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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8836
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HAWAIIAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)
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HAWAII 99-0042880
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3375 KOAPAKA STREET, SUITE G-350
HONOLULU, HAWAII 96819
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (808) 835-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Preferred Stock Purchase Rights
Common Stock ($.01 par value) American Stock Exchange, Inc.
Pacific Exchange, Inc.
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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, 1998, 40,651,047 shares of Common Stock of the Registrant
were outstanding. The aggregate market value of voting stock held by
non-affiliates (22,123,377 shares) of the Registrant is $77,431,820.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Notice of 1998 Annual Meeting of Shareholders and Proxy
Statement are incorporated herein by reference in Part III of this Form 10-K.
EXHIBIT INDEX ON PAGE 31
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TABLE OF CONTENTS
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PAGE
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COVER PAGE................................................................................................ 1
PART I
ITEM 1. BUSINESS............................................................................... 4
ITEM 2. PROPERTIES............................................................................. 13
ITEM 3. LEGAL PROCEEDINGS...................................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.............. 13
ITEM 6. SELECTED FINANCIAL DATA................................................................ 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................. 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................ 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE... 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 25
ITEM 11. EXECUTIVE COMPENSATION................................................................. 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................ 27
EXHIBIT INDEX.......................................................................... 31
SIGNATURES............................................................................. 32
TABLE INDEX
BALANCE SHEETS......................................................................... F-2
STATEMENTS OF OPERATIONS............................................................... F-4
STATEMENTS OF SHAREHOLDERS' EQUITY..................................................... F-5
STATEMENTS OF CASH FLOWS............................................................... F-7
NOTES TO FINANCIAL STATEMENTS.......................................................... F-8
SUPPLEMENTAL FINANCIAL INFORMATION..................................................... F-30
SELECTED FINANCIAL AND STATISTICAL DATA................................................ F-31
FINANCIAL STATEMENT SCHEDULE........................................................... S-2
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") is the
largest airline headquartered in Hawaii, based on operating revenues of $404.2
million for 1997. The Company is engaged primarily in the scheduled
transportation of passengers, cargo and mail. 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 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
PASSENGER SERVICE
The Company's passenger airline business is its chief source of revenue.
Scheduled passenger service consists of, on average and depending on
seasonality, approximately 130 to 150 flights per day among the six major
islands of the State of Hawaii ("Interisland"), daily service to Las Vegas and
the four key United States ("U.S.") West Coast gateway cities of Los Angeles,
San Francisco, Seattle and Portland ("Transpac") and twice weekly service to
Pago Pago, American Samoa and weekly service to Papeete, Tahiti in the South
Pacific ("Southpac"). The Company also provides charter service from Honolulu to
Las Vegas and Anchorage, Alaska ("Overseas Charter"). The Company operates a
fleet of 13 DC-9 aircraft and nine DC-10 aircraft.
Management estimates that the entire Interisland market averages
approximately nine to ten 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, 1997, Hawaiian Airlines' Interisland fleet consisted of 13 DC-9 aircraft.
During 1997, the Interisland market represented approximately 36.4% of the
Company's total operating revenues.
During 1997, 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, 1997, nine DC-10 aircraft were used to service Transpac routes.
In 1997, 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. Fares are relatively stable throughout
the year. Southpac routes are serviced with DC-10 aircraft. During 1997, the
Southpac market represented approximately 5.4% of the Company's total operating
revenues.
In addition to its regular scheduled service, the Company operated, on
average, eight charter flights per week to Las Vegas during the six first months
of 1997 and six weekly charter flights to Las Vegas during the last six months
of 1997. Also, from February 1997 to April 1997 the Company operated, on
average, two charter rotations per week to Anchorage and from May through the
end of 1997, one charter rotation per week to Anchorage. The Company's Overseas
Charter operation utilized DC-10 aircraft and produced 9.2% of the Company's
total operating revenues in 1997.
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FUEL
Aviation fuel is a significant expense for any air carrier and even marginal
changes in fuel prices can greatly impact a carrier's profitability. The
following table sets forth statistics about Hawaiian Airlines' aviation fuel
consumption and cost for each of the last three years:
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TOTAL COST,
GALLONS INCLUDING AVERAGE % OF
CONSUMED (IN TAXES (IN COST PER OPERATING
YEAR THOUSANDS) THOUSANDS) GALLON EXPENSES
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1997..................................... 103,271 $ 77,948 75.5 CENTS 19.4%
1996..................................... 98,729 $ 75,642 76.6 CENTS 19.8%
1995..................................... 92,167 $ 56,463 61.3 CENTS 16.2%
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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 $86,000 per month (based on 1997
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.
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
At December 31, 1997 the Company's fleet consists of nine 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. The nine DC-10s are leased under long-term operating
leases with American Airlines, Inc. ("American") and expire in 2001. Of the
leased DC-9s (including related flight equipment), five are leased under
operating leases and six are leased under capital leases that expire at various
times between 2000 and 2004.
Aircraft maintenance costs represent a significant operating cost for the
Company (approximately 19%, 18% and 17% of total operating expenses for 1997,
1996 and 1995, respectively) that will increase as the Company's aircraft
increase in age. The average age of the Company's DC-10 and DC-9 aircraft is 25
years and 20 years, respectively. 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 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.
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SEGMENT INFORMATION
Due to the centralization of the Company's operations in the State of Hawaii
and the large interdependence that its routes have on one another, management
considers its operations to be one industry segment. 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 and those certain operating revenue products which
constitute the segment.
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 of tickets 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. Tourism constitutes a majority of the visitor counts to
and from Hawaii. Because tourism levels are related to discretionary income, the
level of Hawaii tourism is affected by the strength of the local Hawaii economy
and economies in the areas from which tourists to Hawaii typically originate.
Hawaii 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 peaking in 1990, the Hawaii tourism industry experienced three
consecutive years of decline, with year over year improvement from 1994 through
1997. However, preliminary statistics from the Hawaii Visitors and Convention
Bureau (the "HVCB") estimate that total 1997 visitor counts will close at
approximately 6.88 million, only 0.7% over the 6.83 million tourists in 1996.
For the year ended December 31, 1997, eastbound arrivals, primarily from Japan,
were down by 0.9%. Westbound arrivals from the U.S. mainland and European
markets were up by 1.8%. The islands of Oahu and Maui experienced slight
increases of 0.3% and 0.2%, respectively, in 1997 tourism counts when compared
to 1996. The Big Island of Hawaii, assisted by direct air service from Japan
which commenced in 1997, and the island of Kauai posted 7.7% and 3.2% increases,
respectively. Total visitor counts in 1998 are forecasted to be flat at best
when compared to 1997.
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Significant obstacles to growth in Hawaii passenger traffic have been and
will continue to be:
1) The local Hawaii economy which has stagnated over the past seven years due
to decreases in outside capital investment, sluggish tourism, reduced
military spending and reduction in the sugar and pineapple industries, once
the mainstays of the Hawaii agricultural business. Since 1991, the State of
Hawaii has experienced record bankruptcies, rising foreclosures and business
failures and continued job losses. Hawaii's per capita growth rate of 1.7%
in 1997 compared unfavorably to the 4.5% experienced by the rest of the
nation. Local economists predict that over the next few years, Hawaii's
economy will grow only by approximately 1.8% per year. An Economic
Revitalization Task Force ("ERTF") consisting of selected members of the
public and private sectors and labor unions has been established by the
Governor of the State of Hawaii. The ERTF has outlined certain fundamental
tax and business proposals for consideration by the 1998 Hawaii legislative
session. There can be no assurance that these proposals will be adopted and
should they be effected, that they will be successfully implemented;
2) The recent resurgence of the vacation cruise industry and more effective
promotion by areas such as Mexico, the Caribbean, Europe and domestic
leisure attractions, such as theme parks and Las Vegas. Also the increased
incidence of domestic airline seat sales, which have become more prevalent
during the past two years, has resulted in the diversion of potential Hawaii
discretionary travel. The impact of the financial turmoil in Asia also
cannot be predicted. The weak Japanese yen and economy, the Korean economic
crisis and the possible devaluation of the Taiwan dollar are factors that
will affect Hawaii tourism.
No assurance can be given that the level of passenger traffic to Hawaii will
not decline in the future. A decline in the level of Hawaii passenger traffic
could have a material adverse effect on the Company's operations.
COMPETITION
The airline industry is highly competitive, 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 can be severely impacted by, adverse changes in fuel
costs, average yield and passenger demand.
The U.S. airline industry has consolidated in recent years as a result of
mergers and liquidations, and further consolidation may occur in the future. The
consolidations have, among other things, enabled certain carriers to expand
their international operations and increase their presence in the U.S. domestic
market. In addition, the airline industry has experienced in recent years
alliances between large U.S. domestic and foreign carriers, allowing those
carriers within such alliances to strengthen their overall operations.
Conversely, the industry has also seen in recent years the emergence and growth
of low cost, low fare domestic carriers who have further intensified competitive
pressures. 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.
Many of the Company's competitors are larger and have substantially greater
resources. 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.
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Vigorous price competition exists, with competitors frequently offering
reduced discount fares and other promotions to stimulate traffic during normally
slack travel periods, generate cash flow or increase relative market share in
selected markets. 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.
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 will adversely affect the
Company.
INTERISLAND
While there are several small commuter and air taxi companies, which provide
air transportation to Hawaii airports that cannot be served with large aircraft,
the Interisland market is serviced primarily by two carriers, the Company and
its 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 16
Boeing 737 aircraft with a schedule that averages approximately, depending on
seasonality, 150 to 180 daily flights, which service the same basic Interisland
routes as the Company. Hawaiian Airlines has approximately, depending on
seasonality, 130 to 150 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, 1997 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, Continental Airlines, Inc. 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 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. The Company also
pays a minimum monthly charge for maintenance services, monthly in arrears. In
exchange, American is responsible for all maintenance on the Company's DC-10
aircraft with the Company having access to spare parts, engines and
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rotables for the maintenance of these aircraft. As such, the Company does not
maintain large inventories of spare engines or parts to support the operation of
the DC-10 aircraft. During 1997, the Company incurred approximately $63.4
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. 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. Commencing March 2, 1998, the Company and American
also effected a code sharing agreement. These programs and services make the
Company more competitive, but increases its reliance on third parties.
The Company purchases almost all of its aviation fuel from Northwest
pursuant to an agreement 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
$72.6 million, $70.9 million and $53.0 million for the fuel supplied under this
agreement in 1997, 1996 and 1995, 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.
In both 1997 and 1996, approximately 74% of the Company's ticket sales were
made by travel agents, including approximately 30% by six large 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.
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. As are other carriers,
Hawaiian Airlines is subject to inspections by the FAA in the normal course of
its business on a routine ongoing basis. Hawaiian Airlines operates under a
Certificate of Public Convenience and
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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.
MAINTENANCE DIRECTIVES AND OTHER REGULATIONS
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.
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. In the last
several years, the FAA has issued a number of maintenance directives and other
regulations relating to, among other things, cargo compartment fire
detection/suppression systems, 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, including, but not limited to:
1) The Company anticipates that in the period 1998 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 20,000 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 $750,000 to $1.0
million;
2) The FAA has and is expected to continue 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 1998
through 2002 period will approximate $420,000 per DC-9 aircraft;
3) 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;
4) The FAA has mandated the installation of smoke detection and fire
suppression systems in the cargo compartments of both DC-10 and DC-9
aircraft by December 2000. The cost for systems and installation is
estimated to be $130,000 and $83,000 per DC-10 and DC-9 aircraft,
respectively;
5) As a result of certain incidents where Digital Flight Data Recorder
("DFDR") information was insufficient to determine the cause of the
accident, the FAA has also mandated additional recording parameters for
the DC-10 and DC-9 aircraft by the first heavy maintenance check after
August 1999 but no later than August 2001. The DC-10 DFDR will be
upgraded from 17 to 22 parameters at an estimated cost of $60,000 per
aircraft. The DC-9 DFDR will be upgraded from 11 to 18 parameters at an
estimated cost of $47,000 per aircraft;
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6) During the period from 1998 through 2002, 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
$27,000 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.
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.
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 which provided for a reduction in
commercial aircraft noise levels. Carriers were permitted to comply with the
transitional requirements either by (i) phasing out, or retrofitting with noise
abatement equipment, certain older aircraft known as Stage 2 aircraft, or (ii)
phasing in quieter aircraft, known as Stage 3 aircraft 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.
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 prohibit 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
Company by persons who are not
11
<PAGE>
"citizens of the U.S.". As of December 31, 1997, less than 5% of the Common
Stock of the Company was held by non-U.S. citizens.
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 TAXES
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 Ticket and Cargo Taxes.
EMPLOYEES
As of December 31, 1997, Hawaiian Airlines had 2,551 employees, of which
2,172 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), the Air Line Pilots Association
International, the Association of Flight Attendants, the Transport Workers Union
and the Communications Section Employees Union.
12
<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 10 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 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:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
High................................................... 3- 15/16 5 5- 1/4 4- 13/16
Low.................................................... 3- 1/8 3- 1/8 4- 1/4 3- 1/2
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
High................................................... 3- 1/2 7- 1/16 5- 1/8 4
Low.................................................... 1- 5/8 2- 7/8 3- 1/4 3
</TABLE>
(b) Holders.
As of March 1, 1998, there were approximately 997 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 1997 or 1996.
ITEM 6. SELECTED FINANCIAL DATA.
Information under the caption "Selected Financial and Statistical Data" on
pages F-31 to F-32 contained in Part IV, Item 14 of this Form 10-K is
incorporated herein by reference.
13
<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 Securities 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.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact capacity, load
factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor union situations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuations, inflation, the general economic environment and other factors
discussed herein.
Developments in any of these areas, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings, could cause the Company's results to differ from results that have been
or may be projected by or on behalf of the Company. The Company cautions that
the foregoing list of important factors is not exclusive. The Company does not
undertake to update any forward-looking statements that may be made from time to
time by or on behalf of the Company.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
For the year ended December 31, 1997, the Company generated operating income
of $2.5 million, a $475,000 improvement from 1996 operating income of $2.0
million. The Company also reduced its net loss before extraordinary items and
cumulative effect of change in accounting principle by $1.7 million to $572,000
in 1997 from $2.3 million in 1996. The Company incurred a net loss of $1.0
million for the year ended December 31, 1997, a $511,000 improvement from the
net loss of $1.5 million in 1996. Included in the 1997 and 1996 net losses are
provisions for income taxes of $1.7 million and $868,000, respectively. While
generally accepted accounting principles require that the provisions for income
taxes be recorded, most of the amounts recorded will not require cash outlay as
the amounts will be offset by net operating loss carryforwards available to the
Company. As noted in Note 7 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.
14
<PAGE>
OPERATING REVENUES
Operating revenues totaled $404.2 million in 1997 compared to $384.5 million
in 1996, an increase of $19.7 million or 4.9%. Significant year to year
variances were as follows:
PASSENGER AND CHARTER
The following table compares operating passenger revenues and statistics, in
thousands, except as otherwise indicated, for the years ended 1997 and 1996:
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE) %
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues.......................... $ 132,626 $ 133,019 (393) (0.3)
Revenue passengers.......................... 3,735 3,828 (93) (2.4)
Revenue passenger miles..................... 497,137 508,286 (11,149) (2.2)
Available seat miles........................ 859,545 921,752 (62,207) (6.7)
Passenger load factor....................... 57.8% 55.1% 2.7 5.0
Yield....................................... 26.7 NTS 26.2 NTS 0.5 NTS 1.9
Transpac:
Passenger revenues.......................... $ 180,424 $ 173,419 7,005 4.0
Revenue passengers.......................... 1,168 1,080 88 8.1
Revenue passenger miles..................... 2,819,783 2,647,869 171,914 6.5
Available seat miles........................ 3,569,138 3,371,049 198,089 5.9
Passenger load factor....................... 79.0% 78.5% 0.5 0.6
Yield....................................... 6.4 NTS 6.5 NTS (0.1 NTS (1.5)
Southpac:
Passenger revenues.......................... $ 19,104 $ 19,828 (724) (3.7)
Revenue passengers.......................... 61 63 (2) (3.2)
Revenue passenger miles..................... 162,136 167,850 (5,714) (3.4)
Available seat miles........................ 270,926 279,154 (8,228) (2.9)
Passenger load factor....................... 59.9% 60.1% (0.2) (0.3)
Yield....................................... 11.8 NTS 11.8 NTS 0.0 NTS 0.0
Overseas Charter:
Charter revenues............................ $ 37,172 $ 27,835 9,337 33.5
Revenue passengers.......................... 253 190 63 33.2
Revenue passenger miles..................... 683,384 515,982 167,402 32.4
Available seat miles........................ 739,619 528,787 210,832 39.9
</TABLE>
Interisland passenger revenues decreased by $393,000 or 0.3% to $132.6
million in 1997 from $133.0 million in 1996. As discussed in Part I, Item 1,
BUSINESS of this Form 10-K, Interisland passenger revenues were impacted by
softness in tourism throughout the State of Hawaii, principally through the
first six months of 1997. The decrease in Interisland passenger revenues was
also caused by less availability of seats as evidenced by the 6.7% decrease in
available seat miles year over year. The decrease in revenue passengers carried
and revenue passenger miles ("RPM"), however were offset by a 0.5 CENTS or 1.9%
increase in yield, the result of certain price increases initiated in the
Interisland market by the Company in the latter months of 1997.
Transpac passenger revenues totaled $180.4 million in 1997, an increase of
$7.0 million or 4.0% over 1996 Transpac passenger revenues of $173.4 million. In
1997, the Company adjusted its Transpac frequencies to particular Transpac
destinations depending on market demand. The Company experienced
15
<PAGE>
increases of 8.1% and 6.5% in its passengers carried and RPM, respectively.
However, these increases were offset by a 0.1 CENTS or 1.5% decrease in yield
reflecting more aggressive pricing actions taken by the Company to stimulate
travel demand and be competitive, primarily in the second and third quarters of
1997. These pricing strategies, combined with cooperative advertising and
promotions, were targeted at Transpac markets in which the Company had increased
its level of service and those in which the Company maintained code share
alliances.
Overseas charter revenues in 1997 totaled $37.2 million, an increase of $9.3
million from 1996 Overseas charter revenues of $27.8 million. The increase is
attributable to the Company operating on average, eight charters per week to Las
Vegas throughout the first six months of 1997 versus six per week throughout the
first six months of 1996, and from February 1997 to April 1997 and from May 1997
to December 1997, on average, two and one charter rotations per week,
respectively, to Anchorage, Alaska. The Anchorage charters were not operated in
1996.
CARGO
Transpac cargo revenues increased by $1.1 million or 9.2% to $13.0 million
in 1997 from $11.9 million in 1996. The increase was primarily due to increased
frequencies in Transpac routes which allowed the Company to transport 1,783 or
9.2% more tons of freight in 1997 compared to 1996.
OTHER OPERATING
Other operating revenues in 1997 totaled $13.6 million, an increase of $3.4
million or 32.9%, primarily due to approximately $2.3 million in additional
revenues related to the promotion of the Company's frequent flyer program and
inflight media and service products.
OPERATING EXPENSES
Operating expenses totaled $401.7 million in 1997, an increase of $19.3
million or 5.0% from total operating expenses of $382.4 million in 1996.
The following table compares operating expenses per Available Seat Mile
("ASM") by major category for 1997 with 1996:
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE) %
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Wages and benefits......................................... 2.11 NTS 2.13 NTS (0.02) NTS (0.9)
Aircraft fuel, including taxes and oil..................... 1.44 1.49 (0.05) (3.4)
Maintenance materials and repairs.......................... 1.40 1.35 0.05 3.7
Rentals and landing fees................................... 0.60 0.69 (0.09) (13.0)
Sales commissions.......................................... 0.24 0.26 (0.02) (7.7)
Depreciation and amortization.............................. 0.20 0.17 0.03 17.6
Other...................................................... 1.40 1.41 (0.01) (0.7)
--- --- ----- ---------
Total.................................................. 7.39 NTS 7.50 NTS (0.11) NTS (1.5)
--- --- ----- ---------
--- --- ----- ---------
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 6.6% in 1997 from 1996. Significant year to
year variances were as follows:
Wages and benefits per ASM decreased by 0.02 CENTS or 0.9%. The dilutive
effect of increased ASM was offset by increased wages and benefits in 1997 of
$6.0 million or 5.5% over 1996. Wages and benefits totaled $114.6 million in
1997 versus $108.6 million in 1996. The Company incurred additional customer
service, crew and inflight wages and benefits primarily due to increased
long-haul flying.
16
<PAGE>
Aircraft fuel, including taxes and oil ("Aircraft Fuel"), per ASM decreased
year over year by 0.05 CENTS or 3.4%. The effect of increased ASM was offset by
an overall increase in Aircraft Fuel costs of $2.2 million or 2.9% to $78.1
million in 1997 from $75.9 million in 1996. The Company incurred $3.5 million in
additional costs from the consumption of approximately 4.5 million or 4.6% more
gallons of fuel in 1997 than in 1996 and $1.1 million in aggregate realized and
unrealized losses on the Company's Aircraft Fuel derivative financial
instruments. These additional costs were offset by a decrease in Aircraft Fuel
expense year over year of $2.2 million resulting from a decrease in the average
cost per gallon of 2.2 CENTS or 2.9%.
Maintenance materials and repairs per ASM increased by 0.05 CENTS or 3.7% in
1997 from 1996. The Company experienced $7.3 million or 10.6% in additional
maintenance principally due to (i) $5.7 million more in DC-10 maintenance
expense as the Company utilized between nine and ten DC-10 aircraft throughout
1997 versus a varying fleet of eight to ten DC-10 aircraft in 1996 due to
increased long-haul frequencies and (ii) $1.2 million more in DC-9 airframe and
engine repairs.
Rentals and landing fees per ASM were primarily affected by decreased
landing fees of $2.2 million in 1997. A two-year moratorium was placed on
landing fees at all airports in Hawaii commencing September 1, 1997. The Company
had averaged approximately $500,000 per month in landing fees at airports in the
State of Hawaii prior to the moratorium.
Depreciation and amortization per ASM increased by 0.03 CENTS or 17.6%.
Depreciation and amortization totaled $10.7 million in 1997 versus $8.7 million
in 1996. A majority of this $2.0 million or 23.0% increase in 1997 is due to (i)
$1.2 million in additional depreciation and amortization on DC-9 and DC-10
capitalized parts and overhauls and (ii) $548,000 in additional depreciation on
DC-9 flight equipment financed through capital leases.
Other operating expenses per ASM is comparable between 1997 and 1996. Other
operating expenses increased by $4.5 million or 6.2% in 1997 compared to 1996
primarily due to $3.7 million in additional catering, ground handling and
personnel expenses from increased long-haul flying.
EXTRAORDINARY ITEMS
In 1996, the Company paid approximately $4.7 million to GPA Group plc and
its affiliate AeroUSA, Inc. 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 to
American a $10.25 million promissory note secured by certain assets of the
Company (the "American Note"). The Company paid American $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, net of
income taxes, of approximately $357,000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
As promulgated by the Financial Accounting Standards Board's (the "FASB")
Emerging Issues Task Force, in fourth quarter 1997, the Company wrote off
business process reengineering costs it had previously capitalized. As discussed
below in INFORMATION TECHNOLOGY SYSTEMS, the Company has commenced and committed
significant resources to upgrading its business processes and information
technology for strategic and year 2000 positioning. The write-off totaled
approximately $450,000, net of income tax benefit of approximately $300,000.
17
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires the
presentation of "Basic" earnings per share, representing income available to
common shareholders divided by the weighted average number of Common Stock
shares outstanding for the period, and "Diluted" earnings per share, which
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock shares were exercised or converted into Common
Stock shares or resulted in the issuance of Common Stock shares that then shared
in the earnings of the Company. SFAS No. 128 requires restatement of all prior
period earnings per share data presented. The Company adopted the provisions of
SFAS No. 128 as of December 31, 1997. The adoption of SFAS No. 128 resulted in
the restatement of previously reported earnings per share information.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which lists required disclosures about capital
structure that had been included in a number of previously existing statements
and opinions. SFAS No. 129 is effective for periods ending after December 15,
1997. The Company adopted the provisions of SFAS No. 129 as of December 31,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS requires reclassification of financial statements for
earlier periods provided for comparative purposes. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 requires restatement of comparative
information presented for earlier periods. SFAS No. 131 is effective for periods
beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997 and requires restatement of
comparative information presented for earlier periods.
Management does not expect adoption of SFAS No. 130, 131 or 132 to have a
material impact on the Company's previously reported financial information.
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.
18
<PAGE>
OPERATING REVENUES
Operating revenues totaled $384.5 million in 1996 compared to $346.9 million
in 1995, an increase of $37.6 million or 10.8%. Significant year to year
variances were as follows:
PASSENGER AND CHARTER
The following table compares operating passenger revenues and statistics, in
thousands, except as otherwise indicated, for the years ended 1996 and 1995:
<TABLE>
<CAPTION>
INCREASE
1996 1995 (DECREASE) %
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues............................................. $ 133,019 $ 122,079 10,940 9.0
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)
Passengerload factor........................................... 55.1% 52.3% 2.8 5.4
Yield.......................................................... 26.2 NTS 24.9 NTS 1.3 NTS 5.2
Transpac:
Passenger revenues............................................. $ 173,419 $ 156,155 17,264 11.1
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 NTS 6.2 NTS 0.3 NTS 4.8
Southpac:
Passenger revenues............................................. $ 19,828 $ 19,293 535 2.8
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 NTS 11.1 NTS 0.7 NTS 6.3
Overseas Charter:
Charter revenues............................................... $ 27,835 $ 22,167 5,668 25.6
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>
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 RPM, respectively, were augmented by an increase in Interisland
yield of 1.3 CENTS or 5.2%.
Increases in Interisland revenue passengers carried and RPM 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
19
<PAGE>
5.6% in its passengers carried and RPM, respectively. Increases in revenue
passengers carried and RPM were a direct result of increased frequencies in the
Transpac market as denoted by the increase in Transpac ASM 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.
Overseas charter revenues in 1996 totaled $27.8 million, an increase over
$22.2 million of 1995 Overseas charter revenues of $5.6 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
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.
The following table compares operating expenses per ASM by major category
for 1996 and 1995:
<TABLE>
<CAPTION>
INCREASE
1996 1995 (DECREASE) %
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Wages and benefits......................................... 2.13 NTS 2.31 NTS (0.18) NTS (7.8)
Aircraft fuel, including taxes and oil..................... 1.49 1.21 0.28 23.1
Maintenance materials and repairs.......................... 1.35 1.30 0.05 3.8
Rentals and landing fees................................... 0.69 0.72 (0.03) (4.2)
Sales commissions.......................................... 0.26 0.30 (0.04) (13.3)
Depreciation and amortization.............................. 0.17 0.17 0.00 0.0
Other...................................................... 1.41 1.45 (0.04) (2.8)
--- --- ----- ---------
Total.................................................. 7.50 NTS 7.46 NTS 0.04 NTS 0.5
--- --- ----- ---------
--- --- ----- ---------
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 9.0% in 1997 from 1996. Significant year to
year variances were as follows:
Aircraft Fuel per ASM increased 0.28 CENTS or 23.1%. The Company incurred
approximately $19.2 million or 33.8% more Aircraft Fuel in 1996 than 1995. The
increase was principally due to (i) approximately $2.9 million more in fuel
taxes 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
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 per ASM increased 0.05 CENTS or 3.8% in
1996. Maintenance materials and repairs in 1996 increased by approximately $8.4
million or 13.9% over 1995. A majority of the increase was due to $7.6 million
more in maintenance expense 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.
Other operating expenses per ASM decreased 0.04 CENTS or 2.8% in 1996
reflecting the dilutive effect of increased ASM offset by an increase in
purchased services by $2.3 million or 11.4% to $22.5 million in 1996 from $20.2
million in 1995 primarily from additional ground handling and security charges
due to increased frequencies by the Company incurred in 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has various options available to meet its
capital, debt and operating commitments, including cash and liquid short-term
investment securities on hand at December 31, 1997 of $19.7 million, internally
generated funds and a credit facility with total availability of $11.9 million
as of December 31, 1997, with aggregate term loans and letters of credit
outstanding in the amounts of $5.2 million and $100,000, respectively. 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.
Cash and cash equivalents for the year ended December 31, 1997 decreased by
$21.5 million from December 31, 1996. Operating activities for the year ended
December 31, 1997 provided $4.1 million in cash and cash equivalents. Investing
activities for the year ended December 31, 1997, used $22.5 million of cash and
cash equivalents to acquire property and equipment and short-term investment
securities of $4.0 million, partially offset by $1.4 million in proceeds
received from the disposition of equipment. The Company expended $18.5 million
of its $19.2 million in planned capital expenditures for 1997. Capitalized
portions of scheduled DC-9 checks and overhauls, consolidation of the Company's
overseas passenger and baggage processing operations into the Honolulu
Interisland Terminal and, as discussed below, continued investments in improved
software and related hardware represent a majority of these capital
expenditures. Financing activities for the year ended December 31, 1997 used
$4.6 million in cash and cash equivalents, the net result of $2.7 million in
proceeds received through the exercise of options and warrants and $7.3 million
in net payments for debt and capital lease obligations.
During 1997 and through the date of this report, various events occurred
which could affect the Company in the future. Management cannot currently
estimate the impact, if any, of these events on its results of operations,
liquidity or capital resources:
1) Effective July 15, 1997, the Company consummated a code share agreement with
American, which was implemented on March 2, 1998. As a result, 974,669
warrants issued to American's parent company, AMR Corporation ("AMR"),
became exercisable at $1.07 per share.
Further, in July 1997, the Company entered into a marketing alliance with
Continental Airlines, Inc. and Continental Micronesia, Inc. (together
"Continental") that will make the Company the primary Interisland carrier
for the two international airlines. Implementation of the Continental
agreement is expected to be completed by June 1998;
2) On July 25, 1997, a competitor in the Interisland market, Mahalo Air, Inc.
("Mahalo"), filed a voluntary petition for relief under Chapter 11, Title 11
of the U.S. Bankruptcy Code and suspended its flight operations on September
2, 1997. Mahalo was ordered into Chapter 7 liquidation by the U.S.
Bankruptcy Court on January 26, 1998;
3) In an attempt to boost tourism, effective September 1, 1997, a two-year
moratorium was placed on aircraft landing fees at all airports in Hawaii by
the Governor of the State of Hawaii. The Governor has reserved the right,
however to reinstate the landing fee charges before the two-year period
ends. Based on current flight schedules, the Company anticipates that it
could save up to $6.0 million per year as a result of the moratorium;
4) On January 1, 1997, certain Federal passenger and cargo excise taxes lapsed.
Effective March 7, 1997 through September 30, 1997, the taxes were
reinstated with the airline industry being subject to a 10% passenger excise
tax on each ticket sold (other than Transpac flights), a 6.25% cargo excise
tax and a $6 international departure tax (including Transpac and Overseas
Charter flights). Effective October 1, 1997, a new law was enacted to
replace the passenger excise tax and adjust the international departure tax.
The new legislation includes a gradual reduction in the 10% airline ticket
tax to 7.5% by the year 2002, a phasing in of a $3 "head tax" per domestic
flight segment, an increase in the round-trip
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international departure and arrival taxes from $6 to $24 per passenger for
flights not originating or ending in a domestic location and a tax on the
purchase of frequent flier miles. The 6.25% cargo excise tax remains
unchanged. The Company has and will adjust its fares accordingly due to
these enacted tax changes 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;
5) Under the recently completed U.S.-Japan Memorandum of Consultation, the U.S.
received authority to allocate to U.S. carriers new routes and 90 new flight
frequencies between the U.S. and Japan. While the DOT has tentatively
awarded a number of frequencies to U.S. carriers already providing service
between the U.S. and Japan, the DOT in its February 3, 1998 notice also
started a procedure to select a new carrier to provide service between the
two countries starting in 1998 and another in the year 2000. In February
1998, the Company filed an application with the DOT to provide daily nonstop
air service between Kahului, Maui, and Narita Airport in Tokyo, Japan, a
route not currently served on a scheduled basis by any carrier, starting in
the year 2000. On March 16, 1998, the Company received tentative approval
from the DOT to provide such service. Commentary from parties objecting to
the new route awards are due within 10 days of the award notification. The
Company will then have 7 days to respond to objections before the DOT
finalizes its approval. There can be no assurance that the Company will
receive final DOT approval or that, should it receive approval, the Company
will be successful in its efforts to provide such service.
Throughout 1997 and through the date of this report, management continued
the efforts it commenced in 1996 to improve its liquidity and capital resources
which, among other things, included:
1) Receiving in January 1996, 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, 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");
2) Completing in September 1996, a shareholder rights offering and an investor
offering, which collectively raised approximately $39.3 million in gross
proceeds of equity capital through the issuance of 12,092,500 new shares of
Common Stock at the subscription price of $3.25 per share;
3) 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 of the
American Note by the Company to American. As discussed above, in
December 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;
(iv) Issuance of warrants to AMR, which entitled the holder to acquire up to
1,897,946 shares of Common Stock 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 warrants were exercisable
immediately and the remaining one-half to become exercisable only if
American and the
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Company entered into a code sharing arrangement which would allow
American to place its two letter flight designator code ("AA") on
selected Interisland flights of the Company. As discussed above, in
July 1997, the Company consummated the code share marketing agreement
with American. As a result, all of the warrants became exercisable upon
implementation of the code share marketing agreement. If not exercised,
the warrants expire on September 11, 2001;
4) 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 extended 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.
DERIVATIVE FINANCIAL INSTRUMENTS
Beginning March 1, 1997, the Company commenced a program utilizing crude oil
forward and option contracts to manage market risks and hedge its financial
exposure resulting from fluctuations in its aircraft fuel costs. The Company
employs a strategy whereby crude oil forward and option contracts are used to
cover up to 45% of the Company's anticipated aircraft fuel needs on a rolling
twelve month basis.
At December 31, 1997, the Company had petroleum forward contracts to
purchase 230,000 barrels of crude oil in the aggregate amount of $4.5 million
through June 1998. Also, at December 31, 1997, the Company had option contracts
on notional amounts of 100,000 barrels of crude oil amounting to $2.1 million
through February 1998. These forward and option contracts represented
approximately 15 % of the Company's anticipated 1998 aircraft fuel needs.
INFORMATION TECHNOLOGY SYSTEMS
In 1997, the Company commenced efforts to update its information technology
systems for strategic positioning as well as to address issues associated with
the year 2000. The Company is currently in the process of bringing a number of
major operating applications on line. These information technology projects are
designed to either replace or enhance existing systems, including local and wide
area networks, yield management, revenue and financial accounting, human
resources and payroll. Implementation of these systems is scheduled for
completion by the end of 1998, and are expected to cost approximately $10 to $11
million in total. As of December 31, 1997, approximately $6.5 million had been
expended for these projects.
In addition to replacing a number of core information systems, the Company
is also actively engaged in inventorying, assessing, and remediating systems
that may be impacted by the year 2000 issue. The Company has hired a dedicated
director for year 2000 compliance and is working aggressively towards mitigating
the impact of the year 2000 date problem. Current Company efforts are focused on
identifying and remediating mission critical operations with the goal of
maintaining safety with minimal disruption to customer services.
Along with the identification of information systems vulnerable to year 2000
issues, the Company is also conducting an exhaustive review of its hardware and
related systems to assess and mitigate any potential year 2000 risk. Toward this
end, the Company has adopted a strategy of partnerships with industry and trade
associations which will allow a more thorough review while reducing resources
expended through duplication and overlap.
The Company is developing a project framework based on best practices
currently being used by other industry and government entities. While the
ultimate cost of year 2000 compliance is unknown at this time, the Company has
avoided substantial costs through its replacement of major information systems.
Because of the variables associated with the year 2000 date problem,
management cannot currently estimate the necessary commitment required to
address all year 2000 system issues, give assurance that in-
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progress system transitions will be sufficient or assure that the Company will
not be affected by the year 2000 issue in some form or manner.
FREQUENT FLYER PROGRAM
The Company's Gold Plus (to be renamed HawaiianMiles in March 1998) frequent
flyer program was initiated in 1983. As of December 31, 1997 and 1996, the
Company's Gold Plus membership had more than 642,000 and 571,000 members,
respectively, including approximately 432,000 and 349,000 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 mile 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
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, 1997 and 1996, Gold Plus members had accumulated
approximately 3.0 billion and 2.4 billion miles, respectively, representing
liabilities totaling approximately $1.1 million and $800,000, respectively. The
Company's accruals assume full redemption of mileage points. During the years
ended December 31, 1997, 1996 and 1995, 736 million, 857 million and 581 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 2.4%, 2.9% and 2.2% of Interisland traffic and a negligible
percentage of Transpac and Southpac traffic in 1997, 1996 and 1995,
respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Financial Statements, accompanying Notes and related
Independent Auditors' Report and Selected Financial and Statistical Data are
contained in Part IV, Item 14 of this Form 10-K and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information provided in the Company's 1998 Proxy Statement is incorporated
herein by reference other than the following, which comprise the Executive
Officers of the Company.
JOHN W. ADAMS has been Chairman of the Board of Directors of Hawaiian
Airlines since February 2, 1996. He is also Chairman of the Executive Committee
and has been a director of the Company since January 31, 1996. He has been the
President of Smith Management Company since 1984. He is also Chairman of the
Board and Chief Executive Officer of Harvard Industries, Inc. He was Chairman of
the Board of both Servico, Inc and Regency Health Services, Inc. until 1997. Age
54.
PAUL J. CASEY has been President and Chief Executive Officer of Hawaiian
Airlines since April 1997. He has also been a director and a member of the
Executive Committee of Hawaiian Airlines since April 1997. He was the President
and Chief Executive Officer of the Hawaii Visitors and Convention Bureau from
1995 until March 1997. He was Managing Director--Asia/Pacific of the Thomas Cook
Group during 1994. He was Vice President--International Division of Continental
Airlines from 1991 until 1994, and Vice President--Asia/Pacific of Continental
Airlines from 1985 until 1991. Age 52.
JOHN L. GARIBALDI has been Executive Vice President and Chief Financial
Officer of Hawaiian Airlines since May 1996. He was Vice President and Chief
Financial Officer of the Queen's Health Systems from 1992 until 1996 and Senior
Vice President-Finance and Planning and Chief Financial Officer of Aloha
Airgroup, Inc./Aloha Airlines, Inc. from 1985 until 1992. Age 45.
JOHN J. HAPP has been Senior Vice President-Marketing & Sales since December
15, 1997. He served dual roles of Vice President Market Planning for LTU
Airlines and Vice President Marketing for their subsidiary Go America from 1996
to 1997. From 1989 to 1996 he held various senior marketing and business
development positions at Continental Airlines, Inc. including most recently
Managing Director of the Newark Business Unit. Age 42.
RUTHANN S. YAMANAKA has been Senior Vice President-Human Resources since
March 1, 1998. She was Senior Vice President-Assistant Director, Human Resources
for Bank of Hawaii from July 1994 through February 1998 and Manager, Quality
Assurance Administration since 1988. Age 44.*
LYN F. ANZAI has been Vice President-General Counsel and Corporate Secretary
of Hawaiian Airlines since July 1997. She was Senior Counsel in the
Corporate/Investment Legal Division of Kamehameha Schools Bishop Estate from
November 1990 until July 1997. Age 55.
DAVID M. BOAZ has been Vice President-Flight Operations since June 1997. He
was Managing Director of Delta Airlines, Inc. in the People's Republic of China
from 1996 to 1997. He was Chief Pilot in Los Angeles for Delta Airlines, Inc.
from 1991 until 1996. Age 61.
MICHAEL J. CONROY was Vice President-Human Resources of Hawaiian Airlines
from November 1996 to February 1998. He was Vice President-Human Resources of
Ringier America from 1990 until 1996. Age 51.*
H. NORMAN DAVIES has been Vice President-Safety and Security of Hawaiian
Airlines since January 6, 1997. He was Chief Pilot in New York of Delta
Airlines, Inc. from November 1991 until June 1996. Age 61.
CLARENCE K. LYMAN has been Vice President-Finance, Treasurer and Assistant
Corporate Secretary of Hawaiian Airlines since 1991. Age 51.
MICHAEL P. LOO has been Vice President-Controller of Hawaiian Airlines since
1996. He was Staff Vice President-Controller of Hawaiian Airlines from 1994
until 1995. He was previously with KPMG Peat Marwick LLP until 1993. Age 33.
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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. Age 55.
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 of Hawaiian Airlines from 1991
until 1995. Age 54.
* Ruthann S. Yamanaka succeeded Michael J. Conroy as Senior Vice
President-Human Resources effective March 1, 1998.
All officers are appointed annually by the Board of Directors at their first
meeting after the annual meeting of the stockholders at which the Board of
Directors is elected.
No executive officer of the Company bears any relationship by blood,
marriage or adoption to any other executive officer or director, except for
directors John W. Adams, Robert G. Coo and William Boyce Lum who are related
through marriage.
In September 1993, the Company, HAL, INC. and West Maui Airport, Inc. filed
a voluntary petition for relief under Chapter 11. At the time or within two
years before the time of the Chapter 11 filing, Messrs. Lyman and Stewart were
executive officers of the Company, HAL, INC. and/or West Maui Airport, Inc.
Information provided in the Company's 1998 Proxy Statement is incorporated
herein by reference for Part III, Items 11 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.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C> <C>
(a) 1. Financial Statements.
Independent Auditors' Report.
Balance Sheets, December 31, 1997 and 1996.
Statements of Operations for the Years ended December 31, 1997, 1996 and 1995.
Statements of Shareholders' Equity for the Years ended December 31, 1997, 1996 and
1995.
Statements of Cash Flows for the Years ended December 31, 1997, 1996 and 1995.
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, 1997, 1996 and 1995.
Schedule of 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.
</TABLE>
<TABLE>
<S> <C> <C> <C>
(c) Exhibits.
Exhibit 3 Articles of Incorporation, Bylaws
(1) Amended and Restated Bylaws filed as Exhibit 3(2) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 are incorporated
herein by reference.
(2) Restated Articles of Incorporation filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
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 the
Company's 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 quarter ended June 30, 1995 are incorporated
herein by reference:
(b) 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;
(c) 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.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(4) The following Agreements filed as Exhibit 4 to the Company's Annual
Report on Form 10-K for the year ended 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;
(b) 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.
