.1(E) except as set forth
in paragraph (J) below;
(F) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement of the Purchaser contained in
this Agreement, which breach is incurable or has not been cured by the Purchaser
within 30 days after written notice from the Company;
(G) by the Purchaser if any one or more of the conditions to the
obligation of the Purchaser to close has not been fulfilled as of the scheduled
Closing Date;
(H) by the Company if any one or more of the conditions to the
obligation of the Company to close has not been fulfilled as of the scheduled
Closing Date;
(I) by the Purchaser, if the Closing shall not have occurred on or
before January 31, 1996;
(J) by the Company or the Purchaser, if any judgment, injunction,
order or decree enjoining the Company or the Purchaser from consummating the
transactions contemplated by this Agreement is entered and such judgment,
injunction, order or decree becomes final and nonappealable; provided, however,
-------- -------
that the party seeking to terminate this Agreement must use all reasonable
efforts to remove such judgment, injunction, order or decree; and
(K) by mutual written consent of the Company and the Purchaser.
9.2 Fees and Expenses.
-----------------
(A) If this Agreement is terminated pursuant to Section 9.1(A), (B),
(C), (D), (E), (G), (I) or (J), then the Company shall promptly, but in no event
later than one business day after the date of termination of this Agreement, pay
the Purchaser a termination fee of $250,000 and reimburse the Purchaser for all
of the Transaction Expenses of the Purchaser and its Affiliates (up to a maximum
amount of $400,000); provided, that notwithstanding the foregoing, in connection
--------
with this Section 9.2(A) only, with respect to a termination of this Agreement
pursuant to Section 9.1(I) or (J), if the facts or circumstances giving rise to
the right of a party to terminate this Agreement pursuant to either such Section
were beyond the reasonable control of the Company, then the Company shall not be
obligated to pay to the Purchaser the $250,000 termination fee provided for in
this Section 9.2(A).
29
<PAGE>
(B) In the event that prior to November 6, 1996 the Company
consummates any transaction described in the definition of "Acquisition
Proposal" or a series of such transactions or consummates a Successor
Transaction, then the Company shall pay to the Purchaser a termination fee, not
to exceed $750,000 equal to (x) 5% of the aggregate consideration (which shall
not include the proceeds of loans made to, or debt securities issued by, the
Company in connection with such transaction unless such loans or debt securities
are convertible into or exchangeable for equity securities or are issued
together with equity securities or warrants or similar rights to acquire equity
securities) received by the Company or its shareholders in any such transaction
or series of transactions if such consideration is received on or prior to May
6, 1996 and (y) 2-1/2% of the aggregate consideration received by the Company or
its shareholders after May 6, 1996 and on or prior to November 6, 1996.
(C) If (B) is applicable, the Purchaser may elect to receive all or a
portion of the termination fee in the form of Class A Common Stock valued at
$1.10 per share (the "Valuation Price"). The following provisions shall be
applicable to such election:
(i) The Purchaser shall make its election within 30 days of the
consummation of the transaction giving rise to the termination fee, by giving
notice to the Company (the "Election Notice") of the Purchaser's election to
receive all or a portion of the termination fee in the form of Class A Common
Stock and the number of shares so elected ("Stock Election") or to receive the
termination fee entirely in cash. In the absence of any election Notice, the
Purchaser shall be deemed to have elected to receive the termination fee
entirely in cash.
(ii) If the Stock Election is made, the Company shall deliver to the
Purchaser a certificate or certificates representing the number of shares
referred to in the Stock Election, and the remainder of the termination fee in
cash.
(iii) Prior to the issuance of the shares pursuant to the Stock
Election, the Company shall have taken all necessary corporate action to
authorize the issuance of the shares of Class A Common Stock issued pursuant to
the Stock Election, all of which, upon such issuance and delivery will be duly
authorized, validly issued, fully paid and non-assessable and not subject to any
preemptive rights or options or other rights of any kind.
(iv) The Purchaser will acquire the shares issued pursuant to the
Stock Election for investment purposes only and not with a view to any public
resale or distribution thereof in violation of, and will not sell any such
shares except in compliance with, the Securities Act of 1933, as amended (the
"1933 Act"). If the Company effects a registration of Class A Common Stock for
its own account or for any other shareholder of the Company (other than on Form
S-4 or Form S-8, or any successor form), it shall allow the Purchaser to
participate in such registration; provided, however, that if the managing
underwriters in such offering advise the Company in writing that in their
opinion the number of shares of Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include the securities requested to be included therein pro rata among the
holders requesting to be included. Such registration shall be effected at the
Company's expense, except for underwriting discounts and commissions, and fees
and expenses of the Purchaser's counsel.
