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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, 1996
( ) 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
incorporation or organization) identification no.)
3375 Koapaka Street, Suite G-350 96819
Honolulu, Hawaii (Zip code)
(Address of principal executive offices)
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
------------------- -----------------------------------------
Preferred Stock Purchase Rights American Stock Exchange
Common Stock ($.01 par value) 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 file 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. Yes (X ) No ( )
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 1, 1997, 39,626,458 shares of Common Stock of the Registrant were
outstanding. The aggregate market value of voting stock held by non-affiliates
(20,684,942 shares of Common Stock) of the Registrant is approximately
$74,672,000.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement are incorporated herein by reference in Part III of this Form
10-K.
EXHIBIT INDEX ON PAGE 44
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TABLE OF CONTENTS
PAGE
COVER PAGE 1
PART I
ITEM 1. BUSINESS. 4
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. 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 26
ITEM 11. EXECUTIVE COMPENSATION. 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K. 28
EXHIBIT INDEX 44
SIGNATURES 45
TABLE INDEX
BALANCE SHEETS F-2
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) F-5
STATEMENTS OF CASH FLOWS F-7
NOTES TO FINANCIAL STATEMENTS F-9
SUPPLEMENTAL FINANCIAL INFORMATION F-33
SELECTED FINANCIAL AND STATISTICAL DATA F-34
SCHEDULE S-1
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PART I
ITEM 1. BUSINESS.
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THE COMPANY
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Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") is the largest
airline headquartered in Hawaii, based on operating revenues of $384.5
million for 1996. The Company 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 ("Interisland") and Las
Vegas and four key United States ("U.S.") West Coast gateway cities, Los
Angeles, San Francisco, Seattle and Portland ("Transpac"). In addition,
Hawaiian Airlines provides the only direct service from Hawaii to Pago Pago,
American Samoa and Papeete, Tahiti ("Southpac"). The Company also provides
charter service from Honolulu to Las Vegas and, effective February 1997, to
Anchorage, Alaska ("Overseas Charter"). The Company operates a fleet of 13
DC-9 aircraft and 10 DC-10 aircraft.
The Company was incorporated in January 1929 under the laws of the Territory
of Hawaii. The Common Stock of the Company trades on the American Stock
Exchange and Pacific Stock Exchange under the symbol "HA." The Company's
principal offices are located at 3375 Koapaka Street, Suite G-350, Honolulu,
Hawaii 96819, and its telephone and facsimile numbers are (808) 835-3700 and
(808) 835-3690, respectively.
OPERATIONS
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PASSENGER SERVICE
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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 (i.e.,
Interisland), daily service to Las Vegas and four key U.S. West Coast gateway
cities (i.e., Transpac), and twice weekly service to Pago Pago, American
Samoa and weekly service to Papeete, Tahiti in the South Pacific (i.e.,
Southpac). The Company also provides charter service to Las Vegas and,
effective February 1997, Anchorage (i.e., Overseas Charter).
The entire Interisland market averages approximately nine million passengers
annually. Management estimates approximately two-thirds of Interisland
travelers are visitors to Hawaii while the balance are Hawaii residents.
Residents rely on Interisland flights in much the same way as mainland
residents rely on a state highway system. The Company's Interisland
operations provide service to seven airports on the six major Hawaiian
islands of Oahu, Hawaii, Maui, Kauai, Molokai and Lanai. At December 31,
1996, Hawaiian Airlines' Interisland fleet consisted of 13 DC-9 aircraft.
During 1996, the Interisland market represented approximately 37.8% of the
Company's total operating revenues.
During 1996, the Company's Transpac operations served Las Vegas and the U.S.
West Coast gateway cities of Los Angeles, San Francisco, Seattle and
Portland. At December 31, 1996, 10 DC-10 aircraft were used to service
Transpac routes. In 1996, the Transpac market represented approximately 49.0%
of the Company's total operating revenues.
Hawaiian Airlines currently is the sole carrier providing air service from
Honolulu to 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 aircraft. During 1996, the Southpac market
represented approximately 5.9% of the Company's total operating revenues.
In addition to its regularly scheduled service, in 1996 the Company also
operated, on average, six charter flights per week to Las Vegas utilizing
DC-10 aircraft. The Company's Overseas Charter operation produced 7.3% of the
Company's total operating revenues in 1996.
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FUEL
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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:
GALLONS TOTAL COST, AVERAGE % OF
CONSUMED INCLUDING TAXES COST PER OPERATING
YEAR (IN THOUSANDS) (IN THOUSANDS) GALLON EXPENSES
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1996 98,729 $ 75,642 76.6 CENTS 19.8%
1995 92,167 $ 56,463 61.3 CENTS 16.2%
1994 78,180 $ 47,457 60.7 CENTS 14.9%
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS contained in Part II, 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. 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 the event of a fuel supply shortage resulting from a
disruption of oil imports or otherwise, higher fuel prices or curtailment of
scheduled service could result. A one cent change in the cost per gallon of
fuel has an impact on the Company's operating expenses of approximately
$82,000 per month (based on 1996 consumption). Changes in fuel prices may
have a greater impact on the Company than certain of its Transpac competitors
with more modern, fuel efficient aircraft.
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
thereafter, the Company became subject to an additional 4.3CENTS per gallon
tax. As a result, the Company incurred $2.9 million more in fuel taxes in
1996 than in 1995. The Company cannot predict whether or to what extent it
has been or will be able to pass on such additional costs to its customers.
As discussed below, although Hawaiian Airlines has contracts with several
different fuel suppliers, almost all of its aviation fuel is purchased from
Northwest Airlines, Inc. ("Northwest").
AIRCRAFT
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The Company's fleet consists of 10 DC-10 and 13 DC-9 aircraft. All of the
Company's aircraft are leased except for two DC-9s that are owned by the
Company. Of the DC-10s, nine are leased under long-term operating leases
with American Airlines, Inc. ("American") and expire in 2001. One DC-10 is
leased under a short-term operating lease which expires in 1997. Of the
leased DC-9s (including related flight equipment), seven are leased under
operating leases and four are leased under capital leases that expire at
various times through the year 2004.
Aircraft maintenance costs represent a significant operating cost for the
Company (approximately 18% for 1996) that will increase as the Company's
aircraft increase in age. The average age of the Company's DC-10 aircraft is
23 years and its DC-9 aircraft is 18 years. The Company intends to replace
some or all of its existing aircraft with replacement aircraft in the next
decade in order to reduce maintenance costs and achieve other operating
efficiencies, although no assurance can be given that the Company will have
the capital necessary to replace such aircraft.
In the event one or more of the Company's aircraft were to be out of service,
the Company may have difficulty completing its scheduled or chartered
service. Any interruption of service caused by the
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unavailability of aircraft due to unscheduled servicing or repair or
otherwise, or lack of availability of substitute aircraft, could have a
material adverse effect on the Company's service, reputation and
profitability. As is customary in the airline industry, the Company does not
have business interruption insurance.
SEGMENT INFORMATION
-------------------
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for
discussion on Industry Segment Information.
SEASONALITY
-----------
The airline industry is a highly cyclical business with substantial
volatility. 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.
Because a substantial portion of airline travel, both personal and to a
lesser extent business, is discretionary, the industry tends to experience
adverse financial results in general economic downturns. Accordingly,
airlines require substantial liquidity to sustain continued operations under
most conditions. 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.
The Company's results are sensitive to seasonal and cyclical volatility
primarily due to seasonal leisure and holiday travel. The Company believes
that 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, traffic levels are typically lowest in the first quarter
of the year with strong travel periods during June, July, August and
December. Aggressive fare pricing strategies that increase the availability
and size of ticket discounts are utilized during weaker travel periods.
Because certain of the Company's costs do not vary significantly regardless
of traffic levels, such seasonality substantially affects the Company's
profitability and liquidity.
DEPENDENCE ON TOURISM
---------------------
Since the Company's operations are limited almost exclusively to flights to,
from and among, the Hawaiian Islands, the Company's profitability is linked
to the number of travelers to, from and among the Islands and a material
reduction in the number of such travelers would have a material adverse
effect on the Company's operations. Tourists constitute a majority of the
travelers to Hawaii. Because tourism levels are related to discretionary
income, the level of Hawaiian tourism is affected by the strength of the
economies in the areas from which tourists to Hawaii typically originate.
Hawaiian tourism is also dependent upon the popularity of Hawaii as a tourist
destination and negative events reduce tourist interest in Hawaii. In
addition, from time to time, various events such as the Persian Gulf War and
industry-specific problems such as strikes have had a negative impact on
tourism in Hawaii.
After reaching its peak in 1990, the Hawaii tourism industry experienced
three consecutive years of decline, with year over year improvement from 1994
through 1996. Results from the Hawaii Visitors and Convention Bureau
indicate that there were 6.8 million visitors to Hawaii in 1996, an increase
of 3.6% over 1995. Approximately 41% came from Asia and the Pacific and
approximately 59% came from the U.S. mainland and Canada. While 1996 was
encouraging, local economists expect that tourism in the future will grow
slowly, if at all. Significant obstacles to growth in Hawaii visitor traffic
have been and will continue to be the recent resurgence of the vacation cruise
industry, more effective promotion by areas such as Mexico, the Caribbean,
Europe and domestic leisure attractions such as theme parks and Las Vegas and
the increased incidence of domestic airline seat sales, which have become
more prevalent during the past two years and result in the diversion of
potential Hawaii discretionary travel. No assurance can be given that the
level of tourism traffic to Hawaii will in fact return to pre-1991 levels or
that it will not decline in the future. A decline in the level of Hawaii
tourism traffic could have a material adverse effect on the Company's
operations.
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COMPETITION
The airline industry is highly competitive and susceptible to price discounting,
primarily due to the effects of the Airline Deregulation Act of 1978, recodified
into the Transportation Act, which has substantially eliminated government
authority to regulate domestic routes and fares, and has increased the ability
of airlines to compete with respect to destination, flight frequencies and
fares. Airline profit levels are highly sensitive to, and from 1990 to 1992
were severely impacted by, adverse changes in fuel costs, average yield and
passenger demand. The emergence in recent years of several new carriers,
typically with low cost structures, has further increased the competitive
pressures on U.S. airlines. Aircraft, skilled labor and gates at most airports
continue to be available to start-up carriers. In some cases, the new entrants
have initiated or triggered price discounting. Increased competition combined
with rising operational costs and pricing pressures have created financial
difficulties for most airlines leading to the U.S. airline industry having
suffered unprecedented losses in recent years. As a result, many airlines have
been acquired or forced to restructure or have ceased operations. Although the
industry produced profits in 1995 and 1996, no assurance can be given that this
performance can be sustained in the future.
Many of the Company's competitors are larger and have substantially greater
resources than the Company. In addition, the commencement of service by new
carriers on the Company's routes could negatively impact the Company's operating
results. Competing airlines have, and may in the future, undercut the Company's
fares and increase capacity on routes beyond market demand in order to increase
their market shares. Such activity by other airlines could reduce fares or
passenger traffic to levels where profitable operations could not be achieved.
Due to its smaller size and liquidity, the Company may be less able to withstand
aggressive marketing tactics or a prolonged fare war initiated by its
competitors.
Although the domestic airline industry has at present abandoned deeply
discounted general pricing structures, and fare levels have continued to
increase from 1992 levels, significant industry-wide discounts could be
reimplemented at any time, and the introduction of broadly available, deeply
discounted fares by a major U.S. airline could result in lower yields for the
entire industry and could have a material adverse effect on the Company's
operating results.
Airlines are subject to a high degree of financial and operating leverage. Due
to high fixed costs, the expenses of each flight do not vary proportionately
with the number of passengers carried, but the revenues generated from a
particular flight are directly related to the number of passengers carried.
Accordingly, while a decrease in the number of passengers carried would cause a
corresponding decrease in revenue (if not offset by higher fares), it may result
in a disproportionately greater decrease in profits. However, an increase in
the number of passengers carried would have the opposite effect.
The airline industry is highly sensitive to general economic conditions. Again,
because a substantial portion of airline travel is discretionary, the operating
and financial results of the Company may be negatively impacted by any downturn
in national or regional economic conditions in the U.S., particularly California
and Hawaii, and certain Asian countries, particularly Japan. Any prolonged
general reduction in airline passenger traffic may adversely affect the Company.
The airline industry is characterized by low gross profit margins and revenues
that vary to a substantially greater degree than do the related costs.
Accordingly, a significant shortfall from expected revenue levels could have a
material adverse affect on the Company's operations.
INTERISLAND
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 serviced primarily by two carriers, Hawaiian Airlines and
the Company's primary competitor in the Interisland market, Aloha Airlines, Inc.
("Aloha"). Aloha's competitive position is strengthened through its marketing
affiliation with United Airlines, Inc. ("United"), the largest carrier of
passengers to Hawaii. Aloha participates in United's frequent flyer program and
also has a code sharing agreement with United. Aloha principally utilizes 17
Boeing 737 aircraft with a schedule that averages approximately 180 daily
flights, which service the same basic Interisland routes as the Company.
Hawaiian Airlines has approximately 150
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Interisland flights per day. The Company believes that Interisland competition
is primarily based on fare levels, flight frequency, on-time performance and
reliability, name recognition, frequent flyer programs, customer service and
aircraft type.
TRANSPAC
The Company currently competes with major carriers such as United, Delta
Airlines, Inc., Northwest and, to a lesser extent, Continental Airlines, Inc.
and American on its Transpac routes. In addition to the competition produced by
the major carriers, 1996 saw continued competition from charter carriers in the
Transpac market. The Company believes that Transpac competition is primarily
based on fare levels, flight frequency, on-time performance and reliability,
name recognition, frequent flyer programs, customer service and in-flight
service.
RELIANCE ON THIRD PARTIES
The Company has entered into agreements with contractors, including American,
Northwest and certain other airlines, to provide certain facilities and services
required for its operations, including aircraft leasing and maintenance, code
sharing, reservations, computer services, frequent flyer programs, passenger
processing, fuel, ground facilities, baggage and cargo handling and personnel
training. This reliance on third parties to provide services subjects the
Company to various risks, including the risk that such services could be
discontinued without adequate replacement services being available.
The Company leases all of its DC-10 aircraft from American. American maintains
these aircraft and the Company pays an hourly charge for maintenance services,
monthly in arrears subject to a monthly minimum. During 1996, the Company
incurred approximately $56.4 million of lease and maintenance expenses under the
American DC-10 aircraft leases. American has the right to terminate its
obligation to provide aircraft maintenance services on and after January 1,
1999, upon 180 days prior notice. If American terminated the maintenance
arrangement, the Company would have to seek an alternate source of maintenance
service or maintain its DC-10s by itself, and no assurance can be given that the
Company would be able to do so on a basis that is as cost-effective as the
American maintenance arrangement. The Company also participates in American's
AAdvantage frequent flyer program and SABRE reservation system, which makes the
Company more competitive. The Company's participation in the AAdvantage program
expires in 1997, subject to renewal, and its participation in SABRE expires in
2001.
The Company purchases almost all of its aviation fuel from Northwest pursuant to
an agreement between the two companies which provides that, 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. The agreement requires Northwest to provide
Hawaiian Airlines with aviation fuel at Northwest's actual acquisition cost
without markup for profit and with reimbursement only for out-of-pocket costs.
The agreement is renewed automatically on December 31 of each year unless
canceled by either of the parties with 90 days written notice. Hawaiian Airlines
is prohibited from reselling such fuel. No assurance can be given that the
Company would be able to secure an adequate supply of fuel from alternate
sources if a fuel shortage were to cause the supply from Northwest to be
inadequate or if Northwest were to cancel the agreement. The Company paid
Northwest approximately $70.9 million, $53.0 million and $43.9 million for the
fuel supplied under this agreement in 1996, 1995 and 1994, respectively.
Further, effective July 1996, the Company entered into a cooperative marketing
agreement with Northwest, which provides for extensive marketing cooperation,
including a code sharing arrangement and frequent flyer participation.
Approximately 74% of the Company's ticket sales are currently made by travel
agents, including wholesalers. Travel agents generally have a choice between
one or more airlines when booking a customer's flight. Accordingly, any effort
by travel agencies to favor another airline or to disfavor the Company could
adversely affect the Company. Although management intends to continue to offer
an attractive and competitive product to travel agencies and to maintain
favorable relations with travel agencies, there can be no assurance that travel
agencies will not disfavor the Company or favor other airlines in the future,
either of which could have an adverse effect on the Company's operations.
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REGULATION
GENERAL
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 the carrier's certificate of public convenience
and necessity, international routes and fares, consumer protection policies
including baggage liability and denied-boarding compensation and unfair
competitive practices as set forth in the Transportation Act. 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, as
are other carriers, 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.
LIMITATION ON FOREIGN OWNERSHIP OF SHARES
The Transportation Act prohibits non-U.S. citizens from owning more than 25% of
the voting interest of a U.S. air carrier. The Company's Restated Articles of
Incorporation provide that the ownership or control of more than 25% (to be
increased or decreased from time to time to that percentage permissible under
the laws of the U.S.) of issued and outstanding voting capital stock of the
Corporation by persons who are not "citizens of the U.S." is prohibited. As of
December 31, 1996, less than 0.1% of the Common Stock of the Company was known
to be held by non-U.S. citizens.
MAINTENANCE DIRECTIVES AND OTHER REGULATIONS
In the last several years, the FAA has issued a number of maintenance directives
and other regulations relating to, among other things, collision avoidance
systems, airborne windshear avoidance systems, noise abatement and increased
inspection requirements. The Company expects to continue to incur substantial
expenditures for the purpose of complying with these new regulations.
Additional laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by, for example, imposing
additional requirements or restrictions on operations. Laws and regulations
also have been considered from time to time that would prohibit or restrict the
ownership and/or transfer of airline routes or takeoff and landing slots. Also,
the award of international routes to U.S. carriers (and their retention) is
regulated by treaties and related agreements between the U.S. and foreign
governments which are amended from time to time. The Company cannot predict
what laws and regulations will be adopted or what changes to international air
transportation treaties will be effected, if any, or how they will affect the
Company.
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.
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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 material 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 2 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 2 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 2 aircraft under the exemption all Stage 2 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 2 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 2
aircraft in Hawaii. Because Stage 2 aircraft are less expensive to acquire than
Stage 3 aircraft, this exemption provides limited protection against the entry
of another carrier, which would be required to operate an all Stage 3 fleet.
This advantage is partially offset by the fact that Stage 3 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 3 fleet.
INSURANCE
The Company is exposed to potential losses that may be incurred in the event of
an aircraft accident. Any such accident could involve not only the repair or
replacement of a damaged aircraft and its consequential temporary or permanent
loss of service, but also significant potential claims of injured passengers and
others. The Company is required by the DOT to carry liability insurance on each
of its aircraft. The Company currently maintains public liability insurance
which management believes is adequate and consistent with current industry
practice. However, there can be no assurance that the amount of such coverage
will not be changed or that the Company will not bear substantial losses from
accidents. Substantial claims resulting from an accident in excess of related
insurance coverage could have a material adverse effect on the Company.
TICKET AND CARGO TAX
Prior to 1996, the airline industry was subject to a 10.0% excise tax on each
ticket sold (other than Transpac flights), a 6.25% cargo excise tax and a $6.00
international departure tax (including Transpac and Overseas Charter flights).
These taxes lapsed on January 1, 1996, but were reinstated on August 28, 1996.
These taxes lapsed again on January 1, 1997, but were reinstated on March 7,
1997 effective through September 30, 1997. The Company has and will adjust its
fares accordingly based upon prevailing market conditions. There can be no
assurance that the Company will be able to maintain its current fare levels or
predict with any certainty the effects on its fares should the taxes again lapse
and/or be reinstated.
EMPLOYEES
As of December 31, 1996, Hawaiian Airlines had 2,392 employees, of which
2,020 were employed on a full-time basis. 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. The IAM, ALPA, AFA, TWU and Communications
Section Employees ratified new bargaining unit contracts in 1996.
10
<PAGE>
PART II
ITEM 2. PROPERTIES.
Information provided in Notes 4, 5 and 6 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 Note 11 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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) Market Information.
The Registrant's Common Stock is traded on the American Stock Exchange
and Pacific Stock Exchange under the symbol HA. The following table
sets forth the reported high and low sales prices for the Common Stock
for the quarters indicated, as reported by the American Stock
Exchange:
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
---------------------------------------------------
High 3-1/2 7-1/16 5-1/8 4
Low 1-5/8 2-7/8 3-1/4 3
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
---------------------------------------------------
High N/A* 13-1/2 6-7/16 3-7/8
Low N/A* 1-5/8 2-3/4 2-3/16
* The Company commenced distribution of its Common Stock on June 19,
1995, in accordance with its consolidated Plan of Reorganization dated
September 21, 1993, as subsequently amended.
(b) Holders.
As of March 19, 1997, there were approximately 1,040 holders of record
of the Company's Common Stock.
(c) Dividends.
Under the terms of the financing arrangement with CIT Group/Credit
Finance, Inc., the Company is restricted from paying any cash or stock
dividends. No dividends were paid by the Company in 1996 or 1995.
ITEM 6. SELECTED FINANCIAL DATA.
Information under the caption "Selected Financial and Statistical
Data" on pages F-33 to F-35 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
Certain statements contained heretofore that are not related to historical
results, including, without limitation, statements regarding the Company's
business strategy and objectives, future financial position and estimated
cost savings, are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and involve
risks and uncertainties. Although the Company believes that the assumptions
on which these forward-looking statements are based are reasonable, there can
be no assurance that such assumptions will prove to be accurate and actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed under Part I, Item I,
Business and heretofore, as well as those discussed elsewhere in this Form
10-K. All forward-looking statements contained in this Form 10-K are
qualified in their entirety by this cautionary statement.
INTRODUCTION
In response to the financial difficulties experienced by the Company in the
early 1990s, Hawaiian Airlines, HAL, INC., Hawaiian Airlines' then parent
company, and West Maui Airport, Inc., another then wholly owned subsidiary of
HAL, INC. (collectively the "Predecessor"), voluntarily commenced a Chapter
11 bankruptcy reorganization pursuant to a consolidated Plan of
Reorganization dated September 21, 1993, as subsequently amended (the
"Reorganization Plan"). The Company emerged from Chapter 11 bankruptcy on
September 12, 1994 (the "Effective Date") with Hawaiian Airlines being the
sole surviving corporation (the "Reorganized Company").
In 1996, the Company was successful in its concerted efforts to improve its
liquidity and financial position.
RECAPITALIZATION
On January 31, 1996, the Company received a $20.0 million cash equity
infusion through the purchase by Airlines Investors Partnership, L.P. ("AIP")
of 18,181,818 shares of the Company's 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 (collectively the "AIP Investment"). As of
December 31, 1996, AIP owned approximately 45.9% of the Company's common
equity. As a result, AIP currently controls substantially all actions to be
taken by the shareholders of the Company. Pursuant to the Company's Amended
Bylaws and the terms of the Series B Special Preferred Stock, 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%,
10% or 5%, respectively, of the common equity. In 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 has the right to require the Company, on two occasions,
to use its best efforts to register, at the Company's expense subject to
certain conditions, some or all of the Shares under the Securities Act of
1933, as amended (the "Securities Act"). In addition, AIP has the right to
have the Shares included in any other registered offering of shares of Common
Stock made within 10 years after consummation of the AIP Investment.
In September 1996, the Company completed a shareholder rights offering and an
investor offering (collectively the "Offerings") which collectively raised
approximately $39.3 million in gross proceeds of equity capital. The
Offerings were intended to permit the Company's shareholders to reduce the
dilutive effect of the AIP Investment, as described above, on their equity
investment in the Company and to raise additional equity capital. The
Offerings resulted in the issuance of 12,092,500 new shares of Common Stock
at the subscription price of $3.25 per share. The effects of the Offerings
have been reflected in the Company's balance sheets net of approximately $3.2
million of estimated costs and approximately $1.9 million in fully recourse,
interest-bearing notes received from holders of options granted as part of
the shareholder rights offering who exercised such options to purchase
592,500 shares of Common Stock in the Offerings.
12
<PAGE>
RESTRUCTURING AND ELIMINATION OF DEBT
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, the Company entered into certain arrangements with American and
AMR Corporation, American's Parent Company ("AMR") AMR pursuant to which,
American and AMR accepted the following:
(i) The payment of up to $10.0 million of deferred lease rents and maintenance
payments (and accrued interest thereon) under the Company's long-term
aircraft lease agreement with American (the "Aircraft Lease Agreement")
and the reimbursement of $250,000 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 bore interest at
10.0% per annum, payable quarterly in arrears, and had a final maturity
date of September 11, 2001. The Company had 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. On December 24, 1996, the Company exercised its
option to prepay the American Note for $9.15 million plus accrued interest
with all liens securing the American Note being released;
(ii) Reduction of basic rents under the Aircraft Lease Agreement by
approximately 28.0% for a period of three years, at which time basic rents
would revert back to 1995 levels. The Company agreed to pay a minimum
amount for hourly maintenance charges and basic rents and maintenance
amounts 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;
(iii) 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, as defined below;
(iv) Issuance of the Warrants to AMR (the "AMR Warrants"), which entitled
the holder to acquire up to 1,897,946 shares of Common Stock (the "AMR
Warrant Shares") exercisable at $1.10 per share (adjusted to 1,949,338
shares at $1.07 per share pursuant to applicable anti-dilution
provisions). As a result of the Offerings, warrants to purchase an
additional 51,392 shares of Common Stock were issued to AMR with the
exercise price of the AMR Warrants being adjusted to $1.07 per share.
One-half of the AMR Warrants are currently exercisable, but the balance
of the AMR Warrants were to become exercisable only if American and the
Company had entered into a code sharing arrangement by January 1, 1997
regarding the placement of the two letter flight designator code for
American's flights on certain of the Company's Interisland flights. The
Company extended the date upon which the balance of the AMR Warrants
could become exercisable, subject to the satisfaction of certain agreed
upon conditions. While the Company and AMR continue their attempts to
consummate the code sharing arrangement, the conditions upon which the
exercisable date of the balance of the AMR Warrants had been extended
were not satisfied and on January 31, 1997, the balance of the AMR
Warrants expired. The remaining outstanding AMR Warrants, if not
exercised, expire on September 11, 2001; and
(v) American's right to require the Company, on two occasions, to use its best
efforts to register, at the Company's expense subject to certain
conditions, 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 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 the 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 provided the Company with substantial
benefits. In addition, basic rents under the Aircraft Lease Agreement were
reduced by approximately 28.0% for three years over the term and improved
cash flow over the three-year period. 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
13
<PAGE>
total, these arrangements with American improved the Company's liquidity by
approximately $15.0 million and resulted in the reduction of cash operating
expenses by approximately $3.0 million per year for three years.
On April 29, 1996, the company's credit facility with CIT Group/Credit
Finance, Inc. (the "Credit Facility") was amended to increase the borrowing
capacity thereunder from $8.15 million to $15.0 million. The $15.0 million
Credit Facility consists of two secured term loans and a secured revolving
line of credit including up to $6.0 million of letters of credit. The term
loans will amortize in equal installments over periods of 48 and 60 months,
respectively. The outstanding principal amounts of the term loans will become
due and payable upon termination of the Credit Facility. Available credit is
subject to change determined by recalculation of the borrowing base,
repayments due under the term loans and repayments arising from the
disposition and other changes in the related collateral securing the Credit
Facility. The Credit Facility has an initial term of three years from April
29, 1996 and renews automatically for successive terms of two years each,
unless terminated by either party on at least 60 days notice prior to the end
of the then-current term. Interest accrues at prime plus 2.0%. The Company
may terminate the Credit Facility at any time, on 30 days notice and payment
of certain early termination fees during the initial term and without
termination fees during any renewal term.
As of December 31, 1996, the total availability under the Credit Facility was
$13.2 million with aggregate term loans and letters of credit outstanding in
the amounts of $6.8 million and $100,000, respectively. 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.
The Credit Facility is secured by a first lien on substantially all of the
Company's property, excluding the Company's owned and leased aircraft, the
Company's aircraft engines while installed on an aircraft and certain
security deposits. In addition, terms of the Credit Facility restrict the
Company from paying any cash or stock dividends on its Common Stock.
In connection with the AIP Investment, the Company agreed with the GPA Group
plc and its affiliate AeroUSA, Inc. (collectively the "GPA Companies") that,
if closing of the Offerings were to have occurred by September 30, 1996, the
Company would repurchase all of the shares of 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. At its option, the Company could make such repurchase and repayment at
any time prior to the closing of the Offerings. As required by the provider
of the Credit Facility in connection with the amendment thereof, the Company
exercised this option in April 1996. Based on the number of shares owned by
the GPA Companies and the carrying value of the notes as of such date, the
Company paid approximately $4.7 million to the GPA Companies to repurchase
the shares and repay the notes. The payment to the GPA Companies was funded
by borrowings under the Credit Facility in April 1996.
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 five
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 otherwise 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 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 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
14
<PAGE>
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.
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. In 1996, each of the IAM, ALPA and AFA
director nominees was elected to the Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had working capital of $8.4 million,
representing a $60.1 million improvement from the net working capital deficit
of $51.7 million at December 31, 1995.
A majority of the improvement in net working capital is associated with cash
and cash equivalents totaling $37.2 million as of December 31 1996, an
increase of $31.8 million from December 31, 1995. The increase is a direct
result of the net proceeds generated from the AIP Investment and the
Offerings which totaled approximately $52.7 million. Net working capital was
also enhanced when, as described above, in January 1996, certain agreements
and arrangements with American were consummated, which provided for, among
other things, the payment of previously deferred lease rents and maintenance
payments and interest thereon and the reimbursement of fees and expenses
through the issuance of the American Note. Working capital is also available
through the Credit Facility as discussed above.
Operating activities for the year ended December 31, 1996 provided $1.0
million in cash and cash equivalents. Investing activities for the year
ended December 31, 1996, used $9.7 million of cash and cash equivalents to
acquire property and equipment, partially offset by $2.8 million in proceeds
received from the disposition of equipment. Financing activities for the
year ended December 31, 1996 provided $37.7 million in cash and cash
equivalents, a direct result of a net $53.1 million inflow from the AIP
Investment and Offerings described above and a net outflow of $14.4 million
associated with the Company's long-term debt and capital lease obligations.
The Company made approximately $9.7 million of $11.1 million in planned
capital expenditures during the year ended December 31, 1996. The Company
plans to make approximately $20.1 million of capital expenditures in the
ordinary course of business during 1997. Consistent with 1996, these
expenditures include the capitalized portions of certain scheduled DC-9
checks and overhauls. Also included are expenditures for rotable equipment
and ground equipment, software and related hardware, facilities and certain
other projects.
The Company believes that its ability to generate cash, both internally from
operations and externally from debt and equity issues, is adequate to
maintain sufficient liquidity to fund its capital expenditure programs and to
cover debt and other cash requirements in the foreseeable future.
FREQUENT FLYER PROGRAM
The Company's Gold Plus frequent flyer program was initiated in 1983. As of
December 31, 1996 and 1995, the Company's Gold Plus membership had more than
571,000 and 560,000 members, respectively, including approximately 349,000
and 361,000 active members, respectively.
The Gold Plus program rewards its members with mileage credits primarily for
travel on Hawaiian Airlines. Gold Plus members are entitled to a choice of
various awards based on accumulated mileage, with a majority of the awards
being certain free air travel at a later date. Travel awards available in
the Gold Plus program range from a 5,000 award, which offers a one-way
Interisland flight, to 60,000 and 75,000 mile awards, which offer a round
trip first-class Transpac flight and round trip first-class Southpac flight,
respectively. Miles traveled under the Gold Plus program are accounted for
as revenue passenger miles, which, in turn, are used in the calculation of
the Company's yield. Non-travel awards are valued at the incremental cost of
tickets exchanged for such awards.
The Company recognizes a liability in the period in which members have
accumulated sufficient mileage points to allow for award redemption. The
liability is adjusted based on net mileage earned and utilized for award
15
<PAGE>
redemption on a monthly basis. The incremental cost method is used, computed
primarily on the basis of fuel and catering costs, exclusive of any overhead
or profit margin. In estimating the amount of such incremental costs to be
accrued in the liability for potential future Gold Plus free travel, a
current average cost per award mile is determined. Incremental fuel expended
per passenger is based on engineering formulas to determine the quantity used
for the weight of each added passenger and baggage. Such incremental
quantity of fuel is priced at current levels. Catering is based on average
cost data per passenger for the most recent 12 month period.
As of December 31, 1996 and 1995, Gold Plus members had accumulated
approximately 2.4 billion and 3.3 billion miles, respectively, representing
liabilities totaling approximately $800,000 and $489,000, respectively. The
Company's accruals assume full redemption of mileage points. During the years
ended December 31, 1996, 1995 and 1994, 857 million, 581 million and 636
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 review by the Company to limit the
possibility of displacing revenue passengers. Usage of Gold Plus travel
redemption accounted for approximately 2.9%, 2.2% and 2.7% of Interisland
traffic and a negligible percentage of Transpac and Southpac traffic in 1996,
1995 and 1994, respectively.
16
<PAGE>
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
For the year ended December 31, 1996, the Company generated operating income
of $2.0 million and incurred a net loss of $1.5 million. This represents a
$3.9 million improvement from the 1995 operating loss of $1.9 million and a
$4.0 million improvement from the 1995 net loss of $5.5 million. Through
third quarter 1996, the Company had generated operating and net income of
$8.1 million and $2.3 million, respectively. Fourth quarter 1996 results
were negatively impacted by a 4.8% decrease in westbound visitors to Hawaii
and a 27.3% rise in the Company's average aircraft fuel cost per gallon as
compared to fourth quarter 1995. The Company also experienced higher than
anticipated maintenance costs for DC-9 engines in fourth quarter 1996.
Decreased demand for travel to Hawaii during fourth quarter 1996, caused in
part by aggressive competition for travel dollars in other markets, has
continued into first quarter 1997. Preliminary statistics for January 1997
from the Hawaii Visitors and Convention Bureau reflect a 2.6% decrease in
westbound visitor arrivals when compared to January 1996.