(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 Material Contracts
10
(a) 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.
(b) 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. 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;
(2) 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.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(c) 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) 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;
(2) Lease Amendment No. 8 dated as of January 31, 1996 to Aircraft Lease
Agreement dated September 12, 1994 between American Airlines, Inc.
and Hawaiian Airlines, Inc.;
(3) 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;
(4) Warrant for the Purchase of 948,973 shares of Class A Common Stock
issued to AMR Corporation;
(5) Warrant for the Purchase of 948,973 shares of Class A Common Stock
issued to AMR Corporation;
(6) 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.;
(7) Stock Purchase Agreement dated as of December 8, 1995, between
Hawaiian Airlines, Inc., and Airline Investors Partnership, L.P.;
(8) 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.
(d) 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 requested pursuant to Rule 406 for certain
portions thereof;
(e) The following contracts filed as Exhibit 10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 are incorporated
herein by reference:
(1) 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;
(2) 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.;
(3) Hawaiian Airlines, Inc. 1996 Nonemployee Director Stock Option Plan;
(4) Employment Agreement dated as of May 1, 1996 by and between John L.
Garibaldi and the Company;
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(5) Form of Secured Promissory Note dated September 12, 1996;
(6) Form of Stock Pledge Agreement dated as of September 12, 1996.
(f) The following contracts filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 are incorporated
herein by reference:
(1) Code Share Agreement, dated January 6, 1997, between the Company and
Wings West Airlines, Inc. filed in redacted form since confidential
treatment has been requested pursuant to Rule 24.b-2 for certain
portions thereof;
(2) Amendment No. 1 to Code Share Agreement, dated as of January 21,
1997, between the Company and Wings West Airlines, Inc.;
(3) Information Technology Services Agreement, dated as of February 1,
1997, between the Company and Electronic Data Systems Corporation filed
in redacted form since confidential treatment has been requested
pursuant to Rule 24.b-2 for certain portions thereof;
(4) Aircraft Lease Agreement, dated as of January 3, 1997, between the
Company and American Airlines, Inc. filed in redacted form since
confidential treatment has been requested pursuant to Rule 24.b-2 for
certain portions thereof;
(5) Separation Agreement and Complete Settlement and Release of All
claims, dated as of February, 1997, between the Company and Bruce R.
Nobles;
(6) Employment Agreement, effective as of April 14, 1997, between the
Company and Paul John Casey.
(g) Code Share Agreement, dated July 15, 1997, between the Company and
American Airlines, Inc. filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 are incorporated
herein by reference.
(h) Employment Agreement, effective as of December 15, 1997, between the
Company and John J. Happ.
(i) Employment Agreement, effective as of March 1, 1998, between the Company
and Ruthann S. Yamanaka.
(j) Form of warrant for the Purchase of 25,696 shares of Class A Common Stock
issued to AMR Corporation.
(k) Form of Addendum to Warrant for the Purchase of Shares of Common Stock.
(l) Form of Amendment No. 1 to Warrant Certificate No. 12 for the Purchase of
Shares of Common Stock.
(m) Form of Amendment No. 2 to Warrant Certificate No. 12 for the Purchase of
Shares of Common Stock.
(n) Form of Amendment No. 1 to Warrant Certificate No. 23 for the Purchase of
Shares of Common Stock.
(o) Form of Amendment No. 2 to Warrant Certificate No. 23 for the Purchase of
Shares of Common Stock.
(p) Aircraft Lease Agreement dated as of May 9, 1997, 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 portions thereof.
(q) Aircraft Lease Agreement dated as of December 12, 1997, 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 portions thereof.
Exhibit Consent of KPMG Marwick LLP.
23
Exhibit Power of Attorney.
24
Exhibit Financial data schedule.
27
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------------- -------------------------------------------------------------------------------------------------
<S> <C>
10(h) Employment Agreement, effective as of December 15, 1997, between the Company and John J. Happ.
10(i) Employment Agreement, effective as of March 1, 1998, between the Company and Ruthann S. Yamanaka.
10(j) Form of warrant for the Purchase of 25,696 shares of Class A Common Stock issued to AMR
Corporation.
10(k) Form of Addendum to Warrant for the Purchase of Shares of Common Stock.
10(l) Form of Amendment No. 1 to Warrant Certificate No. 12 for the Purchase of Shares of Common Stock.
10(m) Form of Amendment No. 2 to Warrant Certificate No. 12 for the Purchase of Shares of Common Stock.
10(n) Form of Amendment No. 1 to Warrant Certificate No. 23 for the Purchase of Shares of Common Stock.
10(o) Form of Amendment No. 2 to Warrant Certificate No. 23 for the Purchase of Shares of Common Stock.
10(p) Aircraft Lease Agreement dated as of May 9, 1997, 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 portions thereof.
10(q) Aircraft Lease Agreement dated as of December 12, 1997, 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 portions thereof.
23 Consent of KPMG Marwick LLP.
24 Power of Attorney.
27 Financial data schedule.
</TABLE>
31
<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.
<TABLE>
<S> <C> <C>
March 31, 1998 By /s/ PAUL J. CASEY
------------------------------------------
Paul J. Casey
President and Chief Executive Officer
(Principal Executive Officer)
March 31, 1998 By /s/ JOHN L. GARIBALDI
------------------------------------------
John L. Garibaldi
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
</TABLE>
32
<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, 1997 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Honolulu, Hawaii
February 26, 1998
F-1
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 15,713 $ 37,237
Investment securities................................................................... 4,003 --
Accounts receivable, net of allowance for doubtful accounts of $500 in 1997 and 1996.... 31,387 28,022
Inventories, net of allowance for obsolescence of $120 and $315 in 1997 and 1996,
respectively.......................................................................... 9,350 7,050
Assets held for sale.................................................................... 1,344 1,344
Prepaid expenses........................................................................ 4,344 4,845
---------- ----------
TOTAL CURRENT ASSETS.................................................................. 66,141 78,498
---------- ----------
PROPERTY AND EQUIPMENT:
Flight equipment........................................................................ 68,885 49,419
Ground equipment, buildings and leasehold improvements.................................. 14,523 6,536
---------- ----------
Total................................................................................. 83,408 55,955
Accumulated depreciation and amortization............................................... (17,165) (10,161)
---------- ----------
PROPERTY AND EQUIPMENT, NET........................................................... 66,243 45,794
---------- ----------
OTHER ASSETS:
Assets held for sale.................................................................... 3,970 5,083
Long-term prepayments and other......................................................... 6,920 4,362
Reorganization value in excess of amounts allocable to identifiable assets, net......... 57,550 62,552
---------- ----------
TOTAL OTHER ASSETS.................................................................... 68,440 71,997
---------- ----------
TOTAL ASSETS.......................................................................... $ 200,824 $ 196,289
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Financial Statements
F-2
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt....................................................... $ 2,260 $ 2,247
Current portion of capital lease obligations............................................ 4,244 2,912
Accounts payable........................................................................ 27,587 26,799
Air traffic liability................................................................... 21,169 25,524
Other accrued liabilities............................................................... 14,934 12,623
---------- ----------
TOTAL CURRENT LIABILITIES............................................................. 70,194 70,105
---------- ----------
LONG-TERM DEBT............................................................................ 3,991 6,353
---------- ----------
CAPITAL LEASE OBLIGATIONS................................................................. 10,580 7,387
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated pension and other postretirement benefit obligations........................ 23,353 26,100
Other................................................................................... 5,833 3,471
---------- ----------
TOTAL OTHER LIABILITIES AND DEFERRED CREDITS.......................................... 29,186 29,571
---------- ----------
SHAREHOLDERS' EQUITY:
Common Stock--$.01 par value, 60,000,000 shares authorized,
40,624,586 and 38,816,972 shares issued and outstanding in
1997 and 1996, respectively (263,983 and 445,125 shares
issuable in 1997 and 1996, respectively).............................................. 409 393
Special Preferred Stock--$.01 par value, 2,000,000 shares
authorized, seven shares issued and outstanding....................................... -- --
Capital in excess of par value.......................................................... 99,237 95,827
Warrants................................................................................ 3,153 1,557
Notes receivable from Common Stock sales................................................ (1,714) (1,714)
Accumulated deficit..................................................................... (14,212) (13,190)
---------- ----------
SHAREHOLDERS' EQUITY.................................................................. 86,873 82,873
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTES 3, 5, 6, 8, 9, 10 AND 11)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $ 200,824 $ 196,289
---------- ----------
---------- ----------
</TABLE>
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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger........................................................................ $ 332,154 $ 326,266 $ 297,527
Charter.......................................................................... 37,172 27,835 22,167
Cargo............................................................................ 21,272 20,123 18,169
Other............................................................................ 13,618 10,249 9,041
--------- --------- ---------
TOTAL.......................................................................... 404,216 384,473 346,904
--------- --------- ---------
OPERATING EXPENSES:
Wages and benefits............................................................... 114,571 108,626 108,274
Aircraft fuel, including taxes and oil........................................... 78,137 75,884 56,724
Maintenance materials and repairs................................................ 76,267 68,984 60,581
Rentals and landing fees......................................................... 32,707 34,995 33,700
Sales commissions................................................................ 13,033 13,369 13,875
Depreciation and amortization.................................................... 10,665 8,731 7,859
Other............................................................................ 76,334 71,857 67,792
--------- --------- ---------
TOTAL.......................................................................... 401,714 382,446 348,805
--------- --------- ---------
OPERATING INCOME (LOSS).......................................................... 2,502 2,027 (1,901)
--------- --------- ---------
NONOPERATING INCOME (EXPENSE):
Interest and amortization of debt expense........................................ (2,439) (3,887) (4,341)
Interest income.................................................................. 2,045 1,455 762
Loss on disposition of equipment................................................. (140) (729) (233)
Other, net....................................................................... (820) (297) 207
--------- --------- ---------
TOTAL.......................................................................... (1,354) (3,458) (3,605)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE................................................... 1,148 (1,431) (5,506)
INCOME TAXES:
Currently Payable................................................................ (78) (43) --
Reduction to Excess Reorganization Value......................................... (1,642) (825) --
--------- --------- ---------
TOTAL.......................................................................... (1,720) (868) --
--------- --------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE........................................................................ (572) (2,299) (5,506)
Extraordinary Gains, Net of Income Taxes in 1996 (Currently Payable of $26,
Reduction to Excess Reorganization Value of $485)................................ -- 766 --
--------- --------- ---------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE................ (572) (1,533) (5,506)
Cumulative Effect of Change in Accounting Principle, Net of Income Taxes......... (450) -- --
--------- --------- ---------
NET LOSS......................................................................... $ (1,022) $ (1,533) $ (5,506)
--------- --------- ---------
--------- --------- ---------
NET LOSS PER COMMON STOCK SHARE:
Before extraordinary items and cumulative effect of change in accounting
principle...................................................................... $ (0.02) $ (0.08) $ (0.59)
Extraordinary items, net of income taxes......................................... -- 0.03 --
Cumulative effect of change in accounting principle, net of income taxes......... (0.01) -- --
--------- --------- ---------
NET LOSS PER COMMON STOCK SHARE.................................................... $ (0.03) $ (0.05) $ (0.59)
--------- --------- ---------
--------- --------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................... 40,361* 29,032* 9,400*
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------------
* 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 (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON
STOCK,
WARRANTS CAPITAL
AND SPECIAL IN EXCESS
OPTIONS COMMON PREFERRED OF PAR
ISSUABLE STOCK STOCK VALUE WARRANTS
---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......................................... $ 40,000 $ -- $ -- $ -- $ --
Net loss........................................................... -- -- -- -- --
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 --
Amortization of unearned compensation on options to acquire 592,500
shares of Common Stock........................................... -- -- -- -- --
Recordation of minimum pension liability........................... -- -- -- -- --
---------- ----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1995......................................... -- 94 -- 41,193 900
Net loss........................................................... -- -- -- -- --
Amortization of unearned compensation on options to acquire 592,500
shares of Common Stock........................................... -- -- -- -- --
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 974,669 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 --
Exercise of options to acquire 115,000 shares of Common Stock...... -- 1 -- 185 --
Repayment of notes receivable from Common Stock sales.............. -- -- -- -- --
Exercise of warrants to acquire 300,000 shares of Common Stock..... -- 3 -- 665 (168)
Reversal of minimum pension liability.............................. -- -- -- -- --
---------- ----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1996......................................... $ -- $ 393 $ -- $ 95,827 $ 1,557
Net loss........................................................... -- -- -- -- --
Issuance of warrants to AMR to acquire 974,669 shares of Common
Stock............................................................ -- -- -- -- 2,328
Exercise of options to acquire 307,500 shares of Common Stock...... -- 3 -- 495 --
Exercise of warrants to acquire 1,318,972 shares of Common Stock... -- 13 -- 2,915 (732)
---------- ----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997......................................... $ -- $ 409 $ -- $ 99,237 $ 3,153
---------- ----------- ----------- --------- -----------
---------- ----------- ----------- --------- -----------
<CAPTION>
NOTES
RECEIVABLE MINIMUM
FROM COMMON UNEARNED PENSION ACCUMULATED
STOCK SALES COMPENSATION LIABILITY DEFICIT
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......................................... $ -- $ -- $ -- $ (6,151)
Net loss........................................................... -- -- -- (5,506)
Issuance of 8,740,060 shares of Common Stock (636,247 shares of
Common Stock issuable)........................................... -- -- -- --
Issuance of warrants to acquire 989,011 shares of Common Stock..... -- --
Grant of options to acquire 592,500 shares of Common Stock......... -- (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......................................... -- (182) (1,170) (11,657)
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..................................................... -- -- -- --
Repurchase and retirement of 827,221 shares of Common Stock from
GPA.............................................................. -- -- -- --
Sale of 18,181,818 shares of Common Stock to AIP, net of $2.2
million of transaction costs..................................... -- -- -- --
Issuance of warrants to AMR to acquire 974,669 shares of Common
Stock............................................................ -- -- -- --
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......................... (1,926) -- -- --
Exercise of options to acquire 115,000 shares of Common Stock...... -- -- -- --
Repayment of notes receivable from Common Stock sales.............. 212 -- -- --
Exercise of warrants to acquire 300,000 shares of Common Stock..... -- -- -- --
Reversal of minimum pension liability.............................. -- -- 1,170 --
----------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1996......................................... $ (1,714) $ -- $ -- $ (13,190)
Net loss........................................................... -- -- -- (1,022)
Issuance of warrants to AMR to acquire 974,669 shares of Common
Stock............................................................ -- -- -- --
Exercise of options to acquire 307,500 shares of Common Stock...... -- -- -- --
Exercise of warrants to acquire 1,318,972 shares of Common Stock... -- -- -- --
----------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1997......................................... $ (1,714) $ -- $ -- $ (14,212)
----------- ------------- ----------- ------------
----------- ------------- ----------- ------------
</TABLE>
See accompanying Notes to Financial Statements
F-5
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $ (1,022) $ (1,533) $ (5,506)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization........................................... 7,144 5,260 4,258
Amortization of Exess Reorganization Value.............................. 3,521 3,471 3,601
Net periodic postretirement benefit cost................................ 935 726 4,269
Loss on disposition of equipment........................................ 140 729 233
Income tax benefit recognized as a reduction to Excess Reorganization
Value................................................................. 1,342 1,310 --
Stock option compensation............................................... -- 1,253 2,005
Extraordinary gains, net of income taxes currently payable.............. -- (1,251) --
Increase in accounts receivable......................................... (3,365) (10,485) (2,622)
Decrease (increase) in inventories...................................... (2,300) 598 (1,414)
Decrease in prepaid expenses............................................ 501 959 275
Increase in accounts payable............................................ 788 1,867 17,653
Decrease in air traffic liability....................................... (4,355) (4,937) (9,921)
Increase (decrease) in other accrued liabilities........................ 2,311 (3,106) 3,432
Other, net.............................................................. (1,553) 6,138 2,525
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 4,087 999 18,788
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities........................................... (4,003) -- --
Additions to property and equipment......................................... (18,468) (9,677) (9,165)
Net proceeds from disposition of equipment.................................. 1,422 2,780 4,225
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................................. (21,049) (6,897) (4,940)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock.................................................. 2,694 52,846 --
Issuance of long-term debt................................................ 792 7,564 1,591
Repayment of long-term debt............................................... (3,141) (19,258) (10,644)
Repayment of capital lease obligations.................................... (4,907) (2,708) (2,907)
Proceeds on notes receivable from Common Stock sales...................... -- 212 --
Repurchase and retirement of Common Stock................................. -- (910) --
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................... (4,562) 37,746 (11,960)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (21,524) 31,848 1,888
Cash and cash equivalents--Beginning of Year.................................. 37,237 5,389 3,501
---------- ---------- ----------
CASH AND CASH EQUIVALENTS--END OF YEAR........................................ $ 15,713 $ 37,237 $ 5,389
---------- ---------- ----------
---------- ---------- ----------
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................................................... $ 2,267 $ 3,579 $ 3,824
Income taxes paid.................................................................. -- 250 --
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Property and equipment financed through capital lease.............................. 9,432 -- --
Issuance of warrants to AMR to acquire 974,669 shares of Common Stock.............. 2,328 825 --
Reclassification of accounts payable to long-term debt............................. -- 10,250 --
Remeasurement of compensation on options to acquire shares of Common Stock......... -- 1,071 --
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-7
<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
$404.2 million for 1997. The Company is engaged primarily in the scheduled
transportation of passengers, cargo and mail. The Company's passenger airline
business is its chief source of revenue. Scheduled passenger service consists
of, on average and depending on seasonality, approximately 130 to 150 flights
per day among the six major islands of the State of Hawaii ("Interisland"),
daily service to Las Vegas and four key United States ("U.S.") West Coast
gateway cities ("Transpac"), and twice weekly service to Pago Pago, American
Samoa and weekly service to Papeete, Tahiti in the South Pacific ("Southpac").
In 1997 the Company also operated, on average, six charter flights per week to
Las Vegas and effective February 1997 to April 1997 and from May 1997 through
December 1997, on average, two and one charter rotations per week, respectively,
to Anchorage ("Overseas Charter"). The Company operates a fleet of 13 DC-9
aircraft and nine DC-10 aircraft.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 equivalent
investments at December 31, 1997 and 1996 were valued at cost and amounted to
$11.6 million and $33.2 million, respectively.
INVESTMENT SECURITIES
Investment securities at December 31, 1997 consist of U.S. Treasury and
mortgage-backed securities. The Company classifies its debt securities as
available-for-sale with such securities recorded at cost, which approximates
fair-value. Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Premiums and discounts are amortized or accreted over the life of the related
available-for-sale security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
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, 1997 and 1996, the
Company had approximately $5.3 million and $6.4 million, respectively, of
expendable inventory parts and rotable flight equipment held for sale internally
or on a consignment basis with a third party.
F-8
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
<TABLE>
<S> <C>
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
</TABLE>
Maintenance and repairs are charged to operations as incurred, except that
(i) costs of overhauling engines are charged to operations in the year the
engines are removed for overhaul and (ii) 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.
In 1997, the Company commenced concentrated efforts to update its
information technology systems for strategic reasons. Direct external costs
subsequent to the preliminary stage of these projects are being capitalized as
property and equipment. Capitalized costs will be amortized on a straight-line
basis over the estimated useful life of each installation or module once it is
complete and ready for its intended use.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
The Company emerged from Chapter 11 bankruptcy on September 12, 1994 (the
"Effective Date") with Hawaiian Airlines being the sole surviving corporation.
Under fresh start reporting, the reorganization value of the entity was
allocated to the 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 ("Excess Reorganization Value") in the accompanying
balance sheets. Excess Reorganization Value is amortized on a straight-line
basis over 20 years. Accumulated amortization at December 31, 1997 and 1996
totaled approximately $11.7 million and $8.2 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.
F-9
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments comprised of crude oil
forward and options contracts to manage market risks and hedge its exposure to
fluctuations in its aircraft fuel costs. Realized and unrealized changes in the
fair value of the derivative financial instruments are recognized in income in
the period in which the change occurs. The Company's practice is to not hold or
issue financial instruments for trading purposes.
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.
EARLY EXTINGUISHMENT OF DEBT
In 1996, the Company paid approximately $4.7 million to GPA Group plc and
its affiliate AeroUSA, Inc. 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 to
American Airlines, Inc. ("American") a $10.25 million promissory note secured by
certain assets of the Company (the "American Note"). The Company paid American
$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, net of income taxes, of approximately $357,000.
F-10
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS PROCESS REENGINEERING COSTS
As promulgated by the Financial Accounting Standards Board's (the "FASB")
Emerging Issues Task Force, in fourth quarter 1997, the Company wrote off
business process reengineering costs which had been incurred and capitalized in
the implementation of information technology projects. The write-off totaled
approximately $450,000, net of income tax benefit of approximately $300,000 and
is reflected as a cumulative effect of change in accounting principle in the
accompanying statements of operations.
LOSS PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires the
presentation of "Basic" earnings per share, representing income available to
common shareholders divided by the weighted average number of Common Stock
shares outstanding for the period, and "Diluted" earnings per share, which
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock shares were exercised or converted into Common
Stock shares or resulted in the issuance of Common Stock shares that then shared
in the earnings of the Company. SFAS No. 128 requires restatement of all prior
period earnings per share data presented. The Company adopted the provisions of
SFAS No. 128 as of December 31, 1997. The adoption of SFAS No. 128 resulted in
the restatement of previously reported earnings per share information.
Rights, warrants and options to purchase shares of the Company were
outstanding but were not included in the computation of diluted earnings per
share because the inclusion of these rights, warrants and options would have had
an antidilutive effect on the loss per share. See Note 9.
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 February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which lists required disclosures about capital
structure that had been included in a number of previously existing statements
and opinions. SFAS No. 129 is effective for periods ending after December 15,
1997. The Company adopted the provisions of SFAS No. 129 as of December 31,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS requires reclassification of financial statements for
earlier
F-11
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
periods provided for comparative purposes. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 requires restatement of comparative
information presented for earlier periods. SFAS No. 131 is effective for periods
beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997 and requires restatement of
comparative information presented for earlier periods.
Management does not expect adoption of SFAS No. 130, 131 or 132 to have a
material impact on the Company's previously reported financial information.
RECLASSIFICATIONS
Certain prior year amounts were reclassified to conform to the 1997
presentation. Such reclassifications had no effect on previously reported
results of operations.
3. FINANCIAL INSTRUMENTS AND FAIR VALUES
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and other accrued liabilities 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 cost of investment securities held at December 31, 1997, consisting of
U.S. Treasury and mortgaged backed securities amounted to $3.0 million and $1.0
million, respectively, which approximates fair value. Investment securities held
at December 31, 1997 are classified as available-for-sale and mature or are
callable by the Company during 1998. Realized gains and losses from the sale of
such securities were not material in 1997. There were no investment securities
at December 31, 1996.
The estimated fair values of long-term debt amounted to $6.3 million and
$8.6 million at December 31, 1997 and 1996, respectively. These fair values were
estimated by discounting the future cash flow requirements of each instrument at
rates currently offered at the respective year-end dates to the Company for
similar debt instruments of comparable maturities.
Commencing in 1997, the Company utilizes derivative financial instruments
comprised of crude oil forward and options contracts to hedge its financial
exposure resulting from fluctuations in its aircraft fuel costs. At December 31,
1997, the Company had petroleum forward contracts to purchase 230,000 barrels of
crude oil in the aggregate amount of $4.5 million through June 1998. The Company
is also party to a
F-12
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FINANCIAL INSTRUMENTS AND FAIR VALUES (CONTINUED)
crude oil collar agreement whereby the Company receives or makes payments based
on the differential between a specific price and the actual crude oil price. At
December 31, 1997, the Company had agreements to exchange payments on notional
amounts of 100,000 barrels of crude oil amounting to $2.1 million through
February 1998. The estimated fair value and carrying value of these outstanding
contracts was a net payable of $320,000 at December 31, 1997. Realized and
unrealized losses on such contracts amounted to $1.1 million in 1997 and are
included as a component of aircraft fuel expense. The estimated fair value of
these contracts are based on quoted market prices and generally have maturities
of one year or less. The contracts are either exchanged or traded with
counterparties of high credit quality; therefore, the risk of non-performance by
the counterparties is considered to be negligible.
4. FLIGHT EQUIPMENT
All of the Company's aircraft are leased except for two DC-9s. At December
31, 1997 and 1996, the composition of the Company's aircraft fleet is as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AIRCRAFT TYPE LEASED OWNED LEASED OWNED
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DC-10..................................................... 9 -- 10 --
DC-9...................................................... 11 2 11 2
-- -- -- --
Total..................................................... 20 2 21 2
-- -- -- --
-- -- -- --
</TABLE>
5. LEASES
AIRCRAFT LEASES
Nine DC-10 aircraft are leased under operating leases which expire in 2001.
Effective January 31, 1996, the Company and American agreed to a reduction in
basic rents due on DC-10 operating leases by approximately 28% through January
31, 1999, at which time such rents revert to their original levels. Five and six
DC-9 aircraft and related flight equipment are leased under operating and
capital leases, respectively, for various periods through the year 2004.
Most of the DC-9 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 1997, 1996 and 1995 was $26.6 million, $26.7 million and $25.5 million,
respectively, net of sublease rental income from operating leases of $50,000,
$102,000 and $75,000, respectively.
F-13
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
Scheduled future minimum lease commitments under operating and capital
leases for the Company as of December 31, 1997, in thousands, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
1998.................................................................... $ 16,899 $ 5,396
1999.................................................................... 20,695 5,365
2000.................................................................... 18,787 3,572
2001.................................................................... 12,785 842
2002.................................................................... 2,248 842
Thereafter.............................................................. 10,522 2,046
----------- ---------
Total minimum lease payments........................................ $ 81,936 $ 18,063
-----------
-----------
Less amount representing interest (rates ranging from 8.0% to
10.25%)........................................................... 3,239
---------
Present value of capital lease obligations.......................... 14,824
Less current portion of capital lease obligations................... 4,244
---------
Capital lease obligations, excluding current portion................ $ 10,580
---------
---------
</TABLE>
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. See Note 11. For the years ended December 31, 1997, 1996 and 1995,
the Company incurred $50.9 million, $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,
1997 and 1996 totaled $21.4 million and $14.7 million, respectively.
Amortization of property held under capital leases is included in depreciation
and amortization expense in the accompanying statements of operations.
6. DEBT
At December 31, 1997 and 1996, the Company's long-term debt, including
obligations under capital leases, consists of the following, in thousands:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Secured obligations due 1998-1999....................................... $ 6,161 $ 8,417
Other obligations due 1997-2000......................................... 90 183
Capital lease obligations due 1998-2004................................. 14,824 10,299
--------- ---------
21,075 18,899
Current portion......................................................... (6,504) (5,159)
--------- ---------
Long-term debt and capital lease obligations, excluding current
portion........................................................... $ 14,571 $ 13,740
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
Secured obligations due 1998-1999 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, 1997 and 1996, $1.0 million and $1.6
million were outstanding, respectively;
(ii) The Company maintains a Credit Facility with CIT Group/Credit Finance,
Inc. (the "Credit Facility"). The 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% (8.5% at December 31, 1997). 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, 1997, the total availability under the Credit Facility
was $11.9 million with aggregate term loans and letters of credit
outstanding in the amounts of $5.2 million and $100,000, respectively. 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.
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.
Other obligations due 1997-2000 primarily consist of tax obligations
representing allowed priority tax claims for various taxing jurisdictions, which
in accordance with the provisions of the Company's Consolidated Plan of
Reorganization dated September 21, 1993, as amended, bear interest at 7.0% per
annum and are payable in 24 quarterly installments which commenced on the first
anniversary of the Effective Date. The Company is currently in negotiations with
respective tax jurisdictions regarding approximately $500,000 of tax
obligations. At December 31, 1997 and 1996, the $500,000 is included in accounts
payable in the accompanying balance sheets.
Obligations under capital leases represent the present value of aggregate
future minimum lease payments discounted using interest rates ranging from 8.0%
to 10.25%. See Note 5.
7. 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
F-15
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
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, and
will continue to be, applied as a reduction to Excess Reorganization Value, not
as a reduction to income tax expense. While generally accepted accounting
principles require that a provision for income tax be recorded, a majority of
the provision for 1997 and 1996 will not require cash outlay as it will be
offset by net operating loss carryforwards available to the Company. As noted,
in 1997 and 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 Excess Reorganization Value.
Income tax expense attributable to income (loss) before extraordinary items
and cumulative effect of change in accounting principle in 1997 and 1996 differs
from the "expected" tax expense (benefit) for that year computed by applying the
U.S. federal corporate income tax rate of 34% to income (loss) before income
taxes, extraordinary items and cumulative effect of change in accounting
principle as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Computed "expected" tax expense (benefit)................................. $ 400 $ (500)
Amortization of Excess Reorganization Value............................... 1,200 1,200
State income taxes, net of federal income tax benefit..................... 20 100
Other..................................................................... 100 68
--------- ---------
$ 1,720 $ 868
--------- ---------
--------- ---------
</TABLE>
As a result of net operating losses and related carryforwards, the Company
was not required to provide for federal and state income taxes for 1995.
F-16
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
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, 1997 and 1996 are presented below, in thousands:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts.............................................................. $ 200 $ 200
Accumulated pension and postretirement benefits......................... 9,341 10,440
Accrued vacation........................................................ 2,085 1,741
Net operating loss carryforwards........................................ 12,055 11,423
Investment tax credit carryforward...................................... 2,569 2,569
Airframe return provision............................................... 932 735
Provision for loss on devalued assets................................... 2,442 2,404
Other................................................................... 2,191 1,579
---------- ----------
Total gross deferred tax assets....................................... 31,815 31,091
Less valuation allowance.............................................. (24,261) (24,520)
---------- ----------
Net deferred tax assets............................................... 7,554 6,571
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation..... (7,554) (6,571)
---------- ----------
Net deferred taxes.................................................... $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 and
1996 was $24.5 million and $31.6 million, respectively. The net change in the
total valuation allowance for the years ended December 31, 1997 and 1996 was a
decrease of $259,000 and a decrease of $14.5 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, as defined below, the Company underwent
another ownership change as defined under Section 382 of the Internal Revenue
Code ("IRC Section 382"). The Offerings, as defined below, 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.
The ownership change from the AIP Investment resulted in an IRC Section 382
limitation of approximately $1.7 million plus certain "built-in" income items.
This new limitation applies to all net operating losses incurred prior to the
AIP Investment. As of December 31, 1997, the Company has total net operating
loss carryovers of approximately $129.7 million of which $30.1 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. If, in future years, the Company
F-17
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
were to recognize income tax benefit from the utilization of net operating loss
carryforwards arising prior to the Effective Date, such benefit will be applied
as a reduction to Excess Reorganization Value.
8. 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 International Association of Machinists and Aerospace
Workers (AFL-CIO) ("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 Air Line Pilots Association, International ("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 and
convertible securities, insurance contract deposits and cash management and
mutual funds.
The following table summarizes the funded status of the defined benefit
plans of the Company as of December 31, 1997, in thousands:
<TABLE>
<CAPTION>
PLANS FOR PLANS FOR
WHICH WHICH ASSETS
ACCUMULATED EXCEED
BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS
-------------- --------------
<S> <C> <C>
Fair value of plan assets........................................ $ 91,108 $ 69,663
-------------- --------------
Accumulated benefit obligation:
Vested......................................................... (86,821) (54,577)
Non-vested..................................................... (8,620) (2,206)
-------------- --------------
(95,441) (56,783)
Additional benefits based on future salary levels................ (11,569) --
-------------- --------------
Projected benefit obligation..................................... (107,010) (56,783)
-------------- --------------
Plan assets in excess of (less than) projected benefit
obligations..................................................... (15,902) 12,880
Unrecognized actuarial net loss.................................. 835 1,138
-------------- --------------
Prepaid (accrued) pension cost................................. $ (15,067) $ 14,018
-------------- --------------
-------------- --------------
</TABLE>
The projected benefit obligation was determined using an assumed
weighted-average discount rate of 7.50% for 1997. At December 31, 1997, 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 1997.
F-18
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. BENEFIT PLANS (CONTINUED)
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 PLANS FOR
WHICH WHICH ASSETS
ACCUMULATED 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.
Net periodic pension cost for 1997, 1996 and 1995 included the following
components, in thousands:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the year.................. $ 3,609 $ 3,857 $ 3,248
Interest cost on projected benefit obligation................. 11,506 10,882 10,411
Actual return on plan assets.................................. (19,798) (12,621) (24,180)
Net amortization and deferral................................. 7,191 837 12,868
Early retirement provision.................................... -- -- 1,496
---------- ---------- ----------
Net periodic pension cost................................... $ 2,508 $ 2,955 $ 3,843
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The net periodic pension cost in 1997, 1996 and 1995 was determined using an
assumed weighted-average discount rate of 7.75%, 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 for the
combined effects of the early retirement program on the estimated accumulated
pension and postretirement benefit obligations of the IAM and salaried defined
benefit plans.
F-19
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. BENEFIT PLANS (CONTINUED)
POSTRETIREMENT PLANS
In addition to providing pension benefits, the Company sponsors two defined
benefit postretirement plans. Employees in the Company's non-pilot group are
eligible for certain medical benefits under one plan if they meet certain age
and service requirements at the time of retirement. Employees in the Company's
pilot group are eligible for certain medical and life insurance benefits under
another plan if they become disabled or reach normal retirement age while
working for the Company. The Company continues to fund the cost of medical and
life insurance benefits in the year incurred.
The Company's postretirement benefit plans' combined benefit obligations as
of December 31, 1997 and 1996 are as follows, in thousands:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated benefit obligation:
Retirees and dependents................................................. $ (3,982) $ (4,262)
Fully eligible active plan participants................................. (2,616) (2,955)
Other active plan participants.......................................... (7,311) (7,243)
---------- ----------
Unfunded accumulated postretirement benefit obligation.................... (13,909) (14,460)
Unrecognized net gain..................................................... (12,395) (11,587)
---------- ----------
Accrued postretirement benefit obligation............................... $ (26,304) $ (26,047)
---------- ----------
---------- ----------
</TABLE>
The accumulated postretirement benefit obligation was determined using an
assumed weighted-average discount rate of 7.50% and 7.75% for 1997 and 1996,
respectively.
Net periodic postretirement benefit cost for 1997, 1996 and 1995 included
the following components, in thousands:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the year.......... $ 714 $ 923 $ 1,593
Interest cost on accumulated postretirement benefit obligation....... 1,044 1,153 1,785
Net amortization and deferral........................................ (823) (418) --
Early retirement provision........................................... -- -- 411
--------- --------- ---------
Net periodic retirement benefit cost............................... $ 935 $ 1,658 $ 3,789
--------- --------- ---------
--------- --------- ---------
</TABLE>
A weighted average discount rate of 7.75%, 7.25% and 8.25% was used in
determining net periodic postretirement benefit cost for the years ended
December 31, 1997, 1996 and 1995, respectively.
For measurement purposes, the following ranges of graded rates were used in
the per capita cost of covered medical benefits:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Initial rates........................................................... 8.8% 9.5% 14.0%
Termination rates....................................................... 4.0% 4.0% 5.0%
</TABLE>
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
F-20
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. BENEFIT PLANS (CONTINUED)
postretirement benefit obligation by $1.9 million as of December 31, 1997 and
1996 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the years ended December 31, 1997, 1996
and 1995 by $263,000, $347,000 and $632,000, respectively.
OTHER BENEFIT PLANS
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. The Company is required to contribute up to 7.0% of defined compensation
pursuant to the terms of the flight attendants' plan. Contributions to the
flight attendants' plan are funded currently and totaled approximately $1.1
million in 1997 and 1996 and $555,000 in 1995, respectively. The Company is also
required to contribute 4.0% of eligible earnings to the ground and salaried plan
for eligible employees as defined by the plan. Contributions to the ground and
salaried 401(k) plan totaled $1.8 million, $1.6 million and $1.1 million in
1997, 1996 and 1995, respectively.
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS
In January 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, 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").
Also 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 through
the issuance of 12,092,500 new shares of Common Stock at the subscription price
of $3.25 per share
AUTHORIZED CAPITAL STOCK
As of December 31, 1997 and 1996, 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.
Under the terms of the Credit Facility, the Company is restricted from
paying any cash or stock dividends. No dividends were paid by the Company in
1997 or 1996.
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. The Association of
Flight Attendants ("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
F-21
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS (CONTINUED)
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.
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 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.
Under the provisions of the Rights Plan, the Board of Directors 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.
WARRANTS
In January 1996, due to its participation in certain recapitalization
efforts of the Company, American's parent company, AMR Corporation ("AMR"),
received, among other things, warrants (the "AMR Warrants") which, subject to
certain conditions, entitled AMR to purchase up to 1,897,946 shares of the
Company's Common Stock (adjusted to 1,949,338 shares pursuant to applicable
anti-dilution provisions). One-half of the warrants were exercisable immediately
and the remaining one-half were to become exercisable only if American and the
Company entered into a code sharing arrangement which would allow American to
place its two letter flight designator code ("AA") on selected Interisland
flights of the Company. On July 15, 1997, the Company consummated the code share
marketing agreement with American. All of the warrants became exercisable upon
the March 2, 1998 implementation of the code share marketing agreement, and AMR
may purchase 1,949,338 shares of the Company's Common Stock at $1.07 per share
(as adjusted for anti-dilution provisions). If not exercised, the warrants
expire on September 11, 2001. The estimated fair value of the AA codeshare
agreement and the underlying warrants approximated $2.3 million and has been
reflected in the Company's balance sheet as of December 31, 1997
F-22
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS (CONTINUED)
as warrants and other assets. The amount included in other assets will be
amortized on a straight-line basis over five years upon effective implementation
of the code share agreement in first quarter 1998.
Pursuant to its reorganization in 1994, 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, 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 had a five-year
term, expiring September 12, 1999. In 1997, the remaining 1,318,972 of
Reorganization Warrants were exercised. As of December 31, 1996, 300,000
Reorganization Warrants had been exercised.
STOCK OPTION PLANS
Pursuant to its reorganization in 1994, 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. Stock
options are granted with an exercise price equal to the Common Stock's fair
market value at the date of grant.
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, 1997 and 1996, 422,500 and 115,000 of the options, respectively,
had been exercised.
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, 1997 and 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.
During 1997 and 1996, the Company also granted under the provisions of the
1996 Stock Incentive Plan, additional options to acquire 350,000 shares of
Common Stock ("the Executive Options") to executive management. The Executive
Options may be exercised at exercise prices ranging from $3.56 to $4.06 per
share with varying amounts of options vesting through August 12, 2000 and
expiring between August 12, 2001 and April 15, 2005, or as defined in the 1996
Stock Incentive Plan. As of December 31
F-23
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS (CONTINUED)
1997 and 1996, no Executive Options had been exercised. However, options to
acquire 72,000 shares of Common Stock were forfeited in 1997.
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 became exercisable in full on May 4, 1997, subject to
the provisions of the 1996 Nonemployee Director Stock Option Plan at an exercise
price of $3.69 per share and expire on November 1, 1999. As of December 31, 1997
and 1996, no Nonemployee Director Options had been exercised.
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," in accounting for its
various plans. 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:
<TABLE>
<CAPTION>
NET LOSS
NET LOSS PER COMMON STOCK SHARE
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported.............................. $ (1,022) $ (1,533) $ (5,506) $ (0.03) $ (0.05) $ (0.59)
Pro forma................................ (1,322) (1,935) (5,924) (0.03) (0.07) (0.63)
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $1.81, $0.79 and $4.46, respectively, on the date of
grant using a Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1996
1997 AND 1995
------------------ ------------------
<S> <C> <C>
Expected dividend yield......................................... 0.0% 0.0%
Expected volatility............................................. 40.0% 50.0%
Risk-free interest rate......................................... 6.30% to 6.40% 4.05% to 7.55%
Expected life................................................... Up to 6 years Up to 7 years
</TABLE>
Pro forma net loss reflects only options granted in 1997, 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-24
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS (CONTINUED)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OF
SHARES OF COMMON STOCK EXERCISE
------------------------ PRICE OF
AVAILABLE SHARES UNDER
FOR OPTIONS UNDER PLAN 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
------------
------------
Granted
1996 Stock Incentive Plan............................................ (150,000) 150,000 4.06
Exercised
1994 Stock Option Plan............................................... -- (307,500) 1.62
Forfeited
1996 Stock Incentive Plan............................................ 72,000 (72,000) 3.56
------------ ----------
Balance at December 31, 1997............................................. 1,540,500 544,500 $ 3.09
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual lives of outstanding options was $1.62 to $4.06 and 4.2
years, respectively.
At December 31, 1997 and 1996, the number of options exercisable was 322,500
and 485,000, respectively, with weighted-average exercise prices of $2.53 and
$2.36, respectively. No options were exercisable at December 31, 1995.
F-25
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION
The Company is party to a small number of lawsuits. All claims asserted
against the Company for alleged prepetition and/or administrative claims on or
before the Effective Date of the Company's reorganization have been resolved
utilizing reserved Common Stock shares. Management is in the process of closing
the Chapter 11 Bankruptcy proceeding which will include distribution of reserved
Common Stock shares and resolution of outstanding trustee's fees.
In addition, the Company is a party to several other claims and legal
actions. In the opinion of management, and after consultation with legal
counsel, the Company believes that the ultimate disposition of these matters
will not have a material adverse effect on the Company's operations or financial
condition.
AIRCRAFT MAINTENANCE
Maintenance on the Company's DC-10 aircraft fleet is being performed by
American in accordance with the Federal Aviation Administration's (the "FAA")
regulations and Hawaiian Airlines' approved maintenance program.
Hawaiian Airlines anticipates that in the period 1998 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 20,000 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 $750,000 to $1.0 million.
The FAA has and is expected to continue 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 1998 through 2002 period will approximate $420,000 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.
The FAA has mandated the installation of smoke detection and fire
suppression systems in the cargo compartments of both DC-10 and DC-9 aircraft by
December 2000. The cost for systems and installation is estimated to be $130,000
and $83,000 per DC-10 and DC-9 aircraft, respectively.