30
<PAGE>
(v) In the event of any change in the number of issued and outstanding
shares of Class A Common Stock by reason of any stock dividend, split-up,
merger, recapitalization, reclassification, combination or other change in the
capital stock of the Company, the number and kind of shares referred to in the
Stock Election and the Valuation Price shall be appropriately adjusted to
restore to the Purchaser its rights to the termination fee.
(D) In the event that any party (the "plaintiff") brings a legal
action against any other party (the "defendant") for the collection of any
termination fees or Transaction Expenses under this Section 9.2 and thereafter
the plaintiff collects any portion of such fees or Transactions Expenses from
the defendant, the defendant shall also reimburse the plaintiff for all out-of-
pocket costs, fees and expenses, including, without limitation, the fees and
disbursements of counsel and the expenses of litigation, incurred by the
plaintiff in connection with such legal action.
(E) All amounts payable in cash under this Section 9.2 shall be paid
in immediately available funds to an account or accounts designated by the
relevant party.
9.3 Effect of Termination. If this Agreement is terminated pursuant
---------------------
to Section 9.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except (A) to the extent such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, then such party shall be required to pay only the liquidated damages
specified in Section 9.2 and (B) that the representation contained in Section
4.25 (Finder's Fee) and the covenants and agreements contained in Sections
6.4(B) (Confidentiality), 6.5 (Publicity), 8.1 (Indemnification), 8.2, 9.2
(Termination), 9.3 and 10 shall survive the termination hereof.
10. MISCELLANEOUS.
10.1 Performance; Waiver. The provisions of this Agreement may be
-------------------
modified or amended, and waivers and consents to the performance and observance
of the terms hereof may be given by written instrument executed and delivered by
(A) prior to the Closing, the Company and the Purchaser and (B) after the
Closing, (i) with respect to this Section 10.1, the Company (with the approval
of a majority of the Disinterested Directors who are not partners of the
Purchaser, or the Purchaser General Partner or officers, directors or employees
of any of the foregoing and including in such majority one Unaffiliated
Director), and (ii) with respect to all other Sections of this Agreement, the
Company (with the approval of a majority of the Disinterested Directors) and the
Purchaser. The failure at any time to require performance of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter (unless performance thereof has been waived in accordance with
the terms hereof for all purposes and at all times by the parties to whom the
benefit of such performance is to be rendered). The waiver by any party to this
Agreement of a breach of any provision hereof shall not be taken or held to be a
waiver of any succeeding breach of such provision or any other provision or as a
waiver of the provision itself unless the waiver specifically so states.
10.2 Successors and Assigns. All covenants and agreements contained
----------------------
in this Agreement by or on behalf of the parties hereto shall bind, and inure
the benefit of, the respective successors and assigns of the parties hereto;
provided, however, that the rights and obligations of either party hereto may
- -------- -------
not be assigned (other than by the Purchaser to an Affiliate of the Purchaser )
without the prior written consent of the other party. Each such assignment
31
<PAGE>
shall be made by such assignee and assignor, as the case may be, and the Company
executing an agreement pursuant to which the assignee shall expressly agree to
become a party to this Agreement and to be bound by the terms of this Agreement.
10.3 Notices. All notices or other communications given or made
-------
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
If to the Company:
Hawaiian Airlines, Inc.
3376 Koapaka Street
Honolulu, Hawaii 96819
Telecopy: (808) 835-3690
Attention: General Counsel
with a copy to:
Gibson Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Telecopy: (212) 229-7520
Attention: Ronald S. Beard, Esq.
If to the Purchaser:
Airline Investors Partnership, L.P.
885 Third Avenue
34th Floor
New York, New York 10022
Telecopy: (212) 751-9501
Attention: John Adams and Richard Conway
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Judith R. Thoyer, Esq.
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
10.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
32
<PAGE>
YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE.
EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND
FEDERAL COURTS IN THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT.
10.5 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of the Company and the Purchaser directs
that such court interpret and apply the remainder of this Agreement in the
manner that it determines most closely effectuates their intent in entering into
this Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
10.6 Headings; Interpretation. The index and section headings
------------------------
herein are for convenience only and shall not affect the construction hereof.
References to sections means sections of this Agreement unless the context
otherwise requires. References to herein or hereof mean this Agreement.