Included in the 1996 net loss is a provision for income taxes of $1.4
million. While generally accepted accounting standards require that the
provision be recorded, a majority of the provision will not require cash
outlay as it will be offset by net operating loss carryforwards available to
the Company. As noted in Note 8 in NOTES TO FINANCIAL STATEMENTS contained
in Part IV, Item 14 of this Form 10-K, the estimated income tax benefit from
the expected utilization of these net operating loss carryforwards has been
applied as a reduction to reorganization value in excess of amounts allocable
to identifiable assets.
17
<PAGE>
OPERATING REVENUES
The following table compares 1996 operating revenues to those in 1995, in
thousands, by service type:
<TABLE>
<CAPTION>
Increase
1996 1995 (Decrease)
------------------------------------
<S> <C> <C> <C>
Interisland:
Passenger...................................... $133,019 $122,079 $10,940
Cargo.......................................... 5,826 6,702 (876)
Other.......................................... 6,319 5,698 621
-------- -------- -------
145,164 134,479 10,685
-------- -------- -------
Transpac:
Passenger...................................... 173,419 156,155 17,264
Cargo.......................................... 11,906 9,555 2,351
Other.......................................... 3,528 3,114 414
-------- -------- -------
188,853 168,824 20,029
-------- -------- -------
Southpac:
Passenger...................................... 19,828 19,293 535
Cargo.......................................... 2,391 1,912 479
Other.......................................... 360 229 131
-------- -------- -------
22,579 21,434 1,145
-------- -------- -------
Overseas Charter:
Passenger...................................... 27,835 22,167 5,668
Other.......................................... 42 - 42
-------- -------- -------
27,877 22,167 5,710
-------- -------- -------
Total..................................... $384,473 $346,904 $37,569
-------- -------- -------
-------- -------- ---------
</TABLE>
18
<PAGE>
The following table compares applicable 1996 operating and financial
passenger revenue statistics to those in 1995, in thousands, except as
otherwise indicated:
<TABLE>
<CAPTION>
Increase
1996 1995 (Decrease) %
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interisland:
Revenue passengers............................ 3,828 3,721 107 2.9
Revenue passenger miles....................... 508,286 490,044 18,242 3.7
Available seat miles.......................... 921,752 937,736 (15,984) (1.7)
Passenger load factor......................... 55.1% 52.3% 2.8 5.4
Yield......................................... 26.2 CENTS 24.9 CENTS 1.3 CENTS 5.2
Transpac:
Revenue passengers............................ 1,080 994 86 8.7
Revenue passenger miles....................... 2,647,869 2,506,774 141,095 5.6
Available seat miles.......................... 3,371,049 3,034,177 336,872 11.1
Passenger load factor......................... 78.5% 82.6% (4.1) (5.0)
Yield......................................... 6.5 CENTS 6.2 CENTS 0.3 CENTS 4.8
Southpac:
Revenue passengers............................ 63 66 (3) (4.5)
Revenue passenger miles....................... 167,850 174,548 (6,698) (3.8)
Available seat miles.......................... 279,154 266,406 12,748 4.8
Passenger load factor......................... 60.1% 65.5% (5.4) (8.2)
Yield......................................... 11.8 CENTS 11.1 CENTS 0.7 CENTS 6.3
Overseas Charter:
Revenue passengers............................ 190 155 35 22.6
Revenue passenger miles....................... 515,982 425,797 90,185 21.2
Available seat miles.......................... 528,787 439,142 89,645 20.4
</TABLE>
Operating revenues totaled $384.5 million in 1996 compared to $346.9 million
in 1995, an increase of $37.6 million or 10.8%.
Revenues from Interisland passenger service totaled $133.0 million during
1996, an increase of $10.9 million or 9.0% from 1995 Interisland passenger
revenues of $122.1 million. Increases of 2.9% and 3.7% in Interisland
passengers carried and Revenue Passenger Miles ("RPMs"), respectively, were
augmented by an increase in Interisland yield of 1.3CENTS or 5.2%. Increases
in Interisland revenue passengers carried and revenue passenger miles were
primarily caused by the Company increasing its share of the Interisland
passenger market based on management's estimates by approximately one
percentage point year over year. Interisland yield in 1996 increased
compared to 1995 due to (i) the Company being able to maintain and/or
increase certain Interisland fares and (ii) the effects of lower yielding
promotional fare ticket programs being less prevalent in 1996 than in 1995.
Revenues from Transpac passenger operations totaled $173.4 million during
1996 compared to $156.2 million in 1995, an increase of $17.2 million or
11.1%. The Company experienced increases of 8.7% and 5.6% in its passengers
carried and RPMs, respectively. Increases in revenue passengers carried and
RPMs were a direct result of increased frequencies in the Transpac market as
denoted by the increase in Transpac available seat miles by 11.1%. Transpac
yield also increased by 0.3 CENTS or 4.8%. Again, similar to above, the
increase in yield was primarily caused by general increases in certain
Transpac fares and the effects of promotional fare ticket programs being less
prevalent in 1996 than in 1995.
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<PAGE>
Transpac cargo revenues amounted to $11.9 million in 1996, an increase of
$2.4 million or 24.6% from 1995 Transpac cargo revenues of $9.6 million. The
increase was a direct result of additional frequencies in the Company's
Transpac routes. The Company transported 3.8 or 24.0% more tons of freight in
1996, while maintaining its Transpac cargo yield at 24.5 CENTS.
Overseas charter revenues in 1996 totaled $27.8 million, an increase over
$22.2 million of 1995 Overseas charter revenues of $5.7 million. The
increase is attributable to the Company operating, on average, six charters
per week throughout 1996 versus, on average, three to four charters per week
throughout the first six months of 1995.
OPERATING EXPENSES
The following table compares operating expenses for 1996 with 1995 by major
category, in thousands:
<TABLE>
<CAPTION>
Increase
1996 1995 (Decrease)
-----------------------------------
<S> <C> <C> <C>
Wages and benefits..................................... $108,626 $108,274 $ 352
Aircraft fuel, including taxes and oil................. 75,884 56,724 19,160
Maintenance materials and repairs...................... 68,984 60,581 8,403
Purchased services..................................... 22,491 20,192 2,299
Aircraft rentals....................................... 16,954 16,477 477
Sales commissions...................................... 13,369 13,875 (506)
Rentals other than aircraft and engines................ 9,774 9,021 753
Advertising and promotion.............................. 8,770 8,301 469
Depreciation and amortization.......................... 8,731 7,859 872
Passenger food......................................... 8,286 8,185 101
Landing fees........................................... 8,267 8,202 65
Reservation fees and services.......................... 7,432 6,808 624
Insurance-hull and liability........................... 4,106 3,920 186
Personnel expenses..................................... 4,104 3,868 236
Interrupted trips...................................... 2,456 1,823 633
Professional and legal fees............................ 2,445 2,032 413
Early retirement provision............................. - 2,000 (2,000)
Other.................................................. 11,767 10,663 1,104
-------- -------- -------
Total......................................... $382,446 $348,805 $33,641
-------- -------- -------
-------- -------- -------
</TABLE>
Operating expenses totaled $382.4 million in 1996, an increase of $33.6
million or 9.6% from total operating expenses of $348.8 million in 1995.
Aircraft fuel, including taxes and oil, increased by $19.2 million or 33.8%
to $75.9 million in 1996 from $56.7 million in 1995. The increase is
principally due to (i) approximately $2.9 million more in fuel taxes incurred
in 1996 than 1995 due to the Company becoming subject to an additional 4.3
CENTS per gallon tax effective October 1, 1995; (ii) $4.0 million in
additional fuel cost as the Company consumed approximately 6.6 million or
7.1% more gallons of aircraft fuel in 1996 than in 1995 due to increased
frequencies; and (iii) $10.9 million in added fuel expense as the average
cost per gallon, excluding the 4.3 CENTS per gallon tax, increased by 11.8
CENTS or 20.6%.
Maintenance materials and repairs in 1996 totaled $69.0 million, an increase
of $8.4 million or 13.9% over 1995. A majority of the increase was
associated with increased expenses of $7.6 million associated with the
Company's DC-10 fleet as the Company operated, on average, one more DC-10 in
1996 than in 1995. The Company also incurred an additional $600,000 of
expenses in 1996 versus 1995 for maintenance of its DC-9 airframes.
20
<PAGE>
Purchased services increased by $2.3 million or 11.4% to $22.5 million in
1996 from $20.2 million in 1995. A majority of the increase was associated
with $1.7 million in additional ground handling and security charges due to
increased frequencies by the Company incurred in 1996.
Early retirement provision of $2.0 million in 1995 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.
EXTRAORDINARY ITEMS
In 1996, the Company paid approximately $4.7 million to the GPA Companies to
repurchase 827,221 shares of Common Stock and to repay approximately $4.5
million of long-term debt at a 15.0% discount, including any deferred costs
and other expenses owed. These transactions resulted in an extraordinary
gain, net of income taxes, of approximately $409,000.
Further, in December 1996, the Company exercised its option to prepay the
American Note for $9.15 million plus accrued interest. Early extinguishment
of the American Note resulted in an extraordinary gain, net of income taxes,
of approximately $357,000.
NEW ACCOUNTING PRONOUNCEMENTS
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangible assets held and used by an entity be reviewed 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.
Measurement of that loss is based on the fair value of that asset.
Generally, 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 adopted the provisions of SFAS No. 121 on January 1, 1996. The
adoption of SFAS No. 121 did not have a material effect on the Company's
financial condition or results of operations.
STOCK-BASED COMPENSATION
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 employee compensation, but does not require an
entity to apply the new method for purposes of preparing its basic financial
statements. For an entity not applying the new method for purposes of
preparing its basic financial statements, SFAS No. 123 requires footnote
disclosure of pro forma net income and earnings per share information for
employee stock option grants made in 1995 and future years as if the fair
value-based method had been applied. The Company adopted the provisions of
SFAS No. 123 on January 1, 1996, and has elected to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and provide the pro forma disclosures required by
SFAS No. 123.
1995 COMPARED TO 1994
The 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 in all respects 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
21
<PAGE>
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
Cargo.............................................. 6,702 6,513 189
Other.............................................. 5,698 5,670 28
-------- -------- -------
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>
22
<PAGE>
The following table compares applicable 1995 operating and financial
passenger revenue statistics to those in 1994, in thousands, except as
otherwise indicated:
Increase
1995 1994 (Decrease) %
------------------------------------------------
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...................... 24.9 CENTS 25.2 CENTS (0.3) CENTS (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........................ 6.2 CENTS 6.4 CENTS (0.2) CENTS (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....................... 11.1 CENTS 10.6 CENTS 0.5 CENTS 4.7
Overseas Charter:
Revenue passengers............ 155 1 154 N/M *
Revenue passenger miles... 425,797 2,202 423,595 N/M *
Available seat miles...... 439,142 4,141 435,001 N/M *
* 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 0.3 CENTS 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 0.2 CENTS 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.
Southpac passenger revenues in 1995 totaled $19.3 million, representing an
increase of $982,000 or 5.4% from
23
<PAGE>
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 5.9 CENTS 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:
Increase
1995 1994 (Decrease)
--------------------------------------
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-hull and liability............. 3,920 3,388 532
Interrupted trips........................ 1,823 2,038 (215)
Early retirement provision............... 2,000 - 2,000
Professional and legal fees.............. 2,032 1,656 376
Other.................................... 10,663 10,226 437
---------- ---------- ---------
Total.......................... $ 348,805 $ 318,669 $ 30,136
---------- ---------- ---------
---------- ---------- ---------
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 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.
24
<PAGE>
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 maintenance costs for its L-1011 and DHC-7 aircraft during
1994, the year these aircraft were phased out of service. However, the
elimination of maintenance costs related to these aircraft was offset by
$23.8 million of additional maintenance incurred in 1995 for the Company's
DC-10 and DC-9 fleets.
Aircraft rentals decreased by $7.5 million or 31.2% year over year. The
decrease was a net result of (i) non-existence of rental expense for L-1011
and DHC-7 aircraft in 1995 since these aircraft were phased out of service in
1994, as compared to $3.3 million of L-1011 and DHC-7 rents in 1994; (ii) a
$4.2 million decrease in DC-9 aircraft end engine rents due to such rents
being restructured on the Effective Date; and (iii) $4.4 million in
additional rents for DC-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 Transpac
markets (specifically Los Angeles, Las Vegas and Portland) and the
Interisland market.
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.
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.
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.
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
MICHAEL J. MCQUAY has been Executive Vice President and Chief Operating
Officer of Hawaiian Airlines, Inc. since June 15, 1996. He was formerly with
Continental Airlines from December 1971 until June 1996. While with
Continental Airlines he held a variety of positions including President and
CEO, Continental Air Micronesia, Vice President Maintenance Operations, Vice
President Customer Service Sales/Support, Vice President Hub Operations, Vice
President International Operations and Regional Vice President Customer
Service. Age 48.
EXECUTIVE OFFICERS OF THE COMPANY
The following thirteen officers comprise the Executive Officers of the Company.
BRUCE R. NOBLES has been the President and Chief Executive Officer of
Hawaiian Airlines since 1993. He was Chairman of the Board of Hawaiian
Airlines from September 1994 until February 1996. In 1991 he was President
and Chief Executive Officer for L'Epress, 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. Mr. Nobles resigned as President and Chief
Executive Officer of the Company effective as of March 31, 1997. Age 50.*
MICHAEL J. MCQUAY has been Executive Vice President and Chief Operating
Officer of Hawaiian Airlines, Inc. since June 15, 1996. He was formerly with
Continental Airlines from December 1971 until June 1996. While with
Continental Airlines he held a variety of positions including President and
CEO, Continental Air Micronesia, Vice President Maintenance Operations, Vice
President Customer Service Sales/Support, Vice President Hub Operations, Vice
President International Operations and Regional Vice President Customer
Service. Age 48.
JOHN L. GARIBALDI has been Executive Vice President and Chief Financial
Officer of Hawaiian Airlines since May 1, 1996. He was Vice President and
Chief Financial Officer for the Queen's Health Systems from 1992 until 1996
and Senior Vice President-Finance and Planning and Chief Financial Officer
for Aloha Airgroup, Inc./Aloha Airlines, Inc. from 1985 until 1992.
PETER W. JENKINS has been Senior Vice President-Marketing and Sales for
Hawaiian Airlines since 1994. He was the Director of Communications
at ITT Sheraton Corporation from 1987 until 1994 in Honolulu, Hawaii.
Age 55.
H. NORMAN DAVIES JR. has been Vice President-Safety and Security of Hawaiian
Airlines since January 6, 1997. He was Chief Pilot in New York for Delta
Airlines from November 1991 until June 1996. Age 60.
RAE A. CAPPS has been Vice President, General Counsel and Corporate Secretary
of Hawaiian Airlines since 1993. She was an attorney at the law firm of
Goodsill Anderson Quinn & Stifel in Honolulu, Hawaii from 1990 until 1993.
Age 44.
CLARENCE K. LYMAN has been Vice President-Finance, Treasurer and Assistant
Corporate Secretary of Hawaiian Airlines since 1991. He was Vice
President-Treasurer and Assistant Corporate Secretary of Hawaiian Airlines
from 1989 until 1991. Age 50.
26
<PAGE>
MICHAEL J. CONROY has been Vice President-Human Resources for Hawaiian
Airlines since November 18, 1996. He was Vice President-Human Resources at
Ringier America from 1990 until 1996. Age 50.
JAMES H. DAVIS, JR. has been Vice President-Flight Operations of Hawaiian
Airlines 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 Airlines from 1968 until 1990. Age 58.
MICHAEL P. LOO has been Vice President-Controller of Hawaiian Airlines since
1996. He was Staff Vice President-Controller for Hawaiian Airlines from 1994
until 1995. He was a certified public accountant at the firm of KPMG Peat
Marwick LLP from 1986 until 1993 where he held the title of Senior Manager.
Age 32.
JOHN P. SOLOMITO has been Vice President-Customer Services of Hawaiian
Airlines since 1992. He was the General Manager of Pan American World
Airways, Inc. in Los Angeles, California from 1988 until 1992. Age 58.
GLEN L. STEWART has been Vice President-Transpacific and Southpacific
Marketing of Hawaiian Airlines since 1993. He was Senior Vice
President-Transpacific of Hawaiian Airlines from 1991 to 1993, Senior Vice
President-North American Sales of Hawaiian Airlines in 1991 and Senior Vice
President-Finance and Chief Financial Officer of Hawaiian Airlines from 1989
until 1991. Age 54.
GLENN G. TANIGUCHI has been Vice President-Schedule Planning and Reservations
of Hawaiian Airlines since 1995. He was Staff Vice President-Schedule
Planning and Reservations for Hawaiian Airlines from 1991 until 1995 and
Director-Schedule Planning and Reservations of Hawaiian Airlines from 1986
until 1991. Age 53.
*PAUL J. CASEY will succeed Bruce R. Nobles as President and Chief Executive
Officer of Hawaiian Airlines as of April 14, 1997.
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.
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, Messrs. Nobles, Lyman,
Solomito and Stewart, and Ms. Capps were executive officers of the Company,
HAL, INC. and/or West Maui Airport, Inc.
Information provided in the Company's 1997 Proxy Statement is incorporated
herein by reference for Part III, Items 10 through 13 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
27
<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, 1996 and 1995 (Reorganized Company).
Statements of Operations for the Years ended December 31, 1996 and
1995 (Reorganized Company), the Period from September 12, 1994 to
December 31, 1994 (Reorganized Company) and the Period from
January 1, 1994 to September 11, 1994 (Predecessor).
Statements of Shareholders' Equity (Deficit) for the Years ended
December 31, 1996 and 1995 (Reorganized Company), the Period from
September 12, 1994 to December 31, 1994 (Reorganized Company) and
the Period from January 1, 1994 to September 11, 1994 (Predecessor).
Statements of Cash Flows for the Years ended December 31, 1996 and
1995 (Reorganized Company), the Period from September 12, 1994 to
December 31, 1994 (Reorganized Company) and the Period from
January 1, 1994 to September 11, 1994 (Predecessor).
Notes to Financial Statements.
Quarterly Financial Information (Unaudited).
Selected Financial and Statistical Data.
2. Financial Statement Schedule.
Independent Auditors' Report on Financial Statement Schedule for the
Years Ended December 31, 1996, 1995 and 1994.
Schedule 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.
None.
(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
28
<PAGE>
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) Restated Articles of Incorporation filed as
Exhibit 3 to the Company's Quarterly Report on
Form 10-Q (date of report - September 30, 1996)
are incorporated herein by reference.
(2) Amended and Restated Bylaws filed as Exhibit 3(2)
to the Company's Annual Report on Form 10-K (date
of report - December 31, 1995) are incorporated
herein by reference.
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) 1994 Stock Option Plan, as amended, filed as
Exhibit 4 to the Company's Registration Statement
on Form S-8 as filed November 15, 1995 is
incorporated herein by reference.
(4) The following Agreements filed as Exhibits 4 to the
Company's Annual Report on Form 10-K (date of
report - December 31, 1995) are incorporated herein
by reference.
(a) Rightsholders 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;
(b) 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;
(c) Amendment No. 2 to 1994 Stock Option Plan, as
amended, dated as of December 8, 1995.
(5) 1996 Stock Incentive Plan, as amended, filed as
Exhibit 4 to the Company's Amendment No. 1 to
Registration Statement on Form S-2 as filed
July 12, 1996 is incorporated herein by reference.
29
<PAGE>
(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 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,
manufacturer's 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, manufacturer's serial no.
47735, together with two (2) Pratt & Whitney
30
<PAGE>
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, manufacturer's 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,
manufacturer's serial no. 47763, together with
two (2) Pratt & Whitney JT8D-17A engines,
bearing manufacturer's serial no. 696666 and
688798.
(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-Registered Trademark-
Participating Carrier Agreement dated
September 12, 1994 between American
Airlines, Inc.-Registered Trademark- 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.-Registered
Trademark-, 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,
manufacturer's serial No. 47784;
31
<PAGE>
(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,
manufacturer's 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,
manufacturer,s 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 one (1) McDonnell Douglas DC-9-51 aircraft,
manufacturer's 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,
manufacturer's 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,
manufacturer's 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,
manufacturer's 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,
manufacturer's 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,
manufacturer's 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,
manufacturer's 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,
32
<PAGE>
as lessor, and Hawaiian Airlines, Inc., as
lessee, for one (1) McDonnell Douglas DC-9-51
aircraft, manufacturer's 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,
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.;
33
<PAGE>
(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;
(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
34
<PAGE>
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;
(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
35
<PAGE>
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;
(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.;
36
<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;
(68) Amendment to the Agreement Relating to the Settlement
of Interline Accounts through Airlines Clearing
House, Inc. and
37
<PAGE>
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.-Registered
Trademark- 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.-Registered Trademark-
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.-Registered Trademark-,
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.
(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.
38
<PAGE>
(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.-Registered Trademark-, 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 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;
39
<PAGE>
(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) The following contracts filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 are incorporated herein by reference:
(1) 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.;
(2) Chattel Mortgage and Security Agreement dated as of
January 31, 1996 by Hawaiian Airlines, Inc. in favor of
American Airlines, Inc.;
(3) 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;
(4) Note Repayment and Stock Purchase Agreement dated as of
January 31, 1996 by and among GPA Group plc, AEROUSA,
Inc. and Hawaiian Airlines, Inc.;
(5) 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;
(6) 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;
(7) 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;
(8) 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;
(9) 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) Lease Amendment No. 8 dated as of January 31, 1996 to
Aircraft Lease Agreement dated September 12, 1994
between American
40
<PAGE>
Airlines, Inc. and Hawaiian Airlines, Inc.;
(11) 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.;
(12) 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.;
(13) 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;
(14) Warrant for the Purchase of 948,973 shares of Class A
Common Stock issued to AMR Corporation;
(15) Warrant for the Purchase of 948,973 shares of Class A
Common Stock issued to AMR Corporation;
(16) Form of Warrants for the Purchase of shares of Class A
Common Stock issued to Martin Anderson;
(17) Form of Warrants for the Purchase of shares of Class A
Common Stock issued to Robert Midkiff;
(18) Aircraft Lease Agreement dated as of December 30, 1995
between American Airlines, Inc. and Hawaiian
Airlines, Inc.;
(19) Aircraft Lease Agreement dated as of December 15, 1995
between American Airlines, Inc. and Hawaiian
Airlines, Inc.;
(20) 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.;
(21) Stock Purchase Agreement dated as of December 8, 1995,
between Hawaiian Airlines, Inc., and Airline Investors
Partnership, L.P.;
(22) 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.
(j) The following contracts filed as Exhibit 10 to the
Company's Amendment No. 1 to Registration Statement on
Form S-2 as filed with the Commission on July 12, 1996
are incorporated herein by reference:
(1) Aircraft Lease Agreement dated as of May 15, 1996
between American Airlines, Inc. and Hawaiian Airlines,
Inc. filed in redacted form since confidential
treatment has been requested pursuant to Rule 406 for
certain portions thereof;
(2) Cooperative Marketing Agreement between Northwest
Airlines, Inc. and Hawaiian Airlines, Inc. filed in
redacted form since confidential treatment has been
granted pursuant to Rule 406 for certain portions
thereof;
41
<PAGE>
(3) Code Share Agreement between Mahalo Air, Inc. and
Hawaiian Airlines, Inc. dated June 28, 1996.
(k) The following contract filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 are incorporated herein by reference:
(1) Aircraft Lease Agreement dated as of November 6, 1996
between American Airlines, Inc. and Hawaiian Airlines,
Inc. filed in redacted form since confidential
treatment has been requested pursuant to Rule 24.b-2
for certain portion thereof.
(l) Code Sharing Agreement dated November 26, 1996 by and
between Hawaiian Airlines, Inc. and Reno Air filed in
redacted form since confidential treatment has been
requested pursuant to Rule 24b-2 for certain portions
thereof.
(m) Software Development, Maintenance, and License
Agreement dated as of December 31, 1996 by and between
SABRE Decision Technologies, a division of The SABRE
Group, Inc. and Hawaiian Airlines, Inc.
(n) Hawaiian Airlines, Inc. 1996 Nonemployee Director Stock
Option Plan.
(o) Employment Agreement dated as of May 1, 1996 by and between
John L. Garibaldi and the Company.
(p) Employment Agreement dated as of June 15, 1996 by and
between Michael J. McQuay and the Company.
(q) Form of Secured Promissory Note dated September 12, 1996.
(r) Form of Stock Pledge Agreement dated as of
September 12, 1996.
42
<PAGE>
Exhibit 11 Computation of Earnings Per Common Stock Share.
Exhibit 23 Consent of KPMG Marwick LLP.
Exhibit 24 Power of Attorney.
Exhibit 27 Financial data schedule.
43
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------
10(l) Code Sharing Agreement dated November 26, 1996 by and between
Hawaiian Airlines, Inc. and Reno Air filed in redacted form
since confidential treatment has been requested pursuant to
Rule 24b-2 for certain portions thereof.
10(m) Software Development, Maintenance, and License Agreement dated
as of December 31, 1996 by and between SABRE Decision
Technologies, a division of The SABRE Group, Inc. and Hawaiian
Airlines, Inc.
10(n) Hawaiian Airlines, Inc. 1996 Nonemployee Director Stock Option Plan.
10(o) Employment Agreement date as of May 1, 1996 by and between John L.
Garibaldi and the Company.
10(p) Employment Agreement dated as of June 15, 1996 by and between
Michael J. McQuay and the Company.
10(q) Form of Secured Promissory Note dated September 12, 1996.
10(r) Form of Stock Pledge Agreement dated as of September 12, 1996.
11 Computation of Earnings Per Common Share.
23 Consent of KPMG Marwick LLP.
24 Power of Attorney.
27 Financial data schedule.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 1(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 31, 1997 By /s/ BRUCE R. NOBLES
-------------------------------------
Bruce R. Nobles
President and Chief Executive Officer
(Principal Executive Officer)
March 31, 1997 By /s/ JOHN L. GARIBALDI
--------------------------------------
John L. Garibaldi
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
45
<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, 1996 and 1995, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years ended December
31, 1996 and 1995, the period September 12, 1994 through December 31, 1994,
and the period January 1, 1994 through September 11, 1994. 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, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995, the period September
12, 1994 through December 31, 1994, and the period January 1, 1994 through
September 11, 1994 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.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
February 18, 1997
F-1
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY)
1996 1995
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 37,237 $ 5,389
Accounts receivable, net of allowance for doubtful
accounts of $500 in 1996 and $800 in 1995........... 28,022 18,178
Inventories, net of allowance for obsolescence of
$315 in 1996 and 1995............................... 7,050 7,648
Assets held for sale.................................. 1,344 1,344
Prepaid expenses...................................... 4,845 5,804
--------- ---------
TOTAL CURRENT ASSETS............................. 78,498 38,363
--------- ---------
PROPERTY AND EQUIPMENT:
Flight equipment...................................... 49,419 40,659
Ground equipment, buildings and leasehold
improvements........................................ 6,536 5,775
--------- ---------
Total........................................... 55,955 46,434
Accumulated depreciation and amortization............. (10,161) (5,043)
--------- ---------
PROPERTY AND EQUIPMENT, NET..................... 45,794 41,391
--------- ---------
OTHER ASSETS:
Assets held for sale.................................. 5,083 8,336
Lease security and other deposits..................... 657 1,053
Long-term prepayments and other....................... 3,705 5,164
Reorganization value in excess of amounts
allocable to identifiable assets, net ("Excess
Reorganization Value").............................. 62,552 67,333
--------- ---------
TOTAL OTHER ASSETS.............................. 71,997 81,886
--------- ---------
TOTAL ASSETS.................................... $ 196,289 $ 161,640
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-2
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY)
1996 1995
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt..................... $ 2,247 $ 6,027
Current portion of capital lease obligations.......... 2,912 2,662
Accounts payable...................................... 26,799 35,182
Air traffic liability................................. 25,524 30,461
Other accrued liabilities............................. 4,834 8,293
Current portion of accrued vacation liability......... 5,262 5,052
Accrued salaries and wages............................ 2,527 2,385
--------- ---------
TOTAL CURRENT LIABILITIES....................... 70,105 90,062
--------- ---------
LONG-TERM DEBT........................................... 6,353 5,523
--------- ---------
CAPITAL LEASE OBLIGATIONS................................ 7,387 10,102
--------- ---------
OTHER LIABILITIES AND DEFERRED CREDITS:
Noncurrent portion of accrued vacation liability...... 426 425
Accumulated pension and other postretirement
benefit obligations............................. 26,100 25,259
Other................................................ 3,045 1,091
--------- ---------
TOTAL OTHER LIABILITIES AND DEFERRED CREDITS.... 29,571 26,775
--------- ---------
SHAREHOLDERS' EQUITY:
Common Stock - $.01 par value, 60,000,000 and
43,050,000 shares authorized in 1996 and 1995,
respectively, 38,816,972 and 8,740,060 shares
issued and outstanding in 1996 and 1995,
respectively (350,348 and 636,247 shares
issuable in 1996 and 1995, respectively)........ 393 94
Special Preferred Stock - $.01 par value, 2,000,000
shares authorized in 1996 and 1995, seven and
no shares issued and outstanding in 1996 and
1995, respectively.............................. - -
Capital in excess of par value........................ 95,827 41,193
Warrants.............................................. 1,557 900
Notes receivable from Common Stock sales.............. (1,714) -
Unearned compensation................................ - (182)
Minimum pension liability............................ - (1,170)
Accumulated deficit.................................. (13,190) (11,657)
--------- ---------
SHAREHOLDERS'EQUITY............................ 82,873 29,178
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTES 5, 6, 9, 10, 11 AND 12)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $ 196,289 $ 161,640
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY), THE
PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY)
AND THE PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
----------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1996 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger......................................... $ 326,266 $ 297,527 $ 80,675 $ 199,502
Charter........................................... 27,835 22,167 536 110
Cargo............................................. 20,123 18,169 5,300 11,039
Other............................................. 10,249 9,041 2,646 6,172
--------- --------- -------- ---------
TOTAL........................................... 384,473 346,904 89,157 216,823
--------- --------- -------- ---------
OPERATING EXPENSES:
Wages and benefits................................ 108,626 108,274 30,889 71,781
Aircraft fuel, including taxes and oil............ 75,884 56,724 15,581 32,101
Maintenance materials and repairs................. 68,984 60,581 15,595 30,946
Rentals and landing fees.......................... 34,995 33,700 10,381 30,011
Sales commissions................................. 13,369 13,875 3,209 9,632
Depreciation and amortization..................... 8,731 7,859 2,291 4,506
Other............................................. 71,857 67,792 17,479 44,267
--------- --------- -------- ---------
TOTAL........................................... 382,446 348,805 95,425 223,244
--------- --------- -------- ---------
OPERATING INCOME (LOSS)......................... 2,027 (1,901) (6,268) (6,421)
--------- --------- -------- ---------
NONOPERATING INCOME (EXPENSE):
Interest and amortization of debt expense......... (3,887) (4,341) (1,286) (1,150)
Interest income................................... 1,455 762 318 300
Gain (loss) on disposition of equipment........... (729) (233) 558 45
Other, net........................................ (297) 207 527 502
Reorganization expenses........................... - - - (13,950)
--------- --------- -------- ---------
TOTAL........................................... (3,458) (3,605) 117 (14,253)
--------- --------- -------- ---------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.... (1,431) (5,506) (6,151) (20,674)
INCOME TAXES:
Currently Payable................................. (43) - - -
Reduction to Excess Reorganization Value.......... (825) - - -
--------- --------- -------- ---------
TOTAL........................................... (868) - - -
--------- --------- -------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS..................... (2,299) (5,506) (6,151) (20,674)
Extraordinary Gain, Net of Income Taxes in 1996
(Currently Payable of $26, Reduction to Excess
Reorganization Value of $485)..................... 766 - - 190,063
--------- --------- -------- ---------
NET INCOME (LOSS)................................... $ (1,533) $ (5,506) $ (6,151) $ 169,389
--------- --------- -------- ---------
--------- --------- -------- ---------
NET LOSS PER COMMON STOCK SHARE:
Before extraordinary items........................ $ (0.07)** $ (0.59)** $ (0.65)** $ N/M *
Extraordinary gain, net of income taxes........... 0.02 ** - ** - ** N/M *
--------- --------- -------- ---------
NET LOSS PER COMMON STOCK SHARE..................... $ (0.05)** $ (0.59)** $ (0.65)** $ N/M *
--------- --------- -------- ---------
--------- --------- -------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING......................................... 30,975 ** 9,400 ** 9,400 ** 7,137 *
--------- --------- -------- ---------
--------- --------- -------- ---------
</TABLE>
* Not Meaningful - Per share data is not meaningful as the Predecessor was
recapitalized and adopted fresh start reporting as of September 12, 1994.