As a result of certain incidents where Digital Flight Data Recorder ("DFDR")
information was insufficient to determine the cause of the accident, the FAA has
also mandated additional recording parameters for the DC-10 and DC-9 aircraft by
the first heavy maintenance check after August 1999 but no later than August
2001. The DC-10 DFDR will be upgraded from 17 to 22 parameters at an estimated
cost of $60,000 per aircraft. The DC-9 DFDR will be upgraded from 11 to 18
parameters at an estimated cost of $47,000 per aircraft.
F-26
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
During the period from 1998 through 2002, 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 $27,000 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, 1997
amounting to approximately $188.7 million. Rent expense relating to these
operating leases totaled $5.0 million, $4.8 million and $5.9 million in 1997,
1996 and 1995, 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 $338,000, $750,000 and $842,000 of
rent expense in 1997, 1996 and 1995, respectively.
FREQUENT FLYER PROGRAM
The Company's Gold Plus (to be renamed HawaiianMiles in March 1998) frequent
flyer program was initiated in 1983. As of December 31, 1997 and 1996, the
Company's Gold Plus membership had more than 642,000 and 571,000 members,
respectively, including approximately 432,000 and 349,000 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 mile 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
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
F-27
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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, 1997 and 1996, Gold Plus members had accumulated
approximately 3.0 billion and 2.4 billion miles, respectively, representing
liabilities totaling approximately $1.1 million and $800,000, respectively. The
Company's accruals assume full redemption of mileage points. During the years
ended December 31, 1997, 1996 and 1995, 736 million, 857 million and 581 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 2.4%, 2.9% and 2.2% of Interisland traffic and a negligible
percentage of Transpac and Southpac traffic in 1997, 1996 and 1995,
respectively.
11. 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. The Company also
pays a minimum monthly charge for maintenance services, monthly in arrears. In
exchange, American is responsible for all maintenance on the Company's DC-10
aircraft with the Company having access to spare parts, engines and rotables for
the maintenance of these aircraft. As such, the Company does not maintain large
inventories of spare engines or parts to support the operation of the DC-10
aircraft. During 1997, the Company incurred approximately $63.4 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 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
F-28
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RELIANCE ON THIRD PARTIES (CONTINUED)
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 $72.6 million, $70.9 million and $53.0
million for the fuel supplied under this agreement in 1997, 1996 and 1995,
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.
In both 1997 and 1996, approximately 74% of the Company's ticket sales were
made by travel agents, including approximately 30% by six large 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
the Company 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.
12. 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-29
<PAGE>
HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1997:
Operating revenues............................................... $ 99,766 $ 103,860 $ 105,357 $ 95,233
Operating income (loss).......................................... (4,504) 1,999 5,253 (246)
Net income (loss)................................................ (2,396) 1,203 1,439 (1,268)
Net income (loss) per Common Stock Share......................... (0.06)* 0.03* 0.03* (0.03)*
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)*
</TABLE>
- ------------------------
* Includes shares reserved for issuance under the Consolidated Plan of
Reorganization dated September 21, 1993, as amended.
F-30
<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,
1997 1996 1995 1994 1994 1993
--------- --------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Operating revenues..... $ 404,216 $ 384,473 $ 346,904 $ 89,157 $ 216,823 $ 304,109
Operating expenses..... 401,714 382,446 348,805 95,425 223,244 328,947
--------- --------- --------- ------------- ------------- ---------
Operating income
(loss)............... 2,502 2,027 (1,901) (6,268) (6,421) (24,838)
Interest expense,
net.................. (394) (2,432) (3,579) (968) (850) (4,706)
Gain (loss) on
disposition of
equipment............ (140) (729) (233) 558 45 (659)
Other, net............. (820) (297) 207 527 502 1,312
Reorganization
expenses............. -- -- -- -- (13,950) (52,637)
--------- --------- --------- ------------- ------------- ---------
Income (loss) before
income taxes,
extraordinary items
and cumulative effect
of change in
accounting
principle............ 1,148 (1,431) (5,506) (6,151) (20,674) (81,528)
Income taxes........... (1,720) (868) -- -- -- --
--------- --------- --------- ------------- ------------- ---------
Net loss before
extraordinary items and
cumulative effect of
change in accounting
principle.............. (572) (2,299) (5,506) (6,151) (20,674) (81,528)
Extraordinary items, net
of income taxes........ -- 766 -- -- 190,063 12,104
--------- --------- --------- ------------- ------------- ---------
Net loss before
cumulative effect of
change in accounting
principle.............. (572) (1,533) (5,506) (6,151) 169,389 (69,424)
Cumulative effect of
change in accounting
principle, net of
income taxes........... (450) -- -- -- -- --
--------- --------- --------- ------------- ------------- ---------
Net income (loss)........ $ (1,022) $ (1,533) $ (5,506) $ (6,151) $ 169,389 $ (69,424)
--------- --------- --------- ------------- ------------- ---------
--------- --------- --------- ------------- ------------- ---------
Net Loss per Common Stock
Share:**
Before extraordinary
items and cumulative
effect of change in
accounting
principle............ $ (0.02)** $ (0.08)** $ (0.59)** $ (0.65)** $N/M* $N/M*
Extraordinary items,
net.................. -- ** 0.03** -- ** -- ** N/M* N/M*
Cumulative effect of
change in accounting
principle, net....... (0.01)** -- ** -- ** -- ** N/M* N/M*
--------- --------- --------- ------------- ------------- ---------
Net loss per Common
Stock Share.......... $ (0.03)** $ (0.05)** $ (0.59)** $ (0.65 )** $N/M* $N/M*
--------- --------- --------- ------------- ------------- ---------
--------- --------- --------- ------------- ------------- ---------
Weighted Average Shares
Outstanding.......... 40,361** 29,032** 9,400** 9,400 ** 7,137 6,170
Shareholders' Equity
Per Share (without
dilution)............ $ 2.12** $ 2.11** $ 3.10** $ 3.60 ** N/M* N/M*
Shares Outstanding at
End of Period........ 40,889** 39,262** 9,400** 9,400 ** 7,137 7,136
Balance Sheet Items:
Total assets........... $ 200,824 $ 196,289 $ 161,640 $ 163,301 $ 167,211 $ 105,540
Property and equipment,
net.................. 66,243 45,794 41,391 37,756 33,312 36,558
Long-term debt,
excluding current
portion.............. 3,991 6,353 5,523 14,152 11,421 2,615
Capital lease
obligations,
excluding current
portion.............. 10,580 7,387 10,102 12,764 12,591 --
Shareholders' equity
(deficit)............ 86,873 82,873 29,178 33,849 40,000 (209,882)
</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-31
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers..... 4,964 4,971 4,781 4,584 4,337
Revenue passenger
miles................ 3,479,056 3,324,005 3,171,366 2,880,339 2,870,713
Available seat miles... 4,699,609 4,571,955 4,238,319 3,995,649 3,850,133
Passenger load
factor............... 74.0% 72.7% 74.8% 72.1% 74.6%
Passenger revenue per
passenger mile....... 9.5 CENTS 9.8 CENTS 9.4 CENTS 9.7 CENTS 9.5CENTS
Cargo ton miles........ 55,256 51,025 41,469 29,547 22,713
Mail ton miles......... 9,142 8,885 6,714 6,515 4,932
OVERSEAS CHARTER
OPERATIONS:
Revenue passengers..... 253 190 155 1 14
Revenue passenger
miles................ 683,384 515,982 425,797 2,202 14,620
Available seat miles... 739,619 528,787 439,142 4,141 20,938
TOTAL OPERATIONS:
Revenue passengers..... 5,217 5,161 4,936 4,585 4,351
Revenue passenger
miles................ 4,162,440 3,839,987 3,597,163 2,882,541 2,885,333
Available seat miles... 5,439,228 5,100,742 4,677,461 3,999,790 3,871,071
Passenger load
factor............... 76.5% 75.3% 76.9% 72.1% 74.5%
</TABLE>
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Hawaiian Airlines, Inc.:
Under date of February 26, 1998, we reported on the balance sheets of
Hawaiian Airlines, Inc. as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, 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.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
February 26, 1998
S-1
<PAGE>
HAWAIIAN AIRLINES, INC.
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
COLUMN C
COLUMN B ---------------------------- COLUMN E
--------------- (1) (2) ---------------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D 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:
1997........................................... $ 500 456 -- 456(a) $ 500
----- ----- ----- ----- -----
----- ----- ----- ----- -----
1996........................................... $ 800 641 -- 941(a) $ 500
----- ----- ----- ----- -----
----- ----- ----- ----- -----
1995........................................... $ 500 719 -- 419(a) $ 800
----- ----- ----- ----- -----
----- ----- ----- ----- -----
ALLOWANCE FOR OBSOLESCENCE OF FLIGHT EQUIPMENT
EXPENDABLE PARTS AND SUPPLIES:
1997........................................... $ 315 -- -- 195(b) $ 120
----- ----- ----- ----- -----
----- ----- ----- ----- -----
1996........................................... $ 315 -- -- -- $ 315
----- ----- ----- ----- -----
----- ----- ----- ----- -----
1995........................................... $ 315 -- -- -- $ 315
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------------------
(a) Doubtful accounts written off, net of recoveries
(b) Obsolete parts and supplies written off
S-2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated December 8, 1997 and
effective as of December 15, 1997 ("Effective Date") is entered into by and
between John Happ (the "Employee") and Hawaiian Airlines, Inc., a Hawaii
corporation (the "Company").
The Company desires to establish its right to 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 SENIOR VICE PRESIDENT-MARKETING. The Company does
hereby employ, engage, and hire the Employee as Senior Vice President-Marketing
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 as are appropriate for a
Senior Vice President-Marketing and such other duties as the Board of Directors
of the Company, the Chief Executive Officer of the Company or any Executive Vice
President of the Company shall from time to time prescribe and as provided in
the Bylaws of the Company. The Employee shall devote full time, energy and
skill to the performance of Employee's 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
Employee's 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 twelve (12) 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 party
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 of Employee's
services to the Company, a base salary at the rate of TWO HUNDRED TEN
THOUSAND AND NO/100THS DOLLARS ($210,000.00) per year ("Base Salary"),
payable in equal bimonthly installments or at such other time or times as the
Employee and the Company shall agree. The Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased as determined
by the Company's Compensation Committee and/or the Board of Directors, in
their sole and absolute discretion.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS DISCRETION. The
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 Compensation Committee and/or the
Board of Directors, in their sole and absolute discretion.
4. FRINGE BENEFITS. The 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 the Employee shall be entitled to receive such other
fringe benefits as may be granted to
<PAGE>
Employment Agreement - John Happ
Page 2
Employee from time to time by the Company's Compensation Committee and/or the
Board of Directors.
(a) BENEFIT PLANS. The 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 and dental coverage, education, or other retirement or
employee benefits available to all other executive employees of the Company,
subject to any restrictions specified in such plans.
(b) TRAVEL BENEFITS. Employee and Employee's spouse shall be
entitled to travel benefits on Company flights (but not charter flights) at
the PS2F/PS2Y category. Employee's eligible dependents shall be entitled to
travel benefits on Company flights (but not charter flights) at the SA2F/SA1Y
category. Employee and Employee's eligible 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.
(c) EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN. Subject to the
applicable waiting periods, the 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.
(d) BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted
in accordance with Company policies, incurred by the Employee on behalf of
the Company, including reimbursement for use of the Employee's personal
vehicle for business purposes.
(e) CLUB DUES. The Company shall pay all dues and similar charges
(other than initiation fees) for two clubs in Hawaii.
(f) AUTOMOBILE. The Company shall provide Employee with a
automobile allowance of $800.00 per month, which amount shall be added to
Employee's W-2 compensation at year-end.
5. RELOCATION.
(a) The Company agrees to reimburse the Employee for the following
items: i) the reasonable out-of-pocket costs of moving his household goods
and belongings from his present home to Hawaii, including packing, unpacking,
shipping and insurance; ii) the shipment of one automobile; and iii) closing
costs at actual and reasonable amounts for the sale of Employee's home in
Houston, Texas, and/or the purchase of a home in Honolulu, Hawaii
(collectively referred to as the "Relocation Expenses"). The Relocation
Expenses will be reimbursed up to a maximum of $50,000.00.
(b) The Company will also provide temporary accommodations as well
as the cost of a rental car for ninety (90) days after Employee's arrival in
Hawaii. Arrangements may be made by the Company to be billed directly for the
foregoing expenses.
6. CONFIDENTIAL INFORMATION. Employee recognizes that by reason of
Employee's employment by and service to the Company, Employee 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 Employee from time to time in the course of the performance of
Employee's duties hereunder (the "Confidential Information"). Employee
acknowledges that such information is a valuable and unique asset of the Company
and agrees that Employee 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 Employee's duties
<PAGE>
Employment Agreement - John Happ
Page 3
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.
7. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by the Company,
Employee's employment shall immediately terminate. The Company's obligation
to pay the Employee's Base Salary shall cease as of the date of the
Employee's death. Thereafter, the Employee's beneficiaries or 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 the Employee's mental or
physical incapacity, the Employee shall be unable to perform the services for
the Company contemplated by this Agreement in the manner in which Employee
previously performed them during an aggregate one hundred twenty (120)
business days in any consecutive seven (7) month period ("Disability"), the
Employee's employment may be terminated by the Company for Disability.
During any period prior to such termination during which the Employee is
absent from the full-time performance of Employee's duties with the Company
due to Disability, the Company shall continue to pay the Employee the 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 the Employee, with
respect to such period, under the Company's Executive Long-Term Disability
Plan. Subsequent to the termination provided for in this Section 7(b), the
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 the Employee's employment under this Agreement for "Cause" at any
time prior to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by the Employee,
including without limitation, repeated willful neglect of the
Employee's duties, the Employee's material lack of diligence and
attention in performing services as provided in this Agreement, or the
Employee's repeated willful failure 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, the Company's obligation to pay the
Employee's Base Salary shall cease as of the Termination Date. If the
Employee's employment is terminated for Cause, the Employee's employment may be
terminated immediately without any advance written notice.
<PAGE>
Employment Agreement - John Happ
Page 4
(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 8 hereof.
8. COMPENSATION UPON TERMINATION OR NON-RENEWAL BY THE COMPANY OTHER THAN
FOR CAUSE. If the Employee's employment shall be terminated (i) by act of the
Company other than for Cause, or (ii) upon expiration of the Term and the
Company fails to offer to renew the Employee's employment pursuant to this
Agreement on the same terms and conditions, except by reason of "Cause", the
Employee shall be entitled to the following benefits:
(a) PAYMENT OF UNPAID BASE SALARY. The Company will immediately
pay the Employee any portion of the Employee's Base Salary not paid prior to
the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY. For the twelve (12) month
period subsequent to the Termination Date, the Company shall pay to the
Employee, on a bimonthly basis an amount equal to all Base Salary that would
have been payable to the Employee pursuant to this Agreement had the Employee
continued to be employed for the twelve (12) 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).
(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 twelve (12) month period subsequent to the
Termination Date, 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 Employee's 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
Employee's eligible dependents or beneficiaries with benefits at a level at
least equivalent to the level of benefits for which the Employee and
Employee's dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. The Employee agrees that all
styles, designs, lists, materials, books, files, reports correspondence,
records, and other documents ("Company Materials") used, prepared, or made
available to the 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 the Employee shall not make or retain any copies thereof.
(b) ANTI-SOLICITATION. The Employee promises and agrees that
during the term of this Agreement Employee 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 twelve (12) month period commencing on the Termination Date, the
Employee promises and agrees that Employee 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 with the
business of the Company or any subsidiary or affiliate of the Company.
<PAGE>
Employment Agreement - John Happ
Page 5
10. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be effective upon receipt. All notices
shall be given or served personally or sent by facsimile or first class mail,
postage prepaid, addressed as follows:
If to the Company: Hawaiian Airlines, Inc.
Attn: General Counsel
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
Phone: 808/835-3610
Fax: 808/835-3690
If to the Employee: John Happ
6409B Minola
Houston, TX 77007
Phone: 713/862-8537
Fax: 713/880-3738
or to such other address which the party receiving the notice has notified the
party giving the notice in the manner aforesaid.
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 the Employee shall 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 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 writing. This Agreement constitutes the employment contract
referred to in that letter dated March 10, 1997 between the Company and
Employee, a copy of which is attached hereto as Exhibit A, and is intended to be
consistent therewith. 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.
<PAGE>
Employment Agreement - John Happ
Page 6
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 this 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 the Employee
harmless to the maximum extent permitted by the appropriate provisions of the
statutes of the State of Hawaii and the Restated Articles of Incorporation of
the Company, as such may be 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 executed
by its duly authorized officers, and the Employee has hereunto signed this
Agreement, as of the date first above written.
HAWAIIAN AIRLINES, INC.
BY: __________________________________
Paul J. Casey
Its President and Chief Executive Officer
BY: __________________________________
John L. Garibaldi
Its Executive Vice President and
Chief Financial Officer
EMPLOYEE
_____________________________________
John Happ
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated February ___, 1998 and
effective as of March 1, 1998 ("Effective Date") is entered into by and between
Ruthann Yamanaka (the "Employee") and Hawaiian Airlines, Inc., a Hawaii
corporation (the "Company").
The Company desires to establish its right to 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 SENIOR VICE PRESIDENT-HUMAN RESOURCES. The Company does
hereby employ, engage, and hire the Employee as Senior Vice President-Human
Resources 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 as are
appropriate for a Senior Vice President-Human Resources and such other duties as
the Board of Directors of the Company, the Chief Executive Officer of the
Company or any Executive Vice President of the Company shall from time to time
prescribe and as provided in the Bylaws of the Company. The Employee shall
devote full time, energy and skill to the performance of Employee's 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 Employee's 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 twelve (12) 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 party
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 of Employee's
services to the Company, a base salary at the rate of ONE HUNDRED
FIFTY THOUSAND AND NO/100THS DOLLARS ($150,000.00) per year ("Base
Salary"), payable in equal bimonthly installments or at such other
time or times as the Employee and the Company shall agree. The
Employee's Base Salary shall be reviewed at least annually by the
Company and may be increased as determined by the Company's
Compensation Committee and/or the Board of Directors, in their sole
and absolute discretion.
<PAGE>
Employment Agreement - Ruthann Yamanaka
Page 2
(b) SIGNING BONUS. In addition to the foregoing and in consideration
of Employee entering into this Agreement, Employee shall receive an
initial bonus of Ten Thousand U.S. Dollars ($10,000.00), payable on
the first day of Employee's employment by the Company.
(c) PERFORMANCE BONUS - BOARD OF DIRECTORS DISCRETION. The 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
Compensation Committee and/or the Board of Directors, in their sole
and absolute discretion.
4. FRINGE BENEFITS. The 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 the Employee shall be entitled to receive such other
fringe benefits as may be granted to Employee from time to time by the Company's
Compensation Committee and/or the Board of Directors.
(a) BENEFIT PLANS. The 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 and dental coverage, education, or other retirement or employee benefits
available to all other executive employees of the Company, subject to any
restrictions specified in such plans.
(b) TRAVEL BENEFITS. Employee and Employee's spouse shall be
entitled to travel benefits on Company flights (but not charter flights) at the
PS2F/PS2Y category. Employee's eligible dependents shall be entitled to travel
benefits on Company flights (but not charter flights) at the SA2F/SA1Y category.
Employee and Employee's eligible 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.
(c) EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN. Subject to the
applicable waiting periods, the 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.
(d) BUSINESS EXPENSES. The Company shall reimburse the Employee for
any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by the Employee on behalf of the
Company, including reimbursement for use of the Employee's personal vehicle for
business purposes.
(e) CLUB DUES. The Company shall pay all dues and similar charges
(other than initiation fees) for two clubs in Hawaii.
(f) AUTOMOBILE. The Company shall provide Employee with a automobile
allowance of $800.00 per month, which amount shall be added to Employee's W-2
compensation at year-end.
<PAGE>
Employment Agreement - Ruthann Yamanaka
Page 3
5. CONFIDENTIAL INFORMATION. Employee recognizes that by reason of
Employee's employment by and service to the Company, Employee 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 Employee from time to time in the course of the performance of
Employee's duties hereunder (the "Confidential Information"). Employee
acknowledges that such information is a valuable and unique asset of the Company
and agrees that Employee 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 Employee's 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,
Employee's employment shall immediately terminate. The Company's obligation to
pay the Employee's Base Salary shall cease as of the date of the Employee's
death. Thereafter, the Employee's beneficiaries or 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 the Employee's mental or physical
incapacity, the Employee shall be unable to perform the services for the Company
contemplated by this Agreement in the manner in which Employee previously
performed them during an aggregate one hundred twenty (120) business days in any
consecutive seven (7) month period ("Disability"), the Employee's employment may
be terminated by the Company for Disability. During any period prior to such
termination during which the Employee is absent from the full-time performance
of Employee's duties with the Company due to Disability, the Company shall
continue to pay the Employee the 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 the
Employee, with respect to such period, under the Company's Executive Long-Term
Disability Plan. Subsequent to the termination provided for in this Section
7(b), the 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
the Employee's employment under this Agreement for "Cause" at any time prior to
expiration of the Term of the Agreement, only upon the occurrence of any one or
more of the following events:
(i) The material breach of this Agreement by the Employee,
including without limitation, repeated willful neglect of the Employee's
duties, the Employee's material lack of diligence and attention in
performing services as provided in this Agreement, or the Employee's
repeated willful failure to implement or adhere to policies established by,
or directives of, the Company's Board of Directors.
<PAGE>
Employment Agreement - Ruthann Yamanaka
Page 4
(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, the Company's obligation to pay
the Employee's Base Salary shall cease as of the Termination Date. If the
Employee's employment is terminated for Cause, the 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.
7. COMPENSATION UPON TERMINATION OR NON-RENEWAL BY THE COMPANY OTHER THAN
FOR CAUSE. If the Employee's employment shall be terminated (i) by act of the
Company other than for Cause, or (ii) upon expiration of the Term and the
Company fails to offer to renew the Employee's employment pursuant to this
Agreement on the same terms and conditions, except by reason of "Cause", the
Employee shall be entitled to the following benefits:
(a) PAYMENT OF UNPAID BASE SALARY. The Company will immediately pay
the Employee any portion of the Employee's Base Salary not paid prior to the
Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY. For the twelve (12) month
period subsequent to the Termination Date, the Company shall pay to the
Employee, on a bimonthly basis an amount equal to all Base Salary that would
have been payable to the Employee pursuant to this Agreement had the Employee
continued to be employed for the twelve (12) 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).
(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 twelve (12) month period subsequent to the Termination Date, 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 Employee's
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 Employee's eligible dependents or
beneficiaries with benefits at a level at least equivalent to the level of
benefits for which the Employee and Employee's dependents and beneficiaries were
eligible under such plans immediately prior to the Termination Date.
8. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. The Employee agrees that all styles,
designs, lists, materials, books, files, reports correspondence, records, and
other documents ("Company Materials") used, prepared, or made available to the
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 the Employee shall
not make or retain any copies thereof.
<PAGE>
Employment Agreement - Ruthann Yamanaka
Page 5
(b) ANTI-SOLICITATION. The Employee promises and agrees that during
the term of this Agreement Employee 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 twelve (12) month period commencing on the Termination Date, the Employee
promises and agrees that Employee 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 with the business of the
Company or any subsidiary or affiliate of the Company.
9. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be effective upon receipt. All notices
shall be given or served personally or sent by facsimile or first class mail,
postage prepaid, addressed as follows:
If to the Company: Hawaiian Airlines, Inc.
Attn: General Counsel
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
Phone: 808/835-3610
Fax: 808/835-3690
If to the Employee: Ruthann Yamanaka
3473-A Akaka Place
Honolulu, Hawaii 96822
or to such other address which the party receiving the notice has notified the
party giving the notice in the manner aforesaid.
10. 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 the Employee shall bear their respective
attorneys' fees and costs associated with such dispute.
11. 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.
12. 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 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.
13. 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.
14. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope and may be
modified only in
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Employment Agreement - Ruthann Yamanaka
Page 6
writing. This Agreement constitutes the employment contract referred to in
that letter dated March 10, 1997 between the Company and Employee, a copy of
which is attached hereto as Exhibit A, and is intended to be consistent
therewith. 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.
15. 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.
16. 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 this 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.
17. INDEMNIFICATION. The Company shall indemnify and hold the Employee
harmless to the maximum extent permitted by the appropriate provisions of the
statutes of the State of Hawaii and the Restated Articles of Incorporation of
the Company, as such may be amended.
18. 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 executed
by its duly authorized officers, and the Employee has hereunto signed this
Agreement, as of the date first above written.
HAWAIIAN AIRLINES, INC.
BY: __________________________________
Paul J. Casey
Its President and Chief Executive Officer
BY: __________________________________
John L. Garibaldi
Its Executive Vice President and
Chief Financial Officer
EMPLOYEE
_____________________________________
Ruthann Yamanaka
<PAGE>
Warrant No. 23
NOTICE: THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER TEIE SECURITIES ACT OF 1933 OR QUALIFIED UNDER OTHER
SECURITIES LAWS AND, ACCORDINGLY, TRANSFER OF THIS WARRANT OR SUCH
SHARES MAY BE RESTRICTED.
HAWAIIAN AIRLINES, INC.
WARRANT FOR THE
PURCHASE OF 25,696 SHARES OF
CLASS A COMMON STOCK
VOID AFTER
SEPTEMBER 11, 2001
- -------------------------------------------------------------------------------
For value received, this Warrant entitles AMR Corporation ("AMR") and its
successors and assigns, subject to the terms and conditions hereinafter set
forth, to purchase from Hawaiian Airlines, Inc. (Hawaiian) 25,696 fully paid
and nonassessable shares of Class A Common Stock, par value $.01 per share, of
Hawaiian (the Class A Common Stock), subject to adjustment as hereinafter
provided upon payment therefor to Hawaiian of $1.10 per share (the "Warrant
Price"), subject to adjustment as hereinafter provided (this "Warrant"). This
is one of two warrants issued concurrently to AMR for the purchase of Class A
Common Stock which collectively are referred to herein as the "AMR Warrants."
THE SALE, ASSIGNMENT OR OTHER DISPOSITION (EACH A "TRANSFER") OF THIS WARRANT IS
RESTRICTED BY THE TERMS OF THE RIGHTSHOLDERS AGREEMENT (THE "RIGHTSHOLDERS
AGREEMENT"), DATED AS OF JANUARY 31, 199C, BY AND AMONG THE COMPANY, AIRLINE
INVESTORS PARTNERSHIP, L.P. AND THE HOLDERS OF WARRANTS OF HAWAIIAN, A COPY OF
WHICH MAY BE INSPECTED AT HAWAIIAN'S PRINCIPAL OFFICE. THE COMPANY WILL NOT
REGISTER ON THE BOOKS OF THE COMPANY OR OTHERWISE EFFECT THE TRANSFER OF THIS
WARRANT IF THE TRANSFER HAS NOT BEEN MADE IN COMPLIANCE WITH THE RIGHTSHOLDERS
AGREEMENT.
1. EXERCISE.
(a) Subject to Section 1 (d), this Warrant is exercisable at the
option of the holder hereof in whole or in part from time to time on or before
September 11, 2001
(b) Before the holder of this Warrant shall be entitled to exercise
the same, he shall surrender this Warrant at the principal office of Hawaiian
accompanied by funds payable by cash, a certified check, bank cashiers check
or wire transfer to an account designated by Hawaiian in the amount of the
Warrant Price payable upon such exercise plus any tax or taxes payable or
which may be payable by such holder in respect of such exercise, and shall
give written notice (the "Exercise Notice") to Hawaiian at such office that
such holder elects to exercise this Warrant, and shall state therein the
number of shares of Class A Common Stock or other securities issuable upon
such exercise and the name or names in which he wishes the certificate or
certificates for such shares of Class A Common Stock or
<PAGE>
Warrant No. 23
other securities to be issued. Hawaiian will, as soon as practicable after
such surrender of this Warrant accompanied by the written notice and the
statement described above, requisition from the then transfer agent for
Hawaiian a certificate or certificates for shares of Class A Common Stock for
issuance and delivery to or on the written order of the registered holder of
such Warrant and in such name or names as such registered holder may
designate. Such certificate or certificates shall represent the number of
whole shares of Class A Common Stock issuable on such exercise, together with
a cash amount for any fraction of a share of Class A Common Stock otherwise
issuable on such exercise and shall be delivered as directed by the holder of
the Warrant in the Exercise Notice no later than Eve Business Days after
exercise.
(c) Certificates representing such shares shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of surrender of a
Warrant and payment of the Warrant Price as provided herein, PROVIDED that if,
at the date of surrender of such Warrant and payment of such Warrant Price, the
transfer books for the Class A Common Stock or other class of stock purchasable
on the exercise of such Warrant shall be closed, the certificates for the shares
in respect of which such Warrant is then exercised shall be issuable as of the
date on which such books shall next be opened and until such date, Hawaiian
shall be under no duty to deliver any certificate for such shares. The Warrant
shall be exercisable at the election of the registered holder thereof, either as
an entirety or from time to time for part of the number of whole shares
specified in the Warrant, but in no event shall fractional shares be issued. In
the event of any partial exercise, a new Warrant will be issued to the
registered holder to evidence such holder's Warrant to purchase the number of
shares as to which the Warrant has not been exercised. No adjustment shall be
made for any cash dividends on shares issuable on the exercise of any Warrant.
(d) This Warrant may not be exercised until American Airlines, Inc.
("American"), a wholly owned subsidiary of AMR, and Hawaiian enter into a
binding code sharing arrangement permitting Hawaiian to add American's flight
designations to Hawaiian's interisland flights (other than the Honolulu to Maui
segment) (a "Code Share"). This Warrant may not be exercised after December 31,
1996, if American and Hawaiian fail, after good faith negotiations, to enter
into a Code Share prior to January 1, 1997.
2. TRANSFER AND EXCHANGE.
(a) This Warrant may be transferred at the principal office of
Hawaiian upon its surrender by the holder thereof in person or by attorney
duly authorized in writing. Upon such surrender, a new Warrant or new
Warrants of different denominations will be issued to the transferee or
transferees, dated the date of such surrender, of like tenor and representing
in the aggregate the right to purchase a like number of shares of Class A
Common Stock (after giving effect to any adjustments therein).
(b) This Warrant may be exchanged at the principal office of
Hawaiian upon surrender by the holder hereof in person or by attorney duly
authorized in writing, for another Warrant or other Warrants of different
denominations, dated the date of such surrender, of like tenor and
representing in the aggregate the right to purchase a like number of shares
of Class A Common Stock (after giving effect to any adjustments therein).
Hawaiian shall not be required to effect any registration of transfer or
exchange which will result in the issuance of a Warrant to purchase only a
fraction of a share.
2
<PAGE>
Warrant No. 23
3. ADJUSTMENT OF NUMBER OF SHARES.
(a) Upon any adjustment of the Current Warrant Price, as provided in
Section 4 hereof, the number of shares of Class A Common Stock issuable upon
exercise of this Warrant shall be determined by dividing (i) the result obtained
by multiplying the Warrant Price in effect immediately prior to such adjustment
by the number of shares of Class A Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment by (ii) the Warrant Price resulting
from such adjustment.
(b) No adjustment in the renumber of shares of Class A Common Stock
issuable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent in such number; PROVIDED that any
adjustments which by reason of this Section 3(b) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
4. ADJUSTMENT OF WARRANT PRICE.
(a) In case Hawaiian shall at any time (i) issue or sell any shares
of Common Equity (which term for all purposes hereof shall mean and include
stock of Hawaiian of any class or series, whether now or hereafter
authorized, the holders of which shall be entitled to participate in the
distribution of earnings and assets of Hawaiian without limit as to amount or
percentage, including Class A Common Stock unless the holders of such stock
shall be entitled to receive dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, senior in
preference or priority to the holders of any outstanding stock of Hawaiian of
any other class or series) without consideration, or for consideration per
share less than the Current Market Price (determined as hereinafter
provided), or (ii) issue or sell any securities convertible into, or
exchangeable for, shares of Common Equity ("Convertible Securities") at a
conversion price per share of Common Equity less than the Current Market
Price, or (iii) issue or sell any warrants or other rights to subscribe to or
purchase, or any options for the purchase of shares of Common Equity or
Convertible Securities ("Rights or Options") at an exercise price per share
of Common Equity less than the Current Market Price, then and thereafter
successively upon each such issuance or sale, except as provided below, the
Warrant Price in effect immediately prior to such issuance or sale (the
"Current Warrant Price") shall simultaneously with such issuance or sale be
reduced to a price (calculated to the nearest cent) determined by
multiplying: (A) the Current Warrant Price by (B) a fraction of which the
numerator shall be the aggregate number of shares of Common Equity
outstanding immediately prior to such issuance or sale plus the number of
shares of Common Equity which the aggregate consideration for the total
number of shares of Common Equity, Convertible Securities and Rights or
Options issued or sold as aforesaid would purchase at the Current Market
Price, and of which the denominator shall be the aggregate number of shares
of Common Equity outstanding immediately prior to such issuance or sale, plus
the number of shares of Common Equity issued or sold as aforesaid and the
maximum number of shares of Common Equity issuable with respect to such
Convertible Securities and Rights or Options issued or sold as aforesaid.
In case Hawaiian shall at any time distribute to holders of Common
Equity, as such, (i) evidences of indebtedness or assets (excluding regular
cash dividends or cash distributions payable out of consolidated retained
earnings) of Hawaiian or any corporation or other legal entity a majority of
the voting equity securities or equity interests of which are owned, directly
or indirectly, by Hawaiian (a "Subsidiary"), (ii) shares of capital stock of
any
3
<PAGE>
Warrant No. 23
Subsidiary, (iii) securities convertible into or exchangeable for capital
stock of any Subsidiary, or (iv) any rights, options, or warrants to purchase
any of the foregoing, then and thereafter successively upon each
distribution, the Current Warrant Price shall, simultaneously with such
distribution, be reduced to a price (calculated to the nearest cent)
determined by multiplying, (A) the Current Warrant Price by (B) a fraction,
the numerator of which will be the Current Market Price less the fair value
(as determined in good faith by the Board of Directors of the Hawaiian, whose
determination will be conclusive if based on the financial advice of a
nationally recognized investment banking firm) of the portion of the
evidences of indebtedness, assets, securities, or rights, options, or
warrants so distributed on account of one share of Common Equity on the
record date for such distribution, and the denominator of which will be such
Current Market Price. Such adjustment will be made whenever any such
distribution is made, and will become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(b) Notwithstanding the foregoing, no adjustment of the Current
Warrant Price shall be made in any case in which Hawaiian shall issue (i)
employee stock options, (ii) shares of Common Equity upon conversion or
exchange of any Convertible Securities, (iii) shares of Common Equity or
Convertible Securities upon exercise of any Rights or Options, (iv) in
consideration of the acquisition by Hawaiian or any subsidiary of all or
substantially all of the stock of another company or all or substantially all
the assets of another company (whether by merger, acquisition of assets or
otherwise), any shares of Common Equity or any Convertible Securities or any
Rights or Option or (v) shares of Common Equity pursuant to the proposed
offering by Hawaiian of nontransferable rights to purchase Class A Common
Stock (the "Rights Offerings") to be made to the Company's shareholders and
to holders of options under its stock option plan and reasonably anticipated
for February or March of 1996, but only to the extent that the number shares
of Common Equity issued in the Rights Offering does not exceed the number of
shares held by such shareholders plus the number of shares issuable on
exercise of such options.
(c) Calculations pursuant to Section 4(a) hereof shall be made in
accordance with the following provisions:
(i) "Current Market Price" on any day shall mean the average
of the daily closing prices of the Class A Common Stock for the 30
consecutive business days commencing 35 business days before the day in
question. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such
date, the average of the reported closing bid and asked prices regular
way, in either case on the American Stock Exchange, or, if such stock is
not listed or admitted to trading on such exchange, on the principal
national securities exchange on which such stock is listed or admitted
to trading, or if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked price in
the over-the-counter market, as furnished by any national brokerage firm
selected from time to time by Hawaiian for that purpose. For the
purposes of the foregoing provision, the term "business day" shall not
include any day on which securities are not traded on such exchange or
in such market.
(ii) In case of the issuance or sale of any securities of
Hawaiian for cash, the consideration received by Hawaiian therefor shall
be deemed to be the amount of cash received by Hawaiian for such
security (or if such securities are offered by Hawaiian for
subscription, the subscription price, or, if such securities are sold to
4
<PAGE>
Warrant No. 23
underwriters or dealers for public offering without a subscription
offer, the initial public offering price), without deducting therefrom
any compensation or discount paid or allowed to underwriters or dealers
or others performing similar services or for any expenses incurred in
connection therewith.
(iii) In case of the issuance or sale of any securities of
Hawaiian for consideration other than cash or a consideration a part of
which is other than cash, the amount of the consideration other than
cash received by Hawaiian for such securities shall be deemed to be the
fair value of such consideration as determined by its Board of
Directors, which determination may be inconsistent with the accounting
treatment thereof.
(iv) In case of the issuance or sale of Convertible Securities,
the aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale,
plus the minimum aggregate amount of additional consideration, if ably,
payable to Hawaiian upon the conversion or exchange of such Convertible
Securities at the time such Convertible Securities fast become
convertible or exchangeable.
(v) In case of the issuance or sale of Rights or Options, the
aggregate consideration therefor shall be deemed to be the
consideration, if any, received at the time of such issuance or sale,
plus the minimum aggregate amount of additional consideration, if any,
payable to Hawaiian upon the exercise of such Rights or Options, plus,
in the case of Rights or Options to purchase Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to
Hawaiian upon the conversion or exchange of such Convertible Securities
at the time such Convertible Securities first become convertible or
exchangeable.
(vi) In case of the issuance or sale of Convertible Securities
or Rights or Options, the conversion or exercise price per share of
Common Equity shall be determined by dividing the aggregate
consideration for such Convertible Securities or Rights or Options by
the maximum number of shares of Common Equity issuable with respect to
such Convertible Securities or Rights or Options.
(vii) The maximum number of shares of Common Equity issuable
with respect to Convertible Securities or Rights or Options shall
include the number of shares issuable upon conversion or exchange of
such Convertible Securities or exercise of such Rights or Options, plus,
in the case of Rights or Options to purchase Convertible Securities, the
number of shares issuable upon conversion or exchange of such
Convertible Securities.
(viii) In case of the issuance of additional shares of Common
Equity as a dividend or as the distribution on any capital stock of
Hawaiian, the aggregate number of shares of Common Equity issued in
payment of such dividend or distribution shall be deemed to have been
issued on the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall be deemed to have
been issued without consideration.
(ix) The reclassification of securities other than Common
Equity into securities including Common Equity shall be deemed to
involve the issuance for
5
<PAGE>
Warrant No. 23
consideration other than cash of such Common Equity on the record
date for the determination of stockholders entitled to receive such
Common Equity.
(x) The number of shares of Common Equity at any time
outstanding shall include the maximum number of shares issuable at such
time with respect to all Convertible Securities and Rights or Options
then outstanding and unconverted or unexchanged or unexercised.
(xi) No adjustment provided for in Section 4(a) hereof shall
be made if it results in an increase in the Current Warrant Price above
the initial Warrant Price as adjusted only as provided in Section 4(d)
hereof.
(d) In case the outstanding shares of Common Equity shall be
subdivided into a greater number of shares of Common Equity, the Current
Warrant Price shall, simultaneously with the effectiveness of such
subdivision, be proportionately reduced, and conversely, in case the
outstanding shares of Common Equity shall be combined into a smaller number
of shares of Common Equity, the Current Warrant Price shall, simultaneously
with the effectiveness of such combination, be proportionately increased.
(e) Whenever the Current Warrant Price shall be adjusted as herein
provided, and from time to time, at the reasonable request of the holder
hereof, Hawaiian will forthwith deliver to such holder a certificate signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer of Hawaiian, showing in reasonable detail the facts requiring any
such adjustment and stating the Current Warrant Price in effect on the date
of such certificate after giving effect to any such adjustment and the number
of shares of Class A Common Stock or other securities then purchasable upon
the exercise hereof. Hawaiian may retain a firm of independent public
accountants of recognized standing, selected by its Board of Directors to
make any computation required under this Section 4, and the certificate
signed by such firm shall be conclusive evidence of the correctness of any
such computation.
5. CAPITAL REORGANIZATION, RECLASSIFICATION OR MERGER. In case the
Class A Common Stock shall be changed into another kind of capital stock of
Hawaiian (otherwise than through a subdivision or combination of shares) or
shall represent the right to receive some other security or property as a
result of any capital reorganization, reclassification or merger into or
consolidation with another company, or sale of all or substantially all the
assets of Hawaiian to another company, this Warrant shall (subject to further
adjustments in the Warrant Price as herein provided) thereafter entitle the
holder hereof to acquire upon exercise hereof the kind and number of shares
of stock or other securities or property to which such holder would have been
entitled if such holder had held the Class A Common Stock issuable upon
exercise of this Warrant immediately prior to such capital reorganization,
reclassification, merger, consolidation or sale of assets.
6. RESERVATION OF SHARES. Hawaiian shall at all times reserve and
keep available, out of its treasury stock or authorized and unissued stock,
solely for the purpose of effecting the exercise of this Warrant, such number
of shares of Class A Common Stock and other securities of Hawaiian as shall,
from time to time, be sufficient to effect the exercise of this Warrant. All
shares of Class A Common Stock issued on exercise of this Warrant shall be
validly issued, fully paid and nonassessable.
6
<PAGE>
Warrant No. 23
7. HOLDER OF WARRANT. Hawaiian may deem and treat the person in
whose name this Warrant is registered as the absolute owner hereof for all
purposes and Hawaiian shall not be affected by any notice to the contrary. No
holder of this Warrant, as such, shall be entitled to vote on or be deemed
for any purpose the holder of Class A Common Stock or any other securities of
Hawaiian which may at any time be issuable on the exercise hereof.