10.7 Entire Agreement. This Agreement (together with the
----------------
Exhibits hereto) embodies the entire agreement between the parties relating to
the subject matter hereof and supersedes any and all prior oral or written
agreements, representations or warranties, contracts, understandings,
correspondence, conversations, and memoranda between the Company and the
Purchaser, or between or among any agents, representatives, parents,
Subsidiaries, Affiliates, predecessors in interest or successors in interest,
with respect to the subject matter hereof (including, without limitation, the
Letter Agreement dated November 6, 1995 between the Company and Airline
Investors Partnership).
10.8 No Third Party Rights. Except for the indemnified
---------------------
parties, directors and officers described in Article 8 and the rights of such
Persons expressly created under Article 8, this Agreement is intended solely for
the benefit of the parties hereto and is not intended to confer any benefits
upon, or create any rights in favor of, any Person (including, without
limitation, any shareholder or debtholder of the Company or any limited partner
of the Purchaser) other than the parties hereto.
10.9 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
HAWAIIAN AIRLINES, INC.
By: /s/ Bruce R. Nobles
---------------------------
Name: Bruce R. Nobles
Title: President
By: /s/ Rae A. Capps
---------------------------
Name: Rae A. Capps
Title: Vice President and General Counsel
AIRLINE INVESTORS PARTNERSHIP, L.P.
By: AIP GENERAL PARTNER, INC., its
general partner
By: /s/ John W. Adams
---------------------------
Name: John W. Adams
Title: President
34
<PAGE>
EXHIBIT 10(ad)
------
LEASE AMENDMENT NO. 6
---------------------
THIS LEASE AMENDMENT NO. 6 (herein called "Amendment No. 6"), dated as of
November 20, 1995 between AMERICAN AIRLINES, INC., a Delaware corporation
("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee").
WITNESSETH:
-----------
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Aircraft Lease Agreement dated as of September 12, 1994 (as amended and
supplemented from time to time, the "Lease Agreement", defined terms used herein
as therein defined), which provides for the execution of a Lease Amendment for
the purpose of, among other things, amending the Lease Agreement and any Lease
Supplements thereto; and
WHEREAS, the Lease Agreement was modified and amended by those certain
Lease Supplements No. 1 through 6, each dated as of September 12, 1994, recorded
with the Lease Agreement, with the Federal Aviation Administration (the "FAA")
on September 16, 1994 as Conveyance No. P98874; by that certain Lease Supplement
No. 7 dated as of September 21, 1994, recorded with the FAA on October 26, 1994
as Conveyance No. II00230; by that certain Lease Supplement No. 8 dated as of
October 6, 1994, recorded with the FAA on October 31, 1994 as Conveyance No.
LL08311; by that certain Amendment to Lease Agreement, Lease Supplements and
Lease Supplement No. 9, dated as of November 12, 1994, recorded with the FAA on
November 21, 1994 as Conveyance No. NN007458; by that certain Lease Supplement
No. 10 dated November 21, 1994, recorded by the FAA on March 15, 1995 as
conveyance No. YY010872; by that certain Lease Amendment No. 2 dated April 13,
1995 ("Lease Amendment No. 2"), recorded by the FAA on May 26, 1995 as
Conveyance No. D06501; by that certain Lease Amendment No. 3 dated June 1, 1995
("Lease Amendment No. 3"), recorded by the FAA on June 8, 1995 as Conveyance No.
E19773; by that certain Lease Amendment No. 4 dated August 22, 1995 ("Lease
Amendment No. 4"), recorded by the FAA on September 27, 1995 as Conveyance No.
JJ14862; and by that certain Lease Amendment No. 5 dated October 6, 1995 ("Lease
Amendment No. 5"), recoreded by the FAA on ____________________, 1995 as
Conveyance No. ____________ ; and
WHEREAS, Lessee has failed to make certain payments of Rent due and payable
on or prior to the date hereof, and Lessor has agreed to defer payment of the
overdue Deferred Basic Rent as set forth herein; and
WHEREAS, Lessor's agreement to the additional deferrals as set forth herein
is conditioned upon Lessee's performance of its obligations under this Lease
Amendment No. 6 and the Consulting Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to the Lease Agreement, the Lessor and Lessee hereby
amend the Lease Agreement as follows:
A. AMENDMENT TO THE LEASE AGREEMENT.
--------------------------------
1. The following definitions set forth in Section 1 of the Lease
Agreement shall be amended in their entirety as follows:
"'Deferred Basic Rent Payment Dates' means March 31, 1995, April 7, 14
---------------------------------
and 21, 1995, May 1, 1995 and December 9, 1995."