** Includes shares reserved for issuance under the consolidated Plan of
Reorganization dated September 21, 1993, as amended.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY), THE PERIOD
FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY) AND THE
PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR)
<TABLE>
<CAPTION>
COMMON
STOCK, NOTES
WARRANTS AND SPECIAL CAPITAL IN RECEIVABLE FROM MINIMUM
OPTIONS COMMON PREFERRED EXCESS OF COMMON STOCK UNEARNED PENSION ACCUMULATED
ISSUABLE STOCK STOCK PAR VALUE WARRANTS SALES COMPENSATION LIABILITY DEFICIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE, DECEMBER 31,
1993.................. $ 40,504 $ - $ - $ 12,479 $ - $ - $ - $ - $(262,865)
Net income............. - - - - - - - - 169,389
Fresh start
adjustments, net...... (504) - - (12,479) - - - - 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 8,740,060
shares of Common Stock
(636,247 shares of
Common Stock issuable) (39,100) 94 - 39,006 - - - - -
Issuance of warrants to
acquire 989,011 shares
of Common Stock....... (900) - - - 900 - -
Grant of options to
acquire 592,500 shares
of Common Stock....... - - - 2,187 - - (2,187) - -
Amortization of unearned
compensation on options
to acquire 592,500
shares of Common Stock - - - - - - 2,005 - -
Recordation of minimum
pension liability..... - - - - - - - (1,170) -
-------- ------ ------ --------- ------ --------- --------- ------- ---------
BALANCE, DECEMBER 31,
1995.................. $ - $ 94 $ - $ 41,193 $ 900 $ - $ (182) $(1,170) $ (11,657)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS (continued)
F-5
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY), THE
PERIOD FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY)
AND THE PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR)
<TABLE>
<CAPTION>
COMMON
STOCK, NOTES
WARRANTS AND SPECIAL CAPITAL IN RECEIVABLE FROM MINIMUM
OPTIONS COMMON PREFERRED EXCESS OF COMMON STOCK UNEARNED PENSION ACCUMULATED
ISSUABLE STOCK STOCK PAR VALUE WARRANTS SALES COMPENSATION LIABILITY DEFICIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss............... $ - $ - $ - $ - $ - $ - $ - $ - $ (1,533)
Amortization of
unearned compensation
on options to acquire
592,500 shares of
Common Stock.......... - - - - - - 182 - -
Remeasurement of
compensation on options
to acquire shares of
Common Stock.......... - - - 1,071 - - - - -
Repurchase and
retirement of 827,221
shares of Common Stock
from GPA.............. - (8) - (902) - - - - -
Sale of 18,181,818 shares
of Common Stock to AIP,
net of $2.2 million of
transaction costs..... - 182 - 17,638 - - - - -
Issuance of warrants
to AMR to acquire
948,973 shares of
Common Stock.......... - - - - 825 - - - -
Issuance of seven
shares of Special
Preferred Stock....... - - - - - - - - -
Sale of 12,092,500
shares of Common
Stock through the
Offerings, net of
$3.2 million of
transaction costs..... - 121 - 35,977 - (1,926) - - -
Exercise of options
to acquire 115,000
shares of Common
Stock................. - 1 - 185 - - - - -
Repayment of notes
receivable from
Common Stock sales.... - - - - - 212 - - -
Exercise of warrants
to acquire 300,000
shares of Common
Stock................. - 3 - 665 (168) - - - -
Reversal of minimum
pension liability.... - - - - - - - 1,170 -
------- ------ ------ --------- ------ --------- --------- ------- ---------
BALANCE, DECEMBER 31,
1996.................. $ - $ 393 $ - $ 95,827 $1,557 $ (1,714) $ - $ - $ (13,190)
------- ------ ------ --------- ------ --------- --------- ------- ---------
------- ------ ------ --------- ------ --------- --------- ------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY), THE PERIOD
FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY), AND THE
PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
---------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1996 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (1,533) $ (5,506) $ (6,151) $ 169,389
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 5,260 4,258 1,201 4,506
Amortization of reorganization value in excess of
identifiable assets . . . . . . . . . . . . . . . . . . . 3,471 3,601 1,090 -
Amortization of debt discount . . . . . . . . . . . . . . . - 557 136 -
Allowance for doubtful accounts . . . . . . . . . . . . . . 641 719 - 422
Net periodic postretirement benefit cost. . . . . . . . . . 726 3,309 903 1,988
Stock option compensation . . . . . . . . . . . . . . . . . 1,253 2,005 - -
Early retirement provision. . . . . . . . . . . . . . . . . - 2,000 - -
(Gain) loss on disposition of equipment . . . . . . . . . . 729 233 (558) (45)
Extraordinary items, net of income taxes currently payable. (1,251) - - (190,063)
Income tax benefit recognized as a reduction to Excess
Reorganization Value. . . . . . . . . . . . . . . . . . . 1,310 - - -
(Increase) decrease in accounts receivable. . . . . . . . . (10,485) (2,622) 3,401 (6,223)
(Increase) decrease in inventories. . . . . . . . . . . . . 598 (1,414) 220 497
(Increase) decrease in prepaid expenses . . . . . . . . . . 959 275 (2,233) (1,133)
(Decrease) increase in accounts payable . . . . . . . . . . 1,867 17,653 (1,966) 5,774
(Decrease) increase air traffic liability . . . . . . . . . (4,937) (9,921) (319) 10,602
(Decrease) increase in accrued liabilities. . . . . . . . . (3,106) 3,432 (1,323) (734)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 5,497 209 334 317
--------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
BEFORE REORGANIZATION EXPENSES. . . . . . . . . . . . . 999 18,788 (5,265) (4,703)
Reorganization expenses . . . . . . . . . . . . . . . . . . - - - 10,799
--------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . 999 18,788 (5,265) 6,096
--------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return (issuance) of security deposits. . . . . . . . . . . . - - 6,979 (3,007)
Additions to property and equipment . . . . . . . . . . . . . (9,677) (9,165) (3,603) (3,682)
Net proceeds from disposition of equipment. . . . . . . . . . 2,780 4,225 673 817
--------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . (6,897) (4,940) 4,049 (5,872)
--------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock. . . . . . . . . . . . . . . . . . . 52,846 - - -
Proceeds on notes receivable from Common Stock sales. . . . . 212 - - -
Repurchase and retirement of Common Stock . . . . . . . . . . (910) - - -
Issuance of long-term debt. . . . . . . . . . . . . . . . . . 7,564 1,591 5,393 -
Repayment of long-term debt . . . . . . . . . . . . . . . . . (19,258) (10,644) (2,095) (689)
Repayment of capital lease obligations. . . . . . . . . . . . (2,708) (2,907) (1,044) (1,345)
--------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . 37,746 (11,960) 2,254 (2,034)
--------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . 31,848 1,888 1,038 (1,810)
Cash and cash equivalents - Beginning of Year or Period . . . . 5,389 3,501 2,463 4,273
--------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS - END OF YEAR OR PERIOD . . . . . . . $ 37,237 $ 5,389 $ 3,501 $ 2,463
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (REORGANIZED COMPANY), THE PERIOD
FROM SEPTEMBER 12, 1994 TO DECEMBER 31, 1994 (REORGANIZED COMPANY), AND THE
PERIOD FROM JANUARY 1, 1994 TO SEPTEMBER 11, 1994 (PREDECESSOR)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
---------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1996 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,579 $ 3,824 $ 988 $ 1,009
INCOME TAXES PAID . . . . . . . . . . . . . . . . . . . . . . . 250 - - -
REORGANIZATION EXPENSES PAID. . . . . . . . . . . . . . . . . . - - - 3,151
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Reclassification of accounts payable to
long-term debt. . . . . . . . . . . . . . . . . . . . . . . 10,250 - - -
Remeasurement of compensation on options
to acquire shares of Common Stock . . . . . . . . . . . . . 1,071 - - -
Issuance of warrants to AMR to acquire 948,973
shares of Common Stock. . . . . . . . . . . . . . . . . . . 825 - - -
Receipt of notes receivable from Common Stock sales . . . . . 1,926 - - -
Change in minimum pension liability . . . . . . . . . . . . . (1,170) 1,170 - -
Grant of options to acquire 592,500 shares of Common Stock. . - 2,187 - -
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was
incorporated in January 1929 under the laws of the Territory of Hawaii and is
the largest airline headquartered in Hawaii, based on operating revenues of
$384.5 million for 1996. The Company 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 ("Interisland") and Las
Vegas and four key United States ("U.S.") West Coast gateway cities, Los
Angeles, San Francisco, Seattle and Portland ("Transpac"). In addition
Hawaiian Airlines provides the only direct service from Hawaii to Pago Pago,
American Samoa and Papeete, Tahiti ("Southpac"). The Company also provides
charter service from Honolulu to Las Vegas and, effective February 1997,
Anchorage, Alaska ("Overseas Charter").
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 (i.e.,
Interisland), daily service to Las Vegas and four key U.S. West Coast gateway
cities (i.e., Transpac), and twice weekly service to Pago Pago, American
Samoa and weekly service to Papeete, Tahiti in the South Pacific (i.e.,
Southpac). In 1996 the Company also operated, on average of six charter
flights per week to Las Vegas (i.e., Overseas Charter). The Company operates
a fleet of 13 DC-9 aircraft and 10 DC-10 aircraft.
REORGANIZATION
In response to the financial difficulties experienced by the Company in the
early 1990s, Hawaiian Airlines, HAL, INC., Hawaiian Airlines' then parent
company, and West Maui Airport, Inc., another then wholly owned subsidiary of
HAL, INC. (collectively the "Predecessor"), voluntarily commenced a Chapter
11 bankruptcy reorganization pursuant to a consolidated Plan of
Reorganization dated September 21, 1993, as subsequently amended (the
"Reorganization Plan"). The Company emerged from Chapter 11 bankruptcy on
September 12, 1994 (the "Effective Date") with Hawaiian Airlines being the
sole surviving corporation (the "Reorganized Company").
In 1996, the Company was successful in its concerted efforts to improve its
liquidity and financial position.
RECAPITALIZATION
(i) On January 31, 1996, the Company received a $20.0 million cash equity
infusion through the purchase by Airlines Investors Partnership, L.P.
("AIP") of 18,181,818 shares of the Company's 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
(collectively the "AIP Investment"). As of December 31, 1996, AIP
owned approximately 45.9% of the Company's common equity. As a result,
AIP currently controls substantially all actions to be taken by the
shareholders of the Company. Pursuant to the Company's Amended Bylaws
and the terms of the Series B Special Preferred Stock, 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%, 10% or 5%, respectively, of the common equity.
In 1996, six of AIP's director nominees were elected to the Board of
Directors;
(ii) In September 1996, the Company completed a shareholder rights offering
and an investor offering (collectively the "Offerings") which
collectively raised approximately $39.3 million in gross proceeds of
equity capital. The Offerings were intended to permit the Company's
shareholders to reduce the dilutive effect of the AIP Investment, as
described above, on their equity investment in the Company and to raise
additional equity capital. The Offerings resulted in the issuance of
12,092,500 new shares of Common Stock at the subscription price of
$3.25 per share. The effects of the Offerings have been reflected in
the Company's balance sheets net of approximately $3.2 million of
estimated costs and approximately $1.9 million in fully recourse,
interest-bearing notes received from holders of options granted as
part of the
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<PAGE>
shareholder rights offering who exercised such options to purchase
592,500 shares of Common Stock in the Offerings.
RESTRUCTURING AND ELIMINATION OF DEBT
Upon consummation of the AIP Investment and satisfaction of certain other
conditions, the Company entered into certain arrangements with American and
AMR pursuant to which, American and AMR accepted the following:
(i) The payment of up to $10.0 million of deferred lease rents and
maintenance payments (and accrued interest thereon) under the
Company's long-term aircraft lease agreement with American (the
"Aircraft Lease Agreement") and the reimbursement of $250,000 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"). On
December 24, 1996, the Company exercised its option to prepay the
American Note for $9.15 million plus accrued interest with all liens
securing the American Note being released;
(ii) Reduction of basic rents under the Aircraft Lease Agreement by
approximately 28.0% for a period of three years, at which time
basic rents would revert back to 1995 levels;
(iii) American's relinquishment of $2.0 million of letters of credit which
secured the Company's obligations to American under the Aircraft Lease
Agreement; and
(iv) Issuance of the AMR Warrants to AMR, which entitle the holder to
acquire up to 1,897,946 shares of Common Stock (the "AMR Warrants")
exercisable at $1.10 per share (adjusted to 1,949,338 shares at
$1.07 per share pursuant to applicable anti-dilution provisions).
One-half of the AMR Warrants are currently exercisable, but the
balance of the AMR Warrants were to become exercisable only if American
and the Company had entered into a code sharing arrangement by
January 1, 1997 regarding the placement of the two letter flight
designator code for American's flights on certain of the Company's
Interisland flights. The Company extended the date upon which the
balance of the AMR Warrants could become exercisable, subject to the
satisfaction of certain agreed upon conditions. While the Company and
AMR continue their attempts to consummate the code sharing arrangement,
the conditions upon which the exercisable date of the balance of the
AMR Warrants had been extended were not satisfied and on January 31,
1997, the balance of the AMR Warrants expired. The remaining
outstanding AMR Warrants, if not exercised, expire on September 11,
2001.
On April 29, 1996, the Company's credit facility provided by CIT Group/Credit
Finance, Inc. (the "Credit Facility") was amended to increase the borrowing
capacity thereunder from $8.15 million to $15.0 million. The $15.0 million
Credit Facility consists of two secured term loans and a secured revolving
line of credit including up to $6.0 million of letters of credit. The term
loans are in the amounts of $5.4 million and $1.3 million and will amortize
in equal installments over periods of 48 and 60 months, respectively.
In connection with the AIP Investment, the Company agreed with GPA Group plc
and its affiliate AeroUSA, Inc. (collectively, the "GPA Companies") that, if
closing of the Offerings were to have occurred by September 30, 1996, the
Company would repurchase all of the shares of 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. At its option, the Company could make such repurchase and repayment at
any time prior to the closing of the Offerings. As required by the provider
of the Credit Facility in connection with the amendment thereof, the Company
exercised this option in April 1996. Based on the number of shares owned by
the GPA Companies and the carrying value of the notes as of such date, the
Company paid approximately $4.7 million to the GPA Companies to repurchase
the shares and repay the notes. The payment to the GPA Companies was funded
by borrowings under the Credit Facility in April 1996.
F-10
<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 five
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. In exchange for the wage concessions,
the Company 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 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.
Pursuant to their collective bargaining agreements, 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"), each have the right to nominate one of the nominees to stand from
time to time for election as directors of the Company. In 1996, each of the
IAM, ALPA and AFA director nominees were elected to the Board of Directors.
2. 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 the American Institute
of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting for Entities in Reorganization Under the Bankruptcy Code." For
accounting purposes, the Effective Date of the Reorganization 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. Reorganization value in excess of amounts allocable to
identifiable assets amounted to approximately $72.0 million on the Effective
Date.
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, 1996 and 1995 were valued at cost and amounted to $33.2 million
and $2.5 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 for expendable inventory parts and the lower of average cost or fair
value less cost to sell for rotable flight equipment. As of December 31,
1996 and 1995, the Company had approximately $6.4
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<PAGE>
million and $9.7 million, respectively, of expendable inventory parts and
rotable flight equipment held for sale internally or on a consignment basis
with a third party.
F-12
<PAGE>
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 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 aircraft prior to their return to lessors. Maintenance and
repairs on DC-10 aircraft are charged to operations on a flight hour basis.
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, 1996 and 1995 totaled approximately $8.2 million and $4.7
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 is 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 is 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.
F-13
<PAGE>
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.
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 ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangible assets held and used by an entity be reviewed 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.
Measurement of that loss is based on the fair value of that asset.
Generally, 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 adopted the provisions of SFAS No. 121 on January 1, 1996. The
adoption of SFAS No. 121 did not have a material effect on the Company's
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 employee compensation, but does not require an
entity to apply the new method for purposes of preparing its basic financial
statements. For an entity not applying the new method for purposes of
preparing its basic financial statements, SFAS No. 123 requires footnote
disclosure of pro forma net income and earnings per share information for
employee stock option grants made in 1995 and future years as if the fair
value-based method had been applied. The Company adopted the provisions of
SFAS No. 123 on January 1, 1996, and has elected to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and provide the pro forma disclosures required by
SFAS No. 123.
RECLASSIFICATIONS
Certain prior year amounts were reclassified to conform to the 1996
presentation period. Such reclassifications had no effect on previously
reported results of operations.
3. 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 carrying amount of
notes receivable from Common Stock sales approximates fair value as the terms
of such instruments are reflective of terms offered for similar instruments
of comparable maturities.
The estimated fair values of long-term debt amounted to $8.6 million and
$11.4 million at December 31, 1996 and 1995, respectively. These fair values
were estimated by discounting the future cash flow requirements of each
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<PAGE>
instrument at rates currently offered at the respective year-end dates to the
Company for similar debt instruments of comparable maturities.
4. FLIGHT EQUIPMENT
All of the Company's aircraft are leased except for two DC-9s. At December
31, 1996 and 1995, the composition of the Company's aircraft fleet is as
follows:
1996 1995
-------------------------------------------
Aircraft Type Leased Owned Leased Owned
---------------- -------------------------------------------
DC-10 10 - 8 -
DC-9 11 2 11 2
-------------------------------------------
Total 21 2 19 2
-------------------------------------------
-------------------------------------------
5. LEASES
AIRCRAFT LEASES
Nine DC-10 aircraft are leased under operating leases which expire in 2001.
One DC-10 aircraft is leased under a short term operating lease which expires
in 1997. Effective January 31, 1996, the Company and American agreed to a
reduction in basic rents due on DC-10 operating leases through January 31,
1999, at which time such rents revert to their original levels. See Note 1.
Seven and four DC-9 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 1996, 1995 and 1994 was $26.7 million, $25.5 million and $33.6
million, respectively, net of sublease rental income from operating leases of
$102,000, $75,000 and $368,000, respectively.
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<PAGE>
Scheduled future minimum lease commitments under operating and capital leases
for the Company as of December 31, 1996, in thousands, are as follows:
Operating Capital
Leases Leases
- ------------------------------------------------------------------------
1997. . . . . . . . . . . . . . . . . . . . $16,446 $ 3,728
1998. . . . . . . . . . . . . . . . . . . . 15,550 3,367
1999. . . . . . . . . . . . . . . . . . . . 17,670 3,336
2000. . . . . . . . . . . . . . . . . . . . 15,302 1,501
2001. . . . . . . . . . . . . . . . . . . . 10,239 -
Thereafter. . . . . . . . . . . . . . . . . 10,098 -
------- -------
Total minimum lease payments. . . . . $85,305 $11,932
-------
-------
Less amount representing interest
(rates ranging from 8.5% to 9.0%). . 1,633
-------
Present value of capital lease
obligations. . . . . . . . . . . . . 10,299
Less current portion of capital lease
obligations. . . . . . . . . . . . . 2,912
-------
Capital lease obligations, excluding
current portion. . . . . . . . . . . $ 7,387
-------
-------
In addition to scheduled future minimum lease payments, the Company is
required to pay for, under agreement with American, monthly DC-10 maintenance
charges. These charges are based on flight hours for the month and are
expensed as incurred. For the years ended December 31, 1996 and 1995, the
Company incurred $45.2 million and $37.6 million, respectively, in
maintenance charges under such agreement.
The net book value of property held under capital leases as of December 31,
1996 and 1995 totaled $14.7 million and $15.5 million, respectively.
F-16
<PAGE>
6. DEBT
At December 31, 1996 and 1995, the Company's long-term debt, including
obligations under capital leases, consists of the following, in thousands:
1996 1995
- --------------------------------------------------------------------------------
Secured obligations due 1997-1999.................. $ 8,417 $ 8,542
Tax obligations due 1997-2000...................... 133 158
Unsecured obligations due 1997..................... 50 2,850
Capital lease obligations due 1997-2000............ 10,299 12,764
--------- --------
18,899 24,314
Current portion.................................... (5,159) (8,689)
Long-term debt and capital lease
obligations, excluding current portion $ 13,740 $ 15,625
--------- --------
--------- --------
Secured obligations due 1997-1999 are as follows:
(i) A secured note executed in 1993 for the purchase of a DC-9
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,
1996 and 1995, $1.6 million and $2.1 million were outstanding,
respectively;
(ii) As described in Note 1, in April 1996, the Company's Credit
Facility was amended to increase the borrowing capacity
thereunder from $8.15 million to $15.0 million. The $15.0
million Credit Facility consists of two secured term loans and a
secured revolving line of credit including up to $6.0 million of
letters of credit. The term loans will amortize in equal
installment over periods of 48 and 60 months, respectively. The
outstanding principal amounts of the term loans will become due
and payable upon termination of the Credit Facility. Available
credit is subject to change determined by recalculation of the
borrowing base, repayments due under the term loans and
repayments arising from the disposition and other changes in the
related collateral securing the Credit Facility. The Credit
Facility has an initial term of three years from April 29, 1996
and renews automatically for successive terms of two years each,
unless terminated by either party on at least 60 days notice
prior to the end of the then-current term. Interest accrues at
prime plus 2.0% (10.25% at December 31, 1996). The Company may
terminate the Credit Facility at any time, on 30 days notice and
payment of certain early termination fees during the initial term
and without termination fees during any renewal term.
As of December 31, 1996, the total availability under the Credit Facility
was $13.2 million with aggregate term loans and letters of credit
outstanding in the amounts of $6.8 million and $100,000, respectively.
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.
The Credit Facility is secured by a first lien on substantially all of
the Company's property, excluding the Company's owned and leased aircraft,
the Company's aircraft engines while installed on an aircraft and certain
security deposits. In addition, terms of the Credit Facility restrict the
Company from paying any cash or stock dividends on its Common Stock;
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<PAGE>
(iii) A note payable executed in 1994 in settlement of $6.0 million of
administrative claims related to unpaid prepetition L-1011 and DC-9
aircraft rents. As discussed in Note 1, the Company exercised its
option to prepay the note at a discount in April 1996. Early
extinguishment of this note payable resulted in an extraordinary gain
of approximately $402,000, net of income taxes. The note was originally
due in 1999, bore interest at 8.0% per annum and was payable in monthly
installments of principal and interest of $121,658. At December 31,
1995, $4.7 million was outstanding;
(iv) 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. In January 1996, the note was paid in
full. The note was originally due in 1996 and was payable in
installments of $50,000 per month. As the note bore no interest,
interest had been imputed as of the Effective Date at 10.0% per annum.
As of December 31, 1995, $569,000 was outstanding; and
(v) In January 1996, the Company entered into certain arrangements with
American and AMR pursuant to which, American and AMR accepted 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 $250,000 of
American's fees and expenses through the issuance by the Company to
American of the American Note. On December 24, 1996, the Company
exercised its option to prepay the American Note for $9.15 million
plus accrued interest with all liens securing the American Note
being released. Early extinguishment of the American Note resulted
in an extraordinary gain of approximately $357,000, net of income
taxes. See Note 1.
Tax obligations due 1997-2000 represent allowed priority tax claims for
various taxing jurisdictions, which in accordance with the provisions of the
Reorganization 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, 1996 and 1995, the $500,000 is included in accounts payable in
the accompanying balance sheets.
Unsecured obligations due 1997 are as follows:
(i) 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,
1996 and 1995, $50,000 and $1.2 million were outstanding,
respectively. In January 1997, the note was paid in full;
(ii) A note executed in 1994 in settlement of $4.7 million of administrative
claims related to unpaid postpetition L-1011 aircraft rents. In July
1996, the note was paid in full. The note bore interest at prime plus
3.0% and was payable in monthly installments of principal and interest
of $194,010. At December 31, 1995, $1.6 million was outstanding; and
(iii) A note executed in 1994 in settlement of $276,000 of administrative
claims related to unpaid L-1011 aircraft rents. As discussed in Note 1,
the Company exercised its option to prepay the note at a discount in
April 1996. Early extinguishment of this note payable resulted in an
extraordinary gain of approximately $7,000, net of income taxes. The
note was originally due in October 1996, bore interest at prime plus
3.0% per annum and was payable in monthly principal installments of
$11,518. At December 31, 1995, $115,000 was outstanding.
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 5.
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<PAGE>
7. 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:
Reorganization Items:
Professional fees...................................... $ 5,744
Employee share of common stock distribution............ 7,568
Other.................................................. 268
Revaluation of assets and liabilities...................... 370
----------
$ 13,950
----------
----------
8. INCOME TAXES
Income tax expense is based on an estimated annual effective tax rate which
differs from the federal statutory rate of 34%, primarily due to state income
taxes and certain nondeductible expenses. The Company's reorganization and
the associated implementation of fresh start reporting gave rise to
significant items of expense for financial reporting purposes that are not
deductible for income tax purposes.
The estimated income tax benefit from the expected utilization of net
operating loss carryforwards arising prior to the Effective Date has been
applied as a reduction to reorganization value in excess of amounts allocable
to identifiable assets, not as a reduction to income tax expense. While
generally accepted accounting principles require that a provision be
recorded, a majority of the provision will not require cash outlay as it will
be offset by net operating loss carryforwards available to the Company. As
noted, in 1996, approximately $1.3 million of estimated income tax benefit
from the expected utilization of these net operating loss carryforwards has
been applied as a reduction to reorganization value in excess of amounts
allocable to identifiable assets.
Income tax expense attributable to loss before extraordinary items in 1996
differs from the "expected" tax benefit for that year computed by applying
the U.S. federal corporate income tax rate of 34% to loss before income taxes
and extraordinary items as follows:
Computed "expected" tax benefit....................... $ (500)
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets, not deductible
for tax purposes..................................... 1,200
State income taxes, net of federal income
tax benefit.......................................... 100
Other................................................ 68
---------
$ 868
---------
---------
As a result of net operating losses and related carryforwards, the Company
and the Predecessor were not required to provide for federal and state income
taxes for 1995 and 1994.
F-19
<PAGE>
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, 1996 and 1995 are presented below, in thousands:
1996 1995
- -------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts................... $ 200 $ 320
Accumulated pension and
postretirement benefits........................... 10,440 10,104
Accrued vacation.................................... 1,741 1,646
Net operating loss carryforwards.................... 11,423 20,115
Airframe return provision........................... 735 964
Other............................................... 1,579 4,564
--------- --------
Total gross deferred tax assets................. 26,118 37,713
Less valuation allowance........................ (17,143) (31,598)
--------- --------
Net deferred tax assets......................... 8,975 6,115
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation....................... (8,975) (6,115)
--------- --------
Net deferred taxes................................ $ - $ -
--------- --------
--------- --------
The valuation allowance for deferred tax assets as of January 1, 1996 and
1995 was $31.6 million and $47.5 million, respectively. The net change in
the total valuation allowance for the years ended December 31, 1996 and 1995
was a decrease of $14.5 million and a decrease of $12.9 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 will not be realized. The ultimate
realization of 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.
As a result of the AIP Investment, the Company underwent another ownership
change as defined under Section 382 of the Internal Revenue Code ("IRC
Section 382"). The Offerings did not result in an ownership change for
purposes of IRC Section 382. IRC Section 382 places an annual limitation on
the amount of income that can be offset by net operating loss carryforwards
generated in pre-ownership change years.
Prior to the AIP Investment, the Company had an existing IRC Section 382
limitation as a result of its Chapter 11 reorganization. The annual IRC
Section 382 limitation was approximately $2.4 million, plus certain
"built-in" income items that increased the limitation. The ownership change
from the AIP Investment resulted in a new IRC Section 382 limitation of
approximately $1.7 million plus certain "built-in" income items. This new
limitation will apply to all net operating losses incurred prior to the AIP
Investment. As of December 31, 1996, the Company has total net operating
loss carryovers of approximately $130.6 million of which $28.6 million are
unrestricted and are available to offset future taxable income. If not
utilized to offset future taxable income, the net operating loss
carryforwards will expire between the years 2003 and 2009.
F-20
<PAGE>
9. 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.
The following table summarizes the funded status of the defined benefit plans
of the Company as of December 31, 1996, in thousands:
<TABLE>
<CAPTION> Plans for which Plans for which
accumulated assets exceed
benefits accumulated
exceed assets benefits
- --------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets.................... $ 80,613 $ 65,271
----------------- ---------------
Accumulated benefit obligation:
Vested................................... (74,406) (52,701)
Non-vested............................... (8,724) (2,268)
----------------- ---------------
(83,130) (54,969)
Additional benefits based on future salary
levels................................... (13,592) -
----------------- ---------------
Projected benefit obligation................. (96,722) (54,969)
----------------- ---------------
Plan assets in excess of (less than)
projected benefit obligation............. (16,109) 10,302
Unrecognized actuarial net loss.............. 1,333 2,130
----------------- ---------------
Prepaid (accrued) pension cost........... $ (14,776) $ 12,432
----------------- ---------------
----------------- ---------------
</TABLE>
The projected benefit obligation was determined using an assumed
weighted-average discount rate of 7.75% for 1996. At December 31, 1996, 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 1996.
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> Plans for which Plans for which
accumulated assets exceed
benefits accumulated
exceed assets benefits
- --------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets.................... $ 88,877 $ 50,736
----------------- ---------------
Accumulated 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. The assumed
weighted-average rate of compensation increase was 4.50% for pilots and 0.00%
for ground personnel at December 31, 1995. 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. At
December 31, 1995, this amount is recorded as a long-term liability in
accumulated pension and other postretirement benefit obligations and a
separate reduction of shareholders' equity in the accompanying balance
sheets.
Net periodic pension cost for 1996 and 1995 included the following
components, in thousands:
<TABLE>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned
during the year.......................... $ 3,857 $ 3,248
Interest cost on projected
benefit obligation....................... 10,882 10,411
Actual return on plan assets................. (12,621) (24,180)
Net amortization and deferral................ 837 12,868
Early retirement provision................... - 1,496
----------------- ---------------
Net periodic pension cost................ $ 2,955 $ 3,843
----------------- ---------------
----------------- ---------------
</TABLE>
The net periodic pension cost in 1996 and 1995 was determined using an
assumed weighted-average discount rate of 7.25% and 8.25%, respectively.
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
F-22
<PAGE>
which amount includes the impact of the early retirement program on the
estimated accumulated benefit obligations of the IAM and salaried defined
benefit plans.
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.
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.
F-23
<PAGE>
The Company's postretirement benefit plans' combined benefit obligations as
of December 31, 1996 and 1995 are as follows, in thousands:
1996 1995
- --------------------------------------------------------------------------
Accumulated benefit obligation:
Retirees and dependents........................ $ (4,262) $ (5,848)
Fully eligible active plan participants........ (2,955) (341)
Other active plan participants................. (7,243) (12,735)
--------- ---------
Unfunded accumulated postretirement
benefit obligation............................. (14,460) (18,924)
Unrecognized net gain........................... (11,587) (6,398)
--------- ---------
Accrued postretirement benefit obligation...... $(26,047) $(25,322)
--------- ---------
--------- ---------
The accumulated postretirement benefit obligation was determined using an
assumed weighted-average discount rate of 7.75% and 7.25% for 1996 and 1995,
respectively.
Net periodic postretirement benefit cost in 1996 and 1995 included the
following components, in thousands:
1996 1995
- --------------------------------------------------------------------------
Service cost-benefits attributed to
service during the year........................ $ 923 $ 1,593
Interest cost on accumulated
postretirement benefit obligation.............. 1,153 1,785
Net amortization and deferral................... (418) -
Early retirement provision...................... - 411
--------- ---------
Net periodic postretirement
benefit cost.................................. $ 1,658 $ 3,789
--------- ---------
--------- ---------
A weighted average discount rate of 7.25% and 8.25% was used in determining
net periodic postretirement benefit cost for the years ended December 31,
1996 and 1995, respectively.
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-24
<PAGE>
Net periodic postretirement benefit cost in 1994 included the following
components, in thousands:
Reorganized
Company Predecessor
----------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to to
December 31, 1994 September 11, 1994
- --------------------------------------------------------------------------------
Service cost-benefits attributed to
service during the period.............. $444 $1,074
Interest cost on accumulated
postretirement benefit obligation...... 459 986
Net amortization and deferral........... - (72)
--------------- ----------------
Net periodic postretirement
benefit cost.......................... $903 $1,988
--------------- ----------------
--------------- ----------------
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.
For measurement purposes, the following ranges of graded rates were used in
the per capita cost of covered medical benefits:
Reorganized
Company Predecessor
---------------------------------------------------------
Period from Period from
September 12, 1994 January 1, 1994
to to
1996 1995 December 31, 1994 September 11, 1994
- --------------------------------------------------------------------------------
Initial rates 9.5% 14.0% 15.0% 14.0%
Termination rates 4.0% 5.0% 6.0% 5.0%
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, 1996, 1995 and 1994 by $1.9 million,
$2.9 million and $3.7 million, respectively, and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the years then ended by $347,000, $632,000 and $584,000, 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 1996,
5.0% in 1995 and 5.0% in 1994, 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 $1.1 million, $555,000 and $889,000 in
1996, 1995 and 1994, respectively.
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 in 1996 and 1995 and $1.1 million in 1994,
respectively.
F-25
<PAGE>
10. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS
AUTHORIZED CAPITAL STOCK
In 1996, the shareholders of the Company approved (i) the conversion of the
outstanding shares of Class B Common Stock into a like number of shares of
Class A Common Stock and (ii) the amendment to the Company's Amended Articles
of Incorporation to eliminate the Class B Common Stock and to designate the
Company's Class A Common Stock as "Common Stock." The modification to the
securities affected only the name and all other rights of the holders of
Class A Common Stock remained the same. In 1996, the Restated Articles of
Incorporation of the Company were further amended to increase the authorized
number of shares of Common Stock from 40,000,000 shares to 60,000,000 shares.
As a result of the amendment, the authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, $.01 par value per share.
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 in Note
1. 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 (i) is 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; (ii) 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; (iii)
is entitled to one vote per share and votes with the Common Stock as a single
class on all matters submitted to the shareholders of the Company; (iv)
automatically converts into one share of 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 (v) does not have preemptive rights in
connection with future issuances of the Company's capital stock.
WARRANTS
In January 1996, the Company issued the AMR Warrants to AMR, which entitle
the holder to acquire up to 1,949,338 shares of Common Stock exercisable at
$1.07 per share (as adjusted for anti-dilution provisions). One-half of the
AMR Warrants are currently exercisable and expire, if not exercised, on
September 11, 2001, but the balance of the AMR Warrants were to become
exercisable only if American and the Company had entered into a code sharing
arrangement by January 1, 1997. See Note 1.