8. DEMAND REGISTRATION. As soon as practicable after Hawaiian's
receipt of a request, made at any time before September 11, 2001, of holders
of Class A Common Stock heretofore issued upon exercise of AMR Warrants
and/or of then exercisable AMR Warrants to purchase Class A Common Stock
aggregating not less than five hundred thousand shares to register such
shares of Class A Common Stock Registrable Securities) under the Securities
Act of 1933, as amended (the "Act"), Hawaiian shall cause a registration
statement to be filed with respect to the number of such shares specified in
the request and shall use its best efforts to cause the Registration
Statement to become effective. Hawaiian shall not be required to cause more
than two registration statements to be filed pursuant to this Section 8.
Hawaiian shall be entitled to include other securities of Hawaiian to be
offered by Hawaiian or other stockholders of Hawaiian, in such registration
statement; PROVIDED, HOWEVER! that such stockholders or holders of AMR
Warrants requesting registration pursuant to this Section 8 may request that
any such other securities of Hawaiian not be included in the registration
statement if they shall be advised by the investment banking firm managing
the underwriting that it reasonably believes that such inclusion would
adversely affect the offing of the shares to be covered by the proposed
registration statement. Hawaiian shall be entitled to postpone the filing of
any such registration statement for a reasonable period of time if (a)
Hawaiian is, at the time at which it receives any such request, conduction
or, within 60 days of receipt by Hawaiian of such notice, is about to conduct
an offering of its securities and Hawaiian reasonably believes that such
offering would be adversely affected by the registration requested, (b) such
request is received by Hawaiian within six months after the effective date of
a registration statement of Hawaiian and, prior to the filing of such
registration statement, Hawaiian has complied with its obligations under
Section 9 hereof, or (c) the filing of the registration statement would
require Hawaiian to furnish audited financial statements other than the
audited financial statements customarily prepared at the end of its fiscal
year or unaudited financial information with respect to any period other than
its regularly reported interim quarterly periods.
9. PIGGY-BACK REGISTRATION RIGHTS.
(a) From the date hereof and on or before September 11, 2001, at
any time Hawaiian proposes to file a registration statement under the Act
with respect to an offering by Hawaiian, for its own account or the account
of its shareholders, of shares of Class A Common Stock (other than the Rights
Offering, a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the Securities and Exchange Commission (the
"Commission")) or filed in connection with an exchange offer or an offering
of securities solely to Hawaiian's existing security holders), then Hawaiian
shall in each such case give written notice of such proposed filing to the
holders of the AMR Warrants and holders of Registrable Securities as soon as
practicable (but in no event less than 30 days before the anticipated filing
date), and such notice shall offer such holders the opportunity to register
such shares of Registrable Securities as such holder may request.
(b) Hawaiian shall use its best efforts to cause any managing
underwriter or underwrites of such proposed underwritten offering to permit
the Registrable Securities
7
<PAGE>
Warrant No. 23
requested to be included in the registration statement for such offering to
be included on the same terms and conditions as any similar securities of
Hawaiian included therein. Notwithstanding the foregoing, if the managing
underwriter or underwrites of such offering advise Hawaiian that they
reasonably believe that the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities and the
inclusion of other shares requested to be included, such amount of
Registrable Securities as shall be required to substantially eliminate the
adverse effect in the judgment of the managing underwrite or underwriters,
will be excluded from such offering as provided in the Rightsholders
Agreement. In the case of a non-underwritten offend, may decline to include
any Registrable Securities in a registration statement pursuant to Section
9(a) if it reasonably believes that such inclusion would adversely affect the
offering of the securities to be covered by the proposed registration
statement.
(c) To the extent not inconsistent with applicable law, each holder
whose securities are included in the registration statement pursuant to this
Section 9 agrees not to effect any public sale or distribution of the issue
being registered or a similar security of Hawaiian, including a sale pursuant
to Rule 144 under the Act, during the 14 days prior to, and during the 60~day
period beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested by
Hawaiian in the case of the non~underwritten public offering or if and to the
extent requested by the managing underwrite or underwrites in the case of an
underwritten public offering.
10. REGISTRATION EXPENSES. The out-of-pocket expenses of any
registration pursuant to Section 8 or Section 9 shall be borne by Hawaiian,
except each holder proposing to sell Registrable Securities pursuant to the
registration shall pay all underwriting discounts and commissions applicable
to his shares and all legal fees and expenses, if any, of his own counsel;
PROVIDED, HOWEVER, that if the out-of-pocket expenses of the registration
pursuant to Section 9 are being borne by a person other than Hawaiian, each
holder proposing to sell Registrable Securities pursuant to the registration
shall pay his pro rata share of the out-of-pocket expenses of such
registration.
11. STATE SECURITIES LAWS. In connection with the offering of any
Registrable Securities registered pursuant to this Warrant, Hawaiian shall take
such action as may be necessary to qualify or register the Registrable
securities to be sold under the securities or "blue sky" laws of such
jurisdictions as may be reasonably requested by such holder or his underwrites;
PROVIDED, HOWEVER' that Hawaiian will not be required to (a) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section, (b) subject itself to taxation in any such
jurisdiction or (c) consent to general service of process in any such
jurisdiction. The expenses of such qualification or registration shall be borne
by Hawaiian in the case of a registration pursuant to Section 8 and shall be
borne pro rata by the holders and any other party registering shares pursuant to
such registration statement in the case of a registration pursuant to Section 9.
12. INDEMNIFICATION AND CONTRIBUTION.
(a) Hawaiian agrees to indemnify and hold harmless each holder of
Registrable Securities, its officers, directors and agents and each person,
if any, who controls such holder within the meaning of Section 15 of the Act
or Section 20 of the Securities and Exchange Act of 1934 (the Exchange Acts)
from and against any and all lawsuits, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising out of or
8
<PAGE>
Warrant No. 23
based upon any untrue or alleged untrue statements of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out
of, or are based upon, any such untrue statement or omission or allegation
thereof made in reliance upon and in conformity with information furnished in
writing to Hawaiian by such holder or at the direction of such holder
expressly for use therein; PROVIDED that, with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a current copy of the prospectus was not
sent or given to the person asserting any such loss, claim, damage, liability
or expense at or prior to the written confirmation of the sale of such
Registrable Securities to such person if it is determined that it was the
responsibility of such holder to provide such person with a current copy of
the prospectus and such current copy of the prospectus would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
Hawaiian also agrees to indemnify and provide contribution arrangements to
the underwrites of the Registrable Securities, their officers and directors
and each person who controls such underwriters on substantially the same
basis as that of the indemnification of a holder provided in this Section
12(a).
(b) Each holder agrees to indemnify and hold harmless Hawaiian, its
officers, directors and agents and each person, if any, who controls Hawaiian
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from Hawaiian to
such holder, but only with respect to such information furnished in writing
by such holder or at such holder's direction expressly for use in any
registration statement or prospectus relating to the Registrable Securities,
or any amendment or supplement thereto, or any preliminary prospectus;
PROVIDED that, with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this paragraph shall not apply to the extent
that any such loss, claim, damage, liability or expense results from the fact
that a current copy of the prospectus was not sent or given to the person
asserting any such loss, claim, damage, liability or expense at or prior to
the written confirmation of the sale of such Registrable Securities to such
person if it is determined that it was the responsibility of Hawaiian to
provide such person with a current copy of the prospectus and such current
copy of the prospectus would have cured the defect giving rise to such loss,
claim, damage, liability or expense. Each holder also agrees to indemnify and
provide contribution arrangements to the underwrites of the Registrable
Securities, their officers and directors and each person who controls such
underwrites on substantially the same basis as that of the indemnification of
Hawaiian provided in this Section 12(b).
(c) Promptly after receipt by an indemnified party under Section
12(a) or Section 12(b) above of notice of the commencement of any action for
which indemnification may be sought, the indemnified party shall notify the
indemnifying party. The failure to notify the indemnifying party shall
relieve it from any liability hereunder with respect to the action, but only
to the extent the indemnifying party was actually harmed by such failure. In
case any such action is brought against any indemnified party, and it
notifies any indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to assume and control the defense of the action at
its expense, with counsel reasonably satisfactory to the indemnified
9
<PAGE>
Warrant No. 23
party, and if the indemnifying party gives notice to such indemnified party
of its election to assume and control the defense, the indemnifying party
will not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
or investigation of the action. Notwithstanding the foregoing, the
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or such
controlling person unless (i) the indemnifying party has agreed to pay such
fees and expenses or (ii) the named parties to any such action or proceeding
include both the indemnifying party and the indemnified party and each of the
indemnifying party and the indemnified party shall have been advised by
counsel that counsel employed by the indemnifying party would, under
applicable professional standards, have a conflict in representing both the
indemnified party and the indemnifying party, it being understood, however,
that such indemnifying party shall not, in connection with any such action or
proceeding or separate, but substantially similar or related actions or
proceedings, in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys at any time for such indemnified
party and controlling persons thereof.
13. TAG-ALONG SALE RIGHTS.
(a) If a holder or holders of record of Common Stock of Hawaiian
(for purposes of this Section 13, the Proposed Transferors) at any time or
from time to time prior to September 11, 2001, in one transaction or in a
series of Dated transactions, agrees (whether orally or in writing) to
transfer to any person, group or entity a sufficient number of shares of
Common Equity so that such person, group or entity owns at least 50.1% of the
then-outstanding Common Equity (a "Tag-Along Sale") and Hawaiian becomes aware
of such Tag-Along Sale, then Hawaiian shall use its best efforts to cause the
Proposed Transferor to provide to the holder of this Warrant (for purposes of
this Section 13, the "Warrant Holder") the right, but not the obligation, to
include in such Tag-Along Sale up to the number of shares of Class A Common
Stock derived by multiplying the total number of shares of Class A Common
Stock owned by or issuable to the Warrant Holder by a fraction, the numerator
of which is equal to the number of shares of Common Stock then owned by or
issuable to the Proposed Transferor that are to be purchased by the proposed
purchaser (without giving effect to any reduction in such number of shares by
reason of the Warrant Holder's exercise the "tag-along" rights provided in
this Section 13 in connection with such transaction) and the denominator of
which is the total number of shares of Common Stock owned by or issuable to
the Proposed Transferor prior to such sale. Any such sale by such Warrant
Holder shall be on the same terms and conditions as the proposed Tag-Along
Sale by the Proposed Transferor.
(b) If the Proposed Transferor agrees to permit the Warrant Holder
to participate in a Tag-Along Sale, the Proposed Transferor shall agree that
the Tag-Along sale shall be subject to the terms set forth in Sections 13(c),
13(d) and 13(e).
(c) The Proposed Transferor shall promptly provide Hawaiian with
notice of the proposed Tag-Along Sale (which Hawaiian shall transmit to the
Warrant Holder within five calendar days of its receipt thereof, but in no
event less than five calendar days prior to the proposed closing date for
such sale (the "Closing Date") containing the following:
(i) the name and address of the proposed transferee of the
shares of Common Stock in the Tag-Along Sale;
10
<PAGE>
Warrant No. 23
(ii) the number of shares of Common Stock proposed to be
transferred by the Proposed Transferor in the event no persons to whom
Tag-Along rights have been granted elects to participate;
(iii) the proposed amount and form of consideration to be paid
for such shares of Common Stock and the terms and conditions of payment
offered by the proposed transferee;
(iv) the aggregate number of shares of Common Stock held of
record by such Proposed Transferor as of the date of the notice from the
Proposed Transferor to Hawaiian (the "Notice Date");
(v) the aggregate number of shares of Common Stock held of
record as of the Notice Date by all holders of Tag-Along rights as a
group;
(vi) the maximum number of shares of Common Stock the Warrant
Holder is entitled to include in the Tag-Along Sale (as computed in
accordance with the equations set forth in Section 13(a));
(vii) the Closing Date; and
(viii) that the proposed transferee has been informed of the
Tag-Along rights provided for in this Section 13.
(d) If the Warrant Holder desires to participate in such Tag-Along
Sale, such Warrant Holder shall provide written notice (the "Tag-Along
Notice") to the Proposed Transferor within 15 calendar days after the Notice
Date, but in no event less than one calendar day prior to the Closing Date,
setting forth the number of shares of Class A Common Stock such Warrant
Holder elects to include in the Tag-Along Sale. The Tag-Along Notice given by
the Warrant Holder shall constitute such Warrant Holder's binding agreement
to sell such shares of Class A Common Stock as are included therein on the
terms and conditions applicable to such sale (including the requirements of
this Section 13). In the event that the proposed transferee does not purchase
the shares of the Proposed Transferor, then the proposed sale by the Warrant
Holder to such proposed transferee pursuant to the Tag-Along Sale shall not
take place. If the Tag-Along Notice from the Warrant Holder is not received
by the Proposed Transferor within the time period specified above in this
Section 13(d), the Proposed Transferor shall have the right to transfer the
shares of Common Stock to the proposed transferee without any participation
by the Warrant Holder, but only on the terms and conditions stated in the
notice to such holder or on terms and conditions no more favorable to the
Proposed Transferor.
(e) If the Warrant Holder chooses not to sell any or all shares of
Class A Common Stock which such Warrant Holder may be entitled to sell under
this Section 13, the Proposed Transferor may sell, in the same transaction,
additional shares of Common Stock equal to the difference between the number
of shares of Class A Common Stock which such Warrant Holder is entitled to
sell and the number of shares of Class A Common Stock such Warrant Holder
chooses to sell, if any.
(f) The provisions of this Section 13 shall not apply to:
11
<PAGE>
Warrant No. 23
(i) any transaction in which shares of Class A Common Stock
are proposed to be sold publicly pursuant to a registration statement
filed under the Act; or
(ii) any shares of Common Stock proposed to be transferred by
the Proposed Transferor which are purchased by the Company or an
affiliate as defined in the Exchange Act of the Proposed Transferor.
14. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
If to Hawaiian: 3375 Koapaka Street
Suite G-350
Honolulu, Hawaii 96819
If to the holder of this Warrant, the address last shown on the
warrant or stock register, as the case may be.
15. AMENDMENTS: LAW. This Warrant shall not be amended or
terminated orally, but may be amended or terminated in writing at any time by
agreement between Hawaiian and the holder hereof. This Warrant shall be
construed and enforced in accordance with and governed by the laws of the
State of Hawaii.
IN WITNESS WHEREOF, Hawaiian has caused this Warrant to be signed in
its corporate name on , 1996 by its President or one of its Vice Presidents
and its corporate seal to be affixed hereunto, duly attested by its Corporate
Secretary.
HAWAIIAN AIRLINES, INC.
By: ________________________________
Name:
Title:
ATTEST:
____________________________________
Name:
Title:
12
<PAGE>
HAWAIIAN AIRLINES, INC.
ADDENDUM TO WARRANT
FOR THE PURCHASE OF SHARES OF
COMMON STOCK
Effective on August 13, 1996, the Warrant evidenced by Warrant Certificate
No. 12, which prior thereto entitled the holder thereof to purchase 948,973
shares of the common stock, par value $.01 per share, of Hawaiian Airlines, Inc.
(the "Common Stocks) at an exercise price of $1.10 per share, was adjusted
pursuant to Sections 3 and 4 thereof, and pursuant to such adjustment (i)
Warrant Certificate No. 23 was issued to evidence new Warrants to purchase
25,696 shares of Common Stock at an exercise price of $1.071 per share and (ii)
the exercise price of the Warrant evidenced by Warrant Certificate No. 12 was
reduced to $1.071. This Addendum is issued to evidence the reduction in the
exercise price of the Warrant evidenced by Warrant Certificate No. 12.
IN WITNESS THEREOF, Hawaiian Airlines, Inc. has caused this Addendum to be
duly signed by its President or one of its Vice Presidents and duly attested by
its Secretary or its Assistant Secretary.
HAWAIIAN AIRLINES, INC.
Dated as of August 13, 1996 By
----------------------------
Name: Bruce R. Nobles
Title: President and Chief
Executive Officer
ATTEST:
- -----------------------------
Name: Rae A. Capps
Title: Vice President, General Counsel
And Corporate Secretary
<PAGE>
HAWAIIAN AIRLINES, INC.
AMENDMENT NO. 1 TO WARRANT
FOR THE PURCHASE OF SHARES OF
COMMON STOCK
The Warrant evidenced by Hawaiian Airlines, Inc. Warrant Certificate No. 12
is hereby amended by deleting Section 1(d) of such Warrant Certificate in its
entirety and replacing it with the following:
"(d)" This Warrant may not be exercised until American Airlines, Inc.
("American"), a wholly owned subsidiary of AMR, and Hawaiian Airlines, Inc.
("Hawaiian") enter into a binding code sharing arrangement permitting
Hawaiian to add American's designator code to Hawaiian's interisland
flights (other than the Honolulu to Maui segment) (a "Code Share") and all
conditions to effectiveness of the Code Share have been satisfied. This
Warrant may not be exercised if American and Hawaiian fail, after good
faith negotiations, to enter into and execute a Code Share prior to January
1, 1997 and all conditions to effectiveness of the Code Share have not been
satisfied prior to February 1, 1997."
IN WITNESS THEREOF, Hawaiian Airlines, Inc., as issuer or the Warrant, and
AMR Corporation, as the holder of the Warrant, have caused this Amendment No. 1
to be duly executed as of December 17, 1996.
HAWAIIAN AIRLINES, INC.
By:______________________________
Name:
Title:
ATTEST:
______________________________
Name:
Title:
AMR CORPORATION
By:______________________________
Name:
Title:
ATTEST:
______________________________
Name:
Title:
<PAGE>
HAWAIIAN AIRLINES, INC.
AMENDMENT NO. 2 TO WARRANT FOR THE
PURCHASE OF SHARES OF COMMON STOCK
The Warrant evidenced by Hawaiian Airlines, Inc. Warrant Certificate No.
12, as revised pursuant to Addendum to Warrant for the Purchase of Shares of
Common Stock, dated as of August 13, 1996, and as amended by Amendment No. 1 to
Warrant for the Purchase of Shares of Common Stock, dated as of December 17,
1996, is hereby further amended as follows:
Section 1(d) is deleted in its entirety and replaced with the following:
(d) This Warrant may not be exercised until the Implementation Date of
the Code Sharing Agreement, dated July 15, 1997 (the "Code Sharing
Agreement"), by and between American Airlines, Inc., a wholly-owned
subsidiary of AMR Corporation ("American"), and Hawaiian. For purposes of
this Amendment No. 2 only, the "Implementation Date" shall be the earliest
date agreed to or requested by American for the commencement of the rights
and obligations of American and Hawaiian under the Code Sharing Agreement,
with such agreement or request being evidenced by a copy of written notice
from American to Hawaiian agreeing to or requesting an Implementation Date.
The above amendment makes the Warrant exercisable at the option of the
holder thereof in whole or in part at any time, and from time to time, from and
after the Implementation Date, as defined above, to any date which is on or
before September 11, 2001.
<PAGE>
IN WITNESS THEREOF, Hawaiian Airlines, Inc., as issuer of the Warrant, and
AMR Corporation, as holder of the Warrant on the date hereof, have caused this
Amendment No. 2 to be duly executed as of July 15, 1997 and effective as of
December 31, 1996.
HAWAIIAN AIRLINES, INC.
By:______________________________________
Paul J. Casey
President and Chief Executive Officer
By:______________________________________
John L. Garibaldi
Chief Financial Officer
ATTEST:
____________________________
Name: Michael J. McQuay
Title: Exec. V.P. & Chief
Operating Officer
AMR CORPORATION
By______________________________________
Gerard J. Arpey
Senior Vice President
and Chief Financial Officer
ATTEST:
__________________________
Charles D. MarLett
Corporate Secretary
<PAGE>
HAWAIIAN AIRLINES, INC.
AMENDMENT NO. 1 TO WARRANT
FOR THE PURCHASE OF SHARES OF
COMMON STOCK
The Warrant evidenced by Hawaiian Airlines, Inc. Warrant Certificate No. 23 is
hereby amended by deleting Section 1(d) of such Warrant Certificate in its
entirety and replacing it with the following:
"(d)" This Warrant may not be exercised until American Airlines, Inc.
("American"), a wholly owned subsidiary of AMR, and Hawaiian enter into a
binding code sharing arrangement permitting Hawaiian to add American's
desginator code to Hawaiian's interisland flights (other than the Honolulu
to Maui segment) (a "Code Share"). This Warrant may not be exercised after
January 31, 1997, if American and Hawaiian fail, after good faith
negotiations, to enter into a Code Share prior to February 1, 1997."
IN WITNESS THEREOF, Hawaiian Airlines, Inc., as issuer or the Warrant, and AMR
Corporation, as the holder of the Warrant, have caused this Amendment No. 1 to
be duly executed as of December 17, 1996.
HAWAIIAN AIRLINES, INC.
By:_______________________________
Name:
Title:
ATTEST:
___________________________
Name:
Title:
AMR CORPORATION
By:_______________________________
Name:
Title:
ATTEST:
___________________________
Name:
Title:
<PAGE>
HAWAIIAN AIRLINES, INC.
AMENDMENT NO. 2 TO WARRANT FOR THE
PURCHASE OF SHARES OF COMMON STOCK
The Warrant evidenced by Hawaiian Airlines, Inc. Warrant Certificate No.
23, as amended by Amendment No. 1 to Warrant for the Purchase of Shares of
Common Stock, dated as of December 17, 1996, is hereby further amended as
follows:
Section 1(d) is deleted in its entirety and replaced with the following:
(d) This Warrant may not be exercised until the Implementation Date
of the Code Sharing Agreement, dated July 15, 1997 (the "Code Sharing
Agreement"), by and between American Airlines, Inc., a wholly-owned
subsidiary of AMR Corporation ("American"), and Hawaiian. For purposes of
this Amendment No. 2 only, the "Implementation Date" shall be the earliest
date agreed to or requested by American for the commencement of the
rights and obligations of American and Hawaiian under the Code Sharing
Agreement, with such agreement or request being evidenced by a copy of
written notice from American to Hawaiian agreeing to or requesting an
Implementation Date.
The above amendment makes the Warrant exercisable at the option of the
holder thereof in whole or in part at any time, and from time to time, from and
after the Implementation Date, as defined above, to any date which is on or
before September 11, 2001.
<PAGE>
IN WITNESS THEREOF, Hawaiian Airlines, Inc., as issuer of the Warrant, and
AMR Corporation, as holder of the Warrant on the date hereof, have caused this
Amendment No. 2 to be duly executed as of July 15, 1997 and effective as of
December 31, 1996.
HAWAIIAN AIRLINES, INC.
By:
--------------------------------
Paul J. Casey
President and Chief Executive
Officer
By:
--------------------------------
John L. Garibaldi
Chief Financial Officer
ATTEST:
- --------------------------------
Name: Michael J. McQuay
Title: Exec. V.P. & Chief Operating
Officer
AMR CORPORATION
By
--------------------------------
Gerard J. Arpey
Senior Vice President
and Chief Financial Officer
ATTEST:
- --------------------------------
Charles D. MarLett
Corporate Secretary
<PAGE>
AIRCRAFT
LEASE AGREEMENT
Dated as of May 9, 1997
Between
AMERICAN AIRLINES, INC., as
Lessor
and
HAWAIIAN AIRLINES, INC., as
Lessee
One (1) DC10-10 Aircraft
Registration No. N125AA
Serial Number 46525
with Three GE CF6-6K Engines
This Lease Agreement has been executed in several counterparts. To the
extent, if any, that this Lease Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the
original. The counterpart to be deemed the original shall be the counterpart
that is designated on the signature pages thereof as the original counterpart
and no security interest in this Lease Agreement may be created through the
transfer of any counterpart other than such original counterpart. This is
not the original counterpart.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. DELIVERY AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . 13
(a) Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Delivery Date . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. Term and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Basic Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Prohibition Against Setoff, Etc.. . . . . . . . . . . . . . . . . 14
(e) Payment to Lessor . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain
Agreements of Lessee, Representations of Lessee . . . . . . . . 15
(a) Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Waiver of Warranties. . . . . . . . . . . . . . . . . . . . . . . 16
(d) Lessee's Representations and Warranties . . . . . . . . . . . . . 16
(e) Lessor's Representations and Warranties . . . . . . . . . . . . . 18
Section 5. Return of Airframe and Engines. . . . . . . . . . . . . . . . . . 20
(a) Return of Airframe and Serviced Engines . . . . . . . . . . . . . 20
(b) Return of Other Engines . . . . . . . . . . . . . . . . . . . . . 21
Section 6. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7. Registration, Maintenance and Operation; Possession;
Insignia. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Registration, Maintenance and Operation . . . . . . . . . . . . . 21
(b) Additional Maintenance Provisions . . . . . . . . . . . . . . . . 23
(c) Territorial Restrictions on Use of Aircraft . . . . . . . . . . . 23
(d) Obligations Absolute. . . . . . . . . . . . . . . . . . . . . . . 23
(e) Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Registration and Insignia . . . . . . . . . . . . . . . . . . . . 23
(g) Replacement of Parts. . . . . . . . . . . . . . . . . . . . . . . 24
(h) Alterations, Modifications and Additions. . . . . . . . . . . . . 24
(i) Manuals and Technical Records . . . . . . . . . . . . . . . . . . 25
(j) Maintenance and Usage . . . . . . . . . . . . . . . . . . . . . . 26
Section 8. Loss, Destruction, Requisition, Etc . . . . . . . . . . . . . . . 26
(a) Event of Loss to the Aircraft . . . . . . . . . . . . . . . . . . 26
(b) Event of Loss to a Serviced Engine. . . . . . . . . . . . . . . . 26
(c) Application of Payments for Requisition of Title. . . . . . . . . 29
(d) Requisition of Use of the Airframe. . . . . . . . . . . . . . . . 30
(e) Investment of Proceeds Pending Replacement. . . . . . . . . . . . 30
(f) Application of Payments During Default. . . . . . . . . . . . . . 31
Section 9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<PAGE>
(b) All Risk Hull Insurance . . . . . . . . . . . . . . . . . . . . . 32
(c) War-Risk Insurance. . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Application of Proceeds . . . . . . . . . . . . . . . . . . . . . 33
(e) Reports, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Additional Insurance. . . . . . . . . . . . . . . . . . . . . . . 34
(g) Notice from Lessee; No Modification . . . . . . . . . . . . . . . 34
(h) Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Insurance of Lessor . . . . . . . . . . . . . . . . . . . . . . . 34
(j) Insurance Relating to Allocated Parts . . . . . . . . . . . . . . 34
Section 10. Inspection; Financial Information. . . . . . . . . . . . . . . . 35
(a) Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Financial Information . . . . . . . . . . . . . . . . . . . . . . 36
Section 11. Lessee's Covenants . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Certificated Air Carrier. . . . . . . . . . . . . . . . . . . . . 37
Section 12. FAA Recordation and Further Assurances . . . . . . . . . . . . . 37
(a) FAA Recordation . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13A. Lessee Events of Default. . . . . . . . . . . . . . . . . . . . 38
Section 13B. Lessor Events of Default. . . . . . . . . . . . . . . . . . . . 39
Section 14A. Lessor Remedies . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14B. Lessee Remedies . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Limitation on Damages . . . . . . . . . . . . . . . . . . . . . . 43
(c) No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 15. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Indemnification for Negligent Acts. . . . . . . . . . . . . . . . 45
(c) Defense of Claims; Settlement . . . . . . . . . . . . . . . . . . 45
(d) Indemnification by Lessor . . . . . . . . . . . . . . . . . . . . 46
(e) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 16. General Tax Indemnity. . . . . . . . . . . . . . . . . . . . . . 46
(a) Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(b) Exclusions from General Tax Indemnity . . . . . . . . . . . . . . 47
(c) Calculation of General Tax Indemnity Payments . . . . . . . . . . 49
(d) Payment of General Tax Indemnity. . . . . . . . . . . . . . . . . 50
(e) Verification of Calculations. . . . . . . . . . . . . . . . . . . 50
(f) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(g) General Tax Indemnity Contest Provisions. . . . . . . . . . . . . 51
(h) Compromise or Settlement. . . . . . . . . . . . . . . . . . . . . 53
(i) Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(j) Failure to Contest. . . . . . . . . . . . . . . . . . . . . . . . 53
(k) Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(l) Effect of Other Indemnities . . . . . . . . . . . . . . . . . . . 54
Section 17. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 54
ii
<PAGE>
(a) Construction; Governing Law . . . . . . . . . . . . . . . . . . . 54
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(c) Lessor's Right to Perform . . . . . . . . . . . . . . . . . . . . 57
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 57
(e) Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(f) Grant of Security Interest by Lessor. . . . . . . . . . . . . . . 59
(g) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(h) Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(i) Transaction Expenses. . . . . . . . . . . . . . . . . . . . . . . 60
(j) Entirety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(k) Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(l) Independent Contractor; No Agency . . . . . . . . . . . . . . . . 61
(m) Certain Consents and Waivers of Lessee. . . . . . . . . . . . . . 61
(n) Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 18. True Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(a) Intent of the Parties . . . . . . . . . . . . . . . . . . . . . . 63
Section 19. Enforceability in Jurisdictions. . . . . . . . . . . . . . . . . 63
Section 20. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . 63
Section 21. Maintenance Obligations. . . . . . . . . . . . . . . . . . . . . 64
Section 22. Amendment of Long-Term Lease Agreement . . . . . . . . . . . . . 64
Section 23. Substitution . . . . . . . . . . . . . . . . . . . . . . . . . . 64
iii
<PAGE>
Schedule I - Basic Rent
Exhibit A - Lease Supplement No. 1
Exhibit B - Stipulated Loss Value Schedule
Exhibit C - Conditions Precedent to Delivery
Exhibit D - Delivery and Return Conditions
Exhibit E - Supplemental Rent for Maintenance
Schedule 4(d)(i)
Schedule 4(d)(iv)
Schedule 4(d)(v)
Schedule 4(d)(vi)
Schedule 4(d)(vii)
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<PAGE>
AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT, dated as of May 9, 1997, between AMERICAN
AIRLINES, INC., a Delaware corporation, with its principal place of business
at Dallas/Fort Worth International Airport, Texas 75261-9616, and its
successors and assigns ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii
corporation with its principal place of business at 3375 Koapaka Street,
Suite G350, Honolulu, Hawaii 96819 ("Lessee").
WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to
lease to Lessee, the Aircraft (as defined below) upon the terms and
conditions set forth herein; and
WHEREAS, Lessor is certificated under FAA Regulations Part 121 to
inspect, maintain, repair and overhaul the Aircraft with GE CF6-6K Engines;
and
WHEREAS, Lessee has requested that Lessor perform certain repair,
maintenance and overhaul services with respect to the Aircraft, other than
the Lessee Assumed Services (as defined below), at a fixed cost per flight
hour; and
WHEREAS, Lessee has further requested that Lessor perform certain
additional repair, modification, maintenance and overhaul services on a
time-and-materials basis; and
WHEREAS, Lessor desires to perform such maintenance services for Lessee;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree
as follows:
Section 1. DEFINITIONS. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this
Lease Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined:
"AADVANTAGE AGREEMENT" means the AAdvantage-Registered Trademark-
Participating Agreement, dated as of September 12, 1994 between Lessee and
Lessor, and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all as from
time to time amended, supplemented or modified.
"AA MORTGAGE" means the Chattel Mortgage and Security Agreement, dated
as of January 31, 1996, between Lessor and Lessee, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"AA STATION" means HNL, LAS, LAX, SEA, SFO or TUL.
"ACARS" means the Aircraft Communications and Reporting System currently
installed on the Aircraft.
<PAGE>
"ADS" means Airworthiness Directives issued by the FAA.
"AD EFFECTIVE DATE" shall have the meaning assigned to such term in
Section 4(s) of Exhibit E.
"ADDITIONAL INSURED" shall have the meaning specified in Section 9
hereof.
"ADDITIONAL SERVICES" means the engineering, inspection, maintenance,
repair and overhaul services that are necessary or appropriate (i) to correct
damage (including replacement at Lessee's expense if Lessor reasonably
determines that the damage (other than ordinary wear and tear) is beyond
economic repair) to the Serviced Aircraft, any Serviced Engines and/or any
Rotable Parts (including Serviced Parts removed during the delivery of
Maintenance Services other than Additional Services) that resulted from (a)
improper use, improper repairs by Persons other than Lessor or its
subcontractors, neglect (other than by Lessor or its subcontractors), or any
cause other than ordinary wear and tear or (b) Foreign Object Damage, (ii) to
complete modifications to the Serviced Aircraft and any Serviced Engines
requested by Lessee to customize the Serviced Aircraft in any manner that
deviates from Lessor's standard configuration (subject to the provisions of
Section 4(q) of Exhibit E which require Lessee to procure and provide certain
Serviced Parts prior to their installation on the Serviced Aircraft), (iii)
to complete modifications (including those modifications mandated by the FAA)
to the Serviced Aircraft the costs of which exceed $1,000 per Serviced
Aircraft, or (iv) to complete any inspections mandated by the FAA that are
not included in Lessor's existing maintenance program and are not related to
aging aircraft and corrosion prevention issues, but excluding Field Trip
Maintenance Services, and On-Call Maintenance Services.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. For
purposes of this definition, "CONTROL" when used with respect to any
specified Person means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
"AIRCRAFT" means the Airframe delivered and leased hereunder, together
with the three Engines initially leased hereunder with the Airframe (or any
Engine substituted for any such Engine hereunder), whether or not any of such
initial or substituted Engines may from time to time be installed on the
Airframe or may be installed on any other airframe or on any other aircraft.
"AIRFRAME" means (i) the McDonnell Douglas DC10-10 aircraft (except
engines or Serviced Engines from time to time installed thereon) bearing the
U.S. Registration Number N125AA and Manufacturer's Serial Number 46525 and
(ii) any and all Parts so long as the same shall be incorporated or installed
in or attached to the Airframe or so long as title thereto shall remain
vested in Lessor.
"ALLOCATED PARTS" shall have the meaning assigned to such term in the
Long-Term Lease Agreement.
"ALLOCATED SPARE ENGINE" shall have the meaning assigned to such term in
Section 4(n) of Exhibit F of the Long-Term Lease Agreement.
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<PAGE>
"AMERICAN AGREEMENTS" mean the Lease Agreement, the Long Term
Agreements, the Ancillary Agreements, 160 Lease, 161 Lease, 162 Lease and the
171 Lease.
"AMRCG" means AMR Training & Consulting Group, Inc., a Delaware
corporation, and its successors and assigns.
"AMR LEASING" means AMR Aircraft Sales & Leasing Company, a Delaware
corporation, and its successors and assigns.
"ANCILLARY AGREEMENTS" means that certain Manuals Supplement, Amended
and Restated Training Document and FOS Implementation Document, each dated as
of March 31, 1994, and entered into by and between Lessor and Lessee.
"A.O.G." means aircraft on the ground.
"APPLICABLE LAW" means all applicable laws of any Governmental
Authority, including securities laws, tax laws, tariff and trade laws,
ordinances, judgments, decrees, injunctions, writs and orders or like actions
of any court, arbitrator, judicial or quasi-judicial tribunal, governmental
agency or authority in any country and rules, regulations, orders,
interpretations, licenses and permits of any federal, state, county,
municipal, regional or other United States or foreign governmental body,
instrumentality, agency or authority.
"APU" means auxiliary power unit.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Section 101 Et SEQ.), as amended from time to time and any successor statute.
"BASE MAINTENANCE SERVICES" means the inspection, engineering,
maintenance, repair and overhaul services of the Serviced Aircraft, any
Serviced Engines and any Serviced Parts that are ordinarily performed at a
Maintenance Base as part of the scheduled maintenance of the Serviced
Aircraft, any Serviced Engines or any Serviced Parts to repair ordinary wear
and tear including, without limitation, all aircraft heavy maintenance checks
and phase checks, but excluding (i) the inspection, maintenance, repair and
overhaul of Parts described in Section 4(q) of Exhibit E and (ii) Additional
Services, Field Trip Maintenance Services, Line Maintenance Services and
On-Call Maintenance Services.
"BASIC RENT" means the rent payable for the Aircraft pursuant to Section
3(b), as the same may be adjusted pursuant to Section 16.
"BASIC RENT PAYMENT DATE" means the dates for payment of Basic Rent
described in Schedule I attached hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banking institutions in New York City, New York, Fort
Worth, Texas or Honolulu, Hawaii are authorized or required by law,
regulation or executive order to be closed.
"CHANGE IN CONTROL" means the acquisition by any Person or 13D Group (other
than Airline Investors Partnership, L.P. or its Affiliates) of beneficial
ownership (within the meaning of Rule
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<PAGE>
13d-3 of the Exchange Act) of Voting Securities after which such Person or
Group owns Voting Securities representing 30% or more of the outstanding
Voting Securities.
"CLAIMS" means actual or threatened claims, demands and suits.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and analogous provisions of any successor statute.
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to such term
in Section 17(d).
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality Agreement
dated November 8, 1993, between AMRCG and Lessee.
"CYCLE" means, with respect to the Serviced Aircraft, one takeoff of
such Serviced Aircraft and the next subsequent landing of such Serviced
Aircraft.
"DEFAULT" means any event which with the passage of time or the giving
of notice or both would become a Lessee Event of Default.
"DEFECT" shall have the meaning assigned to such term in Section 5(a) of
Exhibit E.
"DEFERRED PURCHASE CERTIFICATE" has the meaning set forth in the
Indenture.
"DELIVERY DATE" means the date on which the Aircraft is delivered by
Lessor to, and accepted by, Lessee.
"DISCOUNT RATE" means the Prime Rate.
"DOT" means the United States Department of Transportation, or any
Person, governmental department, bureau, commission, or agency succeeding to
the functions of such department.
"ENGINE" means (i) each of the three General Electric Model CF6-6K
engines listed by manufacturer's serial numbers in Lease Supplement No. 1,
whether or not from time to time installed on the Airframe or installed on
any other airframe or on any other aircraft and (ii) any Replacement Engine
which may from time to time be substituted pursuant to Section 8 for an
Engine leased hereunder; together in each case with any and all Parts
incorporated or installed in or attached thereto or any and all Parts removed
therefrom so long as title thereto shall remain vested in Lessor in
accordance with the terms of Section 8 after removal from such Engine.
Except as otherwise set forth herein, at such time as a Replacement Engine
shall be so substituted, such replaced Engine shall cease to be an Engine
hereunder. The term "Engines" means, as of any date of determination, all
Engines then leased hereunder.
"EVENT OF LOSS" with respect to any Item of Equipment means any of the
following events with respect to such Item of Equipment: (i) loss of such
Item of Equipment or the use thereof due to theft, disappearance,
destruction, damage beyond repair or rendition of such Item of Equipment
permanently unfit for normal use for any reason whatsoever; (ii) any damage
to such Item of Equipment which results in an insurance settlement with
respect to such Item of Equipment on the basis of a total loss whether
actual, constructive or arranged; (iii) the condemnation, confiscation or
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<PAGE>
seizure of, or requisition of title to such Item of Equipment; (iv) the
requisition of use of such Item of Equipment (other than requisition for use
by the Government); (v) the requisition of use of such Item of Equipment by
the Government for any period ending after the expiration of the Term unless
Lessor elects, upon 30 days' prior notice, not to treat such requisition as
an Event of Loss at the end of the Term; (vi) as a result of any rule,
regulation, order or other action by the FAA, DOT or other governmental body
of the United States having jurisdiction, the use of such Item of Equipment
in the normal course of air transportation of persons shall have been
prohibited for a period of six consecutive months, unless Lessee, prior to
the expiration of such six-month period, shall have undertaken and shall be
diligently carrying forward all steps which are necessary or desirable to
permit the normal use of such property by Lessee or, in any event, if such
use shall have been prohibited for a period of twelve consecutive months or
if such use is prohibited at the end of the Term, unless at the end of the
Term such use has then been prohibited for less than six consecutive months,
then an Event of Loss shall not be deemed to have occurred hereunder until
the expiration of six consecutive months during which the use of the Item of
Equipment has been so prohibited, but only so long as Lessee continues to pay
Basic Rent to the Lessor on the first day of each month, at the rate set
forth in Schedule I attached hereto and Supplemental Rent pursuant to Exhibit
E hereto, and agrees to and does comply with all other provisions hereof; or
(vii) the operation or location of the Item of Equipment, while under
requisition for use by the Government, in any area excluded from coverage by
any insurance policy in effect with respect to the Item of Equipment required
by the terms of Section 9, if Lessee shall not have obtained indemnity in
lieu thereof from the Government, acceptable to Lessor; PROVIDED that if such
property shall be returned to Lessee in such a condition that Lessee can
within 30 days following the return thereof cause the Item of Equipment to
comply with the maintenance conditions set forth in Section 7 hereof, then
such event shall, at the option of Lessee, not constitute an Event of Loss.
An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe. In the
case of clauses (i), (ii), (iii) and (iv), the date of an Event of Loss shall
be the date of destruction, damage, requisition, loss, etc. to any Item of
Equipment. In the cases of clauses (v), (vi) and (vii), the date of an Event
of Loss shall be respectively (A) such 180th day or last day of the
applicable Term as the case may be, and (B) the last day of such six month
period or twelve month period, as the case may be and (C) the first day of
such operation or location.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENDABLE PARTS" means (i) Serviced Parts used in the repair and
overhaul of the Serviced Airframe, any Serviced Engines and other Rotable
Parts that are assumed to have no potential for reuse and miscellaneous
materials and supplies consumed during the repair and overhaul process, and
(ii) Serviced Parts that have some potential for repair but that are
customarily assumed to be expended.
"EXPENSES" means liabilities, obligations, losses, damages, penalties,
claims (including claims involving liability in tort, strict liability or
otherwise), actions, suits, judgments, costs, expenses and disbursements
(including legal fees and expenses and costs of investigation) of any kind
and nature whatsoever without any limitation as to amount, together with
interest thereon at the Stipulated Interest Rate from the date incurred until
reimbursed hereunder.
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<PAGE>
"FAA" means the United States Federal Aviation Administration, or any
person, governmental department, bureau, commission or agency succeeding to
the functions of such Administration.
"FEDERAL AVIATION ACT" or "ACT" means the Federal Aviation Act of 1958,
as amended.
"FIELD TRIP MAINTENANCE SERVICES" means, with respect to the Serviced
Aircraft, any Serviced Engine or any Serviced Part that experiences a
mechanical malfunction, the inspection, maintenance and repair of such
malfunction at any location where Lessor does not have on-site the necessary
number of mechanics trained to work on the particular malfunction experienced
by the Serviced Aircraft, any Serviced Engine or any Serviced Part.