2. The first sentence of Subsection 3(b) of the Lease Agreement shall be
amended in its entirety to read as follows:
"Lessee hereby agrees to pay Lessor (i) Basic Rent (except Deferred Basic
Rent) for each Aircraft throughout the Term in the amounts set forth in Schedule
I on the day prior to each applicable Basic Rent Payment Date commencing on the
day prior to the applicable Delivery Date, and (ii) Deferred Basic Rent for all
the Aircraft throughout the applicable Terms in the amounts set forth in
Schedule I on the Deferred Basic Rent Payment Dates.
3. Schedule I to the Lease Agreement shall be amended in its entirety to
read as set forth in Schedule I attached hereto.
B. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 6.
--------------------------------------------------------------
This Amendment No. 6 shall become effective upon the fulfillment of the
following conditions precedent:
1. On the effective date of this Amendment No. 6 (the "Amendment
Effective Date"), the representations and warranties of Lessee set forth in the
Lease Agreement shall be true and accurate as if made on such date.
2. The Lease Amendment and the applicable Lease Supplements shall have
been executed and filed for information with the FAA in Oklahoma City, Oklahoma.
3. The receipt by Lessor from Lessee not later than two (2) days prior to
the Amendment Effective Date of the following, dated as of such Amendment
Effective Date, all of which shall be satisfactory in form and substance to
Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized officer thereof
or certifying no
2
<PAGE>
changes or amendments thereto since the date they were last certified to Lessor
by Lessee;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform this Amendment No. 6 and the transactions
contemplated hereby, certified to be true and up to date copies by a duly
authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officers of Lessee setting out the names and signatures of the person
or persons authorized to sign the Lease Agreement;
(d) receipt by Lessor of the installments of Basic Rent pursuant to Section
3 of the Lease Agreement, as amended hereby, and Supplement Rent pursuant to
Exhibit F to this Lease Agreement, as amended hereby, and payment of all amounts
then due under any other Long-Term Agreement.
4. The Final Order confirming the Plan shall be and remain in full force
and effect.
5. The Long-Term Agreements and the Letter of Credit shall be in full
force and effect.
6. No Default or Lessee Event of Default shall have occurred and be
continuing after giving effect to this Lease Amendment and no "Event of Default"
or "Termination Event" shall have occurred and be continuing under the Long-Term
Agreements.
C. MISCELLANEOUS.
-------------
1. Except as set forth herein, all terms and provisions contained in the
Lease Agreement shall remain in full force and effect. Nothing contained in
this Lease Amendment No. 6 shall be deemed a waiver by Lessor of any amounts due
and owing under the Lease or of any rights of Lessor existing on the date hereof
under the Lease; provided, however, that the amount of Deferred Basic Rent
represents the unpaid Rent due and owing on the date hereof (the "Unpaid Rent"),
and Lessor's sole remedy for the Unpaid Rent shall be the payment of Deferred
Basic Rent. Lessor hereby waives any Event of Default under the Lease Agreement
arising solely from Lessee's failure to pay the Unpaid Rent; further provided
that Lessee's failure to pay the Deferred Basic Rent shall constitute an Event
of Default under the Lease Agreement and entitle Lessor to enforce all rights
and remedies under Section 14A of the Lease.
2. Lessee hereby confirms its agreement to pay to Lessor Basic Rent
(including Deferred Basic Rent) and Supplemental Rent for the Aircraft
throughout the Term in accordance with Section 3 of the Lease Agreement.
3
<PAGE>
3. This Amendment No. 6 is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
4. This Amendment No. 6 may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Amendment No. 6 constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Amendment No. 6 may be created through the transfer or
possession of any counterpart other than the counterpart marked as the
"Original."
SIGNATURE PAGE FOLLOWS
4
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Amendment No. 6 to
be duly executed and delivered as of the date and year first above written.
AMERICAN AIRLINES, INC.
By: Jeffery M. Jackson
----------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES SIGNATURE ON FOLLOWING PAGE
5
<PAGE>
HAWAIIAN AIRLINES, INC.
By: Bruce R. Nobles
---------------------------------
Bruce R. Nobles
President and Chief Executive
Officer
By: Rae A. Capps
----------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
6
<PAGE>
SCHEDULE I
This Schedule I has been left intentionally blank for recording purposes,
as the parties deem the information contained therein to be confidential
financial information.
7
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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94
0
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