Pursuant to the Reorganization Plan, the Company granted warrants to certain
individuals (the "Reorganization Warrants"), which originally entitled such
individuals to purchase 989,011 shares of Common Stock at an exercise price
of $2.73 per share. Pursuant to the anti-dilution provisions of the
Reorganization Warrants, upon consummation of the AIP Investment and the
Offerings described in Note 1, the exercise price of the Reorganization
Warrants was adjusted to $1.67 per share and the holders of the
Reorganization Warrants received warrants to purchase an additional 629,961
shares of Common Stock. The holders of the Reorganization Warrants waived
the anti-dilution provisions thereof in connection with the issuance of the
AMR Warrants. The warrants have a five-year term, expiring September 12,
1999. As of December 31, 1996, 300,000 Reorganization Warrants had been
exercised. Another 809,486 Reorganization Warrants were exercised in January
1997.
F-26
<PAGE>
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.
The AIP Investment would have rendered AIP a "10% Shareholder," as that term
is defined in the Rights Plan, thereby triggering the distribution of
preferred stock purchase rights to the Company's shareholders. Pursuant to
the Rights Plan, the Board of Directors 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 the AIP Investment would not render AIP a "10% Shareholder"
and in anticipation of the AIP Investment, amended the Rights Plan to exclude
the AIP Investment from triggering the distribution of the PSP Rights.
STOCK OPTION PLANS
Pursuant to the terms of the Reorganization Plan, 600,000 shares of the
Company's Common Stock were reserved for issuance under a 1994 Stock Option
Plan. In 1996, the Company adopted (i) a 1996 Stock Incentive Plan which
reserved 2,000,0000 shares of Common Stock for issuance and provides for
discretionary grants of options to the Company's employees and (ii) a 1996
Nonemployee Director Stock Option Plan which reserved 500,000 shares of
Common Stock for issuance and provides for grants of options to members of
the Board of Directors.
In February 1995, options to acquire 592,500 shares of Common Stock were
granted under the 1994 Stock Option Plan. In May 1996, options to acquire
the remaining 7,500 shares of Common Stock under the 1994 Stock Option Plan
were granted (collectively with those granted in February 1995, the "1994
Options"). The 1994 Options are fully vested and may be exercised at $1.62
per share. 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. As of December 31, 1996, 115,000 of the options had been
exercised. No options had been exercised as of December 31, 1995.
In conjunction with the Offerings, options to acquire 607,500 shares of
Common Stock were granted under the 1996 Stock Incentive Plan (the "1996
Options"). The 1996 Options immediately vested and were exercisable at $3.25
per share at any time prior to October 3, 1996. Options to acquire 592,500
shares of Common Stock were exercised through the issuance in the aggregate
of $1.9 million in fully recourse, interest-bearing notes received from
holders of the options who exercised. The outstanding balances on these
notes as of December 31, 1996 have been reflected as a reduction to
Shareholders' Equity in the accompanying balance sheets. The remaining
options to acquire 15,000 shares of Common Stock were forfeited. The Company
also subsequently granted under the provisions of the 1996 Stock Incentive
Plan, additional options to acquire 200,000 shares of Common Stock ("the
Executive Options") to executive management. The Executive Options may be
exercised at $3.56 per share with varying amounts of options vesting through
August 12, 2000 and expiring between August 12, 2001 and August 12, 2004, or
as defined in the 1996 Stock Incentive Plan. As of December 31, 1996, no
Executive Options had been exercised.
In November 1996, the Company also granted options to acquire 89,000 shares
of Common Stock (the "Nonemployee Director Options") to Nonemployee Directors
of the Company. The options are exercisable in full on May 4, 1997, subject
to the provisions of the 1996 Nonemployee Director Stock Option Plan at an
F-27
<PAGE>
exercise price of $3.69 per share and expire on November 1, 1999. As of
December 31, 1996, no Nonemployee Director Options had been exercised.
The Company applies the provisions of Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," in accounting for its various
plans. Noncash compensation expense of approximately $2.0 million for the
1994 Options was recognized during the year ended December 31, 1995. The
remaining $182,000 of compensation cost was reflected as unearned
compensation in the shareholders' equity section in the accompanying balance
sheet as of December 31, 1995 and was recognized in January 1996. As
discussed in Note 1, the AIP Investment constituted a change of control for
purposes of the 1994 Stock Option Plan, thereby accelerating both the vesting
and expiration date of the 1994 Options. In connection with the AIP
Investment, the 1994 Stock Option Plan was amended to extend the 1994 Options
exercise period to February 2, 2005. This amendment resulted in a new
measurement date for the 1994 Options and approximately $782,000 of related
noncash compensation expense was recorded in January 1996. As the 1996
Options were granted in conjunction with the Offerings, no compensation
expense was required to be recognized. The Executive Options and Nonemployee
Director Options were granted with an exercise price equivalent to the then
tradeable value of the underlying Common Stock. Accordingly, no compensation
expense was recorded for these options.
Had the Company determined compensation expense based on the fair value at
the grant date for the 1994 Options, the 1996 Options, the Executive Options
and the Nonemployee Director Options under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
Net Loss
Net Loss Per Common Stock Share
--------------------- ------------------------
1996 1995 1996 1995
--------- --------- ---------- -----------
As reported $(1,533) $(5,506) $(0.05) $(0.59)
Pro forma (1,935) (5,924) (0.06) (0.63)
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $0.79 and $4.46 on the date of grant using a Black Scholes
option-pricing model with the following weighted-average assumptions:
Expected dividend yield 0.0%
Expected volatility 50.0%
Risk-free interest rate 4.05% to 7.55%
Expected life Up to 7 years
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the various
options' vesting periods.
F-28
<PAGE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted
Shares of Common Stock average of
------------------------------- exercise price
Available for Under of shares
options plan under plan
------------------------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1994 - - $ -
Authorized
1994 Stock Option Plan 600,000 - -
Granted
1994 Stock Option Plan (592,500) 592,500 1.62
------------ ---------
Balance at December 31, 1995 7,500 592,500 $ 1.62
-----------
-----------
Authorized
1996 Stock Incentive Plan 2,000,000 - -
1996 Nonemployee Director Stock
Option Plan 500,000 - -
Granted
1994 Stock Option Plan (7,500) 7,500 1.62
1996 Stock Incentive Plan (807,500) 807,500 3.33
1996 Nonemployee Director Stock
Option Plan (89,000) 89,000 3.69
Exercised
1994 Stock Option Plan - (115,000) 1.62
1996 Stock Incentive Plan - (592,500) 3.25
Forfeited
1996 Stock Incentive Plan 15,000 (15,000) 3.25
------------ ---------
Balance at December 31, 1996 1,618,500 774,000 $ 2.36
------------ --------- -----------
------------ --------- -----------
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.62 to $3.69 and 5.8
years, respectively.
At December 31, 1996, the number of options exercisable was 485,000 and the
weighted-average exercise price of those options was $2.36. No options were
exercisable at December 31, 1995.
11. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
The Company is party to a small number of lawsuits. Two claims remain
asserted against the Reorganized Company for alleged prepetition and/or
administrative claims on or before the Effective Date of the Reorganization
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.
F-29
<PAGE>
AIRCRAFT MAINTENANCE
Maintenance on the Company's DC-10 aircraft fleet is being performed by
American in accordance with the Federal Aviation Administration's (the "FAA")
regulations and Hawaiian Airlines' approved maintenance program.
Due to the U.S. Government's decision to phase out the VLF/Omega stations,
the Omega navigation system aboard the DC-10 aircraft must be updated to
continue overseas operations. The current plan is to change to a dual Global
Positioning System during special visits or checks scheduled for 1997. The
estimated cost is $125,000 per aircraft.
Hawaiian Airlines anticipates that in the period 1997 through 2000, four of
its 13 DC-9 aircraft will require a heavy airframe overhaul check (the "D
Check"). The D Check for a DC-9 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 $1,300,000.
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 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 1997 through 2000 period will approximate $600,000 per
DC-9 aircraft.
In addition, the Company expects to incur approximately $100,000 per DC-9
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 1997 through 2000, the Company anticipates continued
implementation of its supplemental inspection document program for certain of
its DC-9 aircraft which is estimated to range up to $50,000 per aircraft.
Also, the Company intends to standardize altimeters and altitude alerts and
upgrade VHF navigation receivers on its DC-9 aircraft of which six will occur
in 1997 at an estimated average cost of $47,000 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 and DC-9 fleet maintenance programs.
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, 1996 amounting to approximately $195.3
million. Rent expense relating to these operating leases totaled $4.8
million, $5.9 million and $4.4 million in 1996, 1995 and 1994, 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 $750,000, $842,000 and $737,000
of rent expense in 1996, 1995 and 1994, respectively.
F-30
<PAGE>
FREQUENT FLYER PROGRAM
The Company's Gold Plus frequent flyer program was initiated in 1983. As of
December 31, 1996 and 1995, the Company's Gold Plus membership had more than
571,000 and 560,000 members, respectively, including approximately 349,000
and 361,000 active members, respectively.
The Gold Plus program rewards its members with mileage credits primarily for
travel on Hawaiian Airlines. Gold Plus members are entitled to a choice of
various awards based on accumulated mileage, with a majority of the awards
being certain free air travel at a later date. Travel awards available in
the Gold Plus program range from a 5,000 award, which offers a one-way
Interisland flight, to 60,000 and 65,000 mile awards, which offer a round
trip first-class Transpac flight and round trip first-class Southpac flight,
respectively. Miles traveled under the Gold Plus program are accounted for
as revenue passenger miles, which, in turn, are used in the calculation of
the Company's yield. Non-travel awards are valued at the incremental cost of
tickets exchanged for such awards.
The Company recognizes a liability in the period in which members have
accumulated sufficient mileage points to allow for award redemption. The
liability is adjusted based on net mileage earned and utilized for award
redemption an a monthly basis. The incremental cost method is used, computed
primarily on the basis of fuel and catering costs, exclusive of any overhead
or profit margin. In estimating the amount of such incremental costs to be
accrued in the liability for potential future Gold Plus free travel, a
current average cost per award mile is determined. Incremental fuel expended
per passenger is based on engineering formulas to determine the quantity used
for the weight of each added passenger and baggage. Such incremental
quantity of fuel is priced at current levels. Catering is based on average
cost data per passenger for the most recent 12 month period.
As of December 31, 1996 and 1995, Gold Plus members had accumulated
approximately 2.4 billion and 3.3 billion miles, respectively, representing
liabilities totaling approximately $800,000 and $489,000, respectively. The
Company's accruals assume full redemption of mileage points. During the years
ended December 31, 1996, 1995 and 1994, 857 million, 581 million and 636
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 review by the Company to limit the
possibility of displacing revenue passengers. Usage of Gold Plus travel
redemption accounted for approximately 2.9%, 2.2% and 2.7% of Interisland
traffic and a negligible percentage of Transpac and Southpac traffic in 1996,
1995 and 1994, respectively.
12. RELIANCE ON THIRD PARTIES
The Company has entered into agreements with contractors, including American,
Northwest Airlines, Inc. ("Northwest") and certain other airlines, to provide
certain facilities and services required for its operations, including
aircraft, code sharing, reservations, computer services, frequent flyer
programs, aircraft maintenance, passenger processing, fuel, ground
facilities, baggage and cargo handling and personnel training. This reliance
on third parties to provide services subjects the Company to various risks,
including the risk that such services could be discontinued without adequate
replacement services being available.
The Company leases all of its DC-10 aircraft from American. American
maintains these aircraft and the Company pays a minimum monthly charge for
maintenance services, monthly in arrears. During 1996, the Company incurred
approximately $56.4 million of lease and maintenance expenses under the
American DC-10 aircraft leases. American has the right to terminate its
obligation to provide aircraft maintenance services on and after January 1,
1999, upon 180 days prior notice. If American terminated the maintenance
arrangement, the Company would have to seek an alternate source of
maintenance service or maintain its DC-10s by itself, and no assurance can be
given that the Company would be able to do so on a basis that is as
cost-effective as the American maintenance arrangement. The Company also
participates in American's AAdvantage frequent flyer program and SABRE
reservation system. The Company's participation in the AAdvantage program
expires in 1997, subject to renewal, and its participation in SABRE expires
in 2001.
The Company purchases almost all of its aviation fuel from Northwest pursuant
to an agreement between the two companies which provides that, 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
F-31
<PAGE>
airlines. The agreement requires Northwest to provide Hawaiian Airlines with
aviation fuel at Northwest's actual acquisition cost without markup for
profit and with reimbursement only for out-of-pocket costs. The agreement is
renewed automatically on December 31 of each year unless canceled by either
of the parties with 90 days written notice. Hawaiian Airlines is prohibited
from reselling such fuel. No assurance can be given that the Company would
be able to secure an adequate supply of fuel from alternate sources if a fuel
shortage were to cause the supply from Northwest to be inadequate or if
Northwest were to cancel the agreement. The Company paid Northwest
approximately $70.9 million, $53.0 million and $43.9 million for the fuel
supplied under this agreement in 1996, 1995 and 1994, respectively. Further,
effective July 1996, the Company entered into a cooperative marketing agreement
with Northwest, which provides for extensive marketing cooperation, including
a code sharing arrangement and frequent flyer participation.
13. 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.
F-32
<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Operating revenues........................................ $94,062 $96,009 $101,213 $93,189
Operating income (loss)................................... 396 3,104 4,592 (6,065)
Net income (loss)......................................... (582) 1,538 1,369 (3,858)
Net income (loss) per Common Stock Share.................. (0.03) * 0.05 * 0.05 * (0.10) *
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
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)
Net income (loss) per Common Stock Share.................. (0.88) * (0.05) * 0.33 * (0.01) *
* Includes shares reserved for issuance under the consolidated Plan of Reorganization dated September 21, 1993, as amended.
</TABLE>
F-33
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
-------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1996 1995 1994 1994 1993 1992
- ------------------------------------------------------------------ -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Operating revenues..................................... $384,473 $346,904 $89,157 $216,823 $304,109 $ 395,076
Operating expenses..................................... 382,446 348,805 95,425 223,244 328,947 506,117
-------- -------- ------- -------- -------- ----------
Operating loss......................................... 2,027 (1,901) (6,268) (6,421) (24,838) (111,041)
Interest expense, net.................................. (2,432) (3,579) (968) (850) (4,706) (11,217)
Gain (loss) on disposition of equipment................ (729) (233) 558 45 (659) (1,075)
Gain on sale of routes................................. - - - - - 41,702
Other, net............................................. (297) 207 527 502 1,312 (321)
Reorganization expenses................................ - - - (13,950) (52,637) -
-------- -------- ------- -------- -------- ----------
Loss before income taxes, extraordinary items and
cumulative effect of change in accounting principle... (1,431) (5,506) (6,151) (20,674) (81,528) (81,952)
Income taxes........................................... (868) - - - - -
-------- -------- ------- -------- -------- ----------
Loss before extraordinary items and cumulative
effect of change in accounting principle.............. (2,299) (5,506) (6,151) (20,674) (81,528) (81,952)
Extraordinary items, net of income taxes............... 766 - - 190,063 12,104 108,722
-------- -------- ------- -------- -------- ----------
Income (loss) before cumulative effect of change in
accounting principle.................................. (1,533) (5,506) (6,151) 169,389 (69,424) 26,770
Cumulative effect of change in accounting principle.... - - - - - 2,192
-------- -------- ------- -------- -------- ----------
Net income (loss)...................................... $ (1,533) $ (5,506) $(6,151) $169,389 $(69,424) $ 28,962
-------- -------- ------- -------- -------- ----------
-------- -------- ------- -------- -------- ----------
Loss per Common Stock Share:**
Before extraordinary items and cumulative effect
of change in accounting principle..................... $ (0.07)** $ (0.59)** $ (0.65)** $ N/M* $ N/M* $ N/M*
Extraordinary items, net............................... 0.02 ** - ** - ** N/M* N/M* N/M*
Cumulative effect of change in
accounting principle................................... - ** - ** - ** N/M* N/M* N/M*
-------- -------- ------- -------- -------- ----------
Net loss................................................ $ (0.05)** $ (0.59)** $ (0.65)** $ N/M* $ N/M* $ N/M*
-------- -------- ------- -------- -------- ----------
-------- -------- ------- -------- -------- ----------
</TABLE>
F-34
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
------------------------------- -----------------------------------
DECEMBER 31, DECEMBER 31,
------------------------------- SEPTEMBER 11, --------------------
1996 1995 1994 1994 1993 1992
--------- -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Shares Outstanding......................... 30,975 9,400** 9,400** 7,137 6,170 5,123
Shareholders' Equity Per Share.............................. 2.12 3.10** 3.60** N/M* N/M* N/M*
Shares Outstanding at Year End.............................. 39,167 9,400** 9,400** 7,137 7,136 5,713
Balance Sheet Items:
Total assets............................................. $196,289 $161,640 $163,301 $167,211 $105,540 $105,743
Property and equipment, net.............................. 45,794 41,391 37,756 33,312 36,558 38,956
Long-term debt, excluding current portion................ 6,353 5,523 14,152 11,421 2,615 1,800
Capital lease obligations, excluding current portion..... 7,387 10,102 12,764 12,591 - -
Redeemable Preferred Stock and Preference Stock.......... - - - - - 5,354
Shareholders' equity (deficit)........................... 82,873 29,178 33,849 40,000 (209,882) (142,720)
</TABLE>
* Not Meaningful - Per share data is not meaningful as the Predecessor was
recapitalized and adopted fresh start reporting as of September 12, 1994.
** Includes shares reserved for issuance under the consolidated Plan of
Reorganization dated September 21, 1993, as amended.
F-35
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE
INDICATED) (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers............................. 4,971 4,781 4,584 4,337 4,647
Revenue passenger miles........................ 3,324,005 3,171,366 2,880,339 2,870,713 3,322,045
Available seat miles........................... 4,571,955 4,238,319 3,995,649 3,850,133 4,710,795
Passenger load factor.......................... 72.7% 74.8% 72.1% 74.6% 70.5%
Cargo tons..................................... 32 29 23 20 16
Revenue ton miles.............................. 392,387 365,320 324,096 314,725 353,067
Revenue plane miles............................ 19,055 17,619 16,243 15,256 20,909
Passenger revenue per passenger mile........... 9.8 CENTS 9.4 CENTS 9.7 CENTS 9.5 CENTS 10.3 CENTS
OVERSEAS CHARTER OPERATIONS:
Revenue passengers............................ 190 155 1 14 127
Revenue passenger miles....................... 515,982 425,797 2,202 14,620 232,447
Available seat miles.......................... 528,787 439,142 4,141 20,938 291,239
</TABLE>
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Hawaiian Airlines, Inc.:
Under date of February 18, 1997, we reported on the balance sheets of
Hawaiian Airlines, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
the years ended December 31, 1996 and 1995, the period September 12, 1994
through December 31, 1994 and the period January 1, 1994 through September
11, 1994, 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.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
February 18, 1997
S-1
<PAGE>
HAWAIIAN AIRLINES, INC.
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (REORGANIZED COMPANY)
<TABLE>
<CAPTION>
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:
1996...............................$ 800 641 - 941(b) $ 500
----------------------------------------------------------
----------------------------------------------------------
1995.............................. $ 500 719 - 419(b) $ 800
----------------------------------------------------------
----------------------------------------------------------
1994...............................$ 800 422 326(a) 1,048(b) $ 500
----------------------------------------------------------
----------------------------------------------------------
ALLOWANCE FOR OBSOLESCENCE OF FLIGHT EQUIPMENT
EXPENDABLE PARTS AND SUPPLIES:
1996...............................$ 315 - - - $ 315
----------------------------------------------------------
----------------------------------------------------------
1995...............................$ 315 - - - $ 315
----------------------------------------------------------
----------------------------------------------------------
1994...............................$1,212 - - 897(a) $ 315
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
(a) Adjustments due to the commencement of fresh start reporting on
September 12, 1994
(b) Doubtful accounts written off, net of recoveries
S-2
<PAGE>
Exhibit 10(l)
CODE SHARING AGREEMENT
This non-exclusive Code Sharing Agreement dated this 26 day of November,
1996 (the "Agreement") and effective November 26, 1996 (the "Effective Date") is
entered into by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation, whose
business and mailing address is P.O. Box 30008, Honolulu, Hawaii, 96820-0008
("Hawaiian") and RENO AIR, a Nevada corporation, whose business and mailing
address is P. O. Box 30059, Reno, Nevada 89520-3059 ("Reno"). Hawaiian and Reno
are sometimes referred to in this Agreement individually as a "Party" or
"Carrier," or collectively as the "Parties" or "Carriers."
WITNESSETH:
WHEREAS, Hawaiian and Reno are each certified air carriers providing air
transportation services in their respective areas of operation; and
WHEREAS, Hawaiian and Reno desire to cooperate in the coordination of
schedules by allowing Hawaiian to place its designation code on certain Reno
flights as permitted under applicable law, regulations and policy; and
WHEREAS, Reno and Hawaiian are each willing to perform in the manner and
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises in
this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereto agree as
follows:
1. CODE SHARING LICENSE.
a. HA LICENSE.
(i) GRANT OF LICENSE. Subject to the terms and conditions of
this Agreement, Reno grants Hawaiian the right to market to the public
Hawaiian's designated schedule passenger service on any and all of Reno's
flights operated in the markets as set forth on Schedule 1 attached hereto (the
"HA Code Shared Segments"). To the extent such flights are booked under the HA
Code they are referred to herein as the HA Code Shared Segments. The HA Code
Shared Segments shall be marketed to the public using the HA designator. HA
shall at all times indicate Reno is the operator. The Parties shall cooperate
to ensure that reservations, sales and passenger handling services for
passengers connecting to or from flights on the HA Code Shared Segments are
provided in the most efficient manner that best meets the needs of all
passengers using flights on the HA Code Shared Segments. The Parties agree to
meet as necessary to discuss the appropriateness of expanding or contracting the
list of city pairs on Schedule 1.
<PAGE>
(ii) CONTROL OF HA CODE SHARE SEGMENTS. Reno shall have the
sole responsibility for and control over, and Hawaiian shall have no
responsibility for, control over or obligations or duties with respect to, each
and every aspect of Reno's operations, including, without limitation,
scheduling, pricing, planning of flight itineraries and routings, reservations
control/yield management, dispatch, fueling, weight and balance, flight release,
maintenance, flight operations and compliance with applicable rules and
regulations. Notwithstanding anything else set forth in this Agreement, Reno
shall have the sole right to control Reno's inventory of seats on all flights,
including on HA Code Shared Flights, and Reno's pricing when travel is sold
using Reno's code, and Hawaiian shall have the sole right to control Hawaiian's
pricing when travel is sold using Hawaiian's code.
2. TERM OF AGREEMENT.
a. TERM. This Agreement shall commence on the Effective Date and
shall continue until December 31, 1997, unless sooner terminated by either
Party in accordance with this Agreement.
b. TERMINATION AS A RESULT OF CHANGES OF LAW. In the event there is
any change in treaties, statutes or regulations of air transportation that
materially affects the rights and/or obligations presently in force with respect
to the air transportation services of Hawaiian or Reno or both, relating to HA
Code Shared Segments, then the Carriers shall consult each other, within
thirty (30) days after any of the occurrences described herein, in order to
determine or seek mutual agreement as to what, if any changes to this Agreement
are necessary or appropriate, including but not limited to the early termination
of this Agreement.
c. OTHER TERMINATION RIGHTS. In addition to any other provisions of
this Agreement, this Agreement may be terminated, without liability, as follows:
(i) By either Party upon material default by the other Party
after having given seven (7) days advance written notice to cure such material
default, and the default having not been cured;
(ii) By either Party immediately on notice, if the other Party
shall be dissolved or shall fail to maintain its corporate existence in good
standing, or shall have its authority to operate as a scheduled airline
suspended or revoked, either in whole or with respect to HA Code Shared
Segments, or shall cease operations as a scheduled airline;
(iii) By either Party immediately on notice if the other Party
shall be cited by any government authority for any significant noncompliance
with a material law, rule or regulation with respect to the marketing or
operation of HA Code
2
<PAGE>
Shared Segments;
(iv) By either Party on thirty (30) days' prior written notice,
if a carrier, foreign or domestic, that competes with the terminating Party on a
material basis, acquires majority ownership of or substantial control over the
other Party;
(v) By either Party on thirty (30) days' prior written notice,
if the other Party ceases to be a member of the American Airlines
AAdvantage-Registered Trademark- Frequent Flyer program;
(vi) By Hawaiian immediately on notice if:
1. Reno shall fail to maintain any of its aircraft in an
airworthy condition and conduct its flight operations in accordance with the
standards, rules and regulations promulgated by any government authority; or
2. Reno shall have a completion factor of not less than
80% during any thirty (30) day period with respect to HA Code Shared Segments
(including in such calculations all flights canceled less than one (1) week
prior to the date of its scheduled operation and excluding flights not completed
due to weather conditions); or
3. Reno's operational performance adversely impacts HA's
passenger handling after written notice having been given to Reno two weeks
earlier; and
(vii) By Reno immediately on notice if:
1. Hawaiian shall fail to maintain any of its aircraft in
an airworthy condition and conduct its flight operations in accordance with the
standards, rules and regulations promulgated by any government authority; or
2. Hawaiian's operational performance adversely impacts
QQ's passenger handling after written notice having been given to Hawaiian two
weeks earlier.
3. CONFIDENTIAL INFORMATION. Neither Hawaiian nor Reno shall disclose to
the other Party or be required to disclose by the other Party any information
relating to its scheduling (except as required in Section 7), pricing, inventory
control or flight profitability. Neither Hawaiian nor Reno shall disclose the
terms of this Agreement or any proprietary information with respect to the other
obtained as a result of this Agreement, either during the term hereof or
thereafter except as may be required by law or by any order of a court or
administrative agency, and then upon ten (10) days' notice to the other
3
<PAGE>
Party. Hawaiian and Reno recognize that, in the course of the performance of
each of the provisions hereof, each Party may be given and may have access to
confidential and proprietary information of the other Party, including proposed
schedule and fare changes, statistical data regarding load factors and fares,
sales and promotional programs and other operating and competitive information
(the "Confidential Information"). Hawaiian and Reno agree that each shall
preserve, and shall ensure that each of its officers, directors, agents,
attorneys, auditors, consultants and employees who receive Confidential
Information preserve the confidentiality of the other Party's Confidential
Information. This confidentiality obligation shall survive for two (2) years
after the termination of this Agreement.
4. COMPLIANCE WITH REGULATIONS. Hawaiian and Reno hereby represent,
warrant and agree that all services performed by them pursuant to this Agreement
shall be conducted and all of its personnel shall at all times meet and be in
full compliance with any and all applicable federal, state and local laws,
orders, rules and regulations of all governmental agencies having jurisdiction
over their operations, including but not limited to the Department of
Transportation ("DOT") and the Federal Aviation Administration ("FAA"). Each
Party agrees that in conducting flight operations under the designator code of
the other Party, it will employ prudent safety and loss prevention policies.
5. AUDIT. HAWAIIAN AUDIT. Hawaiian shall have the right, at its own
cost and upon adequate notice so as not to interfere with Reno's operations,
to inspect, review and observe Reno's operations of HA Code Shared Segments,
and/or to conduct a full safety and/or service audit of Reno's operations,
manuals and procedures reasonably related to HA Code Shared Segments, at such
intervals as Hawaiian shall reasonably request. In the exercise of such right,
Hawaiian does not undertake any responsibility for the performance of Reno's
operations. Hawaiian shall coordinate its safety and service audits with Reno so
as to avoid disruption of Reno's operations. Any audit may include, without
limitation, passenger statistics and passenger revenue accounting records and
procedures, maintenance and operation procedures, reservations, passenger and
baggage handling, and training records and manuals. This paragraph shall not
entitle Hawaiian access to Reno's records, documents or systems relating to its
pricing, inventory control or flight profitability.
6. IRREGULARITIES IN OPERATIONS. In the event of any irregularity in the
operations of HA Code Shared Segments, including without limitation, any event
causing damage to persons or property, Reno shall identify itself as being
operated independently of Hawaiian, and as being solely responsible for its
operations. Reno shall promptly notify Hawaiian of any and all irregularities
involving HA Code Shared Segments which may result in any damage to persons or
property as soon as such information is available and shall furnish to Hawaiian
as much details as practicable.
4
<PAGE>
7. FREQUENT FLYER PROGRAM.
a. Hawaiian shall have the right to provide its Hawaiian
Gold+Plus-Registered Trademark- members with mileage credit for the HA Code
Shared Segments.
b. Hawaiian shall have the right to issue, or cause to be issued,
frequent flyer award travel on the HA Code Shared Segments to members of
Hawaiian Gold+Plus.
c. Terms and conditions for accrual of frequent flyer mileage
credit, and acceptance of frequent flyer award tickets shall be governed by the
Frequent Flyer Agreement between the parties attached hereto as Schedule 3.
8. REPORTING OBLIGATIONS.
a. CHANGES IN SERVICE. Each Carrier shall give the other Carrier
sixty (60) days' advance notice (or notice as far in advance as possible if
sixty (60) days is impracticable) of any intended (i) changes to its operating
specifications, (ii) change to its operating flight schedule on any of the HA
Code Shared Segments or any Hawaiian segment connecting to an HA Code Shared
Segment or (iii) material changes to the manner of conducting its business or
the nature of its product.
b. CORRESPONDENCE FROM GOVERNMENTAL AUTHORITIES. Reno shall
immediately provide Hawaiian with copies of any correspondence received from a
government authority which, with respect to HA Code Shared Segments, references
(i) any alleged noncompliance with rules or regulations affecting air
transportation, or (ii) any investigation of Reno performed or proposed by any
government authority including without limitation, any communication issued by a
government authority concerning the airworthiness of Reno's aircraft, the
compliance of Reno's personnel with required operational or training procedures
or any other matter relating to the safe operation of Reno's aircraft. Reno
shall not be required to send Hawaiian routine correspondence of a type received
in the ordinary course of business.
Hawaiian shall immediately provide Reno with copies of any
correspondence received from a government authority which, with respect to HA
Code Shared Segments, references (i) any alleged noncompliance with rules or
regulations affecting air transportation, or (ii) any investigation of Hawaiian
performed or proposed by any government authority including without limitation,
any communication issued by a government authority concerning the airworthiness
of Hawaiian's aircraft, the compliance of Hawaiian's personnel with required
operational or training procedures or any other matter relating to the safe
operation of Hawaiian's aircraft. Hawaiian shall not be required to send Reno
routine correspondence of a type received in the ordinary course of business.
5
<PAGE>
c. NOTICE OF COMPLAINTS. Once a month the Parties' customer
relations departments shall discuss any received complaints, notices or
violations, requests to cease activities or similar correspondence which
reasonably relates to HA Code Shared Segments and which are received by the
Parties during the prior month from passengers, any government authorities or
other parties.
9. FLIGHT DISPLAY.
a. All HA Code Shared Segments shall be included in the availability
and fare displays of all computerized reservations systems in which Hawaiian and
Reno participate, the Official Airline Guide ("OAG"), time tables of both
Parties and Hawaiian's and Reno's internal reservation systems, using the HA
designator, to the extent reasonably possible. Hawaiian and Reno shall take all
necessary measures to ensure the display of HA Code Shared Segments in
accordance with the preceding sentence.
b. Hawaiian and Reno shall disclose and identify the HA Code Shared
Segments to the public as actually being a flight of and operated by the
operating Carrier, in at least the following ways:
i. a symbol will be used in timetables and computer reservation
systems indicating that HA Code Shared Segments are actually operated by Reno;
ii. to the extent reasonable, messages on airport flight
information displays will identify the operator of flights shown as HA Code
Shared Segments unless otherwise stated in this document;
iii. Hawaiian and Reno advertising concerning HA Code Shared
Segments and Hawaiian and Reno reservationists will disclose the operator of
each flight; and
iv. in any other manner prescribed by law.
10. TERMS AND CONDITIONS OF CARRIAGE AND CLAIMS PROCEDURES.
a. In all cases, the contract of carriage between a passenger and a
Carrier will be that of the operating Carrier. Both Carriers will work jointly
together to modify their terms of contract of carriage to maintain consistency.
b. Hawaiian shall invoice Reno an administrative fee for each
passenger boarded on HA Code Shared Segments, as set forth on Schedule 2
attached
6
<PAGE>
hereto.
c. Baggage handling and settlement of baggage claims shall be in
accordance with each operating Carrier's existing tariffs and the Trade Practice
Manual of the Air Transport Association or the IATA Resolutions and Recommended
Practices Manual, whichever applies.
11. BILLING AND PAYMENT.
a. All billings and payments shall take place via the ACH in
accordance with the ACH Manual of Procedures. Items specified in paragraphs
10.b. and 10.c. herein shall be processed as non-transport charges.
b. In the event either Hawaiian or Reno no longer participates in
the ACH, invoicing and payment will take place directly between the Parties.
Invoices shall be presented no later than the 18th calendar day of the month
following the month in which the passenger traveled. Payments shall be due no
later than the 30th day of the month following the month in which the passenger
travel occurred. Interest on all such unpaid amounts shall accrue at the rate
of one and one-half percent (1.5%) per month.
Invoices shall be delivered to:
Hawaiian: Interline Payables
Hawaiian Airlines, Inc.
P.O. Box 29906
Honolulu, HI 96820
Reno: Reno Air, Inc.
Interline accounting
P.O. Box 30059
Reno, Nevada 89520
Attn: Supervisor Lifts
Payment shall be remitted to:
Hawaiian: Accounts Receivable
Hawaiian Airlines, Inc.
P.O. Box 29906
Honolulu, HI 96820
Reno: Reno Air, Inc.
P. O. Box 30059
Reno, Nevada 89520
7
<PAGE>
Attn: Accounts Receivable Supervisor
12. IRREGULARITY HANDLING.
a. Both Parties agree to cooperate to accommodate passengers
experiencing flight irregularities that affect HA Code Shared Segments and not
to forebear from providing assistance because the other Party may have been
responsible for the flight irregularity. In the event of a flight irregularity,
the Party causing or experiencing the irregularity shall bear all related costs
associated with accommodating the passengers who have been affected.