"FLIGHT HOUR" means the amount of time (expressed in hours and rounded
upward to the nearest one-tenth (1/10th) of an hour) during the flight of a
Serviced Aircraft between "wheels off" on takeoff and "wheels on" on landing.
"FOREIGN OBJECT DAMAGE" means damage to a Serviced Engine or any
component thereof caused by any object or material ingested into the Serviced
Engine that results in the breakage or destruction of a Serviced Engine
component or a notch, non-stress related crack, cut, indentation or other
depression to the surface of a Serviced Engine component in each case beyond
specification limits of the Lessor's maintenance program, but excluding the
gradual erosion or smoothing of any Serviced Engine component caused by
numerous Flight Hours of operation.
"GOVERNMENT" means the government of the United States of America, and
any instrumentality or agency thereof.
"GOVERNMENTAL AUTHORITY" means any governmental department, court,
bureau, commission, agency or any other entity, whether of the United States
(including any state or subdivision thereof) or any other country (including
any political subdivision thereof), having jurisdiction over this Lease, the
transactions contemplated hereby, or any document related hereto or thereto
or delivered in connection herewith or therewith, the Serviced Aircraft or
the parties hereto.
"HNL" means Honolulu International Airport in Honolulu, Hawaii.
"IATA" means International Air Transport Association.
"INDEMNIFIED PARTY" shall have the meaning assigned to such term in
Section 15.
"INTERIM AIRCRAFT LEASE AGREEMENTS" means the Interim Aircraft Lease
Agreements each dated as of December 30, 1993, May 20, 1994, August 10, 1994
or August 31, 1994 between AMR Leasing and Lessee, as the same may be
amended, modified or supplemented from time to time.
"INTERIM AIRCRAFT MAINTENANCE AGREEMENT" means the Interim Aircraft
Maintenance Agreement dated as of December 30, 1993 between Lessor and
Lessee, as the same may be amended, modified or supplemented from time to
time.
"INTERIM DEFINITIVE AGREEMENTS" means the Interim Aircraft Lease
Agreements, the Interim AAdvantage Participating Carrier Agreement dated as
of December 30, 1993 between Lessee and
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<PAGE>
Lessor, the Interim Aircraft Maintenance Agreement, the Interim
Multihost Agreement dated as of December 30, 1993 between Lessee and SABRE,
the Interim Flight Operating System Agreement dated as of December 30, 1993
between Lessee and SABRE, the Interim Equipment Master Equipment Lease
Agreement dated as of December 30, 1993 between Lessee and SABRE, the
Guaranty Agreement dated as of December 10, 1993 executed by HAL, Inc. and
West Maui Airport, Inc. in favor of Lessor, AMRCG, AMR Leasing and SABRE and
the Security Agreement dated as of December 10, 1993 between Lessee, HAL,
Inc. and West Maui Airport, Inc. as debtors and Lessor, AMRCG, AMR Leasing
and SABRE as secured parties, and all other agreements, instruments,
certificates or documents related thereto or executed or delivered in
connection therewith, as amended or modified from time to time.
"IN-USE AIRCRAFT" means the Airframe delivered and leased hereunder,
together with the three Serviced Engines or engines installed from time to
time thereon.
"ISSUER INSOLVENCY" shall have the meaning assigned thereto in Section
13A hereof.
"ITEM OF EQUIPMENT" or "ITEM" means the Airframe or each of the Serviced
Engines, and for purposes of the definition of "Event of Loss" as used in
Section 8(b)(3) hereof, shall mean each Engine.
"LAS" means McCarren International Airport in Las Vegas, Nevada.
"LAX" means Los Angeles International Airport in Los Angeles, California.
"LEASE AGREEMENT", "THIS LEASE AGREEMENT", "THIS LEASE", "THIS
AGREEMENT", "HEREIN", "HEREUNDER", "HEREBY" or other like words mean this
Lease Agreement as originally executed or as modified, amended or
supplemented pursuant to the applicable provisions hereof, including, without
limitation, supplementation hereof by one or more Lease Supplements entered
into pursuant to the applicable provisions hereof.
"LEASE SUPPLEMENT" means Lease Supplement No. 1, substantially in the
form of Exhibit A hereto to be entered into between Lessor and Lessee for the
purpose of leasing the Aircraft under and pursuant to the terms of this
Lease, or any amendment hereto or to any other Lease Supplement entered into
subsequent to the Delivery Date.
"LEASE TERM" means the period from the Delivery Date of the Aircraft
until September 11, 2001, unless earlier terminated in accordance with the
provisions of this Lease.
"LESSEE ASSUMED SERVICES" means those maintenance services set forth on
ATTACHMENT C to Exhibit E to be performed by Lessee at HNL during the Lease
Term and any other maintenance services that the parties mutually agree
pursuant to Section 1 of Exhibit E that Lessee will assume and perform.
"LESSEE EVENT OF DEFAULT" shall have the meaning specified in Section
13A hereof.
"LESSOR EVENT OF DEFAULT" shall have the meaning specified in Section
13B hereof.
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<PAGE>
"LESSOR WARRANTY" shall have the meaning assigned to such term in
Section 5(a) of Exhibit E.
"LESSOR'S LIENS" means any Lien arising as a
result of (i) Claims against or affecting Lessor, not related to the
transactions contemplated by this Lease; (ii) acts or omissions of Lessor,
not related to the transactions contemplated by this Lease, or not permitted
under this Lease; (iii) Taxes or Claims imposed against Lessor which are not
indemnified against by Lessee pursuant hereto; or (iv) Claims against Lessor
arising out of the voluntary or involuntary transfer by Lessor (without the
consent of Lessee) of any of its interests in the Airframe, any Serviced
Engine or any Engine, including, without limitation, by means of granting a
security interest therein, other than a transfer of the Aircraft pursuant to
Section 8 or 14A hereof.
"LIABILITIES" means Claims, liabilities, losses, judgments, damages,
fines, penalties and costs, fees and expenses of any nature incident thereto
(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation), whether arising in tort, contract or
otherwise.
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or Claim.
"LINE MAINTENANCE SERVICES" means all customary line maintenance
services to the Serviced Aircraft, any Serviced Engine or any Serviced Part,
including scheduled inspections and servicing of the Serviced Aircraft and
related repairs, but excluding (i) Additional Services, Base Maintenance
Services, Field Trip Maintenance Services and On-Call Maintenance Services
and (ii) Lessee Assumed Services.
"LONG-TERM AGREEMENTS" means the Long-Term Lease Agreement, the 160
Lease Agreement, the 161 Lease Agreement, the 162 Lease Agreement, the 171
Lease Agreement, the AAdvantage Participating Carrier Agreement dated as of
September 12, 1994 between Lessee and Lessor, the Multihost Agreement dated
as of September 12, 1994 between Lessee and SABRE, the Flight Operating
System Agreement dated as of September 12, 1994 between Lessee and SABRE, the
Equipment Master Lease Agreement dated as of September 12, 1994 between
Lessee and SABRE, and all other agreements, instruments, certificates and
documents related thereto or executed or delivered in connection therewith,
all as amended or modified from time to time.
"LONG-TERM LEASE AGREEMENT" means the Aircraft Lease Agreement dated as
of September 12, 1994 between Lessor and Lessee, as amended, supplemented,
modified and renewed from time to time.
"LOSS PAYMENT DATE" shall have the meaning set forth in Section 8(a)
hereof.
"MAGSA RATES" means the hourly rates applicable to participants
in the Mutual Assistance Ground Service Agreement among Lessor and other
participating IATA carriers as amended from time to time, or any comparable
replacement agreement.
"MAINTENANCE BASE" shall have the meaning assigned to such term in
Section 2(a)(i) of Exhibit E.
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"MAINTENANCE SERVICES" means Additional Services, Base Maintenance
Services, Field Trip Maintenance Services, Line Maintenance Services and
On-Call Maintenance Services but excluding Lessee Assumed Services.
"MAINTENANCE SERVICES TERMINATION DATE" shall have the meaning set forth
in Section 1 to Exhibit E hereto.
"MANUAL" means the Standard Practice Manual mutually prepared by Lessor
and Lessee for administration of this Agreement, a true and correct copy of
which has been provided to Lessor and Lessee, together with any amendments
made thereto from time to time by a party hereto with the consent of the
other party hereto (which consent shall not be unreasonably withheld).
"MANUFACTURER" means, collectively, the respective manufacturers of the
Airframe, each Engine and each Serviced Engine.
"MONTHLY MINIMUM MAINTENANCE AMOUNT" shall have the meaning set forth in
Section 3(f)(i) of Exhibit E hereto.
"NTF" means, with respect to the Serviced Aircraft, any Serviced Engine
or any Serviced Part upon which an inspection has been performed to
determine the existence of a suspected malfunction, that the results of such
inspection indicated there was "no trouble found."
"ON-CALL FIELD STATIONS" means (i) LAS, LAX, SEA and SFO and any other
station requested by Lessee and agreed to in writing by Lessor, and in each
case, at which, pursuant to Section 1 of Exhibit E, Lessee has elected to
perform, and is performing, Line Maintenance Services at such location and
(ii) HNL.
"ON-CALL MAINTENANCE SERVICES" means, with respect to the Serviced
Aircraft, any Serviced Engine or any Serviced Part that experiences a
mechanical malfunction, the inspection, maintenance and repair of such
malfunction at the request of Lessee at any of the On-Call Field Stations but
excluding Field Trip Maintenance Services.
"160 LEASE" or "160 LEASE AGREEMENT" means the Aircraft Lease Agreement,
dated as of January 3, 1997 between Lessee and Lessor, and all other
agreements, instruments, certificates and documents related thereto or
executed or delivered in connection therewith, all as from time to time
amended, supplemented or modified.
"161 LEASE" or "161 LEASE AGREEMENT" means the Aircraft Lease Agreement,
dated as of December 30, 1995 between Lessee and Lessor, and all other
agreements, instruments, certificates and documents related thereto or
executed or delivered in connection therewith, all as from time to time
amended, supplemented or modified.
"162 LEASE" or "162 LEASE AGREEMENT" means the Aircraft Lease Agreement,
dated as of November 6, 1996 between Lessee and Lessor, and all other
agreements, instruments, certificates and documents related thereto or
executed or delivered in connection therewith, all as from time to time
amended, supplemented or modified.
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"162 TERMINATION DATE" means the date on which the 162 Lease is
terminated by Lessee and Lessor, which date is currently expected to be
July 7, 1997.
"171 LEASE" or "171 Lease Agreement" means the Aircraft Lease Agreement,
dated as of May 15, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or
delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"OUTSIDE SERVICES" shall have the meaning assigned to such term in
Section 4(f) of Exhibit E.
"PARTS" means (i) any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats and other equipment of
whatever nature (other than complete engines or Serviced Engines), which may
from time to time be incorporated or installed in or attached to the Airframe
or any Serviced Engine, or having been so installed in or attached, are later
removed therefrom, so long as title thereto remains vested in Lessor, and
(ii) all Allocated Parts (other than the Allocated Spare Engine).
"PERMITTED LIENS" means Liens referred to in clauses (i) through (vii)
of Section 6.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or other
form of entity or any government or any agency or political subdivision
thereof.
"PHASED-OUT PARTS" means Serviced Parts of a type formerly utilized
during the Lease Term by Lessor but discontinued with respect to Lessor's
fleet of DC10-10 Aircraft that Lessee has properly elected without
contravening Section 4 of Exhibit E to continue to utilize on the Serviced
Aircraft.
"POOLING AGREEMENT" means the Pooling Agreement dated the date hereof
between Lessor and Lessee, as amended, supplemented and modified from time to
time.
"PRIME RATE" means the per annum rate announced by The Chase Manhattan
Bank, N.A. from time to time as its prime rate in New York, New York.
"RENT" means Basic Rent and Supplemental Rent, collectively.
"REPLACEMENT ENGINE" means a GE CF6-6K engine (or an engine of the same
or another manufacturer of a comparable or an improved model and suitable for
installation and use on the Airframe) which shall have been leased hereunder
pursuant to Section 8, together with all Parts relating to such engine.
"RETURN AIRCRAFT" means upon the return of the Aircraft to Lessor
hereunder pursuant to Section 5, 8, or 14A hereof, the Airframe constituting
part of the Aircraft and the engines or Serviced Engines attached thereto.
"ROTABLE PARTS" means Serviced Parts that customarily have a potential
for reuse through inspection, repair, overhaul or calibration.
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"SABRE" means SABRE Decision Technologies, a division of The SABRE
Group, Inc. (formerly known as AMR Information Services, Inc.).
"SEA" means the Seattle/Tacoma International Airport in Seattle,
Washington.
"SERVICED AIRCRAFT" means the Aircraft.
"SERVICED AIRFRAME" means (i) the Serviced Aircraft (except Serviced
Engines) and (ii) any and all Serviced Parts (except Serviced Parts that
comprise a Serviced Engine) so long as the same shall be incorporated or
installed in, or attached to, such Serviced Aircraft.
"SERVICED ENGINES" means (i) each Engine, so long as Lessee has not
delivered possession of any such Engine to Lessor pursuant to the Pooling
Agreement; (ii) each of the GE CF6-6K engines delivered to Lessee by Lessor
pursuant to the Pooling Agreement so long as such engines have not been
redelivered by Lessee to Lessor under the Pooling Agreement, PROVIDED THAT,
for the purposes of Exhibit E attached hereto, an engine delivered by Lessee
to Lessor thereunder shall remain a Serviced Engine until all Maintenance
Services have been completed thereon; and (iii) the Allocated Spare Engine;
and (iv) for purposes of Exhibit E only, GE CF6-6K engines in transit between
Lessor and Lessee pursuant to Sections 3(d), 3(i) and 4(d)(iii) of Exhibit E.
"SERVICED PART" means any Serviced Aircraft component, including any
APU, landing gear, part, equipment, accessory, instrument, avionics or system
and miscellaneous materials and supplies consumed during operation or
inspection, maintenance, repair and overhaul services.
"SFO" means the San Francisco International Airport in San Francisco,
California.
"STIPULATED INTEREST RATE" means the rate of ten percent (10%) per annum.
"STIPULATED LOSS VALUE" payable with respect to an Event of Loss for the
Airframe and its Serviced Engines shall mean, as of any date of
determination, the amounts set forth in Exhibit B hereto.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay hereunder to
Lessor or others, including, without limitation, all Monthly Supplemental
Rent Payments and all other amounts, liabilities and obligations of Lessee
to Lessor set forth in Exhibit E attached hereto.
"TAXES" means any and all fees (including license, documentation and
registration fees), taxes (including income, gross receipts, preferences,
sales, use, turnover, value added, property (tangible and intangible), excise
and stamp taxes), licenses, levies, imposts, duties, charges, surcharges,
assessments or withholdings of any nature whatsoever, together with any and
all penalties, fines, additions to tax and interest thereon in each case
imposed by a Taxing Authority.
"TAXING AUTHORITY" means any Federal, state or local government or other
taxing authority in the United States or any political subdivision or
territory or possession thereof, any international authority and any taxing
authority of any other government or political subdivision or territory or
possession thereof.
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"TERM" means the period for which the Aircraft is leased pursuant to
Section 3(a) hereof and Section 3 of the Lease Supplement.
""13D GROUP" means any partnership, limited partnership, syndicate or
other "group" (as such term is used in Section 13(d)(3) of the Exchange Act).
"TUL" means Tulsa International Airport in Tulsa, Oklahoma.
"TURN TIME" means, with respect to any particular Maintenance Services,
the period of time ordinarily required by Lessor, exerting its reasonable
efforts, to complete such Maintenance Services in accordance with its
customary practices and procedures or such specified period of time agreed to
in writing by Lessor and Lessee for the performance of any particular
Maintenance Services.
"VOTING SECURITIES" means any securities of Lessee entitled to vote
generally in the election of directors, or securities convertible into or
exercisable or exchangeable for such securities.
"WARRANTY CLAIM" means a written notice delivered to Lessor by Lessee of
a Defect in Maintenance Services performed by Lessor, which Defect is claimed
to be within the scope of the warranty provided by Lessor in Section 5(a) of
Exhibit E, such notice specifying in detail the nature of the Defect.
"WARRANTY PERIOD" means, with respect to the Serviced Aircraft, any
Serviced Engine or any Serviced Part upon which Maintenance Services were
performed, that period of time commencing upon redelivery to Lessee of such
Serviced Aircraft, Serviced Engine or Serviced Part after performance of
Maintenance Services thereon and expiring on the first to occur of the
following: (i) the expiration of one hundred twenty (120) days after
redelivery of such Serviced Aircraft, Serviced Engine or Serviced Part to
Lessee, or (ii) the completion of four hundred (400) Flight Hours of
operation of such Serviced Aircraft, Serviced Engine or Serviced Part after
redelivery to Lessee.
"WEEKLY SUPPLEMENTAL RENT PAYMENT" shall have the meaning assigned to
such term in Section 3(f) of Exhibit E.
"WEEKLY SUPPLEMENTAL RENT PAYMENT DATE" shall have the meaning assigned
to such term in Section 3(f) of Exhibit E.
RULES OF INTERPRETATION. The following rules of interpretation apply to
this Lease Agreement:
(1) "or" is not exclusive and "include" and "including" are not limiting;
(2) "hereby", "herein", "hereof", "hereunder", "this Lease", "this
Agreement", "Lease Agreement", or other like words refer to this
Aircraft Lease Agreement;
(3) a reference to any agreement or other contract includes permitted
supplements and amendments;
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(4) a reference to a law includes any amendment or modification to such
law and any rules or regulations issued thereunder or any law enacted
in substitution or replacement therefor;
(5) a reference to a Person includes its permitted successors and assigns;
(6) a reference herein to an Article, Section, Exhibit or Schedule is to
the relevant Article, Section, Exhibit or Schedule of this Lease
Agreement;
(7) any right may be exercised at any time and from time to time;
(8) all obligations are continuing obligations;
(9) time shall be of the essence in the performance of all payment
obligations;
(10) the heading of the Articles, Sections, Exhibits, Schedules and
subsections are for the convenience of reference only and shall not
affect the meaning of this Lease Agreement; and
(11) no term or provision herein may be changed, waived, discharged or
terminated orally, but only by written instrument signed by the party
against which the enforcement of the change, waiver, discharge or
termination is sought.
Section 2. DELIVERY AND ACCEPTANCE.
(a) TIME AND PLACE. Lessor hereby agrees (subject to satisfaction of
the conditions set forth in Exhibit C attached hereto) to lease to Lessee
hereunder and Lessee hereby agrees to lease from Lessor hereunder, on the
Delivery Date, the Aircraft, as evidenced by the execution by Lessor and
Lessee of Lease Supplement No. 1 hereunder. Delivery of the Aircraft by
Lessor and acceptance thereof by Lessee shall occur at Lessor's option at LAX
or TUL, or such other location agreed on by Lessor and Lessee.
(b) DELIVERY DATE. The Delivery Date for the Aircraft shall occur on
or about the second week of June, 1997.
Lessor shall deliver the In-Use Aircraft in the condition set forth in
Exhibit D attached hereto, provided that such delivery and fulfillment of
delivery conditions shall, subject to the execution and delivery of Lease
Supplement No. 1 (and satisfaction of the conditions set forth in Exhibit C
attached hereto), be deemed to have been met. Lessor shall use its
reasonable efforts to deliver the In-Use Aircraft on the Delivery Date, but
if Lessor is unable to deliver the In-Use Aircraft on the Delivery Date, it
shall deliver the In-Use Aircraft to Lessee as soon thereafter as possible
without any penalty, charge or damages for late delivery.
Section 3. TERM AND RENT.
(a) TERM. Except as otherwise provided herein (including, without
limitation, pursuant to the definition of Event of Loss), the Term for the
Aircraft shall commence on the Delivery Date and end on September 11, 2001.
Notwithstanding the foregoing, Lessor shall have the right to
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terminate this Lease by written notice to Lessee upon the occurrence of a
Change in Control and the relevant Term for each Aircraft shall end on the
date specified in such notice .
(b) BASIC RENT. Lessee hereby agrees to pay Lessor Basic Rent for the
Aircraft throughout the Term, in advance in the amounts set forth in Schedule
I, on each Basic Rent Payment Date, commencing on the Delivery Date.
(c) SUPPLEMENTAL RENT. Lessee also agrees to pay to Lessor, or to
whosoever shall be entitled thereto, any and all Supplemental Rent promptly
as the same shall become due and owing, including on each Monthly
Supplemental Rent Payment Date (as defined in Exhibit E attached hereto) (or
on demand if no due date is specified), and in the event of any failure on
the part of Lessee to pay any Supplemental Rent, Lessor shall have all
rights, powers and remedies provided for herein or by law or in equity or
otherwise in the case of nonpayment of Basic Rent. In addition, Lessee shall
pay, on demand, as Supplemental Rent, to the extent permitted by applicable
law, an amount equal to interest at the Stipulated Interest Rate on any part
of any installment of Basic Rent not paid when due for any period for which
the same shall be overdue and on any payment of Supplemental Rent not paid
when due or demanded, as the case may be, for the period until the same shall
be paid. The expiration or other termination of Lessee's obligations to pay
Basic Rent hereunder shall not limit or modify the obligations of Lessee with
respect to Supplemental Rent. All Supplemental Rent to be paid pursuant to
this Section 3(c) shall be payable in the type of funds and in the manner set
forth in Section 3(e).
(d) PROHIBITION AGAINST SETOFF, ETC. Except as set forth in Section
4(c)(i)(D) of Exhibit E attached hereto, this Lease is a net lease and
Lessee's obligation to pay Rent hereunder shall be absolute and unconditional
and shall not be affected by any circumstance including (i) any claim which
Lessee may have against Lessor or anyone else for any reason whatsoever
(whether in connection with the transactions contemplated hereby or any other
transactions), including any breach by Lessor or any of its Affiliates, of
any of its warranties, agreements or covenants contained herein or in any of
the Long-Term Agreements or any of the documents related hereto or thereto or
performance, or nonperformance by Lessor of any of its duties or obligations
to Lessee set forth in Exhibit E attached hereto, (ii) any defect in the
title, registration, airworthiness, condition, design, operation, or fitness
for use of, or any damage to or loss or destruction of, the Airframe, any
Serviced Engine or any Engine, or any interruption or cessation in or
including any such interruption, cessation or prohibition of the use or
possession thereof by Lessee for any reason whatsoever, resulting from the
act of any Governmental Authority; and (iii) any other circumstance,
happening or event whatsoever, whether or not foreseen or similar to the
foregoing; PROVIDED that Lessee's obligations to pay Basic Rent and
Supplemental Rent shall cease with respect to the Aircraft, except with
respect to Rent accrued at such time upon (i) redelivery of the Aircraft by
Lessee to Lessor in accordance with the provisions of Sections 5 hereof;
and/or (ii) repossession of the Aircraft by Lessor pursuant to Section 14A
hereof, but subject to Lessee's payments of sums specified under said Section
14A; and/or (iii) with respect to any Item of Equipment, payment by or on
behalf of Lessee to Lessor in full of the Stipulated Loss Value and other
sums specified in Section 8 hereof to be paid by Lessee pursuant to an Event
of Loss with respect to such Item of Equipment. Lessee hereby waives, and
hereby agrees to waive at any future time at the request of Lessor, to the
extent now or then permitted by Applicable Law, any and all rights which it
may now
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have or which at any time hereafter may be conferred upon it, by statute or
otherwise, to terminate, cancel, quit or surrender this Lease except in
accordance with the express terms hereof. Each payment of Rent made by Lessee
to Lessor shall be final as to Lessor and Lessee. Lessee shall not seek to
recover all or any part of any such payment of Rent from Lessor for any
reason whatsoever except manifest error. The parties agree that nothing
contained in this Section 3(d) shall affect or limit any right of Lessee to
collect damages for the breach of any covenant or representation by Lessor
hereunder, including Section 4 hereto or Exhibit E hereto or by any Affiliate
of Lessor under any Long-Term Agreement. Lessee shall pay all costs and
expenses of every character, whether seen or unforeseen, ordinary or
extraordinary or structural or nonstructural, in connection with the
delivery, use, operation, maintenance, return, and repair and reconstruction
of the Airframe and each Serviced Engine by Lessee, including the costs and
expenses particularly set forth in this Lease, except as may be otherwise
expressly set forth in the other documents related hereto.
(e) PAYMENT TO LESSOR. All Rent shall be paid by Lessee to Lessor by
wire transfer of immediately available funds in U. S. Dollars, to such
account as Lessor shall designate to Lessee in writing. Such funds shall be
available to Lessor not later than 3:00 p.m., New York City time on the date
of payment. Whenever any payment of Rent is due on a day other than a
Business Day, such payment shall be made on the next preceding Business Day.
All Rent to be paid by Lessee hereunder shall be paid in full without any
deduction or withholding with respect to Taxes of any nature imposed by any
Taxing Authority unless Lessee is prohibited by Applicable Law from doing so,
in which event Lessee shall comply with Section 16 below.
Section 4. DISCLAIMER; WARRANTIES RELATING TO THE AIRCRAFT; CERTAIN
AGREEMENTS OF LESSEE, REPRESENTATIONS OF LESSEE.
(a) DISCLAIMER. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS,
WHERE-IS", AND LESSOR DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE, AND
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS
TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE OF ANY ITEM
OF EQUIPMENT OR ENGINE OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS,
WHETHER OR NOT DISCOVERABLE, AS TO THE INFRINGEMENT OF ANY PATENT, TRADEMARK
OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN
TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN ANY ITEM OF
EQUIPMENT OR ENGINE OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY WHATSOEVER WITH RESPECT THERETO, except for the representations of
Lessor set forth in Section 4(e) below, and that Lessor represents that (i)
it has good title to the Aircraft free of Lessor's Liens and the lawful right
to lease the Aircraft to Lessee in accordance with the terms hereof, (ii)
Lessor has the lawful right to lease the Airframe to Lessee in accordance
with the terms hereof, and (iii) that Lessor is a citizen of the United
States of America as defined in Section 40102(a)(15) (former 101(16)) of the
Act. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY
OTHER PERSON WITH RESPECT TO (I) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR
ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF EQUIPMENT OR
ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR
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DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION THEREWITH; (II)
THE USE, OPERATION OR PERFORMANCE OF ANY ITEM OF EQUIPMENT OR ENGINE OR ANY
RISKS RELATING THERETO; (III) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS
OR ANTICIPATED PROFITS OR SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES; OR (IV)
THE DELIVERY HEREUNDER, OPERATION, SERVICING, MAINTENANCE, REPAIR OR
IMPROVEMENT OF ANY ITEM OF EQUIPMENT EXCEPT AS EXPRESSLY PROVIDED IN THE
PROVISIONS OF EXHIBIT E HERETO RELATING TO THE SERVICING, MAINTENANCE, REPAIR
OR IMPROVEMENT OF ANY SERVICED ENGINE OR SERVICED AIRCRAFT; PROVIDED THAT
NOTHING CONTAINED IN THIS SECTION 4(a) SHALL IN ANY WAY LIMIT THE RIGHTS OF
LESSEE AGAINST ANY AFFILIATE OF LESSOR UNDER ANY LONG-TERM AGREEMENT.
(b) QUIET ENJOYMENT. Notwithstanding any other term or provision of this
Agreement, Lessor covenants that, so long as no Lessee Event of Default shall
have occurred and be continuing, it shall not take any action contrary to
Lessee's rights under this Lease, or otherwise through its own actions or
inactions in any way interfere with the quiet enjoyment of the use and
possession of the Aircraft, the Airframe or any Serviced Engines by Lessee;
PROVIDED that no performance or failure by Lessor to perform its obligations
under Exhibit E hereto shall be deemed a breach of this Section 4(b).
(c) WAIVER OF WARRANTIES. LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES
THE BENEFIT OF ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS ON THE PART
OF LESSOR WHICH ARE EXPRESSED OR WOULD OR MIGHT BE IMPLIED IN THIS AGREEMENT
WHETHER BY LAW OR OTHERWISE AND RELATING IN ANY WAY TO THE STATE, CONDITION OR
AIRWORTHINESS OF AN ITEM OF EQUIPMENT OR ENGINE. LESSEE ACKNOWLEDGES THAT THE
PROVISIONS OF SECTIONS 4(a) AND 4(b) HAVE BEEN THE SUBJECT OF FULL DISCUSSION
AND NEGOTIATION BETWEEN LESSEE AND LESSOR AND THAT THE BASIC RENT AND ALL OTHER
AGREEMENTS OF LESSEE AND LESSOR CONTAINED IN THIS AGREEMENT WERE ARRIVED AT IN
CONSIDERATION OF THE PROVISIONS OF SECTIONS 4(a) AND 4(b) SPECIFICALLY INCLUDING
THE DISCLAIMER BY LESSOR SET FORTH IN SECTION 4(a) AND THE WAIVER, RELEASE AND
RENUNCIATION BY LESSEE SET FORTH IN THIS SECTION 4(c).
(d) LESSEE'S REPRESENTATIONS AND WARRANTIES. To induce Lessor to enter
into this Lease Agreement, and any documents contemplated hereby, Lessee makes
the following representations and warranties, each of which shall survive the
execution and delivery of this Lease Agreement and the Delivery Date:
(i) Lessee is a corporation duly incorporated under the laws of the
Territory of Hawaii and is validly existing in good standing under the laws
of the State of Hawaii and has its chief executive office in Honolulu,
Hawaii. Except as set forth on Schedule 4(d)(i) hereto Lessee has all
requisite corporate power and authority to carry on its business as now
conducted, and to execute, deliver and perform its obligations under this
Lease and each Lease Supplement. Lessee is a duly certificated "air
carrier" under Section 41102 (former
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Section 401) and Section 44705 (former Section 604) of the Federal
Aviation Act and possesses all necessary licenses or permits required by
any Governmental Authority having jurisdiction over Lessee or the
Aircraft to permit Lessee to engage in air transportation and to
perform and comply with its obligations under this Lease, and is duly
qualified to do business as a foreign corporation, and is in good
standing, in each jurisdiction in which its failure to so qualify would
adversely and materially affect it or its ability to carry out its
obligations under this Lease;
(ii) this Lease has been duly authorized by all necessary corporate
action on the part of Lessee, does not require any approval of stockholders
of Lessee (or if such approval is required, such approval has been
obtained), and the execution and delivery hereof, and/or the consummation
of the transactions contemplated hereby, and/or compliance by Lessee with
any of the terms and provisions hereof, do not contravene any provisions of
the Articles of Incorporation or By-laws of Lessee, or result in any breach
of, or constitute any default under, or result in the creation of any Lien
upon any assets or property of Lessee under, any (A) indenture, mortgage,
lease, chattel mortgage, deed of trust, conditional sales contract, bank
loan, credit agreement or other material agreement or instrument to which
Lessee is a party or by which Lessee or its properties may be bound or
affected other than the Lien under this Lease and Permitted Liens, or
(B) Applicable Law;
(iii) the execution and delivery by Lessee of this Lease, and the
performance by Lessee of any of the transactions contemplated hereby do not
require the consent or approval of, or registration with, or the giving or
prior notice to any Person, including any federal, state or foreign
governmental authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Lease, and (B) routine reporting requirements of the
Securities and Exchange Commission, the FAA, the DOT or other Governmental
Authorities after the Delivery Date;
(iv) this Lease has been duly executed and delivered by Lessee, and
this Lease, together with Lease Supplement No. 1 when executed and
delivered by Lessee, will constitute legal, valid and binding obligations
of Lessee, fully enforceable, except as set forth on Schedule 4(d)(iv), in
accordance with their respective terms;
(v) except as set forth on Schedule 4(d)(v), there are no pending or,
to the knowledge of Lessee, threatened investigations, suits or proceedings
against it or affecting it or its properties or operations, that, if
determined adversely, would materially adversely affect it, the
consummation of the transactions described in, or the performance of its
obligations under, this Lease Agreement or affect the right, title or
interest of Lessor in the Aircraft;
(vi) except as set forth on Schedule 4(d)(vi), Lessee is not in
violation of, or in default under, any law, ordinance, order, regulation or
authorization of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that
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could have a material adverse effect on the business or condition
(financial or otherwise) of Lessee;
(vii) except as set forth in Schedule 4(d)(vii), Lessee is not in
default, and no condition exists that with notice or lapse of time or both
would constitute a default, under any mortgage, deed of trust, indenture,
or other instrument or agreement to which it is a party, or by which it or
any of its properties or assets may be bound, that would have a material
adverse effect on any of the actions described in, or on its ability to
perform its obligations under, this Lease, and it is not in breach of any
Applicable Law that would have a material adverse effect on it, or any of
the actions described in, or on its ability to perform its obligations
under, this Lease;
(viii) except for the filing for recordation of this Lease, and
Lease Supplement No. 1, and the placing on the Aircraft and on each Engine
of the plates containing the legends referred to in Section 7(f) hereof, no
further filing or recording of this Lease or of any other document
(including any financing statement under Article 9 of the Uniform
Commercial Code) and no further action is necessary or advisable, under the
laws of the United States of America or the State of Hawaii, in order to
fully protect and establish Lessor's title to, and interest in, the
Aircraft and the Engines as against Lessee or any third parties;
(ix) the financial and written information furnished by Lessee in
connection with this Agreement, and the transactions contemplated hereby
does not contain any untrue statement of a material fact or omit to state a
material fact;
(x) No Default or Lessee Event of Default has occurred and is
continuing hereunder;
(xi) Lessee has assets in excess of $5,000,000.00 according to its
most recent financial statement prepared in accordance with generally
accepted accounting principles and is not a "consumer" as that term is
defined in Section 17.45 of the Texas Deceptive Trade Practices-Consumer
Protection Act;
(xii) Lessee is not a consumer as defined by Hawaii Revised Statutes
Section 480-1 (1992 Supp.), and therefore has no right to bring an action
or pursue damages based upon unfair or deceptive acts or practices under
that Section;
(xiii) Lessee is an air carrier under 14 C.F.R. Part 121; and
(xiv) Lessor shall be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to its rights of repossession of the Aircraft,
any Engines, any appliances or spare parts, each as defined in such Section
1110 of the Bankruptcy Code, pursuant to Section 14A hereof.
(e) LESSOR'S REPRESENTATIONS AND WARRANTIES. To induce Lessee to enter
into this Lease Agreement, Lessor makes the following representations and
warranties each of which shall survive the execution and delivery of this Lease
Agreement and the Delivery Date:
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(i) the execution and delivery by Lessor of this Agreement have been
duly authorized by all necessary corporate action on the part of Lessor, do
not require any approval of stockholders of Lessor (or if such approval is
required, such approval has been obtained), and the execution and delivery
hereof, and/or the consummation by Lessor of the transactions contemplated
hereby, and/or compliance by Lessor with any of the terms and provisions
hereof, do not contravene any provisions of the Certificate of
Incorporation or By-laws of Lessor, or result in any breach of, or
constitute any default under, or result in the creation of any Lien upon
any assets or property of Lessor under, any (A) indenture, mortgage, lease,
chattel mortgage, deed of trust, conditional sales contract, bank loan,
credit agreement or other material agreement or instrument to which Lessor
is a party or by which Lessor or its properties may be bound or materially
affected, which breach or default would have a material adverse effect on
its ability to perform the transactions contemplated by this Agreement, or
(B) any Applicable Law binding on Lessor, which breach or default would
have a material adverse effect on its ability to perform the transactions
contemplated by this Agreement;
(ii) the execution and delivery by Lessor of this Agreement and the
performance by Lessor of its obligations under this Agreement do not
require the consent or approval of, or registration with, or the giving of
prior notice to, any Person including any federal, state or foreign
Governmental Authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Agreement, and (B) routine reporting requirements of
the Securities and Exchange Commission, the FAA, the DOT or other
Governmental Authorities after the Effective Date;
(iii) this Agreement has been duly executed and delivered by Lessor
and, assuming due authorization, execution and delivery by Lessee,
constitutes the legal, valid and binding obligation of Lessor, fully
enforceable against Lessor in accordance with its terms;
(iv) Lessor is not in default, and no condition exists that with
notice or lapse of time or both would constitute a default, under any
material mortgage, deed of trust, indenture, or other instrument or
agreement to which it is a party, or by which it or any of its properties
or assets may be bound, that would have a material adverse effect on its
ability to perform its obligations under this Agreement;
(v) there are no pending or, to the knowledge of Lessor, threatened
investigations, suits or proceedings against it or affecting it or its
properties or operations, that, if determined adversely, would materially
adversely affect the consummation by Lessor of the transactions described
in, or the performance of its obligations under, this Agreement;
(vi) Lessor is not in violation of, or in default under, any
Applicable Law, of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that would have a material
adverse effect on its ability to perform its obligations under this
Agreement;
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(vii) Lessor is certificated under 14 C.F.R. Part 121 to perform
Maintenance Services; and
(viii) Lessor has the right to transfer possession and use of the
Serviced Engines to Lessee.
Section 5. RETURN OF AIRFRAME AND ENGINES.
(a) RETURN OF AIRFRAME AND SERVICED ENGINES. Upon the termination of this
Lease at the end of the Term or pursuant to Sections 8 or 14A hereof, Lessee
shall return the Return Aircraft by delivering the same, at its own expense, to
Tulsa, Oklahoma (TUL), Marana, Arizona (MZJ), Amarillo, Texas (AMA), Dallas/Fort
Worth International Airport (DFW), or Los Angeles International Airport (LAX) at
Lessor's sole option. Upon the expiration of the Term or pursuant to Sections 8
or 14A, as the case may be, Lessee shall make the redelivered Return Aircraft
available for inspection by Lessor and its representatives and designees. At
the time of the return of the Return Aircraft:
(i) the Return Aircraft shall be in compliance with the Return
Conditions as set forth in Exhibit D;
(ii) the Return Aircraft shall be in compliance with Lessee's
FAA-approved maintenance program;
(iii) each Item of Equipment and Engine shall be free and clear of all
Liens (except Lessor's Liens);
(iv) the Return Aircraft shall be in the same passenger configuration
as when delivered to Lessee, and each Item of Equipment shall be in as good
an operating condition as when delivered to the Lessee on the Delivery
Date, ordinary wear and tear excepted;
(v) Upon the return of the Airframe, either at the end of the Term,
pursuant to Section 8 hereof or pursuant to Section 14A, (i) Lessee shall
have no obligation with respect to the amount of fuel or oil contained in
the Airframe and all fuel or oil remaining on board the Airframe shall be
the property of Lessor without charge and (ii) Lessee shall deliver or
cause to be delivered to Lessor all logs, manuals and data, and inspection,
modification and overhaul records required to be maintained with respect
thereto under applicable rules and regulations of the FAA;
(vi) Subject to the availability of storage space, upon the
termination of the Lease as to the Aircraft, upon request of Lessor, Lessee
shall provide Lessor with storage facilities for such Return Aircraft for a
period not exceeding ninety (90) days in accordance with the applicable
manufacturer's recommendations for storage and FAA regulations and shall
arrange for insurance and maintenance (performance of such maintenance
subject to the availability of Lessee's employees) for such Return
Aircraft during such storage period. The Lessor shall pay Lessee's direct
costs for such storage, maintenance and insurance without mark-up; and
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(vii) Any Serviced Engines returned by Lessee on any Return Aircraft
are deemed to be Engines for the purpose of compliance with Return
Conditions.
So long as Lessor is maintaining the Aircraft pursuant to Exhibit E
attached hereto, the Return Conditions set forth in Exhibit D (other than
Sections 2F(a) and (b), 2k, 2M(2), (4) and (5) and 2P thereof and the obligation
to return all documents required for return set forth in Exhibit D and the
obligation to return the Aircraft clean) shall be deemed to be satisfied with
respect to the Aircraft.
(b) RETURN OF OTHER ENGINES. In the event that any engine that is not a
Serviced Engine shall be installed on the Airframe returned, such engine shall
be an engine suitable to be a Replacement Engine hereunder. Upon return of the
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor
with a full warranty bill of sale, in form and substance reasonably satisfactory
to it, with respect to such engine and take such other action as may be
reasonably requested in order that title to such engine may be duly and properly
vested in Lessor to the same extent as the Engine replaced thereby. Upon
conveyance of good title to such engine to Lessor, and upon full compliance by
Lessee with its obligations hereunder, at Lessee's expenses, Lessor will
transfer to Lessee all rights, title and interest originally conveyed to Lessor
in an Engine constituting part of the Aircraft but not installed on the Airframe
at the time of the return of the Airframe "as-is, where-is", free and clear of
any Lessor's Liens but otherwise without recourse or warranty, express or
implied to Lessee.
Section 6. LIENS. Lessee shall not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Airframe or
any Engine or any Serviced Engine or any Parts, title thereto or any interest
therein or in this Lease except (i) the respective rights of Lessor and Lessee
as herein provided, (ii) the rights of others under agreements or arrangements
to the extent expressly permitted by the terms of Sections 7(e) and 7(h),
(iii) Lessor's Liens, (iv) Liens for Taxes either not yet due or being contested
in good faith (and the payment of which has been bonded to the satisfaction of
Lessor) by appropriate proceedings so long as such proceedings do not involve
any danger of the sale, forfeiture or loss of the Airframe or any Engine or any
Serviced Engine or interest therein, (v) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like liens arising in the ordinary course of
business for amounts the payment of which is either not yet delinquent or is
being contested in good faith (and the payment of which has been bonded to the
satisfaction of Lessor) by appropriate proceedings so long as such proceedings
do not involve any danger of the sale, forfeiture or loss of the Airframe or any
Engine or any Serviced Engine or interest therein, (vi) liens arising out of
judgments or awards against Lessee with respect to which at the time an appeal
or proceeding for review is being prosecuted in good faith and with respect to
which there shall have been secured a stay of execution pending such appeal or
proceeding for review, and (vii) the Pooling Agreement. Lessee shall promptly,
at its own expense, take such action as may be necessary duly to discharge (by
bonding or otherwise) any such Lien not excepted above if the same shall arise
at any time.
Section 7. REGISTRATION, MAINTENANCE AND OPERATION; POSSESSION;
INSIGNIA.
(a) REGISTRATION, MAINTENANCE AND OPERATION. Lessee, at its own cost and
expense, shall:
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(i) maintain, service, repair, overhaul and test or cause to be
maintained, serviced, repaired, overhauled and tested each Item of
Equipment in accordance with Lessee's FAA approved maintenance program, so
as to keep each Item of Equipment (A) in at least as good an operating
condition as when delivered, ordinary wear and tear excepted, and within
the acceptable limits of performance provided in the Manufacturer's
manuals, (B) in conformity with any Manufacturer's operating manual,
instructions and service bulletins and all mandatory service bulletins and
such other non-mandatory Manufacturer's service bulletins reasonably
requested by Lessor and by the Manufacturer, (C) in conformity with all
AD's that are required to be performed with respect to any Item of
Equipment during the Lease Term, (D) in conformity with the requirements of
any other Governmental Authority having jurisdiction over the Item of
Equipment, (E) in such condition that the Airframe and each Serviced Engine
will comply with the FAA type certificate (as in effect from time to time)
issued to the Manufacturer of the Airframe or such Serviced Engine and in
compliance with a maintenance program approved by the FAA so long as such
maintenance program conforms to the maintenance program (as in effect from
time to time) established by the applicable FAA-approved maintenance review
board report for airframes and engines of the same type, and (F) in such
condition as may be necessary to enable the airworthiness certification of
the In-Use Aircraft to be maintained in good standing at all times (and, in
the case of any Engine when it is not installed on the Airframe, so as to
keep such Engine serviceable at all times except when such Engine is
awaiting overhaul, maintenance, repair, inspection or servicing in the
normal course of Lessee's FAA-approved or compatible maintenance program)
under the rules and regulations of the FAA. All maintenance on the
Airframe and Serviced Engines shall be performed by Lessee in accordance
with the standards set forth above. Lessee shall promptly notify Lessor of
any material change in the maintenance program in respect of the In-Use
Aircraft from that in effect on the Delivery Date;
(ii) not permit the Airframe, any Serviced Engine, or any Part to be
maintained, serviced, repaired, overhauled, tested, used or operated in
violation of any Applicable Law of any Governmental Authority having
jurisdiction or in violation of any airworthiness certificate, license or
registration relating to the Airframe, any Serviced Engine or any Part
issued by any such Governmental Authority. In the event that any such
Applicable Law requires alteration of the Airframe, any Serviced Engine, or
any Part, Lessee will conform thereto or obtain conformance therewith at no
expense to Lessor and will maintain the Airframe, such Serviced Engine or
such Part in proper operating condition under such Applicable Laws;
(iii) maintain or cause to be maintained all records, logs and other
materials required by the FAA or other applicable Governmental Authority to
be maintained in respect of the In-Use Aircraft; and
(iv) promptly furnish to Lessor such information as may be required to
enable Lessor to file any reports required to be filed by Lessor with any
Governmental Authority because of Lessor's ownership of the Aircraft.
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(b) ADDITIONAL MAINTENANCE PROVISIONS. Lessee covenants and agrees that
it shall use, operate, maintain, service, repair, overhaul and test or cause to
be used, operated, maintained, serviced, repaired, overhauled and tested, the
Airframe, each Serviced Engine and any Part in at least as good manner and with
at least as much care as used by Lessee with respect to other airframes, engines
and parts of the same type or utility owned, leased or operated by Lessee and
that it will not discriminate against the Airframe, any Serviced Engine or any
Part (as compared to other airframes, engines or parts of the same type or
utility owned, leased or operated by Lessee) in the use, operation, maintenance,
service, repair, overhaul or testing of the Airframe, each Serviced Engine or
any Part.
(c) TERRITORIAL RESTRICTIONS ON USE OF AIRCRAFT. Lessee agrees not to
operate or locate any Item of Equipment, or suffer such Item to be operated,
(A) unless such Item is covered by insurance as required by the provisions of
Section 9, (B) contrary to the terms of the insurance required by the provisions
of Section 9 of this Lease, (C) in any war zone or recognized or threatened area
of hostilities unless covered to Lessor's satisfaction by war risk insurance,
(D) to or from any airport which is at such time the subject of a prohibition
order of any Governmental Authority of the United States or of any international
authority or treaty organization of which the United States is a member, or
(E) to or from any airport that the aircraft leased by Lessee from Lessor
pursuant to the Long-Term Lease are not operated to or from.
(d) OBLIGATIONS ABSOLUTE. Nothing herein, including Exhibit E hereto,
shall be deemed to affect Lessee's obligations pursuant to this Section 7 or to
impose on Lessor the obligation to pay for or be responsible for the payment of
any maintenance, repair or overhaul. It is understood and agreed that Lessee
shall be responsible for all of its obligations under this Section 7 hereof,
regardless of the performance or non-performance by Lessor of its obligations
described in Exhibit E hereto; PROVIDED that nothing contained in this Lease
shall prohibit Lessee from maintaining a separate action against Lessor for any
default by Lessor of its obligations described on Exhibit E attached hereto. So
long as Lessor is required to maintain the Aircraft pursuant to Exhibit E
hereto, the maintenance requirements of this Section 7 shall be deemed to have
been satisfied to the extent such maintenance has been provided by Lessor
pursuant to Exhibit E hereto.
(e) POSSESSION. Except for the delivery of the Airframe or any Serviced
Engine to Lessor pursuant to Exhibit E hereto or delivery of any Serviced
Engines pursuant to the Pooling Agreement, Lessee shall not sublease or
otherwise in any manner deliver, transfer or relinquish possession of the
Airframe, and shall not, without the prior written consent of Lessor, sublease
or otherwise in any manner deliver, transfer or relinquish possession of any
Serviced Engine or install any Serviced Engine, or permit any Serviced Engine to
be installed, on any airframe other than the Airframe.
(f) REGISTRATION AND INSIGNIA. Lessee shall maintain in the cockpit of
the Airframe adjacent to the airworthiness certificate therein the metal
nameplate bearing the Lessor's name, as owner and lessor. Lessee shall affix as
promptly as practicable after the Delivery Date and thereafter to maintain on
each Engine a metal nameplate bearing the inscription "AMERICAN AIRLINES, INC.,
OWNER AND LESSOR". Lessee may place its customary colors and insignia on the
Airframe or Engines so long as no polished portion of the In-Use Aircraft is
painted. The placement of and colors or insignia on the In-Use Aircraft shall
be performed by Lessor. Provided
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that Lessor shall (i) remain a citizen of the United States of America as
defined in Section 40102(a)(15) (former 101(16)) of the Act and (ii)
cooperate with the Lessee, Lessee shall maintain continued registration of
the Airframe in Lessor's name under the Act. Except as set forth in Section
7(h) below, no additional modifications may be made to the Aircraft or any
Serviced Engines without the prior written consent of Lessor.
(g) REPLACEMENT OF PARTS. Subject to the provisions of Exhibit E hereof,
Lessee at its own cost and expense, shall promptly replace (or cause to be
replaced) all Parts which may from time to time be incorporated or installed in
or attached to the Airframe or any Serviced Engine and which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8. In addition, Lessee may, at its own
cost and expense, remove or cause to be removed in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damages beyond repair or
permanently rendered unfit for use; PROVIDED that Lessee, except as otherwise
provided in Section 8, will, at its own cost and expense, replace such Parts as
promptly as possible. All replacement Parts shall be free and clear of all
Liens (except for Permitted Liens), and shall be in as good operating condition
as, and shall have a value and utility at least equal to, the Parts replaced,
assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof. All Parts at any time removed from the Airframe
or any Serviced Engine shall remain the property of Lessor, no matter where
located. Immediately upon any replacement Part becoming incorporated or
installed in or attached to the Airframe or any Serviced Engine as above
provided, without further act, (i) title to the replacement Part shall thereupon
vest in Lessor free and clear of all Liens (except for Permitted Liens); and
(iii) such replacement Part shall become subject to this Lease and be deemed
part of the Airframe or such Serviced Engine for all purposes to the same extent
as the Parts originally incorporated or installed in or attached to the Airframe
or such Serviced Engine. Any Parts replaced or supplied by Lessor pursuant to
Exhibit E attached hereto shall be deemed to satisfy the conditions of this
Section.
(h) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Subject to the provisions
of Section 7(a) hereof, and, in addition, so long as Lessor is maintaining the
Aircraft pursuant to Exhibit E attached hereto, in compliance with Exhibit E
attached hereto, Lessee, at its own expense, will make (or cause to be made)
such alterations and modifications in and additions to the Airframe and the
Serviced Engines as may be required from time to time to meet the standards of
the FAA or other Governmental Authority having jurisdiction. In addition and
subject to the terms of Exhibit E hereto, Lessee, at its own expense, may from
time to time make (or cause to be made) such alterations and modifications in
and additions to the Airframe or any Serviced Engine as Lessee may deem
desirable in the proper conduct of its business, including, without limitation,
removal of Parts which Lessee deems obsolete or no longer suitable or
appropriate for use in the Airframe or any Serviced Engine, PROVIDED that (i) no
such alteration, modification, addition or removal shall diminish the fair
market value, utility or remaining useful life of the Airframe or such Serviced
Engine, or impair the condition or airworthiness thereof below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification, addition or removal assuming the Airframe or such
Serviced Engine was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this Lease; and (ii) no
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structural modification shall be made without the prior written consent of
Lessor. Title to all Parts incorporated or installed in or attached or added
to the Airframe or any Serviced Engine as the result of such alteration,
modification or addition shall, without further act, vest in Lessor.
Notwithstanding the foregoing sentence of this Section 7(h), so long as no
Default or Lessee Event of Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part, PROVIDED that (i) such Part
is in addition to, and not in replacement of or substitution for, (x) any Part
originally incorporated or installed in or attached to the Airframe or any
Serviced Engine at the time of delivery thereof hereunder, or (y) any Part in
replacement of or substitution for any such Part, (ii) such Part is not required
to be incorporated or installed in or attached or added to the Airframe or any
Serviced Engine pursuant to the terms of this Section 7(h), and (iii) such Part
can be removed from the Airframe or such Serviced Engine without causing
material damage to the Airframe or such Serviced Engine and without diminishing
or impairing the value, utility, condition or airworthiness required to be
maintained by the terms of this Lease which the Airframe or such Serviced Engine
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any Part as provided in the immediately
preceding sentence, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Airframe or such Serviced Engine
from which it was removed. Any Part not removed by Lessee as provided in such
sentence prior to the return of the Airframe or such Serviced Engine to Lessor
hereunder shall remain the property of Lessor.
(i) MANUALS AND TECHNICAL RECORDS.
Lessee undertakes that:
(1) Throughout the Lease Term, Lessee shall keep, or cause to be
kept, accurate, complete and current records of all flights made
by the Aircraft and each Serviced Engine and of all maintenance
and repairs carried out to the Airframe and each Serviced Engine
and shall allow the Lessor or its agents to examine and make
reasonable copies of the records at any reasonable time upon
giving reasonable notice to Lessee.
(2) The records so kept shall conform with Lessee's approved
maintenance program.
(3) The records so kept shall be part of the manuals and technical
records and shall be the property of Lessor and that at the end
of the relevant Lease Term or upon the repossession or redelivery
of the Aircraft, Lessee shall deliver the relevant records to the
Lessor, provided that Lessee shall be entitled to take and retain
copies thereof.
(4) The Lessee shall provide to the Lessor or its authorized
representative each month a status report containing engine and
airframe utilization in hours and cycles, and other information
which Lessor may reasonably request.
(5) All original records shall be maintained in their original paper
form and shall be the property of the Lessor upon lease
termination.
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(j) MAINTENANCE AND USAGE. Except as otherwise expressly provided herein,
throughout the Lease Term, Lessor and Lessee each agrees to perform its
obligations, duties and liabilities set forth in Exhibit E attached hereto.
Section 8. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) EVENT OF LOSS TO THE AIRCRAFT. Upon the occurrence of an Event of
Loss with respect to the In-Use Aircraft Lessee shall (i) forthwith (and in any
event within five days after such occurrence) give to Lessor written notice of
such Event of Loss and (ii) comply with Section 8(a)(1):
(1) PAYMENT OF STIPULATED LOSS VALUE AND RENT. On or before
the Business Day before the earlier of (i) the 60th day following the
date of the occurrence of such Event of Loss with respect to the In-Use
Aircraft; or (ii) five days following the receipt of insurance
proceeds with respect to such occurrence (the "LOSS PAYMENT DATE"),
Lessee shall pay to Lessor, in the manner and in funds of the type
specified in Section 3(e), an amount equal to the sum of (i) the
Stipulated Loss Value for the In-Use Aircraft calculated as of the
Basic Rent Payment Date next following the Event of Loss (or if the
date of such Event of Loss is a Basic Rent Payment Date, as of such
Basic Rent Payment Date (the "Loss Computation Date")) less any
payment of Basic Rent paid by Lessee after the date of such Event of
Loss and on or prior to the Loss Payment Date, (ii) any installment of
Basic Rent due and owing prior to the Loss Payment Date, (iii) all
Supplemental Rent then due and owing for the Aircraft on the Loss
Payment Date, and (iv) interest on the amounts described in clause (i)
and (ii) hereof from the Loss Computation Date to the Loss Payment
Date at the Prime Rate.
(2) TERMINATION UPON PAYMENT OF STIPULATED LOSS VALUE. Upon
payment in full of the amounts required pursuant to Section 8(a)(1),
(i) Lessee's obligation to pay Basic Rent hereunder with respect to
the Aircraft for any period commencing after the Loss Payment Date
shall terminate (but Lessee shall remain liable for all payments of
Rent, including Basic Rent and Supplemental Rent, including, without
limitation, the Supplemental Rent pursuant to Exhibit E hereto, for
the Aircraft, due through and including the date of such payment),
(ii) the Term for the Aircraft shall end, and (iii) Lessor shall
(subject to the rights of any insurer) transfer to Lessee all of
Lessor's right, title and interest in the Airframe and the Serviced
Engines, if any, which were subject to the Event of Loss "as-is,
where-as", free and clear of Lessor's Liens, but otherwise without
recourse or warranty, express or implied.
(b) EVENT OF LOSS TO A SERVICED ENGINE.
(1) EVENT OF LOSS. Upon the occurrence of an Event of Loss with
respect to a Serviced Engine not then installed on the Airframe, or
upon the occurrence of an Event of Loss with respect to a Serviced
Engine installed on the Airframe but not involving an Event of Loss
with respect to the Airframe, Lessee shall give Lessor prompt written
notice thereof and shall: (i) within sixty (60) days after the
occurrence
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of such Event of Loss, convey or cause to be conveyed to Lessor, as
replacement for the Serviced Engine with respect to which such Event of
Loss occurred, title to a replacement Serviced Engine free and clear of
Liens (other than Permitted Liens) or (ii) if mutually agreed between
Lessor and Lessee, Lessee shall in lieu of replacing such Serviced
Engine pursuant to this Section 8(b)(1), pay or cause to be paid to
Lessor hereunder, within ten (10) days after such agreement, the
Stipulated Loss Value for such Serviced Engine, computed as of the Basic
Rent Payment Date next following the date of such Event of Loss.
(2) CONDITIONS, LESSEE'S OBLIGATIONS. Lessee's right to replace
contemplated by Section 8(b)(1) shall be subject to the fulfillment,
in addition to the requirements contained in Section 9(b), of the
conditions precedent set forth below:
(i) No Default or Lessee Event of Default shall be
continuing on the replacement date;
(ii) Lessee will promptly (all writings referred to below to
be reasonably satisfactory in form and substance to Lessor):
(a) furnish Lessor a bill of sale duly conveying to
Lessor such replacement Serviced Engine, together with such
evidence of title as Lessor may reasonably request;
(b) if the replaced Serviced Engine is an Engine
hereunder, cause a Lease Supplement, subjecting such
Replacement Engine to this Lease, duly executed by Lessee,
to be delivered to Lessor for execution and, upon such
execution, to be duly filed for recordation with the FAA;
(c) furnish Lessor with such evidence of compliance
with the insurance provisions of Section 9 with respect to
such replacement Serviced Engine as Lessor may reasonably
request;
(d) furnish Lessor with a certificate or certification
of a qualified aircraft engineer reasonably satisfactory to
Lessor certifying that such replacement Serviced Engine has
a value, utility and remaining useful life at least equal to
the Serviced Engine so replaced (assuming such Serviced
Engine was in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of
Loss), PROVIDED that in addition to such certificate or
certification, Lessor shall have the right to inspect such
replacement Serviced Engine and shall be reasonably
satisfied that it has a value, utility and remaining useful
life at least equal to the Serviced Engine so replaced
(assuming such Serviced Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss); and
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(e) On or before such replacement date, Lessee shall
(i) furnish Lessor with an opinion of independent counsel
reasonably satisfactory to Lessor, that Lessor will suffer
no adverse tax consequences as a result of such replacement
or (ii) have agreed to pay to Lessor as an indemnity such
amount or amounts as may be necessary to hold harmless, on
an after-tax basis, Lessor against any and all adverse tax
consequences as may result from such replacement and shall
have provided to Lessor satisfactory assurances regarding
Lessee's ability to pay such indemnity; and
(f) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request
in order that such replacement Serviced Engine be duly and
properly titled in Lessor and leased hereunder to the same
extent as the Serviced Engine replaced thereby.
(3) EVENT OF LOSS TO AN ENGINE, NOT A SERVICED ENGINE. Upon the
occurrence of an Event of Loss to an Engine which is not a Serviced
Engine, Lessor shall give Lessee prompt written notice thereof and
shall within sixty (60) days after the occurrence of such Event of
Loss, lease hereunder to Lessee a Replacement Engine with respect to
such Engine to which such Event of Loss occurred, free and clear of
Liens (other than Permitted Liens). Lessor shall furnish Lessee with
a certificate or certification of a qualified aircraft engineer
reasonably satisfactory to Lessee certifying that such Replacement
Engine has a value, utility and remaining useful life at least equal
to the Engine so replaced, PROVIDED that in addition to such
certificate or certification, Lessee shall have the right to inspect
such Replacement Engine and shall be reasonably satisfied that it has
a value, utility and remaining useful life at least equal to the
Engine so replaced (assuming such Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss).
(4) CONDITIONS, LESSOR'S OBLIGATIONS. Lessor's obligation to
replace contemplated by Section 8(b)(3) shall be subject to the
fulfillment of the conditions precedent that Lessee and Lessor will
promptly:
(i) cause a Lease Supplement, subjecting such Replacement
Engine to this Lease, duly executed by Lessee and Lessor, to be
delivered to Lessor for execution and, upon such execution, to be
duly filed for recordation with the FAA; and
(ii) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request in
order that such Replacement Engine be duly and properly titled in
Lessor and leased hereunder to the same extent as the Engine
replaced thereby;
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PROVIDED that Lessor shall have no obligation to deliver possession of
a Replacement Engine to Lessee so long as a Default or Lessee Event of
Default has occurred and is continuing hereunder.
(5) RECORDATION AND OPINIONS. Promptly after the recordation of
the Lease Supplement covering any such Replacement Engine pursuant to
the Federal Aviation Act (or in case the Aircraft was at the time of
the Event of Loss subject to registration under the laws of a country
other than the United States, pursuant to the laws of such country),
Lessee shall cause to be delivered to Lessor an opinion of counsel
reasonably satisfactory to Lessor as to the due recordation of such
Lease Supplement pursuant to the Act (or such other laws).
(6) CONVEYANCE; REPLACEMENT ENGINE. Upon compliance by Lessee
with the terms of this Section 8(b), Lessor will (subject to the
rights of any insurer) transfer (other than in the case of the
replacement of an Engine which was not upon the occurrence of the
Event of Loss, a Serviced Engine) to Lessee all of Lessor's right,
title and interest as of the delivery date of such replacement
Serviced Engine in the replaced Serviced Engine, "as-is, where-is",
free and clear of Lessor's Liens but otherwise without recourse or
warranty, express, implied or otherwise.
(7) NO REDUCTION OF BASIC RENT. No Event of Loss with respect
to a Serviced Engine or an Engine under the circumstance contemplated
by this Section 8(b) shall result in any reduction of Basic Rent.
Upon the payment by Lessee to Lessor of the Stipulated Loss Value of
any Serviced Engine, Lessor, shall provide Lessee with a replacement
Serviced Engine.
(8) If Lessor furnishes the replacement Serviced Engine, then
the conditions set forth in Sections 8(b)(2)(ii)(a) and (d) shall be
deemed to be fulfilled.
(c) APPLICATION OF PAYMENTS FOR REQUISITION OF TITLE. Any payments (other
than insurance proceeds the application of which is provided for in Section 9)
received at any time by Lessor, Lessee or from any Governmental Authority or
other Person with respect to any Event of Loss, other than a requisition for
use by the Government not constituting an Event of Loss, will be applied as
follows:
(1) REPLACEMENT OF SERVICED ENGINE. If such payments are
received as a result of an Event of Loss to a Serviced Engine under
circumstances contemplated by Section 8(b), and the Serviced Engine is
replaced, so much of such payments remaining after reimbursement of
Lessor for reasonable costs and expenses, if any, theretofore incurred
by Lessor related to such replacement shall be paid over to, or
retained by, Lessee, provided that Lessee shall have fully performed,
or concurrently therewith will perform, the terms of Section 8(b) with
respect to the Event of Loss for which such payments are made.
(2) LOSS OF AIRFRAME. If such payments are received as a result
of an Event of Loss to the Airframe or the Airframe or Serviced
Engines then installed
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thereon, so much of such payments as shall not exceed the amounts
payable pursuant to 8(a)(1) shall be applied to pay such amounts (or
reimburse Lessee for its payment of such amounts), and the balance, if
any, of such payment remaining thereafter shall, first, to the extent of
the value of Lessee's interest in such payment, be paid over to Lessee,
and, second, the remainder, if any, shall be retained by Lessor. For
purposes of this clause (2), the value of Lessee's interest in a payment
shall be the amount of the Basic Rent due in regard to the leasing of
the Aircraft for the remainder of the applicable Term.
(d) REQUISITION OF USE OF THE AIRFRAME. In the event of the requisition
for use of the Airframe or any Serviced Engines installed on the Airframe during
the Term not constituting an Event of Loss including without limitation,
pursuant to CRAF, Lessee shall promptly notify Lessor of such requisition and
all of Lessee's obligations under this Lease shall continue to the same extent
as if such requisition had not occurred, except to the extent that any failure
or delay in Lessee's performance or observance of such obligations (other than
obligations for the payment of Rent) is caused by such requisition. Unless
Lessor elects to treat such requisition as an Event of Loss, Lessee shall be
obligated to return the Airframe and such Serviced Engines to Lessor pursuant
to, and in all other respects in compliance with the provisions of, Section 5
promptly at the later of the end of the Term or, if Lessor consents, the date of
such return by any such Governmental Authority. All payments received by Lessor
or Lessee from any Governmental Authority for the use of the Airframe and
Serviced Engines during the Term (so long as no Lessee Event of Default shall
have occurred and be continuing) shall be paid over to, or retained by, Lessee;
and all payments received by Lessor or Lessee from the Government for the use of
the Airframe and such Serviced Engines after the Term (or so long as a default
or a Lessee Event of Default shall have occurred and be continuing) shall be
paid over to, or retained by, Lessor, unless such requisition for use by any
Governmental Authority is treated as an Event of Loss in which case all such
payments shall be applied in accordance with Section 8(c)(2).
(e) INVESTMENT OF PROCEEDS PENDING REPLACEMENT. If an Event of Loss shall
occur with respect to a Serviced Engine and the provisions of Section 8(b)
apply, or Lessor receives any insurance proceeds pending completion of repairs
by Lessee to the Airframe or a Serviced Engine, Lessor shall, if requested by
Lessee and if no Lessee Event of Default shall have occurred and be continuing,
use its reasonable efforts to invest, at the request, direction and risk of
Lessee, any payments received theretofore or thereafter with respect to the
Airframe or such Serviced Engine from any insurer under insurance required to be
maintained hereunder or from Lessee or from any Governmental Authority or other
person with respect to the applicable Event of Loss or otherwise. Any such
investments shall be in obligations of the United States or obligations
guaranteed as to principal and interest by the Government or certificates of
deposit issued in the United States by a commercial bank or banks each having a
combined capital, surplus, and undivided profits of at least $250,000,000, in
each case having a stated maturity not later than one year from the date of the
acquisition thereof by Lessor. Lessee will pay to Lessor on demand the amount
of any loss incurred in connection with any such investment. All profits and
losses on such investments and any taxes in respect thereof shall be for the
account of Lessee. In order to make the payments to Lessee provided for in
Section 8 or 9 hereof, Lessor is authorized to sell any obligations purchased as
aforesaid; and
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Lessor shall not be required to make such payments to Lessee
until Lessor shall have had a reasonable time to sell such obligations and to
obtain the sale proceeds therefrom.
(f) APPLICATION OF PAYMENTS DURING DEFAULT. Any amount for requisition of
title or requisition of use of any Item of Equipment referred to in this
Section 8 which is payable to or retainable by Lessee shall not be paid to or
retained by Lessee if at the time of such payment or retention a Default or a
Lessee Event of Default shall have occurred and be continuing, but shall be held
by or paid to Lessor and applied against the obligations of Lessee under this
Lease, and at such time as there shall not be continuing any such Default or
Lessee Event of Default, such amount shall be paid to Lessee to the extent not
previously applied in accordance with this sentence.
Section 9. INSURANCE.
(a) LIABILITY INSURANCE. During the Lease Term and during the next
three years thereafter, Lessee shall maintain (or cause to be maintained) at
no expense to Lessor the following insurance, on a worldwide basis with no
territorial restrictions, except as may be specifically consented to from
time to time by Lessor, such consent not to be unreasonably withheld, with
insurers of recognized responsibility approved by Lessor through nationally
recognized aviation insurance brokers: comprehensive aviation liability
insurance (including third party legal liability, public liability, passenger
legal liability, personal injury liability, passenger's baggage and personal
effects (checked and unchecked) liability, cargo legal liability, mail legal
liability, premises liability, products/completed operations, hangarkeepers
(ground and in-flight) liability and war risks liability (Lloyd's of London
Clause AV.52 or its equivalent), insurance of the indemnification obligations
set forth in Section 15 hereof, and property damage liability insurance with
respect to the In-Use Aircraft in an amount not less than that carried by
Lessee on similar equipment owned or leased by Lessee, PROVIDED that such
liability insurance shall in no event be less than $500,000,000 for any one
accident, or series of accidents arising out of any one event. Lessee shall
not self-insure with respect to any public liability coverage with the
exception of baggage, cargo and mail liabilities. Any policies of insurance
carried in accordance with this Section 9(a) and any policies taken out in
substitution or replacement for any of such policies shall: (1) name Lessor
and its Affiliates and directors, officers, employees, servants and agents as
an additional insured (each such Person an "ADDITIONAL INSURED"), as their
respective interests may appear; (2) provide that in respect of the interest
of each Additional Insured in such policies, the insurance shall not be
invalidated by any action or inaction of Lessee or any other insured, and
shall insure each Additional Insured regardless of any breach or violation of
any warranty, declaration or condition contained in such policies by Lessee;
(3) provide that if the insurers cancel such insurance for any reason
whatever, or if there is any substantial change in policy terms and
conditions or coverage, such cancellation, lapse or change shall not be
effective as to any Additional Insured until thirty days (seven days, or such
other period as may from time to time be customarily obtainable in the
industry, in the case of war risk and allied perils coverage) after receipt
by such Additional Insured of written notice from such insurers of such
cancellation, lapse or change; and (4) provide that no Additional Insured
shall have any obligation or liability for premiums, commissions, assessments
or calls in connection with such insurance. Each liability policy shall (i)
be primary without right of contribution from any other insurance which is
carried by any Additional Insured, (ii) expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate
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policy covering any Additional Insured, and (iii) waive any right of the
insurers to any subrogation, set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any
Additional Insured or Lessee to the extent of any moneys due to such
Additional Insureds. In the case of the requisition for use of the In-Use
Aircraft or any Serviced Engine by the Government, a valid agreement by the
Government to indemnify Lessee in a manner satisfactory to Lessor against any
of the risks which Lessee is required hereunder to insure against in an
amount at least equal to the amount of insurance required to be maintained
for the Aircraft under this Section 9 from time to time shall, to the extent
such indemnity from the Government complies with the requirements set forth
in Section 7(g) hereof, be considered adequate insurance to the extent of the
risks and in the amounts that are the subject of any such agreement to
indemnify.
(b) ALL RISK HULL INSURANCE. During the relevant Term, Lessee shall
maintain (or cause to be maintained) at no expense to Lessor the following
insurance, on a worldwide basis with no territorial restrictions with
insurers of recognized responsibility (A) all-risks (ground, taxing, flight
and ingestion) hull insurance covering the In-Use Aircraft; and (B) all risks
(including transit) Aviation Spare Parts (including Engine and Equipment)
Insurance and (C) at all times that any In-Use Aircraft or any Serviced
Engine is not covered by the insurance described in Section 9(c), coverage
against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any vandalism, malicious act or act of sabotage, and (iii)
hijacking, or any unlawful seizure or wrongful exercise of control of the
In-Use Aircraft or crew in flight made by any person or persons on board the
In-Use Aircraft without the consent of the insured other than hijacking
committed by persons engaged in a program of irregular warfare for terrorist
purposes, in each case to the extent insured by the standard "buy-back"
provisions to the Airline War Exclusion Clause (AV48B) or its equivalent.
Such insurance shall be for an Agreed Value basis which shall be in an amount
not less than the Stipulated Loss Value. With the consent of Lessor, which
will not be unreasonably withheld, Lessee may self-insure only by way of
standard market deductibles, the risks required to be insured against
pursuant to the preceding two sentences in such amounts as are acceptable to
Lessor in its sole discretion. Any policies carried in accordance with this
Section 9(b) covering the In-Use Aircraft and any policies taken out in
substitution or replacement for any such policies shall (1) name Lessor as
loss payee as its interests may appear; (2) provide that the entire amount of
any loss shall be paid to Lessor or its order; (3) provide that if such
insurance is canceled for any reason whatsoever, or any substantial change is
made in policy terms, conditions or coverage, or the same is allowed to lapse
for non-payment of premium, such cancellation, change or lapse shall not be
effective as to Lessor until thirty days (seven days or such other period as
may from time to time be customarily obtainable in the industry, in the case
of war risk and allied perils coverage), after receipt by Lessor of written
notice from such insurers of such cancellation or lapse or change in policy
terms, conditions or coverage; (4) provide that losses shall be adjusted with
Lessor; (5) provide that in respect of Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and
shall insure such parties regardless of any breach contained in such policies
by Lessee or any other insured; (6) be primary without right of contribution
from any other insurance which is carried by Lessor with respect to its
interest in the In-Use Aircraft; (7) waive any right of subrogation of the
insurers against Lessor; (8) waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of Lessor or Lessee to the extent of any moneys due
to Lessor; and (9) provide that Lessor shall have no obligation or liability
for premiums, commissions, assessments or calls in connection with
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such insurance. If the insurance required to be carried pursuant to Sections
9(b) and 9(c) is effected under separate policies, the insurers shall agree
that if a disagreement arises as to whether a claim is covered by the
all-risk insurance or the war-risk insurance, the insurers will settle such
claims on the basis of a 50-50 claim funding arrangement. In the case of the
requisition for use of the In-Use Aircraft or any Serviced Engine by the
Government, a valid agreement by the Government, satisfactory to Lessor, to
indemnify Lessee against any of the risks which Lessee is required hereunder
to insure against in an amount at least equal to the amount of insurance
required to be maintained for the In-Use Aircraft under this Section 9 from
time to time shall, to the extent such indemnity from the Government complies
with the requirements set forth in Section 7(g) hereof, be considered
adequate insurance to the extent of the risks and in the amounts that are the
subject of any such agreement to indemnify.
(c) WAR-RISK INSURANCE. During the Lease Term, Lessee shall maintain (or
cause to be maintained), at no expense to Lessor War-Risk and Allied Perils
Aviation Hull (including Spare Parts, Engines and Equipment) Insurance on an
Agreed Value basis, which shall be not less than the Stipulated Loss Value.
Such policy shall (i) insure against those perils excluded under Lessee's All
Risks Hull and Spares policy(ies) by virtue of Lloyd's of London Exclusion
Clause AVN.48B ("War, Hijacking and Other Perils Exclusion Clause") or its
equivalent (other than paragraph (b) thereof relating to nuclear perils), (ii)
provide for payment in U.S. Dollars, (iii) contain a 50/50 clause in accordance
with Lloyd's of London Aviation Clause AVS.103 or its equivalent, (iv) be
endorsed to include coverage for confiscation, requisition, nationalization,
seizure, restraint, detention, appropriation, requisition of title or for use by
any Governmental Authority (except for the government of registry) of the In-Use
Aircraft, (v) provide coverage on a worldwide basis (subject only to such
geographical limits as may be imposed by the hull, war and allied perils
insurance) and (vi) be endorsed to include provisions identical to those
contained in clauses (1), (2), (3), (4), (5), (6), (7), (8), and (9) of Section
9(b).
(d) APPLICATION OF PROCEEDS. Provided no Lessee Event of Default shall
have occurred and be continuing, all insurance payments received under policies
required to be maintained by Lessee pursuant to Section 9 as the result of the
occurrence of an Event of Loss shall be applied in accordance with Section
8(c)(1) or Section 8(c)(2). Insurance payments relating to any property damage
or loss to the In-Use Aircraft or any Serviced Engine not constituting an Event
of Loss with respect thereto will be applied in payment for repairs or for
replacement property in accordance with the terms of Section 8(c) hereof, if not
already paid for by Lessee, and any balance remaining after compliance with such
Sections with respect to such loss shall be paid to Lessee. Any amount
representing proceeds of insurance required to be maintained by Lessee hereunder
which is payable to or retainable by Lessee shall not be paid to or retained by
Lessee if at the time of such payment a Default or a Lessee Event of Default
shall have occurred and be continuing, but shall be held by or paid to Lessor as
security for the obligations of Lessee under this Lease and such amount (to the
extent not previously applied against such obligations) shall be paid to Lessee
at such time as there no longer exists any Default or Lessee Event of Default.
(e) REPORTS, ETC. On or before the Delivery Date (except, with respect to
the insurance required by Section 9(j), prior to the date hereof), and no less
than five (5) Business Days prior to the expiration of any insurance required
pursuant to this Section 9, Lessee shall furnish to Lessor (i)
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appropriate certification by each insurer or its authorized signatories and
(ii) a report signed by a firm of independent insurance brokers, then
retained by Lessee, attaching certificates evidencing the insurance and
reinsurance then carried and maintained with respect to the In-Use Aircraft
and Allocated Parts and stating that in the opinion of such firm the
insurance then carried and maintained with respect to the In-Use Aircraft and
Serviced Engines or Parts complies with the terms hereof. Lessee will cause
such firm to advise Lessor in writing promptly of any material default in the
payment of any premium and of any other act or omission on the part of Lessee
of which they have knowledge which might invalidate or render unenforceable,
in whole or in part, any insurance on the In-Use Aircraft or any Serviced
Engine or Parts. Lessee also shall cause such firm to advise Lessor in
writing at least thirty (30) days (seven (7) days, or such other period as
may from time to time be customarily obtainable in the industry, in the case
of war risk and allied perils coverage), prior to the expiration or
termination of any insurance policy carried or maintained with respect to the
In-Use Aircraft or any Serviced Engine any Parts pursuant to this Section 9.
(f) ADDITIONAL INSURANCE. Lessee at its option and at its sole cost and
expense may obtain insurance with respect to its interest in the In-Use
Aircraft, PROVIDED that such insurance does not prevent Lessee from obtaining
the insurance required by this Section 9; and PROVIDED FURTHER, that such
additional insurance does not prevent Lessor from obtaining insurance for its
own account with respect to the In-Use Aircraft in excess of Stipulated Loss
Value. No such insurance shall be subject to this Section 9. Lessor may carry
for its own account at its sole cost and expense insurance with respect to its
interest in the In-Use Aircraft but in no event shall such insurance prevent
Lessee from carrying insurance required by this Section 9 or adversely affect
the cost thereof.
(g) NOTICE FROM LESSEE; NO MODIFICATION. Lessee shall forthwith notify
Lessor of any event which may give rise to a claim under the insurance required
pursuant to this Section 9.
(h) REINSURANCE. In the event of any reinsurance of the risks set forth
in Section 9(b) the following clause shall be incorporated into such reinsurance
policies:
"Reinsurers hereby agree that notwithstanding the insolvency,
liquidation, bankruptcy, dissolution of or similar proceedings
affecting Insurers in respect of a total loss or other claim whereas
provided by the Lease such claim will be paid to the person or persons
named as loss payee under the primary insurance and that Reinsurers
shall in lieu of payment to the Insured, its successors in interest
and assigns, pay to the person named as loss payee under the primary
insurance that portion of any loss due for which the reinsurers would
otherwise be liable to pay the Insurers (subject to proof of loss),
it being understood and agreed that any such payment by the Reinsurers
shall (to the extent of such payment) fully discharge and release the
Reinsurers from any and all further liability in connection therewith,
subject to such clause not contravening any law of the government of
registration."
(i) INSURANCE OF LESSOR. Lessor agrees to maintain throughout the Lease
Term Hangarkeeper's Legal Liability Insurance that, in accordance with the terms
and conditions of the policy, covers the Serviced Aircraft during periods in
which the Serviced Aircraft is within custody and control of Lessor for an
amount not less than the Stipulated Loss Value.
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(j) INSURANCE RELATING TO ALLOCATED PARTS. During the Term, Lessee shall
maintain (or cause to be maintained) at no expense to Lessor the following
insurance with respect to the Allocated Parts with insurers of recognized
responsibility satisfactory to Lessor: (A) All Risks Property Insurance and
(B) coverage against the perils of (i) strikes, riots, civil commotions or labor
disturbances or (ii) vandalism, malicious acts or acts of sabotage. Such
insurance shall be for an aggregate amount of no less than $1,600,000. With the
written consent of Lessor, Lessee may self-insure, only by way of deductibles,
the risks required to be insured against pursuant to the preceding two sentences
in such amounts as are acceptable to Lessor in its sole discretion. Any
policies carried in accordance with this Section 9(j) covering the Allocated
Parts and any policies taken out in substitution or replacement for any such
policies shall (1) name Lessor as sole loss payee; (2) provide that the entire
amount of any loss shall be paid to Lessor or its order; (3) provide that if
such insurance is canceled for any reason whatsoever, or any substantial adverse
change is made in policy terms, conditions or coverage, or the same is allowed
to lapse for non-payment of premium, such cancellation, change or lapse shall
not be effective as to Lessor until thirty (30) days after receipt by Lessor of
written notice from such insurers of such cancellation or lapse or change in
policy terms, conditions or coverage; (4) provide that losses shall be adjusted
with Lessor; (5) provide that in respect of Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and shall
insure such parties regardless of any breach contained in such policies by
Lessee or any other insured; (6) waive any right of subrogation of the insurers
against Lessor; (7) waive any right of the insurers to set-off or counterclaim
or any other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (8)
provide that Lessor shall not have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. Lessee
shall bear the risk of loss to the extent of any deficiency in any effective
insurance coverage with respect to loss or damage to all or any portion of the
Allocated Parts.
Section 10. INSPECTION; FINANCIAL INFORMATION.
(a) INSPECTION. During the Lease Term, Lessee shall furnish to Lessor
such information concerning the location, condition, use and operation of the
In-Use Aircraft as such party may reasonably request. Lessee shall permit
any person designated in writing by Lessor, at such Lessor's expense, to
visit and inspect (at any reasonable time, provided that such inspection
shall not unreasonably interfere in any material respect with Lessee's
business operations or operation or maintenance of the In-Use Aircraft) the
In-Use Aircraft and the records maintained in connection therewith and, at
such designating party's expense, to make copies of such records as such
party may reasonably designate. Lessor shall not have any duty to make any
such inspection and shall not incur any liability or obligation by reason of
making or not making any such inspection. Any such inspection of the In-Use
Aircraft shall be a visual, walk-around inspection which may include going on
board the In-Use Aircraft and shall not include opening any panels, bays, or
the like, PROVIDED that any such designee of Lessor shall be entitled to be
present during any maintenance check of the In-Use Aircraft at which any
panels, bays or the like may be opened and shall have the right to inspect
such items during such maintenance check. Upon written request from Lessor,
Lessee shall provide such requesting party with the anticipated dates of any
scheduled major maintenance checks (including any "C", heavy "C" or "D"
check) occurring within the six-month period following such request.
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(b) FINANCIAL INFORMATION. Lessee also agrees to furnish to Lessor during
the Lease Term:
(1) as soon as possible and in any event within ten (10) days
after the occurrence of a Default or Lessee Event of Default, a
certificate of Lessee, signed by a vice president of Lessee, setting
forth in detail the nature of such Default or Lessee Event of Default
and the action which the Lessee proposes to take with respect thereto;
(2) from time to time, such information as Lessor may reasonably
request with respect to the operations of Lessee in order to determine
whether the covenants, terms and provisions of this Lease have been
complied with by Lessee;
(3) such information as may be required to enable Lessor to file
any reports required to be filed with any Governmental Authority
because of Lessor's ownership of the Items of Equipment;
(4) as soon as available, quarterly and year-end unaudited
Reports of Financial and Operating Statistics for Large Certified Air
Carriers (U.S. Department of Transportation Form 41 Schedule A);
(5) as soon as available, and in any event within sixty (60)
days after the end of each of the first three fiscal quarters, an
unaudited balance sheet of the Lessee and its consolidated
subsidiaries, as of the end of such quarter and related unaudited
statements of income and retained earnings of the Lessee and its
consolidated subsidiaries, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the
preceding fiscal year;
(6) as soon as available, and in any event within 120 days after
the end of each fiscal year of Lessee, a financial report for the
Lessee for such year, including therein a balance sheet of Lessee as
of the end of such fiscal year and related statements of income and
retained earnings and changes in financial position of the Lessee for
such fiscal year, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all in reasonable
detail and as certified by the Lessee's public accountants, including
their certificate and accompanying comments;
(7) promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by Lessee
to stockholders generally and of each regular or periodic report,
registration statement or prospectus filed by Lessee with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and of any order issued by any Governmental
Authority in any proceeding in which Lessee is a party; and
(8) from time to time, such statistical information concerning
the In-Use Aircraft as Lessor may reasonably request to enable Lessor
to evaluate, calculate and/or report any Taxes.