13. AIRPORT OPERATIONAL ASSISTANCE. Both Parties shall reasonably
cooperate to coordinate and maintain their schedules to minimize passenger
waiting time and to maximize the convenience of passengers who are connecting
between Hawaiian and Reno for the HA Code Shared Segments.
14. PRORATION OF FARES. Proration of fares for the HA Code Shared
Segments shall be governed by the bilateral prorate agreement between both
Parties.
15. HAWAIIAN'S REPRESENTATIONS AND WARRANTIES. To induce Reno to enter
into this Agreement, and any documents contemplated hereby, Hawaiian makes the
following representations and warranties, each of which shall survive the
execution and delivery of this Agreement.
a. Hawaiian 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;
b. Hawaiian is a duly certificated air carrier under 14 C.F.R.
Part 121; and
c. all services performed by Hawaiian pursuant to this Agreement
shall be conducted and all of its personnel shall at all times meet and be in
full compliance with any and all applicable federal, state and local laws,
orders, rules and regulations of all governmental agencies having jurisdiction
over its operations, including but not limited to the DOT and the FAA.
16. RENO'S REPRESENTATIONS AND WARRANTIES. To induce Hawaiian to enter
into this Agreement, and any documents contemplated hereby, Reno makes the
following representations and warranties, each of which shall survive the
execution and delivery of this Agreement.
a. Reno is a corporation duly incorporated and is validly
existing
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<PAGE>
in good standing under the laws of the State of Nevada and has its
chief executive office in Reno, Nevada;
b. Reno is a duly certificated air carrier under 14 C.F.R. Part
121;
c. all services performed by Reno pursuant to this Agreement shall
be conducted and all of its personnel shall at all times meet and be in full
compliance with any and all applicable federal, state and local laws, orders,
rules and regulations of all governmental agencies having jurisdiction over its
operations, including but not limited to the DOT and the FAA; and
d. Reno has received all necessary consents required to enter into
this Agreement.
17. INDEPENDENT PARTIES.
a. INDEPENDENT CONTRACTOR. It is expressly recognized and agreed
that each Carrier, in its performance and otherwise in this Agreement, is and
shall be engaged and acting as an independent contractor and in its own
independent and separate business; that each Carrier shall retain complete and
exclusive control over its staff and operations and the conduct of its business;
and that each Carrier shall bear and pay all expenses, costs, risk and
responsibilities incurred by it in connection with its obligations under this
Agreement. Neither Party nor any of its officers, directors, employees,
representatives or agents shall in any manner, directly or indirectly, expressly
or by implication, be deemed to be, or make any representation or take any
action which may give rise to the existence of any employment, agent,
partnership, or other like relationship as between Hawaiian and Reno but each
Carrier's relationship with respect to the other Carrier in connection with this
Agreement is and shall always be that of an independent contractor.
b. STATUS OF EMPLOYEES. The employees, agents and/or independent
contractors of Hawaiian shall be employees, agents and/or independent
contractors of Hawaiian for all purposes and under no circumstances shall be
deemed to be employees, agents and/or independent contractors of Reno. The
employees, agents and/or independent contractors of Reno shall be employees,
agents and/or independent contractors of Reno for all purposes and under no
circumstances shall be deemed to be employees, agents and/or independent
contractors of Hawaiian. Neither Party shall have any supervisory power or
control over any employees, agents and/or independent contractors employed by
the other Party at any time.
c. LIABILITY FOR EMPLOYEE COSTS. Each Carrier, with respect to
its own employees (hired directly or through a third party), accepts full and
exclusive liability
9
<PAGE>
for the payment of workers' compensation and/or employer's liability (including
insurance premiums where required by law) and for the payment of all taxes,
contributions or other payments for unemployment compensation, vacations, or old
age benefits, pensions and all other benefits now imposed upon employers with
respect to its employees by any government or agency thereof or any other third
party (whether measured by the wages, salaries, compensation or other
remuneration paid to such employees or otherwise) and each Carrier further
agrees to make such payment and to make and file all reports and returns, and to
do everything necessary to comply with the laws imposing such taxes,
contributions or other payments.
18. INDEMNIFICATION AND INSURANCE.
a. INDEMNIFICATION.
(i) Hawaiian hereby assumes liability for, and shall indemnify,
defend, protect, save and hold harmless Reno, its officers, directors, agents
and employees from and against any and all liabilities, claims, judgments,
damages and losses, including but not limited to, all costs, attorneys' fees
and expenses incidental thereto, of every type and nature whatsoever, including
without limitation those involving (a) death of or injury to any person
including, but not limited to, Hawaiian's officers, directors, employees and
agents, (b) loss of, damage to, or destruction of any property whatsoever,
including any loss of use therefor, and (c) trademark, servicemark or tradename
infringement, provided that such liabilities, claims, judgments, damages or
losses are caused by or arise out of any alleged acts or omissions of Hawaiian
or its officers, directors, employees or agents which are in any way connected
to the services contemplated by this Agreement. Reno shall give Hawaiian prompt
notice of any claim made or suit instituted against Reno which, if successful,
would result in indemnification of Reno hereunder, and Reno shall have the right
to compromise or participate in the defense of same to the extent of its own
interest.
(ii) Reno hereby assumes liability for, and shall indemnify,
defend, protect, save and hold harmless Hawaiian, its officers, directors,
agents and employees from and against any and all liabilities, claims,
judgments, damages and losses, including, but not limited to, all costs,
attorneys' fees and expenses incidental thereto, of every type and nature
whatsoever, including without limitation those involving (a) death of or injury
to any person including, but not limited to, Reno's officers, directors,
employees and agents, and (b) loss of, damage to, or destruction of any property
whatsoever, including any loss of use therefor, and (c) trademark, servicemark
or tradename infringement, provided that such liabilities, claims, judgments,
damages or losses are caused by or arise out of any alleged acts or omissions of
Reno or its officers, directors, employees or agents which are in any way
connected to the services contemplated by this Agreement. Hawaiian shall give
Reno prompt notice of any claim made or suit instituted against Hawaiian which,
if successful, would result in
10
<PAGE>
indemnification of Hawaiian hereunder, and Hawaiian shall have the right to
compromise or participate in the defense of same to the extent of its own
interest.
b. INSURANCE COVERAGE. Each Carrier shall, at all times during
the term of this Agreement, maintain in full force and effect, policies of
insurance as follows:
(i) Comprehensive Airline Liability insurance, including
Aircraft Third Party, Passenger, including passenger's baggage and personal
effect, Cargo and Mail Legal Liability and Premises Liability for a combined
single limit of not less than US$500,000,000 per occurrence per aircraft. In
respect of personal injury, the minimum limit shall be US $25,000,000 per
occurrence and in the aggregate.
(ii) Worker's Compensation and Occupations Disease insurance
subject to the laws of the state wherein this Agreement is being performed, with
statutory limits of liability. Such coverage shall include Employers Liability
for a combined single limit of not less than US$1,000,000.
(iii) Subject to Section 15.b.(i) above, each Carrier,
as appropriate, shall cause the policies of insurance described therein to be
duly and properly endorsed by that Carrier's insurance underwriters as follows:
(a) As to policies of insurance described in paragraphs
b.(i) and b.(ii) above:
(1) to provide that any waiver of rights of
subrogation against other parties by one party will not affect the coverage
provided thereunder with respect to the other party;
(2) to provide that the each Party's underwriters
shall waive any and all subrogation rights against the other Party, its
directors, officers, agents, employees and other authorized representatives,
except for gross negligence or willful misconduct, with regard to any breach of
warranty on the part of the other party or to provide other evidence of such
waiver or recourse against the other Party, its directors, officers, agents,
employees and other authorized representatives;
(3) to provide that each Party, its directors,
officers, agents, employees and other authorized representatives shall be
endorsed as additional insured parties thereunder, except for gross negligence
or willful misconduct; and
(4) to provide that such insurance shall be
11
<PAGE>
the primary insurance and to acknowledge that any other insurance policy or
policies of each Party shall be secondary or excess insurance.
(b) As to policies of insurance described in
paragraph b.(i) above to provide a breach of warranty clause to said policies
and
(iv) Each Party shall cause each of the insurance policies
referred to in Section 15.b.(i) to be duly and properly endorsed to provide that
said policy or policies or any part or parts thereof shall not be canceled,
terminated or materially altered, changed or amended without thirty (30) days'
prior written notice the other Party.
(v) Simultaneously with the commencement of this Agreement,
and from time to time thereafter upon request by either Party, the other Party
shall furnish to the requesting Party evidence reasonably satisfactory to the
requesting Party of the aforesaid insurance coverage and endorsements, including
certificates certifying that the aforesaid insurance and endorsements are in
full force and effect. Initially, this evidence shall be a certificate of
insurance required hereunder, each Party naming the other Party as additional
insured.
(vi) In the event either Party fail to maintain in full force
and effect any of the insurance and endorsements required in terms of these
sections, the other Party shall have the right (but not the obligation) to
procure and maintain such insurance or any part thereof. The cost of such
insurance shall be payable by the first Party to the other Party upon demand of
the other Party. The procurement of such insurance or any part thereof by the
other Party shall not discharge or excuse the first Party's obligations to
comply with the provisions of Sections 15.b.(i) and 15.b.(ii).
c. SURVIVAL RIGHTS AND OBLIGATIONS. The rights and obligations of
Section 1.a. shall survive the expiration or termination of this Agreement.
19. INFLIGHT ANNOUNCEMENTS. The operating Carrier shall make appropriate
inflight announcements to all passengers on the HA Code Shared Segments to
promote the cooperative service. Such announcements shall be jointly developed
between the Parties and approved in writing prior to their use.
20. NOTICES AND REQUESTS. Unless another address is specified in writing,
all notices and requests in connection with this Agreement shall be given in
writing and delivered at the address specified below, by certified U.S. mail,
postage prepaid, return receipt requested, and by facsimile.
If to Hawaiian: Hawaiian Airlines, Inc.
Attn: Senior Vice President-Sales & Marketing
3375 Koapaka Street, Suite G-350
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<PAGE>
Honolulu, Hawaii 96819
Telephone: 808/838-5411
Facsimile: 808/838-6738
with a copy to: Hawaiian Airlines, Inc.
Attn: General Counsel
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
Telephone: 808/835-3610
Facsimile: 808/835-3690
If to Reno: Reno Air, Inc.
Attn: Steve Sarner
Vice President Marketing and Sales
220 Edison Way
Reno, Nevada 89520
Telephone:702/829-5511
Facsimile:702/829-5754
with a copy to: Reno Air, Inc.
Attn: Robert M. Rowen
Vice President and General Counsel
220 Edison Way
Reno, Nevada 89520
Telephone: 702/686-3807
Facsimile: 702/686-3875
21. BANKRUPTCY. In the event either party shall (i) file a voluntary
petition in bankruptcy, (ii) make an assignment for the benefit of creditors of
all or substantially all of its assets, or (iii) fail to secure dismissal of an
involuntary petition or bankruptcy filed against it within sixty (60) days after
the filing thereof, then upon the occurrence of any of the said events, the
other party may immediately terminate this Agreement.
22. ASSIGNMENT.
This Agreement may not be assigned by either party without the prior
written consent of the other Party. Any attempt to do so shall render this
Agreement null and void.
23. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada.
24. DISPUTES.
Any dispute, controversy or claim arising out of or relating to this
13
<PAGE>
Agreement, or the breach thereof, shall be settled by binding arbitration in
accordance with the Arbitration Rules of the American Arbitration Association.
The Arbitrators shall be knowledge in the airline industry, and shall interpret
the agreement in accordance with the laws of the State of Nevada and the
arbitration shall take place in Los Angeles. Judgment upon any arbitral award
contemplated above may be entered in any court having jurisdiction.
25. ATTORNEYS FEES.
In the event an action (including arbitration) is brought to enforce
or construe the provisions of this agreement, the prevailing party in such
action shall be awarded reasonable costs and attorneys' fees as part of the
judgment in such action.
26. SEVERABILITY.
In case any one or more of the provisions contained herein shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall be construed as if such
invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would
result in such a material change as to cause the agreements contemplated herein
to be unreasonable.
27. FORCE MAJEURE.
Neither Party shall be liable for delays or failure in performance in
whole or in part hereunder to the extent that such delay or failure of
performance is not the result of that party's lack of reasonable diligence, if
caused by any act of God, war, strike, lockout, labor dispute, fire, act of
government, hurricane, or any other cause, whether similar or dissimilar, beyond
the control of that Party. However, the Party relying upon this provision shall
give prompt notice to the other Party of the occurrence of any event which will
result in a failure or delay in performance and such other Party may terminate
this Agreement upon five (5) days' advance notice if such delay is expected to
exceed seven (7) days.
28. TITLES AND HEADINGS.
The titles and headings of this Agreement are included for convenience
only and shall not be deemed to constitute part of this Agreement or to affect
the construction or interpretation hereof.
29. ENTIRE AGREEMENT; AMENDMENTS; WAIVER.
This Agreement constitutes the full and complete agreement of the
Parties and supersedes any other agreement, understanding or representation,
whether verbal or in writing by or between the Parties pertaining to reduced
rate shipping and reduced rate transportation. Any changes, amendments or other
modifications to this Agreement shall be in writing and executed by both Parties
hereto. The failure of any
14
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Party hereto to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way affect to validity of
this Agreement or any part hereof or the right of such party thereafter to
enforce each and every provision. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other subsequent breach.
/
/
/
/
/
/
/
/
/
/
/
/
/
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed in their name and on their behalf as of the Effective Date.
HAWAIIAN AIRLINES, INC. RENO AIR, INC.
By /s/ Peter W. Jenkins By /s/ Steve Scimer
------------------------------------- -------------------------------
Peter W. Jenkins
Its Senior Vice President Its Vice President-Marketing
Marketing & Sales
By /s/ Clarence K. Lyman By
------------------------------------- -------------------------------
Clarence K. Lyman
Its Vice President-Finance Its
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SCHEDULE 1
MARKETS OPERATED BY RENO
TO BE PUBLISHED WITH HA CODE
RNO TO HNL
----------
RNO-LAX
LAX-RNO
ABQ TO HNL
----------
ABQ-LAX
LAX-ABQ
TUS TO HNL
----------
TUS-LAX
LAX-TUS
COS TO HNL
----------
COS-LAS
LAS-COS
SJC TO HNL
----------
SJC-LAX
LAX-SJC
16
<PAGE>
SCHEDULE 2
ADMINISTRATIVE FEES
As reimbursement for administrative costs incurred pursuant to this
Agreement, Hawaiian shall invoice Reno the following administrative fee per
passenger boarded on each HA Code Shared Segment. This administrative fee is
intended to reimburse Hawaiian for administrative costs such as CRS booking
fees, ARC processing fees, Tariff filing fees and reservations costs.
1. FEE AMOUNT.
"Portions of this document have been omitted pursuant to a confidential
treatment request filed with the Securities and Exchange Commission. Such
portions have been provided separately to the Commission."
This amount will be calculated by applying the rate per passenger
boarded to the number of passengers boarded on each HA Code Shared Segment.
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SCHEDULE 3
HAWAIIAN AIRLINES/RENO AIR FREQUENT FLYER AGREEMENT
I. TERM OF AGREEMENT.
A. EARLY TERMINATION. Notwithstanding the termination language in the
Code Share Agreement, both parties must give 6 months written notice to the
other Party hereto (the "Early Termination Date") to change mileage accrual or
frequent flyer award terms.
B. AWARD ACCEPTANCE. Awards issued prior to the Early Termination Date
shall be accepted by Reno under the terms of this agreement for a period of one
year from date of issue.
II. FREQUENT FLYER MILEAGE ACCRUAL
A. HAWAIIAN GOLD+PLUS. Hawaiian Gold+Plus members shall be able to
earn Hawaiian Gold+Plus miles on Hawaiian designated flights operated by Reno
at the base rate of "Portions of this document have been omitted pursuant to
a confidential treatment request filed with the Securities and Exchange
Commission. Such portions have been provided separately to the Commission."
per mile flown. First Class passengers shall earn "Portions of this document
have been omitted pursuant to a confidential treatment request filed with the
Securities and Exchange Commission. Such portions have been provided
separately to the Commission." per mile flown.
B. AMERICAN AIRLINES AADVANTAGE. American Airlines AAdvantage members
shall be able to earn AAdvantage miles on Hawaiian designated flights
operated by Reno at the base rate of "Portions of this document have been
omitted pursuant to a confidential treatment request filed with the
Securities and Exchange Commission. Such portions have been provided
separately to the Commission." per mile flown. First Class passengers shall
earn "Portions of this document have been omitted pursuant to a confidential
treatment request filed with the Securities and Exchange Commission. Such
portions have been provided separately to the Commission." per mile flown.
C. BONUS MILES. Reno shall at its discretion be able to offer bonus
miles in the Hawaiian Gold+Plus or AAdvantage programs alone or in conjunction
with Hawaiian's bonus miles promotions.
III. FREQUENT FLYER AWARDS.
A. HAWAIIAN GOLD+PLUS. Hawaiian Gold+Plus members shall be able to
redeem round trip awards on any Hawaiian designated flight operated by Reno.
Redemption and ticketing shall be administered by Hawaiian's Airport and City
Ticket Offices. Reno shall accept the Hawaiian Gold+Plus Award ticket for
travel.
B. AMERICAN AIRLINES AADVANTAGE. Hawaiian and Reno agree that AAdvantage
members will not be able to claim AAdvantage awards on Hawaiian flights operated
by Reno.
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IV. FEES.
A. HAWAIIAN GOLD+PLUS MILES. Reno shall report each month Gold+Plus
miles earned on Hawaiian designated flights operated by Reno. Initially
there shall be no charge for miles with the exception that bonus miles
offered by Reno to stimulate Gold+Plus member traffic shall be billed at
"Portions of this document have been omitted pursuant to a confidential
treatment request filed with the Securities and Exchange Commission. Such
portions have been provided separately to the Commission." per mile.
B. HAWAIIAN GOLD+PLUS RETRO CREDIT. Hawaiian Gold+Plus Service Center
shall be responsible for verifying that a customer claiming Hawaiian Gold+Plus
miles on a Hawaiian flight operated by Reno is eligible for the miles. Retro
credit will be manually input and billed monthly by Hawaiian to Reno at the
standard rate per mile.
C. AADVANTAGE MILES. Reno shall capture, report, credit and pay for all
AAdvantage miles earned on Hawaiian flights operated by Reno. Hawaiian
Reservations will collect AAdvantage numbers for segments operated by Reno and
those numbers will be passed to Reno for reporting. They will however, be
treated as AAdvantage miles earned on Reno, not on Hawaiian.
D. AADVANTAGE RETRO CREDIT. AAdvantage Customer Service Center shall be
responsible for verifying that a customer claiming AAdvantage miles on a
Hawaiian flight operated by Reno is eligible for the miles and will bill Reno at
Reno's contract cost per mile.
E. HAWAIIAN GOLD+PLUS AWARDS. Hawaiian shall be able to book
Gold+Plus Award segments on the routes specified in Attachment B. Initially
there shall be "Portions of this document have been omitted pursuant to a
confidential treatment request filed with the Securities and Exchange
Commission. Such portions have been provided separately to the Commission."
for award segments with the exception that bonus awards on Reno offered by
Hawaiian to stimulate Gold+Plus member awards shall be billed at the Code
Share agreed prorate as if they were paid segments.
F. RATE ADJUSTMENT. Initially Reno shall not pay for Gold+Plus miles
earned on Reno flights, and Hawaiian shall not pay for Gold+Plus awards on Reno.
It is the intention of both parties to track accrual of miles and redemption of
awards monthly and to institute accrual and redemption charges or to take
balancing actions if either party at any time feels that the relationship of
accrual to redemption is unfairly out of balance. Both parties agree to
negotiate mutually acceptable accrual and redemption rates or balancing actions
within 30 days of notice by either party that the initial fee structure is not
acceptable.
V. ADMINISTRATION.
A. FREQUENT FLYER DATA COLLECTION. Hawaiian Gold+Plus and AAdvantage
members flying on Hawaiian designated flights operated by Reno shall be able to
give their frequent flyer numbers to a Hawaiian Reservation agent or to a Reno
check-in agent
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for credit. Reno shall collect the frequent flyer numbers electronically
without requiring the member to fill out or submit any form of paper.
B. ACTIVITY REPORT. By the 12th and 26th of each month, Reno shall send
to Hawaiian a list of all members earning Hawaiian Gold+Plus miles on Hawaiian
designated flights operated by Reno. The activity report shall be submitted on
diskette or transmitted electronically as a space delimited text file with the
following fields for each segment collected:
First Name 17 char alpha
Last Name 17 char alpha
Frequent Flyer ID number 7 char alphanumeric
Flight Date 6 char numeric, (YYMMDD)
HA code share flight number 4 char numeric
Hawaiian Airlines Data Processing Center
Post Office Box 30008
Honolulu, Hawaii 96820
C. DISKETTE/TAPE MARKING. The diskette/tape shall be clearly marked with
Reno's name and "Frequent Flyer Mileage Accrual" written on the diskette/tape.
D. ACCOUNT UPDATES. Hawaiian shall timely update Hawaiian Gold+Plus
members' accounts with information sent from Reno upon Hawaiian's receipt of
such information.
E. CUSTOMER SERVICE. Hawaiian Gold+Plus Service Center shall be
responsible for resolving credit discrepancies and customer service issues for
Hawaiian Gold+Plus and for communicating with AAdvantage to resolve their
customer service issues.
F. BILLING & PAYMENT. On a monthly basis, Hawaiian shall bill Reno for
all bonus miles offered by Reno to stimulate Gold+Plus member traffic on Reno
and Reno shall bill Hawaiian for all bonus award tickets offered by Hawaiian.
Payment fees shall be as detailed in Section IV.
VI. USE OF NAME AND/OR LOGO.
A. PROMOTIONAL MATERIAL. Both Reno and Hawaiian must approve promotional
material prior to release to the public. Aadvantage must approve promotional
material referencing their program.
B. LOGO LICENSE. Hawaiian grants Reno a non-exclusive, non-transferable,
20
<PAGE>
limited license to use Hawaiian's trademarks, servicemarks and trade names, but
solely in connection with the terms and obligations of this Agreement. Except
as specifically provided in Attachment C to Schedule 3, nothing herein grants
Hawaiian any right, title or interest in any trademarks of Reno Air. Hawaiian
acknowledges and agrees that the names, tradenames, trademarks, logos and other
similar marks used by Reno Air (including without limitation, the names "Reno
Air" and "Quick Escapes") are the sole property of Reno Air, and that Hawaiian
does not gain any right or interest in such names by virtue of this license.
Hawaiian shall not use the name Reno Air or any other Reno Air mark in
advertising or promotions without Reno Air's advance consent after review of the
specific advertisement or promotion.
C. LOGO USE AGREEMENT. Reno shall be required to execute the "Limited
Use of Hawaiian's Name and/or Logo" form ("Logo Use Form") attached hereto as
Attachment "A" prior to Hawaiian providing Reno with Hawaiian's logo. Failure
to timely provide Hawaiian with the executed Logo Use Form by Reno shall be
construed as a material breach of this Agreement.
D. THIRD PARTY LOGO USE. Third Party Vendors shall be required to
execute the Logo Use Form attached hereto as Attachment "A" prior to Reno
providing the Third Party Vendor with Hawaiian's logo. Failure to timely
provide Hawaiian with the executed Logo Use Form by the Third Party Vendor shall
be construed as a material breach of this Agreement. Reno shall inform
Hawaiian's Marketing Department with a list of Third Party Vendors who possess
Hawaiian's logo for reproduction and who have properly executed the Logo Use
Form.
VII. NOTICES AND REQUESTS. Unless another address is specified in writing, all
notices and requests specifically related to frequent flyer programs shall be
given in writing and delivered at the address specified in the Code Share
Agreement and copied to the below address, by certified U.S. mail, postage
prepaid, return receipt requested.
Hawaiian Airlines, Inc.
Attn: Marketing Programs
Box 30008
Honolulu, Hawaii 96820-0008
Telephone: 808/838-6750
Facsimile: 808/838-6746
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<PAGE>
SCHEDULE 3 - ATTACHMENT A
LIMITED USE OF HAWAIIAN'S NAME AND/OR LOGO
Hawaiian Airlines, Inc., a Hawaii corporation ("Hawaiian") grants RENO
AIR, INC., a Nevada corporation ("Reno") a non-exclusive, non-transferable,
limited license to use Hawaiian's trademarks, servicemarks and trade names, but
solely in connection with these agreed upon terms and obligations. Hawaiian's
Marketing Department shall provide Reno with the necessary artwork to effect
this contract.
Hawaiian shall have the right to review and approve or disapprove, prior to
printing, the portion of any and all artwork generated by Reno (or at its
direction or authorization) that uses any trademark, servicemark or trade name
of Hawaiian. Reno shall provide the printed materials to Hawaiian in a timely
manner and Hawaiian's Marketing Department shall review and approve or
disapprove such materials in writing.
Upon completion of the production of the materials, Reno shall destroy any
and all screens and/or films developed for the assignment, unless otherwise
instructed by Hawaiian.
GOVERNING LAW AND DISPUTES. This agreement shall be governed by and
construed in accordance with the laws of the State of Nevada. Any dispute,
controversy or claim arising out of or relating to this agreement, or the breach
thereof, shall be settled by immediate binding arbitration in accordance with
the Arbitration Rules of the American Arbitration Association. The Arbitrators
shall interpret the agreement in accordance with the laws of the State of
Nevada.
Reno agrees to the terms and conditions stated above.
By
------------------------------ -----------------------------
Date
Its
By
------------------------------ -----------------------------
Date
Its
22
<PAGE>
SCHEDULE 3 - ATTACHMENT B
HAWAIIAN GOLD+PLUS AWARDS ON RENO AIR
RNO TO HNL
----------
RNO-LAX
LAX-RNO
ABQ TO HNL
----------
ABQ-LAX
LAX-ABQ
TUS TO HNL
----------
TUS-LAX
LAX-TUS
COS TO HNL
----------
COS-LAS
LAS-COS
SJC TO HNL
----------
SJC-LAX
LAX-SJC
23
<PAGE>
SCHEDULE 3 - ATTACHMENT C
LIMITED USE OF RENO'S NAME AND/OR LOGO
Reno Air, Inc., a Nevada corporation ("Reno") grants Hawaiian Airlines,
Inc., a Hawaii corporation ("Hawaii") a non-exclusive, non-transferable, limited
license to use Reno's trademarks, servicemarks and trade names, but solely in
connection with these agreed upon terms and obligations. Reno's Marketing
Department shall provide Hawaiian with the necessary artwork to effect this
contract.
Reno shall have the right to review and approve or disapprove, prior to
printing, the portion of any and all artwork generated by Hawaiian (or at its
direction or authorization) that uses any trademark, servicemark or trade name
of Reno. Hawaiian shall provide the printed materials to Reno in a timely
manner and Reno's Marketing Department shall review and approve or disapprove
such materials in writing.
Upon completion of the production of the materials, Hawaiian shall destroy
any and all screens and/or films developed for the assignment, unless otherwise
instructed by Reno.
GOVERNING LAW AND DISPUTES. This agreement shall be governed by and
construed in accordance with the laws of the State of Nevada. Any dispute,
controversy or claim arising out of or relating to this agreement, or the breach
thereof, shall be settled by immediate binding arbitration in accordance with
the Arbitration Rules of the American Arbitration Association. The Arbitrators
shall interpret the agreement in accordance with the laws of the State of
Nevada.
Hawaiian agrees to the terms and conditions stated above.
By
----------------------------- ----------------------------
Date
Its
By
----------------------------- ----------------------------
Date
Its
24
<PAGE>
Exhibit 10(m)
SOFTWARE DEVELOPMENT,
MAINTENANCE, AND LICENSE AGREEMENT
This Software Development, Maintenance, and License Agreement (the
"Agreement") is entered into as of the 31st day of December 1996, (the
"Effective Date"), by and between SABRE Decision Technologies, a division of
The SABRE Group, Inc. ("SDT") and Hawaiian Airlines, Inc. ("Hawaiian").
RECITALS
A. Hawaiian desires to obtain a Yield Management system by acquiring
via license SDT's yield management Software known as AIRMAX VN-TM-.
B. Hawaiian desires to obtain from SDT consulting and maintenance
services in connection with the Software.
C. SDT desires to provide such Software and services pursuant to the
terms and conditions stated in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
DEFINITIONS
"ACCEPTANCE" shall have the meaning identified in Article 1.03.
"CPI" shall refer to the Consumer Price Index which is the U.S.
Department of Labor all cities average reflecting an inflation index.
"DELIVERY" shall mean the date upon which SDT delivers the Software to
Hawaiian for installation and testing.
"DEVELOPMENT(S)" shall mean any work which is based on the Software as
Delivered including, but not limited to, updates, enhancements, revisions,
modifications, reproductions, adaptations, versions or expansions performed
by SDT on behalf of Hawaiian.
"DOCUMENTATION" shall mean the documentation accompanying the Software
as described in Article 1.04.
"HAWAIIAN'S AFFILIATES" shall mean (i) an entity that owns, directly or
indirectly, more than 50% of the issued and outstanding voting equity of
Hawaiian ("Hawaiian Parent"), (ii) an entity that Hawaiian's Parent owns,
directly or indirectly, more than 50% of the issued and
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outstanding voting equity, (iii) an entity that Hawaiian owns, directly or
indirectly, more than 50% of the issued and outstanding voting equity, and/or
(iv) with the advance written approval of SDT, which shall not be
unreasonably withheld, any third party organization that Hawaiian or
Hawaiian's Affiliate may choose to operate revenue management for the
internal operations of Hawaiian and/or Hawaiian's Affiliate.
"PER DIEM" shall mean SDT's standard charge to compensate its employees
and/or contractors for meals, lodging, and incidental expenses incurred in
connection with the performance of any services hereunder outside the
Dallas/Fort Worth area. The Per Diem amounts will be adjusted from time to
time according to the rates as published by the US government for federal
employees traveling on government business in the particular city where the
work is performed ("OCONUS").
"PROJECT" shall mean the development and implementation of the Software
as described in Exhibits A, and C (if Hawaiian chooses to exercise the
option granted in Article 3.01(b)) and any amendments thereto.
"SOFTWARE" shall mean AIRMAX VN-TM- (which shall contain the
functionality as more fully described in Exhibits A and C (if Hawaiian
chooses to exercise the option granted in Article 3.01(b))) and the Group
Evaluation Module (more fully described in Exhibit A), including any trade
secrets, algorithms, ideas, concepts, methods, techniques, and solution
methodologies contained therein. The term Software shall also include
Documentation.
"STANDARD RATES" shall mean during 1997, the following SDT hourly
billing rates:
JOB TITLE RATES (USD)
--------- -----------
Technical Writer 87.50
Consultant 117.50
Senior Consultant 155.00
Principal 190.00
Senior Principal 235.00
Vice President 462.50
Such rates are subject to increase by no more than the increase in the
CPI established on January 1st of each year of this Agreement or 3% per annum
whichever is less.
"TRANSPORTATION EXPENSES" shall mean confirmed first class tickets from
LAX-HNL-LAX when space is available at the time of booking; otherwise,
tickets shall be coach class, for all SDT representatives in connection with
this Agreement which will be provided to SDT by Hawaiian without cost to SDT,
as well as reasonable local transportation expenses and air transportation
expenses for
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travel between DFW and the nearest Hawaiian U.S. gateway (LAX) incurred by
SDT in connection with this Agreement. SDT shall make all reasonable efforts
to plan trips in advance to secure the lowest fares possible.
ARTICLE I
IMPLEMENTATION
1.01 SITE SURVEY. SDT shall conduct a site survey ("Site Survey") for
the purpose of developing a formal implementation plan. The Site Survey will
be conducted by an SDT representative in Hawaii and will require meetings
with Hawaiian groups necessary for SDT's information gathering.
1.02 DELIVERY AND CUSTOMIZATION. SDT shall Deliver the Software to the
Site (as defined below) pursuant to the time frames contained in the
Implementation Plan defined in Exhibit D except as varied by mutual written
agreement between Hawaiian and SDT ("Delivery"). The detailed implementation
plan, which shall be consistent with Exhibit D, shall be developed jointly by
Hawaiian and SDT and shall fully define the scope of all SDT deliverables and
all Hawaiian dependencies. The Software shall conform in all material
respects with the functionality described in Exhibits A and C (if Hawaiian
chooses to exercise the Group Tracking option granted in Article 3.01(b)). A
detailed Functional Specification describing the Group Tracking module will
be made available to Hawaiian well before the beginning of the 18-month
option exercise deadline defined in Article 3.01(b).
1.03 INSTALLATION, TESTING AND ACCEPTANCE.
(a) After Delivery, SDT shall install system Software, third party
software and hardware at the Site ("Installation") pursuant to the time
frames contained in the Implementation Plan included in Exhibit D. The
hardware and third party software configuration provided by SDT in the Site
Survey report is based on SDT's experience in installing AIRMAX at numerous
sites and represents SDT's best estimate for the configuration suitable for
Hawaiian given the current operating conditions. SDT provides no warranty of
the hardware and third party software configuration and assumes no liability
therefore. Hawaiian shall provide all reasonable and necessary assistance as
requested by SDT during such Installation.
(b) After Installation, SDT shall perform systems testing to determine
material conformity of the Software with the functionality described in Exhibit
A. Hawaiian shall provide all reasonable and necessary assistance as requested
by SDT during such systems testing.
(c) Hawaiian shall perform user acceptance testing of the Software at the
Site (as identified in Article 2.04) for a thirty (30) calendar day period,
pursuant
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to mutually agreed upon test scripts and in accordance with Exhibit B, to
confirm material conformity of the Software with the functionality identified
in Exhibit A. SDT shall provide twenty (20) working days of assistance to
Hawaiian during such user acceptance testing. Hawaiian shall notify SDT
immediately of any material non-conformities between the Software and the
functionality described in Exhibit A. SDT shall make corrections in any such
material non-conformities of the Software to the functionality identified in
Exhibit A and re-submit such previously non-conforming portion for
re-testing. Acceptance shall take place when the Software materially conforms
to the functionality identified in Exhibit A or when the Software is put in
productive use, whichever is earlier ("Acceptance"). Suspension of the
Acceptance Testing period due to a significant number of Level A problems
shall mean that SDT shall re-deliver the Software at which time the user
acceptance period will recommence for a period of thirty (30) calendar days
with SDT support on-site of twenty (20) working days.
1.04 DOCUMENTATION. SDT shall also provide a reasonable number of
copies of the following documentation: System Administration and Operations
Guide, Training Guide, and User Guide. At Hawaiian's request, SDT shall
provide electronic copies of the same documentation in Macintosh Framemaker
format. If Hawaiian requests further detailed documentation, SDT shall
provide same on mutually agreeable terms and conditions. The Documentation
and updates thereto will conform in all material respects with the
Specifications.
1.05 TRAINING. SDT shall provide training and education at SDT's
expense, excluding Transportation Expenses and Per Diem, in Honolulu, Hawaii
which will be paid by Hawaiian, to no more than sixteen (16) Hawaiian
employees (eight (8) per formal training class) in the use of the Software as
follows: three (3) weeks of user training consisting of two, one (1) week
formal training classes and one (1) week of informal training, two (2) days
of systems training for Hawaiian's IT staff, and a one day Yield Management
Seminar.
1.06 PROJECT MANAGEMENT. SDT shall be responsible for allocation of its
personnel and resources in the provision of services hereunder. All SDT
personnel assigned to the Project shall be subject to Hawaiian's reasonable
approval and will comply with Hawaiian's rules and regulations while on-site.
SDT shall, at SDT's expense, furnish Hawaiian with the qualifications of all
personnel and contractors SDT assigns to the Project, including security related
information that may be deemed essential by Hawaiian.
1.07 HAWAIIAN DEPENDENCIES. Hawaiian will provide, at its own expense,
telecommunications access to Hawaiian's current operational systems
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and communications environment. Hawaiian will obtain system software,
hardware items and all third party software as described in the configuration
list to be created during the Site Survey. Hawaiian will be responsible for
executing with the applicable vendor (prior to delivery of the third party
software and hardware), and abiding by the terms of, any applicable third
party license agreements associated with the third-party software items
listed in the configuration list to be created during the Site Survey. SDT
will assist Hawaiian in coordinating support from the vendors of hardware and
third party software including participating in joint telephone calls.
Hawaiian shall be responsible for (1) maintaining all third party software up
to the latest version level used by SDT and (2) maintaining all hardware.
Hawaiian shall prepare the Site according to SDT's and manufacturer's
specifications. Hawaiian shall provide SDT, upon request, all necessary
data, resources, personnel and facilities to support SDT's services provided
hereunder. Any delay in the provision of such support which increases costs
or efforts of SDT hereunder, shall result in commensurably increased charges
to Hawaiian.
ARTICLE II
SOFTWARE LICENSE
2.01 GRANT. SDT hereby grants to Hawaiian, subject to the terms and
provisions of this Agreement and Hawaiian remaining in compliance with its
obligations therein, a limited, non-exclusive, non-transferable, perpetual
right and license to use the Software executable code and Documentation (for
Hawaiian's internal operations and for no other purpose) strictly in
accordance with the terms of this Agreement. Such license shall also enable
Hawaiian's Affiliates to use the Software and Documentation for their own
internal operations (provided that any independent third party organization
(referred to in Clause (iv) of the definition of "Hawaiian Affiliates" above)
may only use the Software for the internal operations of Hawaiian and
Hawaiian Affiliates within the scope of Clauses (i), (ii) or (iii) of such
"Hawaiian Affiliates" definition and not it's own internal operations)
including the control of Hawaiian designated inventory under any code share
arrangements with other airlines. Hawaiian shall ensure that any such third
parties have signed a confidentiality obligation with equivalent terms to
those that apply to Hawaiian under this Agreement. Notwithstanding the
foregoing SDT shall have the right to concurrently terminate the right and
license granted herein in connection with SDT's termination of this Agreement
for Hawaiian's breach pursuant to Article 7.02 hereof and Hawaiian shall
immediately return all Software and other proprietary information to SDT.
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2.02 SOFTWARE COPIES. Hawaiian may make copies of the Software for its
own internal use on Hawaiian workstations connected to the main operating
system, and for back-up data security purposes, but Hawaiian must inform SDT
of how many copies have been made. Hawaiian shall reproduce and include on
each copy and on each partial copy of the Software any copyright notice and
proprietary rights legend contained on or in the Software, as such notice and
legend appear on or in the original.
2.03 MODIFICATIONS. Hawaiian shall make no modifications, alterations,
developments or derivative works of the Software. Hawaiian shall not reverse
engineer, disassemble, compile, reverse compile or decompile the Software.
Hawaiian is permitted to supply data to the Software, modify data used by the
Software and extract data from the Software.
2.04 SITE. SDT shall install the Software at a single site at the
offices of Hawaiian Airlines, Inc. in Hawaii, (the "Site"). Hawaiian may
move the Software to a new Site at any location in the United States at
Hawaiian's discretion and expense.
2.05 EXPORT OF SOFTWARE. Any re-export of the Software by Hawaiian must
be done in compliance with U.S. Department of Commerce regulations.
2.06 BLANK.
2.07 ESCROW AGREEMENT. Hawaiian may, at any time and at its option,
require establishment of a source code escrow. All costs associated with the
creation, administration, access and update of the source code escrow which
are charged by the third party escrow agent shall be borne by Hawaiian.
Within sixty (60) days of the date of this Agreement Hawaiian and SDT shall
(a) select a mutually acceptable independent third party which would serve as
the source code escrow agent, and (b) agree upon the form and content of the
escrow agreement, required deliveries and all other reasonably related
matters. In the event the parties cannot agree within one hundred and twenty
(120) days, either party may submit this to binding arbitration.
2.08 NO SUBLICENSE. Except with respect to an Hawaiian Affiliate,
Hawaiian shall not transfer, assign, or sublicense this Agreement or the
license of the Software or any component thereof to any person or entity,
whether by operation of law or otherwise, without the prior written consent
of SDT.
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ARTICLE III
FEES AND CHARGES
3.01 LICENSE FEES.
(a) Hawaiian agrees to pay to SDT license fees in the amount of Four
Hundred Ninety Five Thousand United States Dollars (US$495,000), as per
payment schedule in Article 3.06(a).
(b) GROUP TRACKING OPTION. Hawaiian will have the option, upon prior
written notice to SDT, to acquire a perpetual executable code license for the
AIRMAX-TM- Group Tracking Module, as more fully described in Exhibit C, and
Hawaiian will pay SDT additional license fees in the amount of Fifty Thousand
United States Dollars (US$50,000) and additional Implementation Fees in the
amount of Five Thousand United States Dollars (US$5,000), as per the payment
schedule in Article 3.06(d). This option shall become available twelve (12)
months from the Effective Date of this Agreement and must be exercised within
thirty (30) months from the Effective Date of this Agreement. If the
Software is not delivered for any reason by the original Delivery date
identified in the Implementation Plan (Exhibit D), the thirty (30) month
option exercise deadline shall be automatically extended by the number of
days between the original Delivery date identified in the Implementation Plan
and the date of actual Delivery. Upon receipt of written notice that
Hawaiian intends to exercise this option, SDT and Hawaiian shall develop a
reasonable implementation plan specific to the Group Tracking Module.
3.02 IMPLEMENTATION FEES. Hawaiian shall pay SDT for implementation
efforts (excluding implementation of the connection of the Software to the
revenue accounting system) the firm fixed price of Three Hundred Eighty
Thousand United States Dollars (US$380,000) as per payment schedule outlined
in Article 3.06(b). SDT would be pleased to negotiate with Hawaiian a
mutually agreed implementation fee for the connection of the Software to the
Hawaiian revenue accounting system.
3.03 MAINTENANCE FEES. For Maintenance Services, Hawaiian shall pay
SDT, in advance, a monthly maintenance fee of Three Thousand Seven Hundred
Fifty United States Dollars (US$3,750) ("Maintenance Fee") commencing at the
end of the Warranty Period (defined in Article 8.04 below). The Maintenance
Fee is subject to adjustment from time to time by no more than 3% per annum
or the increase in the U.S. Department of Labor Consumer Price Index, all
cities average ("C.P.I."), from the CPI established as of January 1, 1997,
whichever is less.
3.04 TRAVEL EXPENSES. Hawaiian shall pay SDT, in addition to all other
amounts identified herein, Per Diem charges, as defined in the Definitions
section of this Agreement. The Per Diem amounts will be adjusted from time to
time
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according to the rates as published by the US government for federal
employees traveling on government business in the particular city where the
work is performed ("OCONUS").Additionally, Hawaiian shall pay Transportation
Expenses as described in the Definitions section of this Agreement.
3.05 DEVELOPMENT ENVIRONMENT. SDT shall be permitted to use the
hardware and third party software described in the configuration list to be
created during the Site Survey, which shall be shipped to the offices of SDT
in Dallas/Fort Worth initially for the purpose of performing the development
work. Thereafter, Hawaiian shall arrange shipping of such hardware and third
party software to its own Site at Hawaiian's expense.
3.06 PAYMENT SCHEDULE.
(a) License fees shall be due and payable in sixty (60) equal monthly
payments of Eight Thousand Two Hundred Fifty United States Dollars
(US$8,250), with the first such payment due upon Acceptance.
(b) Implementation/Customization fees shall be due and payable as
follows:
Thirty three percent (33%) upon execution of this Agreement,
Thirty four percent (34%) upon Delivery of the Software,
Sixteen percent (16%) upon Acceptance of the Software and
Seventeen percent (17%) upon end of the Warranty Period..
(c) All fees, expenses and charges hereunder shall be payable upon the
issue of a proper and accurate invoice to Hawaiian through American Airlines,
Inc. ("American") via American's IATA Clearing House account, and Hawaiian
will pay such invoices through such account pursuant to the procedures of the
IATA Clearing House. Any request by Hawaiian for back-up documentation
relating to a particular SDT invoice must be received by SDT within thirty
(30) days of receipt of such invoice by Hawaiian.
(d) In the event Hawaiian exercises such option within the time period
identified in Article 3.01(b), Group Tracking Option License and additional
Implementation Fees shall be due and payable as follows:
Thirty three percent (33%) upon SDT's receipt of written notice,
Thirty four percent (34%) upon Delivery of the Group Tracking Module, and
Thirty three percent (33%) upon Acceptance of the Group Tracking Module.
3.07 TAXES. Hawaiian shall reimburse SDT as additional fees for (i) all
taxes, duties and like charges, including any interest and penalties assessed
by the taxing authorities, imposed on SDT arising from this Agreement, except
U.S. income taxes, (ii) any additional taxes, including U.S. income taxes,
imposed on
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SDT as a result of any reimbursement of taxes under clause (i) or (ii) of
this Article 3.07.
3.08 INCIDENTAL EXPENSES. Hawaiian agrees to pay the actual costs
incurred by SDT for any incidental expenses (other than those identified
herein) incurred for consulting, professional and technical services
requested by and rendered to Hawaiian, provided that such expenditure has
been approved by Hawaiian in advance. All such expenses shall be incurred
only upon the prior mutual written agreement of the parties. Upon Hawaiian's
request, SDT shall furnish receipts for all items over Twenty Five Dollars
(US$25).
3.09 SITE SURVEY FEES. The Site Survey fees, excluding Per Diem amounts
and Transportation Expenses, are included in the implementation fees
identified in Article 3.02.
3.10 INTEREST. Interest on late payments shall accrue at the rate of
18% per annum or the highest rate permitted by Texas law, whichever is less,
from the date such amount is due until finally paid.
ARTICLE IV
MAINTENANCE AND SUPPORT OF SOFTWARE
4.01 GENERAL. SDT shall provide maintenance and support services
relating to the Software pursuant to the terms contained herein. Hawaiian
will have access to SDT's Help Desk Supported Full Software Maintenance and
Support Service (the "Maintenance and Support Services") in exchange for the
Maintenance and Support fees as defined in Article 3.01, plus Per Diems and
Transportation Expenses, commencing at the end of the Warranty Period, and
continuing for the License Term, after which, Maintenance and Support
Services shall be separately negotiated. SDT will provide Maintenance and
Support Services for each year of the License Term, as follows:
4.02 CORRECTION OR REPLACEMENT. SDT shall provide (a) 300 labor hours
per year in Year 1 of the Maintenance and Support Services, (b) 250 labor
hours per year in Year 2 of the Maintenance and Support Services, (c) 200
labor hours per year in Year 3 of the Maintenance and Support Services, (d)
200 labor hours per year in Year 4 of the Maintenance and Support Services,
and (e) 150 labor hours per year in Year 5 of the Maintenance and Support
Services, to provide the services necessary to remedy any programming error
which is attributable to SDT and which is applicable to only the Hawaiian
implementation or operation of the Software. Such correction or replacement
services shall commence promptly after
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Hawaiian has identified and notified SDT of any such error in accordance with
SDT's reporting procedures. Labor hours allocated for the year shall be
utilized only for requests received by SDT no less than 60 days before the
end of the applicable contract year except those hours applied to correcting
problems with the Software. Any remaining labor hours not so utilized shall
be available for use in the immediately following year of the Maintenance and
Support Services only. Additional labor hours will be provided at SDT's
Standard Rates plus Per Diem amounts and Transportation Expenses. Labor
hours provided to correct errors identified during the Warranty Period shall
not be deducted from the hours provided herein. Labor hours may also be
applied to, among other things:
(i) General consulting and technical services,
(ii) Additional training, and
(iii) Integration of Updates/Enhancements
4.03 SDT HELP DESK. (a) Hawaiian shall have access to a Help Desk
located at SDT offices in Dallas/Fort Worth twenty-four hours a day seven
days a week. The Help Desk will be responsible for facilitating error
correction or replacement services as identified in Article 4.02. A Help
Desk Coordinator will be responsible for logging and tracking such problems
after they have been reported by Hawaiian, contacting the Hawaiian Technical
Coordinator (as defined below) to confirm receipt of the problem report and
jointly determining the priority level of the problem. Priority levels will
be determined as follows:
(i) Level "A" problems. These are problems with Software
functionality which are significant in terms of impact to the
productive use of the Software by Hawaiian. Hawaiian will be
advised at least every twenty-four (24) hours by the Help Desk as
to the status of efforts to resolve the Level A problem. One or
more members of SDT senior management will be informed on a daily
basis of all Level A problems.
(ii) Level "B" problems. These are Software problems which
are not significant to the productive use of the Software. These
problems will be addressed within 5 normal working days after any
Level A problem has been resolved.
(iii) Level "C" problems. These are low priority problems
that are planned to be addressed in the next scheduled Software
update.
(b) SDT Help Desk will provide Hawaiian a monthly report showing a
summary of all problems reported during the previous month, and a status of
all outstanding problem logs.
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4.04 SOFTWARE UPDATES AND ENHANCEMENTS. SDT will promptly notify Hawaiian
of the availability of all Software Updates and Enhancements. Hawaiian shall
have the right to obtain access to Software Updates developed by SDT free of
charge. At Hawaiian's election, SDT shall provide and install at least one
update per year to Hawaiian during the term of the Maintenance and Support
Services. Hawaiian shall use the latest Updates of the Software in order to
continue to receive Support and Maintenance Services. Hawaiian shall also have
the right to review Software Enhancements (executable code only) developed by
SDT. Enhancements will be available to Hawaiian no later than any other actual
or prospective customer of SDT. Pricing of each Enhancement to Hawaiian shall
be at a level at least as favorable to that offered to any other current or
prospective user of the Software. For the purposes of this Article 4.04, (a)
"Updates" shall mean Software versions produced to correct errors or "bugs" or
to accommodate upgraded versions of operating environments, and (b)
"Enhancements" shall mean Software versions produced which add material new
functionality to existing Software. Updates, Enhancements and corrections
obtained by Hawaiian herein shall be governed by the terms of the Agreement and
shall be included within the term "Software" for all purposes. All Updates and
Enhancements will fully support and not diminish any customized features and
functionality that SDT is developing for Hawaiian as part of this Agreement.
4.05 RESPONSIBILITIES OF HAWAIIAN. Hawaiian agrees to:
(a) Inform SDT in writing of any modifications made by Hawaiian to the
hardware or operating software configuration which may affect the Software.
Hawaiian shall not make any modifications to the Software.
(b) During normal Hawaiian business hours provide on-site, a technical
coordinator trained in Software administration, operations and preventative
maintenance procedures (the "Technical Coordinator").
(c) Promptly communicate to SDT all Software malfunctions and errors by
telephoning or by telecopying a Problem Report from Hawaiian's Technical
Coordinator. Prior to the communication, the Technical Coordinator shall (as
needed) coordinate with the Software user, hardware and operating system
vendors and third party software vendors, and the qualified LAN administrator
to confirm the problem as originating from the Software.
(d) Be responsible for maintaining a procedure for data files and
program backups, reconstruction of lost or altered files, data, or programs,
and for actually reconstructing any lost or altered files, data or programs.
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(e) Provide SDT with sufficient support and test time on Hawaiian's
computer system to duplicate the problem, certify that the problem is with
the Software, and certify that the problem has been corrected.
(f) Maintain for the term of the Maintenance and Support Services, two
(2) modems (make and model of the modems to be determined by SDT) and
associated dial-up telephone lines for access solely to the Software by SDT
to Hawaiian's computer environment. Hawaiian shall be responsible for the
maintenance and use of such equipment and associated telephone line use
charges.
(g) Implement all Updates provided by SDT.
(h) Comply with any other reasonable request of SDT in connection with
the performance of services hereunder.
4.06 MODIFICATIONS. SDT may, at its discretion, with no additional
charge to Hawaiian, make modifications to the Software. Such Modifications
shall not cause the Software to deviate adversely from the Functional
Specification provided in Exhibit A, jeopardize the functionality of the
Software or coverage of the Software under this Article IV. The timing for
installation and testing of such modifications shall be within the reasonable
discretion of Hawaiian.
4.07 USER GROUP. Hawaiian shall obtain automatic membership in SDT's
AIRMAX-TM- User Group that will meet regularly with the specific objective of
exchanging ideas relating to AIRMAX-TM-. The costs associated with
participation at User Group meetings, and other related costs, will be borne
by the individual members of the User Group.
4.08 REMEDY. In the event, after Acceptance, that SDT notifies Hawaiian
that it will be unable to correct an error or defect, Hawaiian may at its
option, and as its sole and exclusive remedy, terminate the Maintenance and
Support Services. Upon such termination, neither party shall have any
obligation or liability to the other in connection with such Maintenance and
Support Services, except that SDT shall reimburse Hawaiian for all License
Fees and Maintenance and Support Services Fees actually paid up to the
effective date of termination hereunder, Implementation Fees actually paid
up to the effective date of termination hereunder depreciated in a straight
line over 5 years, and the depreciated value (in a straight line over 5
years) of any hardware and third party software purchased at the written
direction of SDT expressly to operate the Software that Hawaiian and SDT
mutually agree cannot reasonably be re-used by Hawaiian. Hawaiian agrees
that SDT takes the ownership of such hardware and software licenses, all of
which will be promptly shipped to SDT, and all third party
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license agreements and warranties from the corresponding manufacturers will
be transferred or assigned to SDT.
4.09 PERFORMANCE. In the event that SDT fails for any reason other
than Force Majeure or other than through the fault of Hawaiian, its agents,
assigns, Affiliates or third parties under the control of Hawaiian or in
contractual or fiduciary relationship with Hawaiian, to maintain a system
uptime of 90% measured over a full calendar year, commencing at the end of
Acceptance, Hawaiian shall have the right to receive credit SDT Labor Hours
as its sole and exclusive remedy. Ten (10) Labor Hour credits shall be
awarded to Hawaiian by SDT for every one (1) percentage point below the 90%
threshold. Such hours will be added to the Total hours awarded annually
under Article IV, Maintenance and Support of Software, and will be utilized
as provided in Article 4.02.
ARTICLE V
MARKETING RIGHTS
5.01 OWNERSHIP. SDT shall retain all ownership rights in the Software
including any Development, including, without limitation, all copyrights and
other intellectual property rights.
5.02 MARKETING RIGHTS. SDT shall have the exclusive right to market,
sell, distribute and license all or any portion of the Software, including
any Development to third parties.
5.03 DEMONSTRATION. Upon prior notice to and consent of Hawaiian, such
consent may be withheld at Hawaiian's sole discretion, SDT may demonstrate
the Software at the Site, at a mutually agreeable time to any SDT client or
prospective client. The parties shall take all reasonable measures to
protect the confidentiality of Hawaiian data during such demonstration.
5.04 PROMOTIONS. SDT may disclose to prospective or existing clients
that Hawaiian has licensed the Software from SDT and that SDT is providing
consulting services to Hawaiian. Promptly after execution of this Agreement,
the parties shall issue a mutually acceptable press release relating to this
Agreement.
5.05 OTHER PRODUCTS. Except for Enhancements within the scope of
Section 5.06 and subject to SDT's confidentiality obligations in Article VI,
nothing herein shall prohibit, or in any way limit, SDT's rights to use,
develop or market existing or subsequently developed or modified software,
technology, ideas, inventions or concepts, or to use its expertise, skills or
knowledge acquired in the performance of services rendered under this
Agreement in any current or subsequent endeavors. Hawaiian shall have no
right or interest in such endeavors.
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5.06 HAWAIIAN SPONSORED ENHANCEMENTS. In the event of future
Enhancements requested by Hawaiian and developed by SDT explicitly for
Hawaiian, Hawaiian will pay SDT Standard Rates and will obtain ownership of
that Enhancement, but will only use it for the internal use of Hawaiian or
Hawaiian Affiliates only.
ARTICLE VI
CONFIDENTIALITY
6.01 SDT CONFIDENTIAL INFORMATION. Hawaiian, its agents, assigns,
Affiliates or third parties under the control of Hawaiian or in contractual
or fiduciary relationship with Hawaiian (Hawaiian shall ensure that such
independent third parties have signed a confidentialty obligation with
equivalent terms to those applied to Hawaiian under this Agreement) shall
maintain the confidentiality of the Software and the Documentation, using the
highest degree of care that Hawaiian uses to protect its own most sensitive
information. Except as specifically permitted in this Agreement, Hawaiian
shall not use, sell, transfer, publish, disclose, display, or otherwise make
available to others the Software, Documentation, or any derivative,
enhancement or modification thereto, or any information or material relating
to the Software, Documentation or any derivative, enhancement or modification
thereto ("SDT Confidential Information") at any time before or after the
termination of this Agreement. Hawaiian shall limit access to the Software
and Documentation to employees with a need to know.
6.02 HAWAIIAN CONFIDENTIAL INFORMATION. Except in connection with a
mutually agreeable demonstration as identified in Article 5.03, SDT shall
maintain the confidentiality of all confidential and proprietary data
relating to Hawaiian's revenue management operations ("Hawaiian Confidential
Information"), obtained through the provision of services under this
Agreement, using the highest degree of care that SDT uses to protect its own
most sensitive information. Except as specifically permitted in this
Agreement, SDT shall not use, sell, transfer, publish, disclose, display, or
otherwise make available to others the Hawaiian Confidential Information at
any time before or after the termination of this Agreement. SDT shall limit
access to the Hawaiian Confidential Information to employees with a need to
know.
6.03 EXCEPTIONS. Notwithstanding the foregoing, either party may
release the Confidential Information of the other, upon prior notification to
the other, that is subject to subpoena, court order, or other governmental
order or regulation.
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6.04 ASSISTANCE. Each party shall use its best efforts in assisting the
other in identifying and preventing any unauthorized use or disclosure of SDT
Confidential Information or Hawaiian Confidential Information, as applicable.
ARTICLE VII
DEFAULT, TERMINATION AND REMEDIES
7.01 PRE-ACCEPTANCE DEFAULT. To the extent that SDT fails through its
own fault to meet the Delivery date identified in the Implementation Plan
defined in Exhibit D or other Delivery date which has been mutually agreed by
Hawaiian and SDT in writing ("Failure"), and if such Failure continues for a
period of thirty (30) days after such date Hawaiian shall optionally (at
Hawaiian's discretion) have the right, as its sole and exclusive remedy
(other than the remedy set forth below), to receive credit as follows (with
Hawaiian entitled to choose at any time between credits for Labor Hours,
License Fees or some combination thereof): (a) SDT Labor Hours, 7.5 Labor
Hour credits shall be awarded to Hawaiian by SDT for every one (1) day of
Failure between thirty one (31) days and sixty (60) days, and 12.5 Labor Hour
credits shall be awarded for every one (1) day of Failure between sixty one
(61) days and ninety (90) days, and 17.5 Labor Hour credits shall be awarded
for every one (1) day of Failure between ninety one (91) days and one hundred
and nineteen (119) days (such hours will be added to the Total hours awarded
annually under Article IV, Maintenance and Support of Software, and will be
utilized as provided in Article 4.02 or (b) SDT license fees, One Thousand
One Hundred and Twenty Five United States Dollars (US$1,125) license fee
credits shall be awarded to Hawaiian by SDT for every one (1) day of Failure
between thirty one (31) days and sixty (60) days, and One Thousand Eight
Hundred and Seventy Five United States Dollars (US$1,875) license fee credits
shall be awarded for every one (1) day of Failure between sixty one (61) days
and ninety (90) days, and Two Thousand Six Hundred and Twenty Five United
States Dollars (US$2,625) license fee credits shall be awarded for every one
(1) day of Failure between ninety one (91) days and one hundred and nineteen
(119) days and if such Delivery Failure continues for a total period of one
hundred and twenty (120) days after such date Hawaiian shall have the right,
as its sole and exclusive remedy, to terminate this Agreement. In the event
of such termination, neither party shall have any liability to one another
for any loss or expense, except that SDT shall reimburse Hawaiian for all
Implementation Fees actually paid up to the
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effective date of termination hereunder and the amounts actually paid for any
hardware and third party software purchased at the written direction of SDT
expressly to operate the Software that Hawaiian and SDT mutually agree cannot
reasonably be re-used by Hawaiian. Hawaiian agrees that SDT takes the
ownership of such hardware and third party software which will be promptly
shipped to SDT.
7.02 OTHER BREACHES. Subject to the terms of Article 7.01, in the event
that either party breaches any other material term or condition of this
Agreement, and such breach continues for a period of sixty (60) days after
notice from the other party, (except for (a) a breach regarding failure to
pay amounts due, in which case the period to cure shall be thirty (30) days,
(b) a breach regarding a Level A problem under Maintenance and Support, in
which case the period to cure shall be fifteen (15) days, and (c)) a breach
regarding a Level B problem under Maintenance and Support, in which case the
period to cure shall be thirty (30) days) the other party may terminate this
Agreement immediately upon notice.
7.03 RETURN OF MATERIALS. In the event of termination of this
Agreement, Hawaiian shall promptly return to SDT the Confidential
Information, including the Software and all copies thereof, and all
Documentation, notes and materials related thereto. Similarly, SDT shall
return to Hawaiian all Confidential Information provided by Hawaiian. For
the avoidance of doubt the Option as identified in Article 3.01(b) shall
become null and void in the event of termination.
ARTICLE VIII
LIMITATION OF WARRANTIES
8.01 The parties understand that, considering the current state of the
art, it is not possible to exclude technical software problems, to
manufacture faultless software and to cure all defects. SDT does not warrant
the absence of any defects, operation without any interruption, the
possibility of combining the Software with other programs, or special
requirements which are not expressly contained in Exhibit A. No specific
characteristics or functions are to be provided except as set forth in
Exhibit A. The sole obligation of SDT, with respect to the services and
products supplied to Hawaiian hereunder, shall be to furnish them in
accordance with the terms herein. Nothing in this Article 8.01 shall be
construed to limit Hawaiian's express remedies under Article 7.02.
8.02 If, during the Warranty Period (defined below), the Software is not
in substantial conformity with the functionality identified in Exhibit A
("error"),
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written notice thereof shall be given to SDT promptly, but not later than ten
(10) days after discovery of the error. All documents required for error
identification must be attached. At SDT's request, additional error-related
information shall be supplied.
8.03 Provided that the above procedures relating to error reporting and
documentation have been complied with, and SDT is able to reproduce the
error, SDT will remove the error, supply a modified or improved software
version suited for the contractually contemplated purpose or make available a
by-pass solution. The priority levels for errors identified during the
Warranty Period shall be determined as follows:
(i) Level "A" problems. These are problems with Software
functionality which are significant in terms of impact to the
productive use of the Software by Hawaiian. Hawaiian will be
advised at least every twenty-four (24) hours by the Help Desk as
to the status of efforts to resolve the Level A problem. One or
more members of SDT senior management will be informed on a daily
basis of all Level A problems.
(ii) Level "B" problems. These are Software problems, which
are not significant to the productive use of the Software. These
problems will be addressed in a reasonable time after any Level A
problem has been resolved.
(iii) Level "C" problems. These are low priority problems
that are planned to be addressed in the next scheduled Software
update.
8.04 The above warranty obligations shall continue for a period of three
(3) months commencing from the date of Acceptance ("Warranty Period") or
whilst a Level A problem remains to be corrected up to a maximum of six (6)
months, whichever is the later date..
8.05 Any warranty by SDT shall not apply to any loss or damage which is
caused by Hawaiian, its customers or third parties and for any breakdown and
error due to improper use, improper installation, natural wear and tear,
improper handling and maintenance (unless done by SDT), improper operating
means, modifications of the Software by Hawaiian, any tampering with the
Software or chemical, electro-chemical or electric influences, accident,
fire, water and the like. Investigation and error correction under these
circumstances shall be performed at SDT's Standard Rates plus Per Diem
amounts and Transportation Expenses.
8.06 If, at any time, Hawaiian elects to install the hardware and third
party software described in Exhibit E ("Recommended List"), SDT warrants that
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the Recommended List together with the Software will adequately handle
Hawaiian's passenger and flight departure volumes as of the date hereof.
8.07 EXCEPT AS PROVIDED IN THIS ARTICLE VIII, THE SOFTWARE AND ALL
SERVICES HEREUNDER ARE PROVIDED "AS IS" WITH ALL THEIR FAULTS AND WITHOUT ANY
WARRANTY, CONDITION OR REPRESENTATION WHATSOEVER. EXCEPT AS PROVIDED IN THIS
ARTICLE VIII, SDT DISCLAIMS ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS OF
THE SOFTWARE AND SERVICES PROVIDED BY SDT HEREUNDER, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTIES, CONDITIONS OR REPRESENTATIONS OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE SOFTWARE AND
SERVICES OR THOSE IMPLIED WARRANTIES, CONDITIONS OR REPRESENTATIONS ARISING
OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING, USAGE OR TRADE OR ANY OTHER
WARRANTY, CONDITION OR REPRESENTATION. NO REPRESENTATION OR OTHER
AFFIRMATION OF FACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING
CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE OF THE SOFTWARE OR SERVICES
SHALL BE DEEMED A WARRANTY, CONDITION OR REPRESENTATION FOR ANY PURPOSE OR
GIVE RISE TO ANY LIABILITY OF SDT WHATSOEVER.
ARTICLE IX
LIMITATION OF LIABILITY
(A) EXCEPT FOR LIABILITY FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT,
AND LIABILITY FOR PERSONAL INJURY AND/OR TANGIBLE PERSONAL PROPERTY DAMAGE,
HAWAIIAN WAIVES ALL LIABILITY OF SDT FROM NEGLIGENCE, WHETHER CONTRIBUTORY,
SOLE OR JOINT.
(B) UNDER NO CIRCUMSTANCES SHALL SDT BE LIABLE TO HAWAIIAN FOR
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
LOST DATA, PROFITS OR REVENUES.
(C) EXCEPT IN CASES OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR
INTELLECTUAL PROPERTY INFRINGEMENT PURSUANT TO ARTICLE XIV HEREOF, AND EXCEPT
FOR PERSONAL INJURY AND TANGIBLE PERSONAL PROPERTY DAMAGE, THE MAXIMUM
LIABILITY OF SDT SHALL NOT IN ANY CASE EXCEED THE AMOUNT ACTUALLY PAID TO SDT
HEREUNDER FOR THE PRODUCT OR SERVICE WHICH FORMS THE
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BASIS OF THE CLAIM, PROVIDED THAT FOR A CLAIM UNDER ARTICLE 7.01 THE MAXIMUM
LIABILITY OF SDT SHALL ADDITIONALLY INCLUDE THE AMOUNTS ACTUALLY PAID FOR ANY
HARDWARE AND THIRD PARTY SOFTWARE AS APPLICABLE.
ARTICLE X
DISPUTE RESOLUTION AND GOVERNING LAW
10.01 All disputes between the parties in connection with this Agreement
shall first be discussed in good faith between the parties to try to find an
amicable solution.
10.02 If no further agreement has been reached after such negotiations,
then either party, upon thirty (30) days notice to the other party
identifying with particularity those areas in dispute, may submit such
dispute to binding arbitration. Any such arbitration shall be held at Los
Angeles, California, under the Rules of Commercial Arbitration of the
American Arbitration Association and shall be conducted in English. The
arbitration panel shall consist of three arbitrators. The parties shall each
nominate an arbitrator within thirty (30) days of the notice submitting the
dispute and the nominated arbitrators shall agree on the third arbitrator
within thirty (30) days after the both of them have been nominated. Each
party shall be entitled to notice and conduct no more than four (4)
depositions (with a deposition pursuant to a Corporate Designee Notice
counting as one (1) deposition) and to propound and serve no more than one
(1) set (each) of Interrogatories, Requests for Admission and Document
Production Requests.
10.03 The parties agree that the award of the arbitration shall be the
sole and exclusive remedy between the parties regarding any claims,
counterclaims, issues or accounting presented or pled to the arbitrators;
that the award must be consistent with the terms and conditions of this
Agreement; that it shall be made and shall be payable in accordance with the
award in U.S. Dollars free of any tax, deduction or offset.