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Section 11. LESSEE'S COVENANTS.
(a) MERGER. Lessee shall not consolidate with or merge into any other
corporation, or convey, transfer or lease all or substantially all of its assets
to any Person, unless (i) the corporation formed by such consolidation or into
which Lessee is merged or the Person who acquires by conveyance, transfer or
lease all or substantially all of the assets of Lessee (the "Successor"): (A)
remains entitled to the benefits of Section 1110 of the Bankruptcy Code with
respect to this Lease; and (B) shall execute and deliver to Lessor an agreement
containing an assumption by such Successor of the due and punctual performance
and observance of each covenant and condition of this Lease Agreement to be
performed or observed by Lessee; (ii) immediately after giving effect to such
transaction, no Default or Lessee Event of Default shall have occurred and be
continuing hereunder; (iii) Lessee shall have delivered to Lessor, an officer's
certificate and an opinion of independent counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and the assumption
agreement described in clause (i) above comply with this Section 11(a) and that
all conditions precedent herein provided for relating to such transaction have
been complied with (except that such opinion need not cover the matters referred
to in clause (ii) above and may rely, as to factual matters, on an officer's
certificate of Lessee) and, in the case of such opinion, that such assumption
agreement has been duly authorized, executed and delivered by the Successor,
constitutes its legal, valid and binding obligation and is enforceable against
such Successor in accordance with its terms, that Lessor shall continue to be
entitled to the benefits and protections set forth in Section 1110 of the
Bankruptcy Code; and (iv) Lessor shall not suffer any adverse tax consequences
as a result of such consolidation, merger or transfer which is not indemnified
by Lessee in accordance with the terms hereof or against which Lessor is
otherwise indemnified in form and substance reasonably satisfactory to Lessor.
Upon any consolidation or merger, or any conveyance, transfer or lease of
all or substantially all of the assets of Lessee as an entirety in accordance
with this Section 11(a), the Successor shall succeed to, be substituted for, and
may exercise every right and power of, and shall assume every obligation and
liability of, Lessee under this Lease Agreement with the same effect as if the
Successor had been named as Lessee herein and therein. No such consolidation or
merger or conveyance, transfer or lease of all or substantially all of the
assets of Lessee shall have the effect of releasing Lessee or any Successor
which shall theretofore have become such in the manner prescribed in this
Section 11(a) from its liability hereunder. Nothing contained herein shall
permit any lease, sublease or other arrangement for the use, operation or
possession of the In-Use Aircraft or Engines except in compliance with the
applicable provisions of this Lease.
(b) CERTIFICATED AIR CARRIER. Lessee will continue to be a certificated
air carrier authorized to engage in scheduled air transportation under the
Federal Aviation Act.
Section 12. FAA RECORDATION AND FURTHER ASSURANCES.
(a) FAA RECORDATION. Lessee shall cause this Lease, all Lease Supplements
and any and all additional instruments which shall be executed pursuant to the
terms hereof so far as permitted by Applicable Laws or regulations, to be duly
kept, filed and recorded, and maintained of record, in accordance with the
applicable law of the government of registry of the Aircraft, which shall be in
the office of the FAA. The cost of all such action shall be borne by Lessor.
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(b) FURTHER ASSURANCES. Each party hereto shall, at its expense, promptly
and duly execute and deliver to the other party such further documents and
promptly take such further action not inconsistent with the terms hereof as the
other party may from time to time reasonably request in order more effectively
to carry out the intent and purpose of this Lease or to perfect and protect the
rights and, with respect to Lessor, remedies created or intended to be created
hereunder.
Section 13A. LESSEE EVENTS OF DEFAULT. The following events shall
constitute Lessee Events of Default (each a "Lessee Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessee Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied or
waived by Lessor in writing:
(a) Lessee shall fail to make any payment of Basic Rent or Supplemental
Rent due pursuant to Exhibit E hereto, as and when due or shall fail to make any
other payment of Supplemental Rent within five (5) Business Days after delivery
to Lessee of notice from Lessor that the amount shall have become due hereunder;
or
(b) Lessee shall fail to procure, carry and maintain any insurance
required by Section 9 hereof; PROVIDED that in the case of insurance with
respect to which cancellation, change or lapse for nonpayment of premium shall
not be effective as to Lessor for 30 days (five days in the case of any war risk
and allied perils coverage, or if shorter, such other period as may be customary
in the industry for such notice of cancellation) after receipt of notice by
Lessor of such cancellation, change or lapse, no such failure to carry and
maintain insurance shall constitute a Lessee Event of Default hereunder until
the earlier of (i) the date such insurance is no longer in effect as to Lessor,
or (ii) the date such failure shall have continued unremedied for a period of 20
days (five days in the case of any war risk and allied perils coverage, or if
shorter, such other period as may be customary in the industry for such notice
of cancellation) after receipt by Lessor of the notice of cancellation, change
or lapse; or
(c) Lessee shall fail to perform or observe, breach or be in default under
Sections 5, 7(c), 10(c), or 11 hereof; or
(d) Lessee shall fail to perform or observe, breach or be in default under
any other covenant, condition or agreement to be performed or observed by it
hereunder and such failure shall continue unremedied for a period of thirty (30)
Business Days after written notice thereof by Lessor; or
(e) any material representation or warranty made by Lessee herein or in
any document or certificate furnished by Lessee in connection herewith or
pursuant hereto shall prove to have been incorrect in any material respect when
made; or
(f) Lessee shall fail to pay any sums which are or become due and owing
under any Interim Aircraft Lease Agreement, the Interim Aircraft Maintenance
Agreement, the Long-Term Lease Agreement, the July Lease Agreement or the
November Lease Agreement or shall fail to perform under any indemnification
obligations contained in any Interim Aircraft Lease Agreement,
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the Long-Term Lease Agreement, the 160 Lease Agreement, the 161 Lease
Agreement, the 162 Lease Agreement, the 171 Lease Agreement or the Interim
Aircraft Maintenance Agreement; or
(g) Reserved; or
(h) all or substantially all of Lessee's airline operations are suspended
for more than two days; or
(i) Lessee shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Lessee shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee in any such proceeding,
or Lessee by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Lessee shall take any corporate action to authorize any of the foregoing; or
(j) a petition against Lessee in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and any
decree or order adjudging Lessee a bankrupt or insolvent in such proceeding
shall remain in force undismissed and unstayed for a period of sixty (60) days
after such adjudication or, in case the approval of such petition by a court of
competent jurisdiction is required, the petition as filed or amended shall be
approved by such a court as properly filed and such approval shall not be
withdrawn and the proceeding shall not be dismissed within sixty (60) days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to Lessee, any court of competent
jurisdiction shall enter an order or decree assuming custody or control of
Lessee or of any substantial part of its property and such custody or control
remains in force unrelinquished, unstayed and unterminated for a period of
thirty (30) days; or
(k) obligations of Lessee for the payment of borrowed money shall not be
paid when the same become due after the expiration of any applicable grace
period, if the effect of such default is to cause obligations in excess of
$20,000,000 to be accelerated or otherwise declared to be due and unpaid prior
to their stated maturity.
Section 13B. LESSOR EVENTS OF DEFAULT. The following events shall
constitute Lessor Events of Default (each a "Lessor Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessor Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied, or
waived by Lessee in writing:
(a) Lessor shall fail to procure, carry and maintain any insurance
required by Section 9(i) to be carried and maintained by Lessor;
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(b) Lessor shall fail to perform or observe, breach or be in default
under any other covenant, condition or agreement to be performed or
observed by Lessor hereunder and such failure shall continue unremedied for
a period of thirty (30) Business Days after written notice thereof by the
Lessee; PROVIDED the existence of any Defect shall not constitute a Lessor
Event of Default so long as Lessor promptly commences and diligently
complies with its warranty obligations under Section 5 of Exhibit E;
(c) Any material representation or warranty made by Lessor herein or
in any document or certificate furnished by Lessor in connection herewith
or pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) Lessor shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a
substantial part of its property, or Lessor shall be unable to pay its
debts generally as they become due, or shall make a general assignment for
the benefit of creditors, or Lessor shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against
Lessor in any such proceeding, or such party by voluntary petition, answer
or consent shall seek relief as debtor under the provisions of any other
present or future bankruptcy or other similar law providing for the
reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors or
Lessor shall take any corporate action to authorize any of the foregoing;
or
(e) A petition against Lessor in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and
any decree or order adjudging Lessor a bankrupt or insolvent in such
proceeding shall remain in force undismissed and unstayed for a period of
sixty (60) days after such adjudication or, in case the approval of such
petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as properly filed and
such approval shall not be withdrawn and the proceeding shall not be
dismissed within sixty (60) days thereafter, or if, under the provisions of
any law providing for reorganization or winding-up of corporations which
may apply to Lessor, any court of competent jurisdiction shall enter an
order or decree assuming custody or control of such party or of any
substantial part of its property and such custody or control remains in
full force unrelinquished, unstayed and unterminated for a period of thirty
(30) days.
Section 14A. LESSOR REMEDIES. Upon the occurrence of any Lessee Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare this Lease to be in default by a written
notice to Lessee and Lessor may concurrently therewith or at any time
thereafter, as part of the same or a separate written notice, declare this Lease
to be terminated, and immediately proceed to do any one or more of the following
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect; PROVIDED that upon the occurrence of any Lessee Event of Default
described in Section 13A(i) or (j) above, this Lease Agreement shall
automatically be in default, and Lessor may elect to do any of the following,
without prior notice to Lessee:
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(a) Lessor may terminate this Lease;
(b) Lessor may cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return promptly the
In-Use Aircraft and any Serviced Engines, as Lessor may so demand to Lessor
or its order in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 5, as if the Airframe and
Engines were being returned at the end of the Term, or Lessor, at its
option, may enter upon the premises where the Airframe or Engine is located
and take immediate possession of and remove the same (together with any
engine or any part which is not an Engine but which is installed on an
Airframe, subject to all of the rights of any owner, lessor, lienor or
secured party of such engine or the Airframe; it being agreed that such
engine or airframe, as the case may be, shall be held for the account of
any such owner, lessor, lienor or secured party, or, if such engine is
owned by Lessee, may, at the option of Lessor, be exchanged with Lessee for
an Engine in accordance with the provisions of Section 8(b)) without the
necessity for first instituting proceedings, or by summary proceedings or
otherwise, all without liability accruing to Lessor for or by reason of
such entry or taking of possession, whether for the restoration of damage
to property caused by such taking or otherwise;
(c) Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof;
(d) Lessor, to the extent permitted by applicable law, may with or
without taking possession thereof, sell any Airframe or Engine at public or
private sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle all or the Airframe or Engine as
Lessor, in its sole discretion, may determine, all free and clear of any
rights of Lessee except as hereinafter set forth in this Section 14A and
without any duty to account to Lessee with respect to such action or
inaction or for any proceeds with respect thereto;
(e) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights specified above with respect to all
or the Airframe or Engine, Lessor, by written notice to Lessee specifying a
payment ten days from such written notice, may demand that the Lessee pay
to Lessor, and Lessee shall pay to Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the Basic Rent for the Aircraft due for periods
commencing on or after the date specified for payment in such notice), any
unpaid Basic Rent for the Aircraft due for periods prior to the payment
date specified in such notice plus an amount equal to the excess, if any,
of the present worth of the aggregate unpaid Basic Rent due under this
Lease for the Airframe or Engine, discounted quarterly at the Discount
Rate, over the fair market rental value therefor, discounted in like
manner;
(f) in the event Lessor, pursuant to paragraph (d) above, shall have
sold all or any Airframe or Engine, Lessor, in lieu of exercising its
rights under paragraph (e) above with respect to the Airframe or such
Engine or part thereof, may, if it shall so elect, demand
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that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the date
of such sale as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the installments of Basic Rent for the Aircraft due
after the Basic Rent Payment Date preceding such date of sale) any
unpaid Basic Rent with respect to the Aircraft due prior to such date
PLUS the amount of any deficiency between the net proceeds of such sale
(after deduction of all reasonable costs of sale) and the Stipulated
Loss Value of the Aircraft, computed as of the Basic Rent Payment Date
on or immediately succeeding the date of such sale together with
interest, if any, on the amount of such deficiency, at the Stipulated
Interest Rate, from the date of such sale to the date of actual payment
of such amount;
(g) [Intentionally Left Blank]
(h) Lessor may rescind this Lease as to any or all Airframe and any
or all Engines, or may exercise any other right or remedy which may be
available to it under applicable law;
(i) Lessee shall be liable for any and all unpaid Rent and for all
legal fees and other costs and expenses incurred by reason of the
occurrence of any Lessee Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs or expenses incurred in
connection with the return of any Item of Equipment in accordance with the
terms of Section 5 hereof or in placing such Item of Equipment in the
condition and with airworthiness certificates as required by Section 5; and
(j) No remedy referred to in this Section 14A is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor or its Affiliates at law
or in equity, and the exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of
any or all of such other remedies under either this Lease or any other
agreement between Lessor or its Affiliates and Lessee. No express or
implied waiver by Lessor of any Lessee Event of Default shall in any way
be, or be construed to be a waiver of any future or further Lessee Event of
Default. To the extent permitted by Applicable Law, Lessee hereby waives
any and all rights to notice and to a judicial hearing with respect to the
repossession of any Item of Equipment by Lessor upon the occurrence of a
Lessee Event of Default.
Section 14B. LESSEE REMEDIES.
(a) REMEDIES. Upon the occurrence of a Lessor Event of Default and at any
time thereafter so long as the same shall be continuing, Lessee may, at its
option, declare a default by a written notice to Lessor; PROVIDED that Lessee's
remedies shall in all respects be limited as set forth in Section 5(b) and 5(g)
of Exhibit E and this Section 14B. At any time after delivery of such written
notice to Lessor, so long as Lessor shall not have remedied all outstanding
Lessor Events of Default Lessee may proceed pursuant to Section 6 of Exhibit E
to enforce performance by Lessor of its covenants and obligations under Exhibit
E to this Agreement and to recover damages for the breach thereof, but only to
the extent permitted under Section 14B(b) and Section 5(b) and 5(g) of Exhibit
E. Subject to Section 5(b) and 5(g) of Exhibit E and Section 14B(b), Lessor
shall be liable for any and all unpaid amounts due from it hereunder and for all
legal fees and other costs and
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expenses incurred by reason of the occurrence of any Lessor Event of Default
or the exercise of Lessee's remedies with respect thereto.
(b) LIMITATION ON DAMAGES. WITHOUT LIMITING THE PROVISIONS OF SECTION 4
OF THIS AGREEMENT AND NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
LESSOR SHALL HAVE NO OBLIGATION OR LIABILITY WHETHER ARISING IN CONTRACT
(INCLUDING WARRANTY), TORT (INCLUDING ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR
GROSS NEGLIGENCE) OR STRICT LIABILITY OR OTHERWISE FOR LOSS OF USE, REVENUE OR
PROFIT OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY BREACH OF THIS AGREEMENT OR THE PROCEDURES SET FORTH IN THE
MANUAL (OR ANY MANUAL REFERENCED THEREIN) OR ANY NONCONFORMANCE OR DEFECT IN ANY
SERVICE OR WORKMANSHIP OR ANY SERVICED PART OR OTHER MATERIAL, COMPONENT,
ACCESSORY, EQUIPMENT OR PRODUCT PROVIDED OR DELIVERED PURSUANT TO THIS
AGREEMENT. FURTHERMORE, LESSOR'S LIABILITY FOR DAMAGES, IF ANY, ARISING AS A
RESULT OF ANY BREACH OF, OR DEFAULT BY LESSOR UNDER, THIS AGREEMENT (INCLUDING
ANY BREACH OF WARRANTY) SHALL IN NO EVENT EXCEED LESSEE'S DIRECT, ACTUAL AND
REASONABLE DAMAGES (AFTER TAKING INTO ACCOUNT AMOUNTS THAT WOULD HAVE BEEN PAID
TO LESSOR AS SUPPLEMENTAL RENT BUT FOR SUCH BREACH OR DEFAULT) SUFFERED BY
LESSEE TO OBTAIN SUBSTITUTE COMPARABLE MAINTENANCE SERVICES FOR THE AIRCRAFT FOR
THE REMAINDER OF THE LEASE TERM AFTER THE DATE OF SUCH BREACH OR DEFAULT.
(c) NO IMPLIED WAIVER. No express or implied waiver by Lessee of any
Lessor Event of Default shall in any way be, or be construed to be a waiver of
any future or further Lessor Event of Default.
Section 15. INDEMNIFICATION.
(a) GENERAL. LESSEE DOES HEREBY ASSUME LIABILITY FOR, AND DOES HEREBY
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS LESSOR AND ANY AFFILIATE OF LESSOR
AND THEIR RESPECTIVE SUCCESSORS, PERMITTED ASSIGNS, SHAREHOLDERS, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS AND SERVANTS (EACH THEREOF, WITH ITS RESPECTIVE
AFFILIATES, SUCCESSORS, PERMITTED ASSIGNS, AGENTS AND SERVANTS REFERRED TO
HEREIN AS AN "INDEMNIFIED PARTY") FROM AND AGAINST, AND ON WRITTEN DEMAND TO
PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS THE CASE MAY
BE, ANY AND ALL EXPENSES OR LIABILITIES IMPOSED ON, CHARGED TO, RECOVERED FROM,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY AS A RESULT OF ANY CLAIM
BY A PERSON (OTHER THAN LESSEE UNDER SECTION 5(a) OF EXHIBIT E AND 14B HEREOF)
RELATING TO OR ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
INTERIM AIRCRAFT LEASE AGREEMENTS, THE INTERIM AIRCRAFT MAINTENANCE AGREEMENT,
THE POOLING AGREEMENT, THE MANUAL (OR ANY OTHER LESSOR MANUAL REFERENCED
THEREIN) OR ANY MAINTENANCE SERVICES, OUTSIDE SERVICES, SERVICED ENGINES OR
SERVICED PARTS PROVIDED HEREUNDER, OR ANY FAILURE BY
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LESSEE OR LESSOR TO PERFORM HEREUNDER, INCLUDING CLAIMS FOR INJURY TO OR
DEATH OF PERSONS (INCLUDING ANY EMPLOYEES OR AGENTS OF LESSEE WHO ENTER
LESSOR'S PREMISES PURSUANT TO SECTION 4(g) OF EXHIBIT E AND ALL INVITEES,
GUESTS, PASSENGERS, SHIPPERS, EMPLOYEES AND AGENTS OF LESSEE), AND DAMAGE TO
OR DESTRUCTION OF PROPERTY (INCLUDING PROPERTY OF LESSEE AND OF ITS INVITEES,
GUESTS, PASSENGERS, EMPLOYEES AND AGENTS AND PROPERTY OF EACH INDEMNIFIED
PARTY). THE FOREGOING INDEMNITY OBLIGATIONS SHALL INCLUDE THE OBLIGATION OF
LESSEE TO INDEMNIFY EACH INDEMNIFIED PARTY FROM AND AGAINST, AND ON WRITTEN
DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS
THE CASE MAY BE, ANY AND ALL EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST ANY INDEMNIFIED PARTY RELATING TO OR ARISING OUT OF (i) ANY ACTION OR
INACTION OF LESSEE; (ii) THE MANUFACTURE OF THE AIRFRAME AND SERVICED ENGINES
(INCLUDING LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AND PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT); (iii) THE OWNERSHIP OF THE AIRCRAFT
AND, EXCEPT AS PROVIDED IN SECTION 15(d) BELOW, SERVICED ENGINES, DURING THE
TERM OF THIS LEASE; (iv) THE DELIVERY, NONDELIVERY, REDELIVERY, LEASE,
REGISTRATION, ASSIGNMENT, TRANSFER, POSSESSION, USE, OPERATION, CONDITION,
SALE OR RETURN OR OTHER DISPOSITION OF THE AIRFRAME AND SERVICED ENGINES AND
PARTS BY LESSEE (INCLUDING INJURY, DEATH OR PROPERTY DAMAGE SUFFERED BY
PASSENGERS, SHIPPERS OR OTHERS), AND ENVIRONMENTAL CONTROL, NOISE AND
POLLUTION REGULATIONS; (v) THE CONDITION UPON RETURN OF THE AIRFRAME AND
SERVICED ENGINES AND PARTS, TO THE EXTENT SUCH CONDITION DOES NOT COMPLY WITH
SECTION 5 HEREOF OR (vi) (WITHOUT LIMITING ANY OF THE FOREGOING) ANY BREACH
BY LESSEE OF, NONCOMPLIANCE BY LESSEE WITH, OR MISREPRESENTATION BY LESSEE
MADE OR DEEMED MADE IN, UNDER OR IN CONNECTION WITH, THIS LEASE OR ANY OTHER
DOCUMENT REQUIRED TO BE DELIVERED PURSUANT HERETO, OR ANY WARRANTY,
CERTIFICATE OR AGREEMENT MADE OR DELIVERED IN, UNDER OR IN CONNECTION
HEREWITH OR THEREWITH. THE FOREGOING INDEMNITY OBLIGATIONS OF LESSEE SHALL
NOT INCLUDE THE OBLIGATION TO INDEMNIFY (i) EMPLOYEES OF LESSOR AND ITS
AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO
ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO
LESSOR AND ITS AFFILIATES OR (ii) SUBCONTRACTORS TO LESSOR AND ITS AFFILIATES
WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN
EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND
ITS AFFILIATES. LESSEE ALSO SHALL NOT BE REQUIRED TO INDEMNIFY ANY
INDEMNIFIED PARTY FOR (i) LIABILITIES RESULTING FROM ACTS (INCLUDING FAILURE
TO ACT) OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY,
(ii) DAMAGE TO OR DESTRUCTION OF PROPERTY OF AN INDEMNIFIED PARTY, WHILE
WITHIN SUCH INDEMNIFIED PARTY'S SOLE CARE, CUSTODY AND CONTROL, TO THE EXTENT
RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR
AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO
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LESSOR AND ITS AFFILIATES, (iii) ACTS, OMISSIONS OR EVENTS THAT OCCUR AFTER FULL
AND FINAL COMPLIANCE BY LESSEE WITH THE TERMS OF THIS LEASE OR AFTER AN
AIRCRAFT, ANY SERVICED ENGINE OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR
PART HAS BEEN RETURNED TO LESSOR PURSUANT TO THE TERMS HEREOF, OR THE POOLING
AGREEMENT AS SUCH ACTS, OMISSIONS OR EVENTS RELATE TO SUCH RETURNED AIRCRAFT,
ANY SERVICED ENGINE, OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART AFTER
ITS RETURN; OR (iv) ANY TAX EXCEPT TO THE EXTENT AND AS SET FORTH IN SECTION 16
HEREOF AND SECTION 3(h) OF EXHIBIT E.
(b) INDEMNIFICATION FOR NEGLIGENT ACTS. WITHOUT LIMITING SECTION 15(a),
LESSOR AND LESSEE EXPRESSLY INTEND THAT LESSEE SHALL HOLD HARMLESS, DEFEND AND
INDEMNIFY EACH INDEMNIFIED PARTY AGAINST CLAIMS (OTHER THAN CLAIMS THAT ARE
EXPRESSLY EXCEPTED IN SECTION 15(a)) THAT ARISE AS A RESULT OF THE NEGLIGENCE
(WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR OR ANY OTHER INDEMNIFIED PARTY
AND AS A RESULT OF THE JOINT OR CONCURRENT NEGLIGENCE (WHETHER ACTIVE, PASSIVE
OR IMPUTED) OF LESSOR, ANY OTHER INDEMNIFIED PARTY AND LESSEE.
(c) DEFENSE OF CLAIMS; SETTLEMENT. IF ANY INDEMNIFIED PARTY SHALL HAVE
KNOWLEDGE OF ANY CLAIM OR LIABILITY REQUIRED TO BE INDEMNIFIED AGAINST UNDER
THIS SECTION 15, SUCH INDEMNIFIED PARTY SHALL GIVE REASONABLY PROMPT WRITTEN
NOTICE THEREOF TO LESSEE AFTER BECOMING AWARE OF SUCH CLAIM, BUT THE FAILURE OF
SUCH INDEMNIFIED PARTY SO TO NOTIFY LESSEE SHALL NOT RELIEVE LESSEE FROM ANY
LIABILITY THAT IT WOULD OTHERWISE HAVE TO SUCH INDEMNIFIED PARTY HEREUNDER
EXCEPT TO THE EXTENT, AND ONLY TO THE EXTENT, THAT LESSEE DEMONSTRATES THAT THE
DEFENSE OF SUCH CLAIM OR LIABILITY IS PREJUDICED THEREBY. LESSEE AND LESSEE'S
INSURERS SHALL HAVE THE RIGHT, AT THEIR SOLE COST AND EXPENSE, TO INVESTIGATE,
DEFEND OR, EXCEPT AS LIMITED HEREINAFTER, COMPROMISE ANY CLAIM FOR WHICH
INDEMNIFICATION IS SOUGHT UNDER THIS SECTION 15 UPON ACKNOWLEDGMENT BY LESSEE OR
SUCH INSURER OF ITS LIABILITIES TO EACH INDEMNIFIED PARTY IN RESPECT THEREOF.
LESSEE SHALL ASSUME ALL RESPONSIBILITY FOR ANY CLAIM COVERED BY THE FOREGOING
INDEMNITY, AND THE INDEMNIFIED PARTY SHALL PROVIDE REASONABLE ASSISTANCE AND
COOPERATION DURING THE DEFENSE OR SETTLEMENT OF THE CLAIM. EXCEPT AS LIMITED
HEREAFTER, LESSEE SHALL HAVE COMPLETE CONTROL OF THE DEFENSE OR SETTLEMENT OF
SUCH CLAIM OR COMPROMISE THEREOF; PROVIDED THAT COUNSEL SELECTED BY LESSEE SHALL
BE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY. NO COMPROMISE OR SETTLEMENT
OF ANY CLAIM MAY BE EFFECTED BY LESSEE WITHOUT THE INDEMNIFIED PARTY'S CONSENT,
WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, NO CONSENT SHALL BE
REQUIRED IF (i) THERE IS NO FINDING OR ADMISSION OF ANY VIOLATION OF ANY LAW BY
THE INDEMNIFIED PARTY OR ANY VIOLATION OF THE RIGHTS OF ANY PERSON BY THE
INDEMNIFIED PARTY, (ii) THERE IS NO EFFECT ON ANY CLAIM
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THAT MAY BE MADE BY THE INDEMNIFIED PARTY, AND (iii) THE RELIEF PROVIDED IS
THE SOLE RESPONSIBILITY OF LESSEE. EACH INDEMNIFIED PARTY SHALL HAVE THE
RIGHT, BUT NOT THE DUTY, AT ITS OWN EXPENSE, TO PARTICIPATE IN THE DEFENSE
AND/OR SETTLEMENT OF ANY CLAIM WITH COUNSEL OF ITS OWN CHOOSING WITHOUT
RELIEVING LESSEE OF ANY OBLIGATIONS HEREUNDER. LESSEE AND ITS COUNSEL SHALL
COOPERATE WITH THE INDEMNIFIED PARTY'S COUNSEL AND SHALL SUPPLY THE
INDEMNIFIED PARTY WITH SUCH INFORMATION REASONABLY REQUESTED BY THE
INDEMNIFIED PARTY AS IS NECESSARY OR ADVISABLE FOR THE INDEMNIFIED PARTY TO
PARTICIPATE IN ANY PROCEEDING TO THE EXTENT PERMITTED BY THIS SECTION 15, BUT
CONTROL OF THE MATTER SHALL REMAIN WITH LESSEE.
ANY PAYMENT OR INDEMNITY PURSUANT TO THIS SECTION 15 SHALL INCLUDE THE
AMOUNT, IF ANY, NECESSARY TO HOLD THE INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX
BASIS (TAKING INTO ACCOUNT ANY CURRENT TAX BENEFITS TO WHICH ANY SUCH
INDEMNIFIED PARTY IS ENTITLED) AS A RESULT OF THE MATTER INDEMNIFIED AGAINST
UNDER THIS SECTION 15 FROM ALL TAXES REQUIRED TO BE WITHHELD BY LESSEE OR PAID
BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH PAYMENT OR INDEMNITY UNDER THE
LAWS OF ANY FEDERAL, STATE OR LOCAL GOVERNMENT OR TAXING AUTHORITY IN THE UNITED
STATES OR ANY TERRITORY, COMMONWEALTH OR POSSESSION OF THE UNITED STATES OR BY
ANY FOREIGN GOVERNMENT OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF.
(d) INDEMNIFICATION BY LESSOR. IF A PERSON WHICH HAS A LIEN ON ANY
SERVICED ENGINE TAKES POSSESSION OF OR INTERFERES WITH LESSEE'S QUIET ENJOYMENT
OR USE OF A SERVICED ENGINE, LESSOR SHALL INDEMNIFY AND HOLD HARMLESS LESSEE
FROM ANY AND ALL COSTS, LIABILITIES AND DAMAGES INCURRED BY LESSEE RELATING TO
OR ARISING THEREFROM.
(e) SURVIVAL. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
SECTION 15 SHALL SURVIVE ANY TRANSFER OF TITLE OR POSSESSION OF THE SERVICED
AIRCRAFT, ANY SERVICED ENGINE OR ANY SERVICED PART, ANY TERMINATION OR
EXPIRATION OF THIS AGREEMENT OR ANY IMPOSSIBILITY OF PERFORMANCE OF THIS
AGREEMENT OR FRUSTRATION OF PURPOSE OF THIS AGREEMENT.
Section 16. GENERAL TAX INDEMNITY.
(a) TAX INDEMNITY. (i) Except as provided in Section 16(b), Lessee agrees
that each payment of Rent and any other amounts payable to Lessor (with any
affiliate of Lessor and their respective successors, permitted assigns,
shareholders, directors, officers, employees, agents and servants referred to
herein as a "TAX INDEMNIFIED PARTY") by Lessee under this Lease shall be paid in
full without any deduction or withholding with respect to Taxes of any nature
whatsoever imposed by the United States or any other Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall (a) ensure that the deduction or withholding does not
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exceed the minimum amount legally required; (b) immediately pay to Lessor or
any other Person entitled to receive such payment an additional amount (as
Supplemental Rent) in such amount, net of any Taxes thereon, and at such
time as shall result in the net amount actually received by Lessor or such
other Person being, after all deductions or withholdings, equal to the full
amount which would have been received by Lessor or such other Person had such
deduction or withholding not been made and shall be free of expense to the
Lessor or such other Person for collection or other charges; (c) pay to the
relevant Taxing Authority within the period for payment permitted by
Applicable Law the full amount of all deductions or withholdings; and (d)
upon the request of Lessor or such other Person furnish to Lessor or such
other Person, as the case may be, within the period for payment permitted by
Applicable Law, an official receipt of the relevant Taxing Authority for all
amounts deducted or withheld as aforesaid; and
(ii) Except as provided in Section 16(b) hereof, Lessee shall pay,
protect, save, and on written demand shall indemnify and hold harmless on an
after-tax basis each Tax Indemnified Party from and against any and all Taxes
imposed against any Tax Indemnified Party, Lessee or the Serviced Aircraft by
any Taxing Authority in connection with or relating to (A) the construction,
financing, refinancing, purchase, acquisition, acceptance, rejection,
delivery, nondelivery, transport, ownership, registration, reregistration,
assembly, possession, repossession, operation, location, use, condition,
maintenance, repair, sale, return, abandonment, preparation, installation,
storage, redelivery, manufacture, leasing, subleasing, modification,
rebuilding, importation, reimportation, transfer of title, transfer of
registration, exportation, reexportation or other application or disposition
of, or the imposition of any Lien (or the incurrence of any liability to
refund or pay over any amount as the result of any Lien) on, the Serviced
Aircraft, the Serviced Airframe, and any Serviced Engine or any Serviced Part
or interest therein, (B) payments of Basic Rent or Supplemental Rent or the
receipts or earnings arising therefrom or received with respect to the
Serviced Aircraft, the Serviced Airframe, any Serviced Engine or any Serviced
Part or interest therein, (C) the Serviced Aircraft, any Serviced Airframe,
any Serviced Engine or any Serviced Part or interest therein, (D) otherwise
with respect to or in connection with the transactions contemplated by this
Lease, and (E) any out-of-pocket penalties, late payment fees, interest,
costs and expenses fairly attributed to any of the foregoing incurred by any
Tax Indemnified Party.
(b) EXCLUSIONS FROM GENERAL TAX INDEMNITY. The provisions of
subsection 16(a) shall not apply to a Tax Indemnified Party in the case of:
(i) Taxes that are imposed on or measured by the net income, excess
profits, receipts (other than any excise or gross receipts tax imposed by
the State of Hawaii), franchises, capital or conduct of business of such
Tax Indemnified Party, other than any such taxes which are imposed in lieu
of any sales, use or value added taxes;
(ii) any other Taxes based on, or measured by, the net income of such
Tax Indemnified Party (other than (x) Taxes which are, or are in the nature
of, sales, use or rental taxes or (y) Taxes imposed by any Taxing Authority
(other than a taxing authority for the jurisdiction in which such Tax
Indemnified Party is doing business) as a result of a nexus between the
jurisdiction of the Taxing Authority and any Item of Equipment or any Part
or any part or the activities in the jurisdiction of the Taxing Authority
of Lessee, any sublessee
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or any other user of the Aircraft (other than such Tax Indemnified Party
or any Affiliate thereof) or any Affiliate of any of the foregoing);
(iii) Taxes that are imposed as a result of (y) any voluntary
sale, assignment, transfer or other disposition by such Tax Indemnified
Party of any interest of such Tax Indemnified Party in the Aircraft, the
Airframe, any Serviced Engine, any Part, or any interest therein, unless
such sale, assignment, transfer or disposition results from (1) action
taken by or on behalf of such Tax Indemnified Party as provided in or
permitted by this Lease in connection with or by reason of any Lessee Event
of Default that has occurred and is continuing or any exercise by the
Lessor of any of its remedies in connection with any such Lessee Event of
Default as provided in or permitted by the Lease, or (2) any replacement or
substitution by the Lessee of any Engine or any Part; or (z) any
involuntary transfer of any of the foregoing interests in connection with
any bankruptcy or other proceeding for the relief of debtors in which such
Tax Indemnified Party is the debtor or any foreclosure by a creditor of
such Tax Indemnified Party;
(iv) Taxes in the nature of penalties, additions to tax, interest or
fines resulting directly from the negligence of the Tax Indemnified Party
in connection with the preparation or filing of any tax return unless such
Tax Indemnified Party files any tax return in a manner requested by Lessee,
required to be filed by such Tax Indemnified Party without regard to the
transactions contemplated by this Lease, the payment of any taxes shown
thereon or the conduct of any proceeding in respect thereof, except to the
extent attributable to the failure of Lessee to perform its obligations or
to otherwise perform its duties and responsibilities pursuant to this
Lease, including, without limitation, the obligation to make payments
hereunder;
(v) so long as no Lessee Default or Event of Default shall be
continuing, Taxes imposed with respect to any period after (i) the
expiration of the Term and the return of the Aircraft to the Lessor in
accordance with Section 5 of this Lease or (ii) the earlier discharge in
full of Lessee's obligation to pay the Stipulated Loss Value and all other
amounts due under this Lease; provided, however, that this exception shall
not apply to Taxes (x) relating to events occurring or matters arising upon
or prior to such expiration and return or discharge, or (y) imposed on or
with respect to any payments due after such expiration and return or
discharge until after such payments have been made;
(vi) Taxes to the extent of the excess of such Taxes over the amount
of such Taxes which would have been imposed and indemnified against had
there not been a sale, assignment, transfer or other disposition (whether
voluntary or, if resulting from bankruptcy, foreclosure (other than
foreclosure resulting from a Lessee Event of Default) or similar
proceedings in which such Tax Indemnified Party is the debtor, involuntary)
by a Tax Indemnified Party of any interest of such Tax Indemnified Party in
the Aircraft, the Airframe, any Serviced Engine, or any Part, unless such
transfer results from action taken by or on behalf of such Tax Indemnified
Party after a Lessee Event of Default has occurred and while it is
continuing or any exercise by the Lessor of any of its remedies in
connection with any such Lessee Event of Default;
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(vii) Taxes arising out of or caused by any willful misconduct or
gross negligence of such Tax Indemnified Party;
(viii) with respect to any Tax Indemnified Party, any Tax that
results solely from such Tax Indemnified Party or a related Tax Indemnified
Party engaging in transactions other than those contemplated by this Lease
or any Long-Term Agreement, or those in which such Tax Indemnified Party is
currently engaged;
(ix) sales tax incurred by Lessor in connection with the maintenance
of the Serviced Aircraft pursuant to Attachment A to Exhibit E hereto,
other than any such tax, whether in the form of a sales tax, gross receipts
tax or other functional equivalent of a sales tax imposed by the State of
Hawaii;
(x) any Tax to the extent such Tax would not have been imposed if a
Tax Indemnified Party or a related Tax Indemnified Party had not engaged in
activities in the jurisdiction imposing such Tax which activities are
unrelated to the transactions contemplated by the this Lease or the other
Long Term Agreements, but only to the extent such Tax would not have been
payable in the absence of such unrelated activities; or
(xi) any failure of a Tax Indemnified Party to comply with (I)
certification, information, documentation, reporting or other similar
requirements concerning the nationality, residence, identity or connection
with the jurisdiction imposing such Tax, if such compliance is required by
statute or by regulation of the jurisdiction imposing such Tax as a
precondition to relief or exemption from such Tax; or (II) any other
certification, information, documentation, reporting or other similar
requirements under the Tax laws or regulations of the jurisdiction imposing
such Tax that would establish entitlement to otherwise applicable relief or
exemption from such Tax; provided, however, that the exclusion set forth in
this subsection 16(a)(x) shall not apply if (v) such failure to comply was
due to a failure of the Lessee to provide such Tax Indemnified Party with
the information required to be supplied by the Lessee in order for such Tax
Indemnified Party to comply with such requirement or due to a failure of
the Lessee to notify such Tax Indemnified Party of such requirement and
such Tax Indemnified Party was not otherwise aware of such requirement; or
(w) such failure to comply was done upon the advice, concurrence and/or
direction or with the knowledge of the Lessee.
(c) CALCULATION OF GENERAL TAX INDEMNITY PAYMENTS.
(i) Lessee agrees that, with respect to any payment or indemnity to a
Tax Indemnified Party under Section 16 hereof, the Lessee's indemnity
obligations shall include the payment of an amount necessary to hold such
Tax Indemnified Party harmless on an after-tax basis from all Taxes
required to be paid by such Tax Indemnified Party with respect to such
payment or indemnity (including any payments made pursuant to this
subsection 16(c) under the laws of any Taxing Authority.
(ii) If any Tax Indemnified Party shall realize a current tax benefit
as a result of any Taxes paid or indemnified against by the Lessee under
this Section 16 (except to the
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extent previously taken into account in computing the indemnity paid
with respect to such Taxes), such Tax Indemnified Party shall, so long
as no Lessee Event of Default shall have occurred and be continuing and
no payment is due and owing by Lessee under this Lease or any Long-Term
Agreement, pay to the Lessee an amount which, after subtraction of any
further tax savings such Tax Indemnified Party realizes as a result of
the payment thereof, is equal to the amount of such current tax benefit,
but only after the Lessee shall have made all payments then due and
owing to such Tax Indemnified Party pursuant to this Lease and the
Long-Term Agreements; PROVIDED that any subsequent loss of any tax
benefit paid to the Lessee hereunder shall be treated as a Tax subject
to indemnification in accordance with subsection 16(a) (without regard
to any exclusions set forth in subsection 16(b) or the provisions of
subsection 16(g); and PROVIDED FURTHER, that such Tax Indemnified Party
shall not be obligated to make any payment pursuant to this subsection
16(c) to the extent that the amount of such payment would exceed (x) the
amount of all prior payments by Lessee to such Tax Indemnified Party
pursuant to this subsection 16(c), less (y) the amount of all prior
payments by such Tax Indemnified Party to Lessee hereunder. Each such
Tax Indemnified Party shall in good faith use reasonable efforts in
filing its tax returns and in dealing with taxing authorities to seek
and claim any such tax benefit.
(d) PAYMENT OF GENERAL TAX INDEMNITY. Unless otherwise requested by a Tax
Indemnified Party, or unless the Tax is being contested in accordance with the
provisions of subsections 16(g) hereof, the Lessee shall pay when due any Tax
for which it is liable pursuant to this Section 16 directly to the appropriate
Taxing Authority, or, upon written demand, shall reimburse a Tax Indemnified
Party for the payment of any such Tax made by such Tax Indemnified Party.
Within 30 days after the date of each payment by the Lessee of any Tax referred
to in the preceding sentence, the Lessee shall upon request furnish such Tax
Indemnified Party the original or a copy of the receipt for the Lessee's payment
of such Tax or such other evidence of payment of such Tax as is reasonably
acceptable to such Tax Indemnified Party. The Lessee shall also cause to be
furnished, promptly upon request, such data as such Tax Indemnified Party
reasonably may require that are within the reasonable control or possession of
Lessee and are not otherwise reasonably obtainable by such Tax Indemnified Party
to enable such Tax Indemnified Party to comply with the requirements of any
Taxing Authority in respect of any Tax referred to in subsection 16(a) hereof.
(e) VERIFICATION OF CALCULATIONS. At the request of Lessee, the accuracy
of any calculation of the amount or amounts payable to a Taxing Authority or a
Tax Indemnified Party pursuant to this Section 16 shall be verified by
independent public accountants selected by such Tax Indemnified Party and
reasonably satisfactory to Lessee, and such verification shall be binding on
both the Tax Indemnified Party and Lessee. In order, and to the extent
necessary, to enable such independent accountants to verify such amounts, such
Tax Indemnified Party shall provide to such independent accountants (for their
confidential use and not to be disclosed to Lessee or any other person) all
information reasonably necessary for such verification. Such verification shall
be at the expense of Lessee.
(f) REPORTS. If any report, return or statement is required to be filed
with respect to any Tax which is subject to indemnification under this
Section 16, the Lessee shall timely file the same,
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except for any such report, return or statement which a Tax Indemnified Party
has notified the Lessee that it intends to file. The Lessee shall either
file such report, return or statement so as to show the ownership of the
Aircraft in the Lessor and send a copy of such report, return or statement to
such Tax Indemnified Party or, where the Lessee is not so permitted to file
in the name of such Tax Indemnified Party, shall notify such Tax Indemnified
Party of such requirements and cooperate reasonably with such Tax Indemnified
Party with respect thereto.