10.04 This Agreement shall be deemed to have been entered into and shall
be construed and interpreted in accordance with the laws of the State of
Texas without regard to its conflict of laws rules.
10.05 Nothing contained herein shall limit either party from obtaining
injunctions or seeking other equitable relief from an appropriate court.
10.06 ATTORNEYS' FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or any provision hereof, or
for a
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declaration or rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all costs and
expenses, including without limitation its reasonable attorneys' fees and
disbursements incurred by the prevailing party in connection with such action
or proceeding.
ARTICLE XI
NOTICES
All notices required to be made under this Agreement shall be written in
English, effective upon receipt or transmission, and delivered via U.S. Mail
or in person or sent by telecopy transmission to the following persons:
If to SDT:
President of SABRE
Decision Technologies
MD 4462
P.O. Box 619616
Dallas/Fort Worth Airport, TX 75261-9616
Fax: (817) 967-9763
With a copy to:
Managing Director
Airline Management Services, Inc.
P.O. Box 619616
Dallas/Fort Worth Airport, Texas 75261-9616
Fax: (817) 963-1924
If to Hawaiian:
Rae A. Capps, Esq.
Corporate Secretary
Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819
Fax: (808) 835-3690
With a copy to:
Glenn Taniguchi
Vice President
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Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819
Fax: (808) 838 6738
ARTICLE XII
NO SOLICITATION
Neither party shall solicit for employment or retain the services of the
employees, former employees, or contractors of the other party who provided
services in connection with this Agreement from the date of this Agreement
for a period of two (2) years from the date of Acceptance.
ARTICLE XIII
FORCE MAJEURE
Each party shall be relieved of the obligations hereunder to the extent
that its performance is delayed or prevented by any cause beyond its
reasonable control, including without limitation, acts of God, public
enemies, war, civil disorder, fire, flood, explosion, failure of
communication facilities, labor disputes or strikes, or any acts or orders of
any governmental authority.
ARTICLE XIV
INFRINGEMENT INDEMNITY
14.01 SDT will defend, at its expense, any action brought against
Hawaiian and/or Hawaiian's employees, officers, directors, Affiliates, agents
and contractors, to the extent that such action is based on a claim of direct
infringement of any duly issued United States patent, or infringement of any
copyright established in the United States resulting from the supply to
Hawaiian by SDT, or the use by Hawaiian, of the Software as Delivered
("Infringement"). SDT shall pay all damages and costs finally awarded
against Hawaiian and/or Hawaiian's employees, officers, directors,
Affiliates, agents and contractors which are attributable to such
Infringement, provided that SDT is promptly informed in writing and furnished
a copy of each communication, notice or other action relating to the alleged
Infringement and is given authority, information and assistance necessary to
defend or settle such claim. SDT's indemnity obligation shall be
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limited to the extent that Hawaiian's and/or Hawaiian's employees, officers,
directors, Affiliates, agents and contractors failure to perform the above
has prejudiced SDT's position regarding such Infringement.
14.02 Should the Software as Delivered by SDT hereunder become, or in
SDT's opinion be likely to become the subject of a claim of Infringement,
then SDT may, at its option and expense; (a) procure for Hawaiian the right
to use the Software free of any liability for Infringement; (b) replace or
modify the Software with a non-Infringing substitute otherwise conforming in
all material respects with the functionality identified in Exhibit A, or (c)
repurchase the Software for its depreciated value, and thereby be released
from all liabilities with respect thereto. SDT shall not be obligated to
defend, or be liable for costs and damages, if the Infringement arises out of
(x) use of the Software in combination with or in addition to the equipment
or computer programs not in the Implementation Plan, (y) a breach of this
Agreement by Hawaiian or modification of the Software by Hawaiian or a third
party which was not approved by SDT. The indemnity obligation stated in this
Article XV with respect to SDT shall reciprocally apply to Hawaiian in the
event of a claim arising under circumstances covered under (x)-(y).
14.03 Except as expressly provided for in this Article XIV, Hawaiian
shall defend, indemnify and hold harmless SDT from any and all claims or
causes of action arising out of Hawaiian's or Hawaiian's employees, officers,
directors, Affiliates, agents or contractors use of the Software, and pay any
and all damages and expenses (including reasonable attorneys fees incurred by
SDT) in connection therewith, regardless of the circumstances of the claim or
damage, excluding those circumstances arising out of SDT's negligence, gross
negligence or wilful misconduct.
ARTICLE XV
MISCELLANEOUS
This Agreement constitutes the full and complete agreement of the
parties and supersedes any prior written or oral agreement between the
parties with respect to the subject matter hereof and may be modified only by
a written agreement signed by both authorized officers of both parties. All
obligations
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hereunder are subject to receipt of all necessary governmental approvals. In
the event any one or more of the provisions of this Agreement shall be
determined to be invalid, unenforceable or illegal, such determination shall
not affect any other provisions of this Agreement, and the invalid,
unenforceable or illegal provision shall be automatically amended to the
extent necessary to make it valid, enforceable and legal. Any rights and
obligations which expressly or by their nature are intended to survive and
continue after termination of this Agreement, including, without limitation
Article V, VI, IX, X and XIV shall so survive and bind the parties, their
successors and assigns. The parties warrant and represent that they are
authorized to enter into this Agreement and that this Agreement is binding
and enforceable against them. The Exhibits to this Agreement are incorporated
herein and are a part of this Agreement as if they were set forth in full
herein. This Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall constitute one and the same
document. Facsimiled signatures shall be treated as originals. Each party
agrees to
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promptly execute and deliver such documents and promptly to do such other
acts as are reasonably requested by the other party in order to effectuate
the purposes and intent of this Agreement.
HAWAIIAN AIRLINES, INC. THE SABRE GROUP, INC.
/s/ John L. Garibaldi /s/ Thomas M. Cook
- ---------------------------------- -----------------------------------
By: John L. Garibaldi By: Thomas M. Cook
---------------------------
Title: Executive Vice President Title: President, SABRE
--------------------------- Decision Technologies
and Chief Financial Officer
Date: 31 DEC 96
--------------------------- Date:
----------------------------
/s/ Glenn G. Taniguchi
- ----------------------------------
By: Glenn G. Taniguchi
---------------------------
Title: Vice President
---------------------------
Date: 31 DEC 96
---------------------------
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Exhibit A - Functional Specification
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Exhibit B - User Acceptance Test Plan
26
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Exhibit C - AIRMAX-TM-. Group Tracking Module
27
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Exhibit D - Implementation Plan
28
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Exhibit E - Recommended List - Hardware and Third Party Software
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Exhibit 10(n)
HAWAIIAN AIRLINES, INC.
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
SECTION 1. PURPOSE OF PLAN. The purpose of this 1996 Nonemployee
Director Stock Option Plan (this "Plan") of Hawaiian Airlines, Inc., a Hawaii
corporation (the "Company"), is to encourage ownership in the Company by
directors, to strengthen the ability of the Company to attract and retain the
services of experienced and knowledgeable individuals as directors, and to
provide those individuals with an incentive to work for the best interests of
the Company and its shareholders.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN. Any member of the Board of
Directors of the Company (the "Board") who is not an employee of the Company (a
"Nonemployee Director") shall be eligible to receive Options (as hereinafter
defined) pursuant to this Plan.
SECTION 3. TERMS OF OPTIONS.
(a) As used herein, an "Option" shall mean an option to purchase
one share of the Company's Common Stock, par value $.01 per share (a "Common
Share"), subject to adjustment pursuant to the terms hereof. Each Option
shall have the following additional terms:
(i) it shall be exercisable in full six months and one day
after the date on which such Option is granted (the "Date of Grant");
PROVIDED, HOWEVER, that any Option that is not then otherwise exercisable
shall become exercisable immediately prior to a reorganization, merger or
consolidation that would cause such Option to terminate pursuant to Section
3(d)(ii);
(ii) it shall expire upon the first to occur of (A) the
second anniversary of the date upon which the optionee shall cease to be a
Nonemployee Director, or (B) the tenth anniversary of the Date of Grant of
such Option; and
(iii) it shall have an exercise price equal to the greater of
(A) the Fair Market Value on the Date of Grant of such Option or (B) the
par value of a Common Share on the Date of Grant.
(b) Payment of the exercise price of any Option and the optionee's
tax withholding obligation, if any, with respect to such Option shall be made in
full in cash concurrently with the exercise of such Option; PROVIDED, HOWEVER,
that the payment of such exercise price and/or tax withholding may instead be
made, in whole or in part, by any one or more of the following:
<PAGE>
(i) the delivery of previously owned shares of capital stock
of the Company, provided that the Company is not then prohibited from
purchasing or acquiring shares of its capital stock or such other property;
or
(ii) the delivery, concurrently with such exercise and in
accordance with Section 220.3(e)(4) of Regulation T promulgated under the
Securities Exchange Act of 1934, as amended, of a properly executed
exercise notice for such Option and irrevocable instructions to a broker
promptly to deliver to the Company a specified dollar amount of the
proceeds of a sale of or a loan secured by the Common Shares issuable
upon exercise of such Option.
(c) The "Fair Market Value" of a Common Share or other security on
any date (the "Determination Date") shall be equal to the closing price per
Common Share or unit of such other security on the business day immediately
preceding the Determination Date on the American Stock Exchange (or such
other exchange or interdealer quotation system on which the Common Shares or
such other security are then listed or quoted) or, if no closing price was so
reported for such immediately preceding business day, the closing price for
the next preceding business day for which a closing price was so reported,
or, if no closing price was so reported for any of the 30 business days
immediately preceding the Determination Date, the average of the closing bid
and asked prices per Common Share or unit of such other security on the
business day immediately preceding the Determination Date as furnished by a
professional market maker, selected by the Board, making a market in the
Common Shares or such other security.
(d) All outstanding Options shall terminate upon the first to occur
of the following:
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose of
which is to change the Company's domicile solely within the United States)
as a result of which the outstanding securities of the class then subject
to such outstanding Options are exchanged for or converted into cash,
property and/or securities not issued by the Company, unless such
reorganization, merger or consolidation shall have been affirmatively
recommended to the shareholders of the Company by the Board and the terms
of such reorganization, merger or consolidation shall provide that such
Options shall continue in effect thereafter and shall be exercisable to
acquire the number and type of securities or other consideration to which
the Nonemployee Directors would have been entitled had they exercised such
Options immediately prior to such reorganization, merger or consolidation;
or
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(iii) the sale of all or substantially all of the property
and assets of the Company.
(e) Each Option shall be nontransferable by the optionee other than
by will or the laws of descent and distribution, and shall be exercisable
during the optionee's lifetime only by the optionee or the optionee's
guardian or legal representative.
(f) Options are not intended to qualify as "Incentive Stock
Options."
SECTION 4. AWARDS. From time to time the Board may grant to any
Nonemployee Director such number of Options as the Board may determine. Each
grant of Options hereunder shall be evidenced by an agreement between the
Company and the recipient of such Options.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) The aggregate number of Common Shares issued and issuable
pursuant to all Options granted under this Plan shall not exceed 500,000
subject to adjustment as provided in Section 8 hereof.
(b) For purposes of Section 5(a) hereof, the aggregate number of
Common Shares issued and issuable pursuant to all Options granted under this
Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such
time pursuant to the exercise of Options, other than Common Shares that
were subsequently reacquired by the Company pursuant to the terms and
conditions of Options and with respect to which the holder thereof received
no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable
prior to such time pursuant to the exercise of Options but that were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such exercise or as payment of the recipient's
tax withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares issuable at or
after such time pursuant to Options granted under this Plan prior to such
time and not exercised as of such time.
SECTION 6. DURATION OF PLAN. Options shall not be granted under
this Plan after November 1, 2006. Although Common Shares may be issued after
November 1, 2006 pursuant to the exercise of Options granted prior to such
date, no Common Shares shall be issued under this Plan after November 1, 2016.
3
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SECTION 7. ADMINISTRATION OF PLAN. This Plan shall be administered
by the Board. Subject to the provisions of this Plan, the Board shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(a) adopt, amend and rescind rules and regulations relating to this
Plan;
(b) determine the terms and conditions of the Options, other than
the terms and conditions specified in Section 3 hereof;
(c) determine whether, and the extent to which, adjustments are
required pursuant to Section 8 hereof; and
(d) interpret and construe this Plan and the terms and conditions
of all Options granted hereunder.
SECTION 8. ADJUSTMENTS. If the outstanding securities of the class
then subject to this Plan are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of securities, or
if cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, restructuring, reclassification,
dividend (other than a regular, quarterly cash dividend) or other
distribution, stock split, reverse stock split or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction or this Plan shall provide otherwise,
the Board shall make appropriate and proportionate adjustments in (a) the
number and type of shares or other securities that may be acquired pursuant
to Options theretofore granted under this Plan and (b) the maximum number and
type of shares or other securities that may be issued pursuant to Options
thereafter granted under this Plan as provided in Section 5 hereof.
SECTION 9. AMENDMENT AND TERMINATION OF PLAN. The Board may amend
or terminate this Plan at any time and in any manner, provided that no such
amendment or termination shall deprive the recipient of any Option
theretofore granted under this Plan, without the consent of such recipient,
of any of his or her rights thereunder or with respect thereto.
SECTION 10. EFFECTIVE DATE OF PLAN. This Plan shall be effective as
of November 1, 1996, the date upon which it was approved by the Board.
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Exhibit 10(o)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), effective as of May 1, 1996
("Effective Date") is entered by and between John L. Garibaldi ("Employee") and
Hawaiian Airlines, Inc. ("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the Employee
is willing to accept such employment on such terms and conditions,
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER OF THE COMPANY. The Company does hereby employ, engage, and hire the
Employee as Executive Vice President and Chief Financial Officer of the Company
and the Employee does hereby accept and agree to such hiring, engagement, and
employment. The Employee's duties during the Employment Period (defined below)
shall be the executive, managerial and reporting duties set forth on EXHIBIT A
hereto and such other duties as the Board of Directors and the Chief Executive
Officer of the Company shall from time to time prescribe and as provided in the
Bylaws of the Company. The Employee shall devote his full time, energy, and
skill to the performance of his duties for the Company and for the benefit of
the Company, reasonable vacations authorized by the Company's Board of Directors
and reasonable absences because of illness excepted. Furthermore, the Employee
shall exercise due diligence and care in the performance of his duties to the
Company under this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement ("Term") shall
commence on the Effective Date and shall continue for a period of eighteen (18)
months; provided, however, that on the first day of each calendar month
commencing one month following the Effective Date, the Term shall be extended
one additional month unless either party shall have given written notice to the
other that it does not wish to extend the Term. The period of time commencing
on the Effective Date and ending on the expiration date of the Term, or, if
earlier, the date of termination of the Employee's employment ("Termination
Date") under this or any successor agreement shall be referred to as the
"Employment Period."
3. COMPENSATION.
a) BASE SALARY. The Company shall pay the Employee, and the
Employee agrees to accept from the Company in full payment for his services to
the Company, a base salary at the rate of Two Hundred Thirty Thousand U.S.
Dollars ($230,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as the Employee and the Company
shall agree. Employee's Base Salary shall be reviewed on a calendar year basis,
at least annually by the Company and
<PAGE>
Garibaldi Employment Agreement
Page 2
may be increased as determined by the Company's Board of Directors in its
sole and absolute discretion. In addition to the foregoing and in
consideration of Employee entering into this Agreement, Employee shall
receive an initial bonus of Thirty Thousand U.S. Dollars ($30,000.00),
payable in two equal installments of Fifteen Thousand U.S. Dollars
($15,000.00) (the "Installments"). The first Installment will be paid
immediately upon joining the Company. The second Installment shall be paid
immediately following the sixth month of employment with the Company.
b) PERFORMANCE BONUS-BOARD OF DIRECTORS' DISCRETION. Employee
shall be eligible to receive an annual performance bonus. Any such bonus
awarded to the Employee shall be payable in the amount, in the manner, and at
the time determined by the Company's Board of Directors in its sole and absolute
discretion, such discretion to include a review of the Company's actual
performance and comparison to the Company's business plan(s).
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit of
its executive employees, and Employee shall be entitled to receive such other
fringe benefits as may be granted to him from time to time by the Company's
Board of Directors.
a) BENEFIT PLANS. Employee shall be entitled to participate in
any benefit plans relating to stock options, stock purchases, pension, thrift,
profit sharing, life and disability insurance, medical coverage, executive
medical coverage, education, or other retirement or employee benefits available
to other executive employees of the Company, subject to any restrictions
(including waiting periods) specified in such plans.
b) AUTOMOBILE. The Company shall provide Employee with a
automobile allowance of $600.00 per month.
c) CLUB DUES. The Company shall pay all dues and similar
charges (other than initiation fees) for one combination social and golf club
(Waialae Country Club), one business meal club (The Pacific Club) and one health
or fitness club.
d) TRAVEL BENEFITS. Employee and his spouse shall be entitled
to travel benefits on Company flights (but not charter flights) at the PS2F/PS2Y
category. Employee's dependents shall be entitled to travel benefits on Company
flights (but not charter flights) at the SA2F/SA1Y category. Employee and his
dependents shall be entitled to travel benefits on other airlines at the sole
discretion of such airlines, at a comparable level to that provided to other
Company executive officers.
e) 1996 STOCK INCENTIVE PLAN. Employee shall be granted
100,000 options under the Company's 1996 Incentive Stock Plan. The exercise
price will be set at the time of the grant. The vesting period and other terms
will be determined by the Compensation Committee.
<PAGE>
Garibaldi Employment Agreement
Page 3
f) EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN. Subject to
the applicable waiting periods, Employee will be included in the Company's
Executive Long-Term Disability Insurance Plan, as it may be modified from time
to time, at the Company's expense.
g) BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly received in
accordance with Company policies, incurred by Employee on behalf of the Company.
5. CONFIDENTIAL INFORMATION. Employee recognizes that by reason of
his employment by and service to the Company he will occupy a position of trust
with respect to business and technical information of a secret or confidential
nature which is the property of the Company which will be imparted to him from
time to time in the course of the performance of his duties hereunder. Employee
acknowledges that such information is a valuable and unique asset of the Company
and agrees that he shall not, during or after the Term of this Agreement, use or
disclose directly or indirectly any confidential information of the Company to
any person, except that Employee may use and disclose to authorized personnel of
the Company such confidential information as is reasonably appropriate in the
course of the performance of his duties hereunder. Confidential information of
the Company shall include all information and knowledge of any nature and in any
form relating to the Company including but not limited to, business plans;
development projects; computer software and related documentation and materials;
designs, practices, processes, methods, know-how and other facts relating to the
business of the Company; advertising, promotions, financial matters, sales and
profit figures, customers or customer lists. Confidential information shall not
include any information that is or shall become publicly known through no fault
of the Employee and any information received in good faith from a third party
who has the right to disclose such information and who has not received such
information, either directly or indirectly, from the Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
a) DEATH. If the Employee dies while employed by the Company,
his employment shall immediately terminate. The Company's obligation to pay the
Employee's Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall receive benefits in
accordance with the Company's retirement, insurance, and other applicable
programs and plans then in effect.
b) DISABILITY. If, as a result of Employee's mental or
physical incapacity, Employee shall be unable to perform the services for the
Company contemplated by this Agreement in the manner in which he previously
performed them during an aggregate of one hundred twenty (120) business days in
any consecutive seven (7) month period ("Disability"), Employee's employment may
be terminated by the Company for Disability. During any period prior to such
termination during which Employee is absent from the full-time performance of
his duties with the Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the commencement of such
period of Disability. Any such payments made to the
<PAGE>
Garibaldi Employment Agreement
Page 4
Employee shall be reduced by amounts received from disability insurance
obtained or provided by the Company, and by the amounts of any benefits
payable to Employee, with respect to such period, under the Company's
Executive Long-Term Disability Plan. Subsequent to the termination provided
for in this Section 6(b), Employee's benefits shall be determined under the
Company's retirement, insurance, and other compensation programs then in
effect in accordance with the terms of such programs.
c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate Employee's employment under this Agreement for "Cause" at any time
prior to expiration of the Term, only upon the occurrence of any one or more of
the following events:
(i) The material breach of this Agreement by Employee,
including without limitation, repeated willful neglect of Employee's duties as
set forth on EXHIBIT A hereto, Employee's material lack of diligence and
attention in performing services as provided in this Agreement, or Employee's
repeated willful failure (other than any such failure resulting from the
termination of the Employee's employment for death, disability, retirement or
good reason, as provided elsewhere in this Agreement) to implement or adhere to
policies established by, or directives of, the Company's Board of Directors.
(ii) Conduct of a criminal nature that may have an adverse
impact on the Company's reputation and standing in the community; or
(iii) Fraudulent conduct in connection with the business
affairs of the Company, regardless of whether said conduct is designed to
defraud the Company or others.
In the event of termination for cause or resignation by the
Employee without good reason, the Company's obligation to pay Employee's Base
Salary for any periods after the Termination Date shall cease as of the
Termination Date. If Employee's employment is terminated for cause, Employee's
employment may be terminated immediately without any advance written notice.
d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall
have the right to terminate this Agreement prior to the expiration of the Term,
at any time, without cause. In the event the Company shall so elect to
terminate this Agreement, the Employee shall receive compensation pursuant to
the provisions of Section 7 hereof.
e) TERMINATION BY THE EMPLOYEE FOR GOOD REASON. The Employee
shall have the right to terminate this Agreement for good reason. For purposes
of this Agreement, "good reason" shall mean the occurrence, without the
Employee's prior written consent, of any one or more of the following events:
(i) The assignment to the Employee of any duties that are
materially inconsistent with, or reflect a material continuing reduction of the
powers and
<PAGE>
Garibaldi Employment Agreement
Page 5
responsibilities, or a change of the Employee's reporting responsibilities,
or a material improper intervention by the Company's Board of Directors in
the Employee's ability to materially perform the duties and responsibilities
set forth on EXHIBIT A hereto;
(ii) The Company's material breach of any of the provisions
of this Agreement, or a material change in the conditions of Employee's
employment (E.G. including, without limitation, a failure by the Company to
provide the Employee with incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs in effect as of the
Effective Date or as provided to other Company executive officers, etc); and
(iii) The relocation of the Company's principal executive
officers to a location outside of the Honolulu area or the Company's requiring
the Employee to be based anywhere other than the Company's principal executive
offices, except for travel on Company business to an extent substantially
consistent with the Employee's position and responsibilities.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for good reason, during which 30-day period
the Company shall have the right to cure the circumstances giving rise to the
good reason stated in such notice. In the event of termination for good
reason, the Employee shall receive compensation pursuant to the provisions of
Section 7 hereof.
f) RETIREMENT. The Employee may terminate this Agreement on
account of retirement. For purposes of this Agreement, retirement shall have
the same meaning as provided for in the Company's defined benefit plan covering
Employee. Employee shall provide ____ months notice to the Company of
Employee's intent to terminate this Agreement on account of retirement. The
Employee shall not be entitled to any further payments of compensation or other
benefits provided under Section 3 of this Agreement after the Termination Date,
except for any amounts earned and any accrued but unpaid retirement benefit
payments due the Employee from any Company sponsored plan.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE
OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall be
terminated (i) by act of the Company other than for cause, or (ii) by the
Employee for good reason, the Employee shall be entitled to the following
benefits:
a) PAYMENT OF UNPAID BASE SALARY. The Company shall immediately
pay the Employee any portion of the Employee's Base salary accrued, but not
paid, prior to the Termination Date.
b) CONTINUED PAYMENT OF BASE SALARY. The Employee shall
continue to be paid the Base Salary that would have been payable to the Employee
pursuant to this Agreement had the Employee continued to be employed for the
eighteen months (18) months immediately following the Termination Date (such
Base Salary for
<PAGE>
Garibaldi Employment Agreement
Page 6
such period being equal to the Employee's Base Salary in effect as of the
Termination Date); and (ii) an amount equal to the bonus payments that would
have been payable to the Employee pursuant to this Agreement had his annual
bonus for each year, or portion thereof, of the eighteen (18) months
immediately following the Termination Date been equal to the greater of (A)
the total of any performance bonus or bonuses paid to the Employee pursuant
to Section 3(b) in the fiscal year of the Company ended immediately prior to
the fiscal year in which the Termination Date occurs, and (B) the average of
the annual performance bonuses (excluding the signing bonus and any special
bonus not based on performance) paid to him by the Company with respect to
the three (or, if less, the number of years the Employee has been employed
with the Company) fiscal years ended immediately prior to the fiscal year in
which the Termination Date occurs.
c) CONTINUATION OF FRINGE BENEFITS. The Company shall continue
to provide the Employee with all Fringe Benefits set forth in Section 4
throughout the remaining eighteen (18) months, as if the Employee's employment
under the Agreement had not been terminated. If, as the result of terminating
of Employee's employment, Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any one or more of the
Company's benefit plans, the Company shall continue to provide the Employee and
his eligible dependents or beneficiaries with benefits at a level at least
equivalent to the level of benefits for which the Employee and his dependents
and beneficiaries were eligible under such plans immediately prior to the
Termination Date.
d) STOCK OPTIONS. Notwithstanding any provision in any
applicable Company benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights, restricted stock
awards, stock purchases, pensions, thrift, profit sharing, or other retirement
or employee benefits) to the contrary, all rights to such benefits previously
granted to Employee shall become immediately fully vested and exercisable as of
the Termination Date and shall remain exercisable for a period thereafter of one
(1) year. The provisions of this Section 7(d) shall supersede, insofar as
concerns Employee, any such plans or agreements of the Company referred to above
as of the Effective Date.
e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO BENEFITS
UNDER AGREEMENT. The Employee shall not be required in any way to mitigate the
amount of any payment provided for in this Section 7, including, but not limited
to, by seeking other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by the Employee as
the result of employment with another employer after the Termination Date, or
otherwise. Except as set forth in this Section 7, following a termination
governed by this Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except as may be
separately negotiated by the parties and approved by the Board of Directors of
the Company in writing in conjunction with the termination of Employee's
employment under this Section 7.
<PAGE>
Garibaldi Employment Agreement
Page 7
8. NONCOMPETITION PROVISIONS.
a) RIGHT TO COMPANY MATERIALS. Employee agrees that all
styles, designs, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Materials") used, prepared, or made
available to Employee, shall be and shall remain the property of the Company.
Upon the termination of employment or the expiration of this Agreement, all
Company Materials shall be returned immediately to the Company, and Employee
shall not make or retain any copies thereof.
b) ANTISOLICITATION. Employee promises and agrees that during
the term of this Agreement he will not influence or attempt to influence
customers or suppliers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity then
in competition with the business of the Company, or any subsidiary or affiliate
of the Company.
c) SOLICITING EMPLOYEES. During the term of this Agreement and
for the eighteen (18) month period commencing on the Termination Date, Employee
promises and agrees that he will not directly or indirectly solicit any of the
Company's employees to work for any business, individual, partnership, firm,
corporation, or other entity then in competition in Hawaii with the business of
the Company or any subsidiary or affiliate of the Company.
9. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right
to terminate this Agreement for good reason if at any time within ninety (90)
days after completion of (i) a merger of the Company with any other corporation
as a result of which the shareholders of the Company immediately prior to such
merger fail to win at least a majority of the voting securities of the surviving
corporation in such merger immediately after the merger, and members of the
Board of Directors of the Company, elected by the shareholders of the Company or
by a majority of the directors of the Company who were elected by the
stockholders of the Company, fail to constitute a majority of the Board of
Directors of the surviving corporation following completion of the merger, or
(ii) a sale of all or substantially all of the assets of the Company to another
corporation, if (x) a majority of the directors of the ultimate parent of the
purchase immediately following the purchase and sale were not members of the
Board of Directors of the Company immediately prior to such sale, AND (y)
shareholders of the Company immediately prior to such sale do not hold a
majority of the voting securities of the ultimate parent of the purchasing
corporation following completion of such sale; or (iii) a purchase by another
person, firm or corporation of a majority of the voting securities of the
Company, AND following completion of such sale, members of the Board of
Directors of the Company elected by the shareholders of the Company (other than
such purchaser) fail to constitute a majority of the Board of Directors of the
Company.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile, first class mail,
certified or registered with return receipt requested, or express mail and shall
be deemed to have been
<PAGE>
Garibaldi Employment Agreement
Page 8
duly given three (3) days after mailing or twenty-four (24) hours after
transmission of a facsimile to the respective persons named below:
If to Company: Hawaiian Airlines, Inc.
Attn: President and Chief Executive Officer
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
with a copy to General Counsel
If to Employee: John L. Garibaldi
2078 Meakanu Place
Honolulu, Hawaii 96821
Either party may change such party's address for notices by notice
duly given pursuant hereto.
11. ATTORNEYS FEES. In the event judicial or quasi-judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall each bear their respective
attorneys' fees and costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the parties
with respect to employment or with respect to the compensation of the Employee
by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the express provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under
and in accordance with the laws of the State of Hawaii.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope and may be
modified only in wnting. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
<PAGE>
Garibaldi Employment Agreement
Page 9
16. WAIVER; MODIFICATION; Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed
by each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that
violate such statute or public policy shall be stricken. All portions of
this Agreement that do not violate any statute or public policy shall
continue in full force and effect. Further, any court order striking any
portion of is Agreement shall modify the stricken terms as narrowly as
possible to give as much effect as possible to the intentions of the parties
under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless to the maximum extent permitted by Section 415-5 of the Hawaii
Business Corporation Act and the Restated Articles of Incorporation of the
Company, as amended.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto signed
this Agreement, as of the date first above written.
By: /s/ Bruce R. Nobles
---------------------------
Bruce R. Nobles
Its President and
Chief Executive Officer
By: /s/ Rae A. Capps
---------------------------
Rae A. Capps
Its Vice President,
General Counsel and
Corporate Secretary
"Company"
/s/ John L. Garibaldi
------------------------------
John L. Garibaldi
"Employee"
<PAGE>
Exhibit 10(p)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), effective as of June 15, 1996
("Effective Date") is entered by and between Michael J. McQuay ("Employee")
and Hawaiian Airlines, Inc. ("Company").
The Company desires to establish its right to the continued services of
the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions,
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
OF THE COMPANY. The Company does hereby employ, engage, and hire the
Employee as Executive Vice President and Chief Operating Officer of the
Company and the Employee does hereby accept and agree to such hiring,
engagement, and employment. The Employee's duties during the Employment
Period (defined below) shall be the executive, managerial and reporting
duties set forth on EXHIBIT A hereto and such other duties as the Board of
Directors and the Chief Executive Officer of the Company shall from time to
time prescribe and as provided in the Bylaws of the Company. The Employee
shall devote his full time, energy, and skill to the performance of his
duties for the Company and for the benefit of the Company, reasonable
vacations authorized by the Company's Board of Directors and reasonable
absences because of illness excepted. Furthermore, the Employee shall
exercise due diligence and care in the performance of his duties to the
Company under this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement ("Term") shall
commence on the Effective Date and shall continue for a period of eighteen
(18) months; provided, however, that on the first day of each calendar month
commencing one month following the Effective Date, the Term shall be extended
one additional month unless either party shall have given written notice to
the other that it does not wish to extend the Term. The period of time
commencing on the Effective Date and ending on the expiration date of the
Term, or, if earlier, the date of termination of the Employee's employment
("Termination Date") under this or any successor agreement shall be referred
to as the "Employment Period."
3. COMPENSATION.
a) BASE SALARY. The Company shall pay the Employee, and the
Employee agrees to accept from the Company in full payment for his services
to the Company, a base salary at the rate of Two Hundred Thirty Thousand U.S.
Dollars ($230,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as the Employee and the Company
shall agree. Employee's Base Salary shall be reviewed on a calendar year
basis, at least annually by the Company and
<PAGE>
Page 2
may be increased as determined by the Company's Board of Directors in its
sole and absolute discretion. In addition to the foregoing and in
consideration of Employee entering into this Agreement, Employee shall
receive an initial bonus of Thirty Thousand U.S. Dollars ($30,000.00),
payable in two equal installments of Fifteen Thousand U.S. Dollars
($15,000.00) (the "Installments"). The first Installment will be paid
immediately upon joining the Company. The second Installment shall be paid
immediately following the sixth month of employment with the Company.
b) PERFORMANCE BONUS-BOARD OF DIRECTORS' DISCRETION. Employee
shall be eligible to receive an annual performance bonus. Any such bonus
awarded to the Employee shall be payable in the amount, in the manner, and at
the time determined by the Company's Board of Directors in its sole and
absolute discretion, such discretion to include a review of the Company's
actual performance and comparison to the Company's business plan(s).
4. FRINGE BENEFITS. Employee shall be entitled to participate
in any benefit programs adopted from time to time by the Company for the
benefit of its executive employees, and Employee shall be entitled to receive
such other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
a) BENEFIT PLANS. Employee shall be entitled to participate in
any benefit plans relating to stock options, stock purchases, pension,
thrift, profit sharing, life and disability insurance, medical coverage,
executive medical coverage, education, or other retirement or employee
benefits available to other executive employees of the Company, subject to
any restrictions (including waiting periods) specified in such plans.
b) AUTOMOBILE. The Company shall provide Employee with a full
size sedan automobile for business use. If Employee uses the vehicle for
personal travel, an allocated amount will be added to Employee's W-2
compensation.
c) CLUB DUES. Employee shall be entitled to join one business
meal club and one health or fitness club, such dues and similar charges to be
paid by the Company.
d) TRAVEL BENEFITS. Employee and his spouse shall be entitled to
travel benefits on Company flights (but not charter flights) at the PS2F/PS2Y
category. Employee's dependents shall be entitled to travel benefits on
Company flights (but not charter flights) at the SA2F/SA1Y category.
Employee and his dependents shall be entitled to travel benefits on other
airlines at the sole discretion of such airlines, at a comparable level to
that provided to other Company executive officers.
e) 1996 STOCK INCENTIVE PLAN. Employee shall be granted 100,000
options under the Company's 1996 Incentive Stock Plan. The exercise price
will be set at the time of the grant. The vesting period and other terms
will be determined by the Compensation Committee.
<PAGE>
Page 3
f) MOVING EXPENSES. Employee shall be entitled to moving
expenses for the following items, up to a maximum of $50,000: i) movement of
household effects including packing, unpacking, shipping and insurance; ii)
shipment of two automobiles; iii) out of pocket expenses at reasonable
amounts for up to six months temporary living expenses; and iv) closing costs
at actual and reasonable amounts for the sale of Employee's home in Kingwood,
Texas and/or Employee's purchase of a home in Honolulu, Hawaii.
g) EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN. Subject to the
applicable waiting periods, Employee will be included in the Company's
Executive Long-Term Disability Insurance Plan, as it may be modified from
time to time, at the Company's expense.
h) BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly received
in accordance with Company policies, incurred by Employee on behalf of the
Company.
5. CONFIDENTIAL INFORMATION. Employee recognizes that by reason of
his employment by and service to the Company he will occupy a position of
trust with respect to business and technical information of a secret or
confidential nature which is the property of the Company which will be
imparted to him from time to time in the course of the performance of his
duties hereunder. Employee acknowledges that such information is a valuable
and unique asset of the Company and agrees that he shall not, during or after
the Term of this Agreement, use or disclose directly or indirectly any
confidential information of the Company to any person, except that Employee
may use and disclose to authorized personnel of the Company such confidential
information as is reasonably appropriate in the course of the performance of
his duties hereunder. Confidential information of the Company shall include
all information and knowledge of any nature and in any form relating to the
Company including but not limited to, business plans; development projects;
computer software and related documentation and materials; designs,
practices, processes, methods, know-how and other facts relating to the
business of the Company; advertising, promotions, financial matters, sales
and profit figures, customers or customer lists. Confidential information
shall not include any information that is or shall become publicly known
through no fault of the Employee and any information received in good faith
from a third party who has the right to disclose such information and who has
not received such information, either directly or indirectly, from the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
a) DEATH. If the Employee dies while employed by the Company,
his employment shall immediately terminate. The Company's obligation to pay
the Employee's Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall receive benefits in
accordance with the Company's retirement, insurance, and other applicable
programs and plans then in effect.
<PAGE>
Page 4
b) DISABILITY. If, as a result of Employee's mental or physical
incapacity, Employee shall be unable to perform the services for the Company
contemplated by this Agreement in the manner in which he previously performed
them during an aggregate of one hundred twenty (120) business days in any
consecutive seven (7) month period ("Disability"), Employee's employment may
be terminated by the Company for Disability. During any period prior to such
termination during which Employee is absent from the full-time performance of
his duties with the Company due to Disability, the Company shall continue to
pay Employee his Base Salary at the rate in effect at the commencement of
such period of Disability. Any such payments made to the Employee shall be
reduced by amounts received from disability insurance obtained or provided by
the Company, and by the amounts of any benefits payable to Employee, with
respect to such period, under the Company's Executive Long-Term Disability
Plan. Subsequent to the termination provided for in this Section 6(b),
Employee's benefits shall be determined under the Company's retirement,
insurance, and other compensation programs then in effect in accordance with
the terms of such programs.
c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate Employee's employment under this Agreement for "Cause" at any time
prior to expiration of the Term, only upon the occurrence of any one or more
of the following events:
(i) The material breach of this Agreement by Employee,
including without limitation, repeated willful neglect of Employee's duties
as set forth on EXHIBIT A hereto, Employee's material lack of diligence and
attention in performing services as provided in this Agreement, or Employee's
repeated willful failure (other than any such failure resulting from the
termination of the Employee's employment for death, disability, retirement or
good reason, as provided elsewhere in this Agreement) to implement or adhere
to policies established by, or directives of, the Company's Board of
Directors.
(ii) Conduct of a criminal nature that may have an adverse
impact on the Company's reputation and standing in the community; or
(iii) Fraudulent conduct in connection with the business
affairs of the Company, regardless of whether said conduct is designed to
defraud the Company or others.
In the event of termination for cause or resignation by the
Employee without good reason, the Company's obligation to pay Employee's Base
Salary for any periods after the Termination Date shall cease as of the
Termination Date. If Employee's employment is terminated for cause,
Employee's employment may be terminated immediately without any advance
written notice.
d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall
have the right to terminate this Agreement prior to the expiration of the
Term, at any time, without cause. In the event the Company shall so elect to
<PAGE>
Page 5
terminate this Agreement, the Employee shall receive compensation pursuant to
the provisions of Section 7 hereof.
e) TERMINATION BY THE EMPLOYEE FOR GOOD REASON. The Employee
shall have the right to terminate this Agreement for good reason. For
purposes of this Agreement, "good reason" shall mean the occurrence, without
the Employee's prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any duties that are
materially inconsistent with, or reflect a material continuing reduction of
the powers and responsibilities, or a change of the Employee's reporting
responsibilities, or a material improper intervention by the Company's Board
of Directors in the Employee's ability to materially perform the duties and
responsibilities set forth on EXHIBIT A hereto;
(ii) The Company's material breach of any of the provisions
of this Agreement, or a material change in the conditions of Employee's
employment (E.G. including, without limitation, a failure by the Company to
provide the Employee with incentive compensation and benefit plans that
provide comparable benefits and amounts as such type programs in effect as of
the Effective Date or as provided to other Company executive officers, etc.);
and
(iii) The relocation of the Company's principal executive
officers to a location outside of the Honolulu area or the Company's
requiring the Employee to be based anywhere other than the Company's
principal executive offices, except for travel on Company business to an
extent substantially consistent with the Employee's position and
responsibilities.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for good reason, during which 30-day period
the Company shall have the right to cure the circumstances giving rise to the
good reason stated in such notice. In the event of termination for good
reason, the Employee shall receive compensation pursuant to the provisions of
Section 7 hereof.
f) RETIREMENT. The Employee may terminate this Agreement on
account of retirement. For purposes of this Agreement, retirement shall have
the same meaning as provided for in the Company's defined benefit plan
covering Employee. Employee shall provide ____ months notice to the Company
of Employee's intent to terminate this Agreement on account of retirement.
The Employee shall not be entitled to any further payments of compensation or
other benefits provided under Section 3 of this Agreement after the
Termination Date, except for any amounts earned and any accrued but unpaid
retirement benefit payments due the Employee from any Company sponsored plan.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE
OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall be
terminated (i) by act of the Company other than for
<PAGE>
Page 6
cause, or (ii) by the Employee for good reason, the Employee shall be
entitled to the following benefits:
a) PAYMENT OF UNPAID BASE SALARY. The Company shall immediately
pay the Employee any portion of the Employee's Base salary accrued, but not
paid, prior to the Termination Date.
b) CONTINUED PAYMENT OF BASE SALARY. The Employee shall continue
to be paid the Base Salary that would have been payable to the Employee
pursuant to this Agreement had the Employee continued to be employed for the
eighteen months (18) months immediately following the Termination Date (such
Base Salary for such period being equal to the Employee's Base Salary in
effect as of the Termination Date); and (ii) an amount equal to the bonus
payments that would have been payable to the Employee pursuant to this
Agreement had his annual bonus for each year, or portion thereof, of the
eighteen (18) months immediately following the Termination Date been equal to
the greater of (A) the total of any performance bonus or bonuses paid to the
Employee pursuant to Section 3(b) in the fiscal year of the Company ended
immediately prior to the fiscal year in which the Termination Date occurs,
and (B) the average of the annual performance bonuses (excluding the signing
bonus and any special bonus not based on performance) paid to him by the
Company with respect to the three (or, if less, the number of years the
Employee has been employed with the Company) fiscal years ended immediately
prior to the fiscal year in which the Termination Date occurs.
c) CONTINUATION OF FRINGE BENEFITS. The Company shall continue
to provide the Employee with all Fringe Benefits set forth in Section 4
throughout the remaining eighteen (18) months, as if the Employee's
employment under the Agreement had not been terminated. If, as the result of
terminating of Employee's employment, Employee and/or his otherwise eligible
dependents or beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall continue to
provide the Employee and his eligible dependents or beneficiaries with
benefits at a level at least equivalent to the level of benefits for which
the Employee and his dependents and beneficiaries were eligible under such
plans immediately prior to the Termination Date.
d) STOCK OPTIONS. Notwithstanding any provision in any
applicable Company benefit plans or agreements (including, but not limited
to, those relating to stock options, stock appreciation rights, restricted
stock awards, stock purchases, pensions, thrift, profit sharing, or other
retirement or employee benefits) to the contrary, all rights to such benefits
previously granted to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain exercisable for a
period thereafter of one (1) year. The provisions of this Section 7(d) shall
supersede, insofar as concerns Employee, any such plans or agreements of the
Company referred to above as of the Effective Date.
e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO BENEFITS UNDER
AGREEMENT. The Employee shall not be required in any way
<PAGE>
Page 7
to mitigate the amount of any payment provided for in this Section 7,
including, but not limited to, by seeking other employment, nor shall the
amount of any payment provided for in this Section 7 be reduced by any
compensation earned by the Employee as the result of employment with another
employer after the Termination Date, or otherwise. Except as set forth in
this Section 7, following a termination governed by this Section 7, the
Employee shall not be entitled to any other compensation or benefits set
forth in this Agreement, except as may be separately negotiated by the
parties and approved by the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment under this Section 7.
8. NONCOMPETITION PROVISIONS.
a) RIGHT TO COMPANY MATERIALS. Employee agrees that all styles,
designs, lists, materials, books, files, reports, correspondence, records,
and other documents ("Company Materials") used, prepared, or made available
to Employee, shall be and shall remain the property of the Company. Upon the
termination of employment or the expiration of this Agreement, all Company
Materials shall be returned immediately to the Company, and Employee shall
not make or retain any copies thereof.
b) ANTISOLICITATION. Employee promises and agrees that during
the term of this Agreement he will not influence or attempt to influence
customers or suppliers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company.
c) SOLICITING EMPLOYEES. During the term of this Agreement and
for the eighteen (18) month period commencing on the Termination Date,
Employee promises and agrees that he will not directly or indirectly solicit
any of the Company's employees to work for any business, individual,
partnership, firm, corporation, or other entity then in competition in Hawaii
with the business of the Company or any subsidiary or affiliate of the
Company.
9. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right
to terminate this Agreement for good reason if at any time within ninety (90)
days after completion of (i) a merger of the Company with any other
corporation as a result of which the shareholders of the Company immediately
prior to such merger fail to win at least a majority of the voting securities
of the surviving corporation in such merger immediately after the merger, and
members of the Board of Directors of the Company, elected by the shareholders
of the Company or by a majority of the directors of the Company who were
elected by the stockholders of the Company, fail to constitute a majority of
the Board of Directors of the surviving corporation following completion of
the merger, or (ii) a sale of all or substantially all of the assets of the
Company to another corporation, if (x) a majority of the directors of the
ultimate parent of the purchase immediately following the purchase and sale
were not members of the Board of Directors of the Company immediately prior
to such sale, AND (y) shareholders of the Company
<PAGE>
Page 8
immediately prior to such sale do not hold a majority of the voting
securities of the ultimate parent of the purchasing corporation following
completion of such sale; or (iii) a purchase by another person, firm or
corporation of a majority of the voting securities of the Company, AND
following completion of such sale, members of the Board of Directors of the
Company elected by the shareholders of the Company (other than such
purchaser) fail to constitute a majority of the Board of Directors of the
Company.
10. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by facsimile, first class mail,
certified or registered with return receipt requested, or express mail and
shall be deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of a facsimile to the respective
persons named below:
If to Company: Hawaiian Airlines, Inc.
Attn: President and Chief Executive Officer
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
with a copy to General Counsel
If to Employee: Michael J. McQuay
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS FEES. In the event judicial or quasi-judicial
determination is necessary of any dispute arising as to the parties' rights
and obligations hereunder, the Company and Employee shall each bear their
respective attorneys' fees and costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that, in the event of the merger, consolidation, transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the express provisions
hereof, be binding upon and inure to the benefit of such successor
<PAGE>
Page 9
and such successor shall discharge and perform all the promises, covenants,
duties, and obligations of the Company hereunder
14. GOVERNING LAW. This Agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the laws of the State of Hawaii.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope and may be
modified only in wnting. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
16. WAIVER; MODIFICATION; Failure to insist upon strict compliance
with any of the terms, covenants, or conditions hereof shall not be deemed a
waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed
by each party hereto.
17. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute
or public policy, only the portions of this Agreement that violate such
statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of is Agreement
shall modify the stricken terms as narrowly as possible to give as much
effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold Employee
harmless to the maximum extent permitted by Section 415-5 of the Hawaii
Business Corporation Act and the Restated Articles of Incorporation of the
Company, as amended.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and the Employee has hereunto signed this
Agreement, as of the date first above written.
By: /s/ Bruce R. Nobles
----------------------------
Bruce R. Nobles
Its President and
Chief Executive Officer
By: /s/ Rae A. Capps
----------------------------
Rae A. Capps
<PAGE>
Page 10
Its Vice President,
General Counsel and
Corporate Secretary
"Company"
/s/ Michael J. McQuay
------------------------------
Michael J. McQuay
"Employee"
<PAGE>
Exhibit 10(q)
SECURED PROMISSORY NOTE
Honolulu, Hawaii
September 12, 1996
FOR VALUE RECEIVED, the undersigned, _________________________
("Maker"), hereby promises to pay to the order of Hawaiian Airlines, Inc., a
Hawaii corporation (the "Company"), at such place or to such other party or
parties as the holder of this Secured Promissory Note (this "Note") may from
time to time designate, the principal sum of $ together with interest
from the date hereof in lawful money of the United States of America at a
fluctuating annual rate equal to the "prime rate" reported from time to time
by THE WALL STREET JOURNAL. The interest rate hereunder shall be adjusted as
of the date on which a change in such "prime rate" is reported by THE WALL
STREET JOURNAL and the interest rate, as so adjusted, shall remain in effect
until the next reported change in such "prime rate." Interest shall be
computed (but not compounded) on the basis of the actual number of days
elapsed over a 365-day or 366-day year, as the case may be.
The principal amount outstanding under this Note shall be payable in
full, together with all accrued but unpaid interest thereon, upon the earlier
of (i) the date that Maker sells, assigns, gifts or otherwise disposes of any
of the Pledged Shares (as defined below) or (ii) February 2, 2005.
Maker shall have the right at any time and without penalty or premium to
prepay any or all of the outstanding principal balance of this Note and any
accrued and unpaid interest thereon.
All payments made hereunder shall be applied by the holder of this Note
as follows:
FIRST, to the payment of fees, costs and expenses, if any, then due
hereunder and/or under the Pledge Agreement (as defined below);
SECOND, to the payment of accrued and unpaid interest hereunder; and
THIRD, to the payment of principal hereunder;
or in any other reasonable manner deemed appropriate by the holder of this
Note. The priority of application elected by the holder of this Note on any
one occasion shall not determine any such election in the future.
This Note is secured by a first priority lien on _____ shares of the
Company's Common Stock (the "Pledged Shares") pursuant to that certain Stock
Pledge Agreement by and between the Company and Maker, dated as of the date
hereof (the "Pledge Agreement"). Notwithstanding the foregoing, this Note is
fully recourse against Maker and Maker shall be liable for all principal
hereunder and interest thereon without regard, to the Pledged Shares or any
other collateral securing this Note.
<PAGE>
Upon the occurrence of an Event of Default (as defined in the Pledge
Agreement) and if the holder of this Note so elects, notice of election being
expressly waived, (i) the principal remaining unpaid with accrued and unpaid
interest thereon shall at once become due and payable and (ii) the holder of
this Note may set off obligations owed by the holder to Maker against amounts
due under this Note and/or the Pledge Agreement without first resorting to
the Pledged Shares or any other collateral securing payment of this Note.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay demand all costs of collection
(including, but not limited to, attorneys' fees) and all expenses incurred in
connection with the protection or realization of any collateral incurred by
the holder hereof, on account of any such collection, protection or
realization, whether or not suit is filed hereon or on the Pledge Agreement
or any other instrument granting a security interest securing this Note.
Maker expressly waives presentment, protest and demand, notice of
protest, demand and dishonor and nonpayment of this Note and all other
notices or demands of any kind in connection the delivery, acceptance,
performance or enforcement of this Note, and consents and expressly agrees to
any extensions of time (including multiple extensions and extensions for
longer than the original term of this Note), renewals, releases of any person
or entity liable for the payment of all or any portion of this Note, releases
of the Pledged Shares or any other collateral securing this Note, and waivers
or modifications or other indulgences that may be granted or consented to by
the holder of this Note in respect of the loan evidenced by this Note, in
each case without in any way affecting the liability of Maker or any
endorsers hereof. To the fullest extent permitted by law, the defense of the
statute of limitations in any action on this Note is waived by Maker. This
Note is to be governed by and construed according to the laws of the State of
Hawaii, except to the extent that such laws are preempted by federal law.
No single or partial exercise of any power hereunder shall preclude
other or further exercise thereof or the exercise of any other power. No
delay or omission on the part of the holder hereof in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. Acceptance of any sum by the holder that is less than full payment
shall not be construed as a waiver of any default in the payment of this Note.
All agreements between Maker and the holder hereof are expressly limited
so that in no contingency or event whatsoever, whether by reason of
advancement of the proceeds hereof, acceleration of maturity of the unpaid
principal balance hereof, or otherwise, shall the amount paid or agreed to be
paid to the holder hereof for the use, forbearance or detention of the money
to be advanced hereunder exceed the highest lawful rate permissible under
applicable usury laws. If, from any circumstances whatsoever, fulfillment of
any provision hereof, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law that a
court of competent jurisdiction may deem applicable hereto, then IPSO FACTO,
the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any circumstances the holder shall ever receive as
interest an amount that would exceed the highest lawful rate, such amount
that would be excessive interest shall be applied to the reduction of the
unpaid principal balance due hereunder and not to the payment of interest.
This provision shall
2
<PAGE>
control every other provision of all agreements between Maker and the holder
hereof with respect foregoing.
This Note may from time to time be extended or renewed, with or without
notice to Maker, and any related right may be waived, exchanged, surrendered
or otherwise dealt with, all without affecting the liability of Maker.
3
<PAGE>
Exhibit 10(r)
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is made and entered
into as of September ___, 1996 between _____________, an individual ("Pledgor"),
and Hawaiian Airlines, Inc., a Hawaii Corporation ("Pledgee" or the "Company").
A. Concurrent herewith, Pledgor is acquiring _______ shares (the
"Stock") of the Company's Common Stock, par value $.01, through the exercise of
options granted under the Company's 1996 Stock Incentive Plan (the "Options");
B. Concurrently herewith, Pledgor is executing and delivering to the
Company a Secured Promissory Note dated as of the date hereof in the principal
amount of $__________ as payment of (i) the purchase price of the Stock and
(ii) Pledgor's income tax withholding obligation arising as a result of the
exercise of the Options (such Secured Promissory Note, as the same may be
amended, extended and/or renewed, the "Note"); and
C. Pledgee is willing to accept the Note as payment of such purchase
price and withholding so long as Pledgor pledges the Stock as security for the
payment of the Note.
NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto agree as follows:
1. PLEDGE OF STOCK. As security for the full and prompt performance
of all of the Obligations (as defined in Section 4), Pledgor hereby assigns,
transfers, pledges and delivers to Pledgee stock certificates, duly endorsed in
blank, representing the Stock, together with all proceeds thereof, additions
thereto and substitutions therefor, including without limitation any and all new
or substituted or additional shares, other securities, cash or other properties
distributed with respect to the Stock or other securities subject to this
Agreement whether as a result of merger, consolidation, dissolution,
reorganization, recapitalization, interest payment, stock split, stock dividend,
reclassification, redemption or any other change declared or made in the capital
structure of the Company, or otherwise (the "Collateral").
2. RIGHTS WITH RESPECT TO DISTRIBUTIONS. While Pledgee is the
holder of the Collateral, it shall receive and apply against the principal and
interest owing under the Note any dividends or other cash distributions made
with respect to the Collateral; PROVIDED, HOWEVER, that until the occurrence of
a default in the performance of any of the Obligations, Pledgor shall be
entitled to receive cash dividends with respect to the Collateral.
3. IRREVOCABLE PROXY/VOTING RIGHTS. Pledgor hereby irrevocably
appoints Pledgee as Pledgor's proxy holder with respect to the Stock owned by
Pledgor with full power and authority to vote such Stock and otherwise act with
respect to such
<PAGE>
Stock on behalf of Pledgor; PROVIDED, HOWEVER, that this proxy shall only be
operative upon the occurrence of a default in the performance of any of the
Obligations and for so long as such default continues. This proxy shall be
irrevocable for so long as any of the Obligations remain in existence.
4. OBLIGATIONS SECURED. The pledge of the Collateral is made by
Pledgor to secure performance of each of the following obligations
("Obligations"):
(a) the payment of all principal of and interest on the Note when due
according to the tenor of the Note; and
(b) the performance of each and every obligation of Pledgor under,
and the payment of all other amounts required to be paid to Pledgee by or
on behalf of Pledgor pursuant to, the Note and/or this Agreement.
5. DEFAULT. Upon the occurrence of any default of any Obligation,
Pledgee shall thereupon and thereafter have all of the rights and remedies to
which a secured party is entitled in the event of and after default under the
provisions of the Uniform Commercial Code of the State of Hawaii, Chapters 490:8
and 490:9 of the Hawaii Revised Statutes, as amended and in effect on the date
hereof (the "Hawaii Commercial Code"). In addition to those rights and
remedies, Pledgor agrees that Pledgee may in its sole discretion do or cause to
be done any one or more of the following:
(a) Proceed to realize upon the Collateral in any manner or priority;
(b) Sell, assign and deliver all or any part of the Collateral in any
manner permitted by law, at any time and from time to time, at public or
private sale, with or without demand and with or without notice or
advertisement, for cash, upon credit or for future delivery, as Pledgee
shall deem appropriate. Pledgee shall be authorized at any such sale (if
it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing
the Collateral for their own account for investment and not with a view to
the distribution or sale thereof, and upon consummation of any such sale
Pledgee shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of Pledgor, and Pledgor hereby waives
(to the extent permitted by law) all rights of redemption, stay and/or
appraisal that he now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted;
(c) If notice to Pledgor is required, give written notice to Pledgor
ten (10) days prior to the date of public sale of the Collateral or prior
to the date after which private sale of the Collateral will be made;
(d) At any public sale, bid or become a purchaser of the Collateral
or any part thereof at such price as Pledgee deems proper, and hold the
same
2
<PAGE>
thereafter in its own right, free from any claims of Pledgor or any right of
redemption; and
(e) As an alternative to exercising the power of sale herein
conferred upon it, Pledgor may proceed by a suit or suits at law or in
equity to foreclose this Agreement and to sell the Collateral, or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.
Pledgor shall not be obligated to make any sale of Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of Collateral
may have been given. Pledgor may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case sale of all or any part of the Collateral is made on credit
or for future delivery, the Collateral so sold may be retained by Pledgor until
the sale price is paid by the purchaser or purchasers thereof, but Pledgor shall
not incur any liability in case any such purchaser or purchasers shall fail to
take up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may be sold again upon like notice. The parties hereto
expressly agree that a private sale of the Collateral conducted in good faith by
Pledgee pursuant to the powers created by this Section 5 shall be "commercially
reasonable" within the meaning of Section 490:9-504 of the Hawaii Commercial
Code.
6. APPLICATION OF PROCEEDS OF SALE. The proceeds of sale of
Collateral sold pursuant to Section 5 hereof shall be applied by Pledgee as
follows:
FIRST: to the payment of the costs and expenses of such sale,
including the out-of-pocket expenses of Pledgee and the reasonable fees and
out-of-pocket expenses of counsel employed in connection therewith, and to
the payment of all advances made by Pledgee for the account of Pledgor
hereunder and the payment of all costs and expenses incurred by in
connection with the administration and enforcement of this Agreement and
the Note;
SECOND: to the payment of accrued and unpaid interest on the Note;
and
THIRD: to the payment of principal of the Note.
7. RELEASE OF COLLATERAL.
(a) On one occasion, Pledgor may sell some or all of the Collateral
to an unaffiliated third party buyer in a BONA FIDE arm's length
transaction, provided that (i) Pledgor is not then in default in the
performance of any of the Obligations and (ii) the proceeds from such sale,
net of any broker's commissions paid by Pledgor in connection with such
sale, are paid to Pledgee to be applied pursuant to Section 6. Upon notice
from Pledgor, Pledgee shall deliver the sold Collateral to such third party
free and clear of the lien of this Agreement.
3
<PAGE>
(b) Upon performance in full of all the Obligations, all right, title
and interest in and to the Collateral shall completely revest in Pledgor
and Pledgee will execute and deliver all documents and instruments
necessary to accomplish such revesting.
8. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to Pledgee that Pledgor has record and beneficial ownership of the
Stock, free and clear of all liens, charges, encumbrances and security interests
of every kind and nature (except as created by this Agreement), and has the
authority to pledge the Stock to Pledgee and to perform Pledgor's obligations
hereunder.
9. FURTHER ASSURANCES. Upon demand, Pledgor will execute and
deliver to Pledgee such instruments and documents as Pledgee may deem reasonably
necessary or advisable to confirm or perfect Pledgee's rights under this
Agreement and Pledgee's interest in the Collateral. Pledgor will take all
necessary action to preserve and protect the security interest created hereby as
a first lien and encumbrance upon the Collateral.
10. NOTICE. All notices, requests, demands and other communications
called for or contemplated hereunder shall be made as follows:
(a) if to Pledgee, then to: Hawaiian Airlines, Inc., Legal
Department, 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii, 96819; and
(b) if to Pledgor, then to the address listed beside Pledgor's name
on the signature page hereof.
11. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of each of the parties hereto.
12. ENTIRE AGREEMENT. This Agreement, together with the Note,
represents the entire understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior oral and written and all
concurrent oral agreements, understandings, discussions and negotiations. This
Agreement may not be amended, supplemented or otherwise modified except in a
writing signed by the parties hereto.
13. COUNTERPARTS. This Agreement may be executed simultaneously, in
two counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
14. HEADINGS. The headings in this Agreement are for the purpose of
reference only and shall not limit or otherwise affect the terms or provisions
hereof.
15. NO WAIVER. The rights, powers and remedies given to Pledgee by
this Agreement shall be in addition to all rights, powers and remedies given to
or now or hereafter existing in Pledgee by virtue of the Note and any applicable
statute or rule of law; each and every right, power and remedy, whether herein
specifically given or
4
<PAGE>
otherwise existing, may be exercised from time to time and so often and in such
order as may be deemed expedient by Pledgee, and the exercise, or the beginning
of the exercise, of any such right, power or remedy shall not be deemed a waiver
of the right to exercise, at the same time or thereafter any other right, power
or remedy. Any forbearance or failure or delay by Pledgee in exercising any
right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
or remedy shall not preclude the further exercise thereof.
16. POWER OF ATTORNEY. Pledgor hereby irrevocably appoints Pledgee
its attorney-in-fact to do any act which Pledgor is obligated hereby to do, to
exercise such rights as Pledgor might exercise with respect to the Collateral
and to execute and file in Pledgor's name any financing statements and
amendments thereto required or advisable to protect Pledgee's security interest
hereunder.
17. APPLICABLE LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Hawaii. If any portion of this
Agreement is determined to be unenforceable because it is contrary to law or for
any other reason, such provision shall be deemed to be severable, and this
Agreement shall remain in full force and effect as if such provision were not
included herein.
18. CERTAIN AGREEMENTS OF PLEDGOR.
(a) CONTINUOUS SECURITY INTEREST. Pledgor hereby agrees that, until
performance in full of all the Obligations, all rights, powers and remedies
granted to Pledgee hereunder shall continue to exist and may be exercised
by Pledgee at any time and from time to time, irrespective of the fact that
payment of any amount owing on account of the Note or otherwise may have
become barred by any statute of limitations, Pledgor hereby waiving the
right to plead any statute of limitations to the full extent permitted by
law.
(b) WAIVER OF NOTICE. Pledgor hereby agrees that Pledgee shall be
under no duty or obligation whatsoever to make or give any presentments,
demands for performance, notice of nonperformance, protests, notice of
protest or notices of dishonor hereunder or in connection with the
Collateral or any obligations, evidences of indebtedness at any time
constituting any part of the Collateral, or in connection with the Note,
the Obligations or other obligations secured hereby.
(c) WAIVER OF MARSHALING RIGHTS. Pledgor hereby waives any right to
require Pledgee to proceed against any person, proceed against or exhaust
any Collateral or pursue any other remedy in Pledgee's power, or to pursue
any of such rights, if any, in any particular order or manner, and waive
any defenses arising by reason of any disability or other defense of any
other person.
(d) OTHER WAIVERS. Pledgor hereby waives all provisions of law
pertaining to pledges and sales to the extent contrary hereto.
5
<PAGE>
(e) NO TRANSFER, FURTHER ENCUMBERING, ETC. Subject to Section 7(a),
Pledgor hereby agrees not to directly or indirectly assign, transfer or
convey or further encumber the Collateral or any part thereof or interest
therein without the prior written consent of Pledgee.
19. LEGAL REPRESENTATION OF PLEDGOR. Pledgor acknowledges that
Gibson, Dunn & Crutcher has acted as counsel to the Company in connection with
this Agreement and Pledgor has been advised to seek the advice of separate
counsel in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
PLEDGOR:
______________________________
Name:
Address:
PLEDGEE:
Hawaiian Airlines, Inc.
By:___________________________
Name:
Title:
6
<PAGE>
Exhibit 11
Hawaiian Airlines, Inc.
Computation of
Net Loss Per Common Stock Share
for the Year Ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<S> <C>
Weighted average Common Stock shares outstanding....................................... 29,142 *
Incremental Common Stock shares issuable upon exercise of outstanding warrants and
stock options (treasury stock method)................................................ 1,833
-------
Weighted average Common Stock shares and Common Stock share equivalents................ 30,975
-------
-------
Loss before extraordinary gain......................................................... $(2,299)
Extraordinary gain, net of income taxes................................................ 766
-------
Net loss for per share computations.................................................... $(1,533)
-------
-------
Loss before extraordinary gain per Common Stock share.................................. ($0.07)
Extraordinary gain, net of income taxes, per Common Stock share........................ 0.02
-------
Net loss per Common Stock share........................................................ ($0.05)
-------
-------
</TABLE>
* Includes shares reserved for issuance under the consolidated Plan of
Reorganization dated September 21, 1993, as amended
<PAGE>
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
Hawaiian Airlines, Inc.:
We consent to incorporation by reference in Registration Statement
Nos. 033-64299, 333-09667, 333-09671, and 333-09673 on Form S-8 of
Hawaiian Airlines, Inc. of our reports dated February 18, 1997, relating
to the balance sheets of Hawaiian Airlines, Inc. as of December 31, 1996
and 1995, and the related statements of operations, shareholders' equity
(deficit) and cash flows for the years ended December 31, 1996 and 1995,
the period September 12, 1994 through December 31, 1994, and the period
January 1, 1994 through September 11, 1994, and relating to the financial
statement schedule of Hawaiian Airlines, Inc. for the three-year period ended
December 31, 1996, which reports appear in the December 31, 1996 annual report
on Form 10-K of Hawaiian Airlines, Inc.
Our reports dated February 18, 1997, indicate that the financial statements of
the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start accounting and, as a result,
the financial statements of the Reorganized Company are presented on a different
basis than those of the Predecessor Company.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 25, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Garibaldi, 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.
SIGNATURE TITLE DATE
/s/ JOHN W. ADAMS Chairman of the March 31, 1997
- -------------------------- Board of Directors
John W. Adams
/s/ BRUCE R. NOBLES President and March 31, 1997
- -------------------------- Chief Executive Officer
Bruce R. Nobles (Principal Executive Officer)
/s/ JOHN L. GARIBALDI Executive Vice President March 31, 1997
- -------------------------- Chief Financial Officer
John L. Garibaldi (Principal Financial and
Accounting Officer)
/s/ TODD G. COLE Director March 31, 1997
- --------------------------
Todd G. Cole
/s/ RICHARD F. CONWAY Director March 31, 1997
- --------------------------
Richard F. Conway
/s/ ROBERT G. COO Director March 31, 1997
- --------------------------
Robert G. Coo
/s/ CAROL A. FUKUNAGA Director March 31, 1997
- --------------------------
Carol A. Fukunaga
<PAGE>
SIGNATURE TITLE DATE
/s/ WILLIAM BOYCE LUM Director March 31, 1997
- --------------------------
William Boyce Lum
/s/ RICHARD K. MATROS Director March 31, 1997
- --------------------------
Richard K. Matros
/s/ RENO MORELLA Director March 31, 1997
- --------------------------
Reno Morella
/s/ SAMSON PO'OMAIHEALANI Director March 31, 1997
- --------------------------
Samson Po'omaihealani
/s/ EDWARD Z. SAFADY Director March 31, 1997
- --------------------------
Edward Z. Safady
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 37,237
<SECURITIES> 0
<RECEIVABLES> 28,077
<ALLOWANCES> 500
<INVENTORY> 7,050
<CURRENT-ASSETS> 78,498
<PP&E> 55,955
<DEPRECIATION> 10,161
<TOTAL-ASSETS> 196,289
<CURRENT-LIABILITIES> 70,105
<BONDS> 13,740
0
0
<COMMON> 393
<OTHER-SE> 82,480
<TOTAL-LIABILITY-AND-EQUITY> 196,289
<SALES> 384,473
<TOTAL-REVENUES> 384,473
<CGS> 382,446
<TOTAL-COSTS> 382,446
<OTHER-EXPENSES> 1,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,432
<INCOME-PRETAX> 0
<INCOME-TAX> 868
<INCOME-CONTINUING> 2,299
<DISCONTINUED> 0
<EXTRAORDINARY> 766
<CHANGES> 0
<NET-INCOME> 1,533
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