(g) GENERAL TAX INDEMNITY CONTEST PROVISIONS.
(i) NOTICE. If a Tax Indemnified Party receives a written notice
regarding the imposition of a Tax, or if at the conclusion of any audit by
any Taxing Authority there is a proposed adjustment regarding any Tax which
if agreed to by such Tax Indemnified Party would result in the imposition
of a Tax for which such Tax Indemnified Party would seek indemnification
from the Lessee in an amount equal to or in excess of $25,000 pursuant to
this Section 16, such Tax Indemnified Party shall within the lesser of:
(A) 30 days after receipt of such written notice by a responsible officer
of such Tax Indemnified Party or promptly after the conclusion of such
audit; or (B) not less than ten (10) days prior to the expiration of the
statutory period to respond, so notify the Lessee in writing; provided,
however, that the failure so to notify the Lessee shall not diminish the
Lessee's obligations hereunder, except in the event that Lessee's rights to
contest such tax shall have been precluded by such failure, and after such
contest, Lessor would not have been liable for such taxes and except for
any interest or penalties related to any late or missed payment dates.
(ii) CONTEST PROVISIONS. If requested by the Lessee in writing, a Tax
Indemnified Party shall in good faith contest in the name of such Tax
Indemnified Party or, if requested by the Lessee and if such contest does
not in such Tax Indemnified Party's reasonable discretion involve or
potentially involve taxes imposed on such Tax Indemnified Party that are
not indemnified against hereunder, to contest in the name of the Lessee (or
permit the Lessee, if requested by the Lessee, to contest in the name of
the Lessee or the Tax Indemnified Party) the validity, applicability and
amount of the imposition of any Tax or any proposed adjustment that would
give rise to the proposed imposition of any Tax by (a) resisting payment
thereof, if such Tax Indemnified Party in its sole and reasonable
discretion shall determine such course of action to be appropriate, (b) not
paying the same except under protest, if protest is necessary and proper,
or (c) if payment shall be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings;
provided, however, that (u) such Tax Indemnified Party shall not be
required to contest such imposition or proposed adjustment if the aggregate
amount of an indemnity on an after-tax basis, would be less than $25,000,
(v) no Lessee Event of Default has occurred and is continuing, (w) such Tax
Indemnified Party has been provided with an opinion of independent tax
counsel selected by such Tax Indemnified Party and reasonably acceptable to
the Lessee (the cost of which shall be borne by the Lessee) to the effect
that a reasonable basis in law or in fact exists that such Tax Indemnified
Party will prevail in such contest, (x) such Tax Indemnified Party, at its
sole option, may at any time forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority and, in
lieu thereof, continue to contest the claim in any permissible judicial
forum selected
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by such Tax Indemnified Party, (y) Lessee shall have agreed to pay such
Tax Indemnified Party (or, in the case of item (iii) below, lend to such
Tax Indemnified Party on an interest-free basis (and in such case pay
any additional amount as shall be required to hold such Tax Indemnified
Party harmless on a net after-tax basis from any adverse tax
consequences attributable to the loan), on demand, all reasonable
out-of-pocket costs and expenses which such Tax Indemnified Party incurs
in connection with and reasonably allocable to contesting such
imposition or adjustment, including, without limitation, (i) all legal,
accountants' and investigatory fees and disbursements, (ii) the amount
of any interest, penalties or additions to tax (to the date such payment
is made) payable as a result of contesting such adjustment, and (iii) if
such contest is to be initiated by the payment of, and the claiming of
a refund for, the amount of such imposition or adjustment, funds
sufficient to make such payment of, and the claiming of a refund for,
the amount of such imposition or adjustment, funds sufficient to make
such payment (and in the event such contest is finally determined
adversely, the amount of such loan shall be applied against the Lessee's
obligation to indemnify such Tax Indemnified Party for the Tax which was
the subject of such contest), and (z) such proceedings do not involve
any risk (other than a remote risk) of the sale, forfeiture or loss of
the Aircraft, the Airframe, any Serviced Engine or any Part or interest
therein or, if there is such a risk, Lessee has provided to such Tax
Indemnified Party a bond in form and substance reasonably satisfactory
to such Tax Indemnified Party in an amount sufficient to protect such
Tax Indemnified Party from any detriment that would be suffered by the
Lessor as a result of such sale, forfeiture, or loss or has otherwise
protected such Tax Indemnified Party in a manner acceptable to such Tax
Indemnified Party and there is no risk or the imposition of criminal
penalties. Such Tax Indemnified Party will consult with Lessee
regarding any contest and will consider in good faith any suggestions
made by Lessee with respect to the most favorable forum for, and the
conduct of, such contest; provided, however, that, unless such Tax
Indemnified Party elects to permit Lessee to conduct such contest, such
contest shall be controlled by such Tax Indemnified Party and conducted
by independent counse selected by such Tax Indemnified Party or by
"in-house" counsel of such Tax Indemnified Party and reasonably
acceptable to Lessee. In the event that such Tax Indemnified Party
elects to permit the Lessee to conduct such contest, the independent
counsel selected by the Lessee to conduct such contest shall be
reasonably satisfactory to such Tax Indemnified Party. If requested by
the Lessee in writing, such Tax Indemnified Party will appeal (or, if
desired by such Tax Indemnified Party, permit the Lessee to appeal) any
adverse judicial determination, provided that, as a condition to the
commencement of the appeal of such adverse judicial determination, (a)
such Tax Indemnified Party shall receive, at the Lessee's expense, an
opinion of independent counsel, selected by such Tax Indemnified Party
and reasonably satisfactory to Lessee, to the effect that a more likely
than not probability of success exists for such appeal and (b) Lessee
shall have acknowledged its liability to such Indemnified Party for an
indemnity payment as a result of such tax claim if such Tax Indemnified
Party shall not prevail in the contest; provided, however, that such Tax
Indemnified Party shall not be required to appeal any adverse judicial
determination to the United States Supreme Court.
Notwithstanding anything contained in this subsection 16(g) to the
contrary, no Tax Indemnified Party shall be required to contest any claim if the
subject matter thereof shall be of a
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continuing nature and shall have previously been decided pursuant to the
contest provisions of this subsection 16(g) (including a contest pursuant to
the contest provisions hereof in which the Tax Indemnified Party may be
required to contest such a claim if there shall have been a change in the law
(including, without limitation, amendments to statutes or regulations,
administrative ruling and court decisions)) or Lessee shall have provided new
facts after such claim shall have been so previously decided, and such Tax
Indemnified Party shall have received an opinion of independent tax counsel
selected by such Tax Indemnified Party and approved by the Lessee (the cost
of which shall be borne by the Lessee) to the effect that, as a result of
such change or new facts, it is more likely than not that the position which
such Tax Indemnified Party or the Lessee, as the case may be, had asserted in
such previous contest, would prevail; PROVIDED that the provisions of this
paragraph shall not require an Tax Indemnified Party to file an amended tax
return or refund claim for any prior taxable period.
(h) COMPROMISE OR SETTLEMENT. A Tax Indemnified Party shall have the
right to settle or compromise a contest if such Tax Indemnified Party has
provided Lessee a reasonable opportunity to review a copy of that portion of
the settlement or compromise proposal which relates to the Tax for which such
Tax Indemnified Party is seeking indemnification hereunder, PROVIDED that, if
(i) such Tax Indemnified Party fails to provide the Lessee such a reasonable
opportunity to review such portion of such proposal or (ii) after such
reasonable opportunity to review such proposal the Lessee in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
the Lessee shall not be obligated to indemnify such Tax Indemnified Party
hereunder to the extent of the amount attributable to the Tax to which such
settlement or compromise relates as to which the Lessee has reasonably withheld
its consent. If such Tax Indemnified Party effects a settlement or compromise
of such contest without giving notice to the Lessee or, notwithstanding that the
Lessee has reasonably withheld its consent thereto, such Tax Indemnified Party
shall repay to the Lessee such amounts theretofore advanced by the Lessee
pursuant to clause (y)(iii) of subsection 16(g)(i) hereof as relate to such
claim, to the extent the Lessee has reasonably withheld its consent to the
settlement or compromise thereof.
(i) REFUNDS. If any Tax Indemnified Party shall obtain a refund of all or
any part of any Taxes that the Lessee shall have paid for such Tax Indemnified
Party or for which the Lessee shall have reimbursed such Tax Indemnified Party,
such Tax Indemnified Party shall, so long as no Default or Lessee Event of
Default shall have occurred and be continuing and no payment is due and owing by
the Lessee under this Agreement or any Long-Term Agreement, pay to the Lessee an
amount which is equal to the sum of the amount of such refund, plus any interest
received attributable thereto net of any net taxes payable by such Tax
Indemnified Party with respect to the receipt or accrual of such interest and
the payment thereof to the Lessee, but only after the Lessee shall have made all
payments then due and owing to such Tax Indemnified Party pursuant to this
Section 16; PROVIDED, HOWEVER, that any subsequent loss of any refund paid to
the Lessee hereunder shall be treated as a Tax subject to indemnification in
accordance with this Section 16 (without regard to any exclusions set forth in
subsection 16(b) or the provisions of subsection 16(g).
(j) FAILURE TO CONTEST. Notwithstanding anything to the contrary
contained in this subsection 16(g), a Tax Indemnified Party may at any time
decline to take any further action with respect to a proposed adjustment or the
imposition of a Tax; PROVIDED that if the Lessee has properly
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requested such action pursuant to, and is otherwise entitled to require any
action to be taken by a Tax Indemnified Party pursuant to the provisions of
subsection 16(g), and such Tax Indemnified Party has failed to contest, or
permit the Lessee to contest, such proposed adjustment or the imposition of
such Tax, such Tax Indemnified Party shall be deemed to have waived its right
to any Indemnity payment that would otherwise be payable by the Lessee
pursuant to this Section 16 in respect of such adjustment or the imposition
of such Tax. In such event, such Tax Indemnified Party shall reimburse the
Lessee for all amounts previously advanced by the Lessee to such Tax
Indemnified Party with respect to such proposed adjustment pursuant to clause
(y)(iii) of subsection 16(g) hereof. If an Tax Indemnified Party fails to
contest or to permit a contest hereunder, such Tax Indemnified Party will not
be required to pay over the Lessee any amount representing tax benefits
described in subsection 16(c)(B) hereof which result from the payment of
Taxes as to which such Tax Indemnified Party has been deemed to have waived
its right to any indemnity payment hereunder.
(k) INTEREST. To the extent permitted by applicable law, interest at the
Stipulated Interest Rate shall be paid, on demand, on any amount not paid when
due, pursuant to Section 16 until the same shall be paid. Such interest shall
be paid in the same manner as the unpaid amount in respect of which such
interest is due.
(l) EFFECT OF OTHER INDEMNITIES. The Lessee's obligations under the
indemnities provided for in this Agreement and the Long-Term Agreements shall be
those of a primary obligor whether or not the Person indemnified shall also be
indemnified with respect to the same matter under the terms of this Agreement,
any Lease or any Long-Term Agreement or any other document or instrument, and
the Person seeking indemnification from the Lessee pursuant to any provisions of
this Agreement may proceed directly against the Lessee without first seeking to
enforce any other right of indemnification.
Section 17. MISCELLANEOUS
(a) CONSTRUCTION; GOVERNING LAW. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by Applicable Law, the parties hereby waive any provision of law which renders
any provisions hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by written instrument signed by the party against which the enforcement
of the change, waiver, discharge or termination is sought; and, in compliance
with Section 2A-208(b) of the Texas Business and Commerce Code requiring a
separate signature of this provision, Lessee has signed in the space provided
below. Any consent or approval specified herein of a party hereto may be
withheld entirely in such party's discretion unless it is herein expressly
provided that such consent may not be unreasonably withheld.
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No waiver of a breach of any provision of this Lease Agreement by either
party shall constitute a waiver of any subsequent breach of the same or any
other provision hereof, and no waiver shall be effective unless in writing.
HAWAIIAN AIRLINES, INC.
By: _______________________________
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By: _______________________________
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
The captions in this Lease are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. THIS LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF TEXAS (EXCLUDING THE CONFLICT OF LAW PROVISIONS THERETO), INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
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(b) NOTICES. All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder or under any instrument,
certificate or other instrument delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (a) if delivered in person, (b) if sent by
overnight delivery service (including, without limitation, Federal Express, UPS,
Emery, Purolator, DHL, Air Borne, and other similar overnight delivery
services), (c) if sent by telecopier (upon receipt by the sender thereof of
evidence that a clean transmission of such telecopy was made to the recipient
thereof) and, in such case, dispatching a copy of such notice by the methods
described in clause (a) or (b) above. All notices shall be effective upon
delivery; PROVIDED that if any notice is tendered to an addressee, such notice
shall be effective upon tender. For the purposes of notice the addresses of the
parties shall be as set forth below; PROVIDED that any party shall have the
right to change its address for notice hereunder to any other location by giving
thirty (30) days' notice to the other parties in the manner set forth
hereinabove. The initial addresses of the parties hereto are as follows:
IF TO LESSOR: American Airlines, Inc.
4333 Amon Carter Boulevard
MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate Development and
Treasurer
Telecopier: (817) 967-2199
Telephone: (817) 967-1227; and
American Airlines, Inc.
Maintenance & Engineering Center
3900 N. Mingo Road
Tulsa, Oklahoma 74115
Attention: Senior Vice President,
Maintenance and Engineering
Telecopier: (918) 292-2203
Telephone: (918) 292-2612
WITH COPIES TO: American Airlines, Inc.
4333 Amon Carter Boulevard
MD 5675
Ft. Worth, Texas 76155
Attention: Corporate Secretary
Telecopier: (817) 967-4313
Telephone: (817) 967-1254; and
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Haynes and Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202-3789
Attention: Janice V. Sharry
Telecopier: (214 651-5940
Telephone: (214) 651-5000
IF TO LESSEE: Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-Finance
Telecopier: (808) 836-4795
Telephone: (808) 835-3075
WITH COPIES TO: Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-General Counsel
Telecopier: (808) 835-3690
Telephone: (808) 835-3610
(c) LESSOR'S RIGHT TO PERFORM. If Lessee fails to perform any of its
obligations hereunder, Lessor may (but shall not be obligated to) discharge such
obligation, and the amount of the expenses of Lessor incurred in connection with
such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand
together with interest thereon at the Stipulated Interest Rate to but excluding
the date of payment. Lessor shall use its best efforts to give Lessee prior
notice of Lessor's intention to discharge any such obligation.
(d) CONFIDENTIALITY.
(i) CONFIDENTIAL INFORMATION. For purposes of this Agreement,
confidential information shall mean any and all (i) trade secrets,
(ii) confidential or other proprietary information of a party or its
Affiliates concerning past, present or future research, development,
business activities or affairs, finances, properties, methods of operation,
processes and systems, (iii) customer lists, and (iv) other customer
information, whether oral, written or contained in any magnetic, electronic
or other media; PROVIDED that in order for a party's information to be
considered confidential hereunder such information, if non-oral, must be
marked by such party as confidential; and PROVIDED FURTHER that oral
information must be specified as confidential at the time of disclosure
(collectively, "Confidential Information"). Notwithstanding the foregoing,
the parties expressly acknowledge and agree that the terms and conditions
of this Agreement set forth in Exhibit E of this Agreement constitute
Confidential Information. The party which receives
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Confidential Information from the other party agrees to maintain such
information in secrecy at all times, using the same degree of care with
respect to such Confidential Information as it uses in protecting its
own proprietary information, trade secrets and similar items; PROVIDED
that Confidential Information may be used in an action by one party to
this Agreement against the other if subject to the conditions set forth
in (ii) below. Information of either party which would otherwise be
considered Confidential Information shall not be considered Confidential
Information if such information is in the public domain, or is placed
in the public domain through no violation of this Agreement, or is
lawfully obtained from another source free of restriction.
(ii) USE OF CONFIDENTIAL INFORMATION. Except to the extent expressly
permitted in Section 4(l) of Exhibit E, neither party shall sell, transfer,
publish, disclose, display or otherwise make available the Confidential
Information of the other party to any third party (and third parties shall
be deemed also to include Affiliates of the party so restricted which are
not parents or subsidiaries), except as may be required by Applicable Law
in which case the party from whom disclosure is sought shall promptly
notify the other party. To the extent that the other party objects to
disclosure of such Confidential Information, the party from which
disclosure is sought shall (i) use reasonable and lawful efforts to resist
making any disclosure of such Confidential Information, (ii) use reasonable
and lawful efforts to limit the amount of such Confidential Information to
be disclosed, and (iii) use all reasonable efforts to obtain a protective
order or other appropriate relief to minimize the further dissemination of
any Confidential Information to be disclosed. In addition, neither party
shall disclose the Confidential Information of the other party to any
employee or agent except on a need-to-know basis. Each party shall use
reasonable efforts to inform all such employees and agents that the
Confidential Information of the other party is subject to this
non-disclosure obligation. Furthermore, neither party shall use the
Confidential Information of the other party for any purpose other than as
expressly provided in this Agreement.
(iii) TERMINATION. Upon termination of this Agreement for any
cause or reason, each party shall, within ninety (90) days of such
termination, either deliver to the other party or destroy all of such other
party's Confidential Information (including all copies thereof, other than
copies of this Agreement) at the option of the other party then in its
possession and shall purge any copies thereof encoded or stored on magnetic
or other electronic media or processors; PROVIDED that neither Lessee nor
Lessor shall be required to purge or destroy any Confidential Information
that is reasonably necessary in connection with the resolution of any
disputes which may have arisen pursuant to the terms of this Agreement.
(iv) NO ADEQUATE REMEDY. Each party acknowledges and agrees that the
other party will have no adequate remedy at law if there is a breach or
threatened breach of this Section 17(d) and, accordingly, that the other
party shall be entitled to an injunction against such breach. Nothing
herein shall be construed as a waiver of any other legal or equitable
remedies that may be available to either party if the other party breaches
this Section 17(d).
(v) SURVIVAL. The restrictions of this Section 17(d) shall survive
for a period of eight (8) years after the termination or expiration of this
Agreement.
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(vi) AFFILIATES. The Affiliates of Lessor and Lessee shall comply in
all respects with the restrictions of this Section 17(d) and Lessor and
Lessee, respectively, shall in all respects be responsible for their
compliance.
(vii) OTHER CONFIDENTIALITY AGREEMENTS. The provisions of this
Section 17(d) are in addition to, and shall not be deemed to affect the
terms and provisions of, the Confidentiality Agreement. To the extent the
terms hereof may be deemed to be inconsistent with the terms of the
Confidentiality Agreement or such Confidentiality Agreement shall be
silent, this Agreement shall control with respect to this Agreement and any
Confidential Information relating hereto. Upon the written consent of
Lessor, which consent shall not be unreasonably withheld, Lessee may
provide this Agreement to third party lenders or investors of Lessee;
PROVIDED that the party receiving this Agreement shall, prior to obtaining
it, enter into a confidentiality agreement with Lessee for the benefit of
Lessor in substantially the form of this Section 17(d).
(e) COUNTERPARTS. This Lease and the Lease Supplement No. 1 may be
executed in several counterparts, each of which shall be deemed an original, and
all such counterparts shall constitute one and the same instrument. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked as the "Original" and containing
the receipt therefor executed by the applicable secured party on the signature
page thereof.
(f) GRANT OF SECURITY INTEREST BY LESSOR. In compliance with the terms of
this Section, Lessor may grant a security interest in this Lease as collateral
for a loan provided Lessor notifies Lessee at least ten (10) Business Days
before granting such security interest. The rights of Lessee under this Lease
shall be superior in all respects to the rights of any such lender and Lessor
shall require any such lender to agree in writing in form and substance
reasonably satisfactory to Lessee that such lender's rights in and to the
Aircraft and under the Lease shall be subject and subordinate to the terms of
this Lease to receive all such performance from Lessor as may from time to time
be required by the terms hereof. Lessee agrees to reasonably cooperate with
Lessor in connection with Lessor's efforts to grant such security interest and
to provide, at Lessor's cost and expense, such documents and certificates in
connection therewith as Lessor may reasonably request, PROVIDED, that anything
in this Section 17(f) to the contrary notwithstanding, the consummation of any
such loan shall not increase the actual or potential responsibilities or
liabilities of the Lessee or deprive Lessee of any of its rights or privileges
under the Long-Term Agreements.
(g) SURVIVAL. Except as otherwise expressly set forth herein or in the
Long-Term Agreements, the representations, warranties and covenants set forth in
this Agreement, and the obligations hereunder, shall survive any transfer of
title or possession of the Serviced Aircraft, any Serviced Engines or any
Serviced Part, any termination or expiration of this Agreement or any
impossibility of performance of this Agreement or frustration of purpose of this
Agreement.
(h) ASSIGNMENT. SUBJECT TO THE TERMS HEREOF, THIS AGREEMENT SHALL BIND
AND BENEFIT LESSOR, LESSEE, AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED
ASSIGNS. LESSOR MAY ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR
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DELEGATE ANY OR ALL OF ITS OBLIGATIONS HEREUNDER TO ANY AFFILIATE OF LESSOR;
PROVIDED THAT LESSOR SHALL NOT ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR
DELEGATE ANY OR ALL OF ITS OBLIGATIONS UNDER EXHIBIT E OR ANY RELATED
PROVISIONS OF THIS AGREEMENT TO ANY AFFILIATE THAT IS NOT CERTIFICATED BY THE
FAA TO PERFORM MAINTENANCE SERVICES. SUBJECT TO THE PROVISIONS OF SECTION
4(f) OF EXHIBIT E, LESSOR MAY SUBCONTRACT CERTAIN SPECIFIC TYPES OF
MAINTENANCE SERVICES CONSTITUTING LESS THAN ALL OR SUBSTANTIALLY ALL OF THE
MAINTENANCE SERVICES TO BE PERFORMED HEREUNDER, AND, IN CONNECTION THEREWITH,
ASSIGN CERTAIN OF ITS RIGHTS AND DELEGATE CERTAIN OF ITS OBLIGATIONS UNDER
EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, LESSOR MAY ASSIGN ALL OR
SUBSTANTIALLY ALL OF ITS RIGHTS AND/OR DELEGATE ALL OR SUBSTANTIALLY ALL OF
ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT
TO ANY PERSON CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES SUBJECT
ONLY TO SECTION 3(f)(ii)(C) OF EXHIBIT E. LESSEE MAY NOT (EITHER VOLUNTARILY
OR INVOLUNTARILY) ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS
HEREUNDER.
(i) TRANSACTION EXPENSES. Lessee agrees to pay the reasonable
out-of-pocket costs and expenses incurred by Lessor in connection with the
preparation, execution and delivery of any amendments, modifications or
waivers requested by Lessee or resulting from any requests of Lessee under
this Agreement. Except as specifically set forth herein, each of Lessor and
Lessee shall be responsible for their own legal and out-of-pocket expenses
arising from the transactions contemplated herein.
(j) ENTIRETY. This Lease Agreement, the Lease Supplements, the
Confidentiality Agreement and the Letter of Credit embody the entire agreement
between the parties hereto and thereto concerning the subject hereof and thereof
and such agreements terminate and supersede all prior or contemporaneous
agreements, discussions, undertakings, and understandings, whether written or
oral, express or implied, between the parties hereto and thereto concerning the
subject hereof and thereof.
(k) FORCE MAJEURE. Lessor shall not be liable to Lessee for a failure or
delay in the performance of any obligation or agreement contained herein, if
such failure or delay arises from any cause beyond Lessor's reasonable control,
including any act, omission, or breach of this Lease Agreement by Lessee, acts
of God, action or regulation of any Governmental Authority, fire, the elements,
flood, earthquakes, explosions, accidents, mechanical or electrical failures,
acts of the public enemy, war, civil disturbance, rebellion, insurrection, work
stoppage, strikes (including any mechanic, flight attendant or pilot strike),
labor dispute or difference with workers, regardless of whether or not Lessor
(or its Affiliate) is capable of settling such labor problem, or any other
cause, whether similar or dissimilar, beyond Lessor's reasonable control;
PROVIDED, HOWEVER, that, notwithstanding the foregoing, with respect to
Maintenance Services and related obligations as provided in Exhibit E hereto,
the provisions of Section 4(c)(i) of Exhibit E shall apply.
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(l) INDEPENDENT CONTRACTOR; NO AGENCY.
Nothing in this Agreement is intended or shall be construed to create or
establish any agency, partnership, or joint venture or fiduciary relationship
between the parties and neither Lessee nor any of its Affiliates has any
authority to act for or to incur any obligations on behalf of or in the name of
Lessor or any of its Affiliates and neither Lessor nor any of its Affiliates has
any authority to act for or to incur any obligations on behalf of or in the name
of Lessee or any of its Affiliates by virtue of this Agreement. The parties
hereto acknowledge and agree that nothing contained herein creates any fiduciary
duties between the parties or their respective Affiliates.
(m) CERTAIN CONSENTS AND WAIVERS OF LESSEE.
(i) JURISDICTION. Except as set forth in Section 6 of Exhibit E
hereto,
(a) Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of: (i) the United States District Court for the
Northern District of Texas, and of the courts of the State of Texas in
Tarrant County, and (ii) to the United States District Court for the
District of Hawaii (other than the Court), and of the courts of the State
of Hawaii in Honolulu County, for the purposes of any suit, action or other
proceeding arising out of this Lease Agreement or the subject matter hereof
brought by any other party, and (iii) any federal, state or foreign court
of competent jurisdiction where the In-Use Aircraft may be located from
time to time for the purpose of Lessor exercising any rights and remedies
under this Lease Agreement, including, without limitation, repossession of
the In-Use Aircraft. Lessor and Lessee each agrees that neither of them
will bring any suit, action or other proceeding arising out of this Lease
Agreement, the subject matter herein, or any of the transactions described
herein, in any jurisdiction other than the jurisdictions described above.
(b) To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim (i) that it is
not personally subject to the jurisdiction of the above-named courts, (ii)
that the suit, action or proceeding is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or
its property, (iv) that the venue of the suit, action or proceeding is
improper, or (v) that this Lease Agreement or the subject matter hereof may
not be enforced in or by such courts;
(c) Lessee agrees to designate CT Corporation in Texas as its
agent for service of process in Texas, and Lessor agrees to designate CT
Corporation in Hawaii as its agent for service of process in Hawaii.
Lessor and Lessee each agrees that submission to jurisdiction and
designation of an agent for service of process set forth above is made
solely for the express benefit of the other party and is effective solely
for purposes of this Lease Agreement;
(d) Final judgment against a party in any suit in any court of
competent jurisdiction shall be conclusive, and may be enforced in other
jurisdictions, to the extent permitted by Applicable Law, by suit on the
judgment, a certified and true copy of which, to
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the extent permitted by Applicable Law, shall be conclusive evidence
of the fact and the amount of any indebtedness or liability of the party
therein described; and
(e) To the extent that any party or any of its property is or
becomes entitled at any time to any immunity on the grounds of sovereignty
or otherwise, from any legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of
execution, or from jurisdiction, that party for itself and its property
does hereby irrevocably and unconditionally waive, and agrees not to plead
or claim any such immunity with respect to its obligations, liabilities or
any other matter arising hereof. Such agreement shall be irrevocable and
not subject to withdrawal in any and all jurisdictions including under the
Foreign Sovereign Immunities Act of 1976 of the United States of America.
(ii) WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE TRIAL
BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT OR ANY
MATTER RELATED HERETO.
(iii) OTHER WAIVERS. LESSEE AGREES AND ACKNOWLEDGES THAT UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS LEASE AGREEMENT, LESSOR SHALL
SUFFER IRREPARABLE HARM FOR WHICH MONEY DAMAGES WILL NOT BE ADEQUATE OR CANNOT
BE READILY ASCERTAINED. IN FURTHERANCE THEREOF, LESSEE AGREES THAT IT WILL TAKE
NO ACTION TO HINDER, DELAY OR INTERFERE WITH ANY ACTIONS TAKEN BY LESSOR IN
CONNECTION WITH THE REPOSSESSION OF THE IN-USE AIRCRAFT. SPECIFICALLY, LESSEE
WILL NOT TAKE ANY ACTION WHICH WOULD REQUIRE THE LESSOR TO BREACH THE PEACE IN
CONNECTION WITH REPOSSESSION OF THE IN-USE AIRCRAFT. LESSEE CONSENTS TO THE
ISSUANCE OF ANY ORDER OF ANY COURT OF COMPETENT JURISDICTION ENABLING LESSOR TO
REPOSSESS THE IN-USE AIRCRAFT, FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT,
WITHOUT THE NECESSITY OF LESSOR POSTING OR ISSUING ANY BOND. IN ADDITION,
LESSEE AGREES THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN
SECTIONS 13A(I) OR (J) OF THE LEASE AGREEMENT, LESSEE SHALL NOT TAKE ADVANTAGE
OF ANY PERIODS SPECIFIED IN SECTIONS 365 OR 1110 OF THE BANKRUPTCY CODE DURING
WHICH IT MIGHT RETAIN POSSESSION OF THE IN-USE AIRCRAFT OR THE PROVISIONS OF THE
AUTOMATIC STAY SET FORTH IN SECTION 362 OF THE BANKRUPTCY CODE, AND, WITHOUT
LIMITING OTHER REMEDIES AVAILABLE TO LESSOR, SHALL EITHER IMMEDIATELY UPON THE
FILING OF ANY BANKRUPTCY PETITION TURN OVER THE IN-SERVICE AIRCRAFT TO LESSOR OR
PAY ALL AMOUNTS THEN DUE AND OWING HEREUNDER AND THEREAFTER ACCRUING UNDER THIS
LEASE AGREEMENT. IN THE EVENT THAT AN ORDER IS ISSUED GIVING LESSOR POSSESSION
OF ANY IN-USE AIRCRAFT, LESSEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO RETURN OF
POSSESSION OF SUCH AIRCRAFT, AND COVENANTS THAT IT WILL NOT SEEK ANY ORDER
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PERMITTING IT TO RETAIN OR REPOSSESS SUCH AIRCRAFT, BY POSTING A BOND OR
OTHERWISE. IN THE EVENT THAT ANY COURT DECLINES TO ISSUE AN ORDER PERMITTING
LESSOR TO REPOSSESS ANY IN-USE AIRCRAFT UNLESS LESSOR POSTS OR ISSUES A BOND, OR
LESSOR ELECTS NOT TO REQUEST THAT THE REQUIREMENT FOR SUCH A BOND BE WAIVED,
LESSEE HEREBY AGREES THAT (IF LESSOR SO ELECTS) THE AMOUNT OF SUCH BOND SHALL
NOT BE REQUIRED TO EXCEED ONE YEAR'S BASIC RENT FOR SUCH AIRCRAFT.
(n) OFFSET. Until all Deferred Basic Rent is paid under the Long-Term
Lease Agreement (provided that on the date all Deferred Basic Rent is paid
thereunder, all other Rent then due and payable thereunder and hereunder has
also been paid; such date being the "Setoff Release Date") Lessor, AMRCG, SABRE
and AMS shall each have the right to setoff and recoup any sums payable to
Lessee against any sums payable by Lessee to Lessor, AMRCG, SABRE or AMS
pursuant to this Lease Agreement, the other Long-Term Agreements or otherwise.
Until the Setoff Release Date Lessor shall also have the right to setoff and
recoup any amounts payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to
this Lease Agreement, or the other Long-Term Agreements by drawing upon any
letter of credit or withdrawing any portion or all of the Deposit (which may
constitute all or a portion of the Letter of Credit). Nothing set forth in this
Subsection 17(n) or Subsection 17(n) of the Long-Term Lease Agreement, the July
Lease Agreement or the November Lease Agreement shall otherwise limit Lessor's
right to draw upon or withdraw from the Letter of Credit to the extent otherwise
set forth herein or in any Long-Term Agreement.
Section 18. TRUE LEASE
(a) INTENT OF THE PARTIES. It is the intent of the parties to this lease
that it will be a true lease and not a "finance lease" as defined in Section
168(f) of the Internal Revenue Code of 1954, as amended and in effect prior to
the Tax Reform Act of 1986 (P.L. 99-154) or a "conditional sale" as defined in
49 U.S.C. Section 40102(a)(18) (former 1301) and that the Lessor shall at all
times be considered to be the owner of the Aircraft which is the subject of this
Lease for the purposes of 49 U.S.C. Section 44103 (former 1401) and for all
Federal, state, city and local income taxes or for franchise taxes measured by
net income and that this Lease conveys to the Lessee no right, title or interest
in the Aircraft except as a lessee.
Section 19. ENFORCEABILITY IN JURISDICTIONS. Any provision of this
Lease which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 20. NO THIRD-PARTY BENEFICIARIES. Except for rights and
benefits conferred on certain of Lessor's Affiliates as set forth in this Lease
Agreement, all rights, remedies, and obligations of the parties hereunder shall
accrue or apply solely to the parties hereto or their permitted successors or
assigns and there is no intent to benefit any third parties.
Section 21. MAINTENANCE OBLIGATIONS. Lessee and Lessor agree that
notwithstanding the provisions of the Long-Term Lease Agreement, including
Exhibit F thereto, which by its terms
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relates to the provision of maintenance services by Lessor of all DC10-10
aircraft leased by Lessor to Lessee, that the terms of this Lease Agreement
shall govern the maintenance of the Aircraft. The Long-Term Lease Agreement,
including Exhibit F thereto shall continue in full force and effect as to all
other Serviced Aircraft (as defined in the Long-Term Lease Agreement) other
than the aircraft which is subject to the November Lease Agreement, which
shall remain subject to the maintenance provisions set forth in Exhibit E to
the November Lease Agreement, the aircraft which is subject to the July Lease
Agreement, which shall remain subject to the maintenance provisions set forth
in Exhibit E to the July Lease Agreement and the aircraft which is subject to
the December Lease Agreement, which shall remain subject to the maintenance
provisions set forth in Exhibit E of the December Lease Agreement.
Section 22. AMENDMENT OF LONG-TERM LEASE AGREEMENT. Lessor and Lessee
agree that the occurrence of any Lessee Event of Default hereunder shall
constitute a "Lessee Event of Default" under the Long-Term Lease Agreement, the
160 Lease Agreement, the 161 Lease Agreement, the 162 Lease Agreement and the
171 Lease Agreement.
Section 23. SUBSTITUTION. During the Term, Lessor shall have the right
to substitute from time to time, on 90 days prior written notice to Lessee, a
comparable McDonnell Douglas DC10-10 aircraft (the "SUBSTITUTE AIRCRAFT") for
the Aircraft (the "REPLACED AIRCRAFT") then subject to this Lease. The
Substitute Aircraft shall be delivered to Lessee, at Lessor's expense, at LAX,
or such other location agreed on by Lessor and Lessee, on the date specified in
Lessor's notice to Lessee. Lessor agrees that any Substitute Aircraft shall be
in the same seat configuration and in the same or better interior condition as
the Replaced Aircraft, and in the event that Lessee is not required to purchase
Maintenance Services from Lessor pursuant to the terms of Exhibit E hereto, any
Substitute Aircraft shall be in at least substantially the same condition, and
with at least the same number of Flight Hours remaning to the next scheduled "C
Check", as the Replaced Aircraft. Lessee agrees, at Lessor's expense, to
execute and deliver all documents (including Lease Supplements hereto, or at
Lessor's request, a replasement Lease Agreement in the form hereof) and take
such other measures requested by Lessor and necessary to accomplish such
substitution.
[Next following page is the signature page.]
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IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Agreement
to be duly executed as of the day and year first above written.
Lessor:
AMERICAN AIRLINES, INC.
By:___________________________________
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
Lessee:
HAWAIIAN AIRLINES, INC.
By:___________________________________
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By:___________________________________
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
NA971200.061
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SCHEDULE I
This Schedule I has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT A TO LEASE AGREEMENT
LEASE SUPPLEMENT NO. 1
THIS LEASE SUPPLEMENT NO. 1, dated , 1997, between AMERICAN
AIRLINES, INC., a Delaware corporation ("Lessor"), and HAWAIIAN AIRLINES, INC.,
a Hawaii corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have heretofore entered into the Aircraft Lease
Agreement dated as of May 9, 1997 (the "Lease Agreement", defined terms used
herein are as therein defined), which provides in Section 2 for the execution of
a Lease Supplement substantially in the form hereof for the purpose of leasing
the Aircraft under the Lease Agreement on its Delivery Date in accordance with
the terms hereof; and
WHEREAS, the Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached to and made a part
of this Lease Supplement, and this Lease Supplement, together with such
attachment, is being filed for recordation on the date hereof with the FAA as
one document;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to Section 2 of the Lease Agreement, the Lessor and
Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts
and leases from Lessor, under the Lease Agreement as hereby supplemented, the
McDonnell Douglas DC10-10 aircraft (the "Aircraft") which consists of the
following components (which may or may not be attached to each other at the
moment of acceptance hereunder):
(i) airframe: U.S. registration number N125AA; manufacturer's serial no.
46525; and
(ii) three General Electric CF6-6K engines bearing manufacturer's
serial nos. 451201, 451143 and 451197 (each of which engines has 750 or
more rated takeoff horsepower or the equivalent of such horsepower).
2. The Term for the Aircraft commences on the date of this Lease
Supplement.
3. The Term shall commence on the date hereof and shall end on
September 11, 2001, unless earlier terminated in accordance with the provisions
of the Lease Agreement.
4. Lessee hereby confirms its agreement to pay to Lessor Basic Rent for
the Aircraft throughout the Term in accordance with Section 3 of the Lease
Agreement and to pay Supplemental Rent pursuant to Exhibit E attached to the
Lease.
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5. All of the provisions of the Lease Agreement are hereby incorporated
by reference in this Lease Supplement on and as of the date of this Lease
Supplement to the same extent as if fully set forth herein.
6. This Lease Supplement is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
7. This Lease Supplement may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Lease Supplement constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Lease Supplement may be created through the transfer
or possession of any counterpart other than the counterpart marked as the
"Original".
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed and delivered as of the date and year first above
written.
AMERICAN AIRLINES, INC.
By:
-----------------------------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By:
-----------------------------------------------
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By:
-----------------------------------------------
Rae A. Capps
Vice President, General Counsel
and Corporate Secretary
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EXHIBIT B
This Exhibit B has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
B-1
<PAGE>
B-2
<PAGE>
EXHIBIT C
CONDITIONS PRECEDENT TO DELIVERY
1. The Aircraft shall have been tendered for delivery to Lessee in the
condition required by the Lease at LAX or such other location as Lessor and
Lessee may have agreed to in writing.
2. On the Delivery Date, the representations and warranties of Lessor set
forth in the Lease Agreement shall be true and accurate as if made on such
date.
3. This Lease and Lease Supplement No. 1 shall have been executed and
delivered to Lessor for filing for information with the FAA in Oklahoma
City, Oklahoma.
4. The receipt by Lessor from Lessee not later than two (2) days prior to the
Delivery Date of the following, dated as of such Delivery Date, all of
which shall be satisfactory in form and substance to Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized
officer thereof;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform the Lease Agreement and the
transactions contemplated hereby, certified to be true and up to date
copies by a duly authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officers of Lessee setting out the names and signatures of
the person or persons authorized to sign the Lease Agreement;
(d) Opinion of in-house counsel to Lessee in form and substance reasonably
satisfactory to Lessor, and the opinion of independent counsel
confirming the applicability of the protections of Section 1110 of the
Bankruptcy Code to the Lease Agreement;
(e) certificate acceptable in form and substance to Lessor evidencing the
insurance required by Section 9 of the Lease Agreement;
(f) receipt by Lessor of the first installment of Basic Rent pursuant to
Section 3 of the Lease Agreement and Supplemental Rent pursuant to
Exhibit E to the Lease Agreement and payment of all amounts then due
under any Long-Term Agreement; and
(g) Execution and delivery by Lessee of any financing statements required
by Lessor.
5. Execution by Lessee of the Lease Termination relating to this Lease
Agreement.
6. The Final Order (as defined in the Long-Term Lease Agreement) confirming
the Plan shall be and remain in full force and effect.
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<PAGE>
7. The Long-Term Agreements are in full force and effect.
8. No Default or Lessee Event of Default shall have occurred and be continuing
and no "Event of Default" or "Termination Event" shall have occurred and be
continuing under the Interim Definitive Agreements or Long-Term Agreements;
PROVIDED HOWEVER, that the effectiveness of this Lease Agreement shall not
be deemed to be a waiver by either party to this Lease Agreement or any of
the Interim Definitive Agreements of any claims (whether or not disclosed)
such party may have against the other party under the Interim Definitive
Agreements or the Long Term Agreements.
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<PAGE>
EXHIBIT D
TO LEASE AGREEMENT
DELIVERY AND RETURN CONDITIONS
The following conditions shall apply to the In-Use Aircraft upon delivery of the
In-Use Aircraft by Lessor to Lessee and upon return of Return Aircraft to the
Lessor by the Lessee pursuant to this Agreement.
CONDITION OF IN-USE AIRCRAFT UPON DELIVERY AND
RETURN AIRCRAFT UPON RETURN
Lessor and Lessee agree that Lessor shall deliver the In-Use Aircraft to Lessee
AS-IS, WHERE-IS; and Lessee shall return the Return Aircraft to the Lessor in
compliance with all of the following provisions:
1. Inspection of "on-condition" and "condition monitored" components will have
been accomplished when due and all such items shall be serviceable.
2. It is the intent of the parties that the condition of the In-Use Aircraft
at the time of delivery of the Return Aircraft at the termination of the Lease
shall be to conform to that of the standards of international air
transportation, with the interior and exterior in good repair and appearance,
without significant corrosion, or structural maintenance work deferred, and with
all Airworthiness Directives in full compliance. It is further the intent of
the Lease that the Return Aircraft and its Serviced Engines will be readily
transferable to the registration of another carrier without having to undergo
significant repairs, refurbishment or modification being required on the Return
Aircraft. At the time of such return, the Return Aircraft shall comply with the
following conditions:
A. Upon return to Lessor, the Return Aircraft shall comply with
Lessee's FAA-approved maintenance program.
B. All deferred maintenance items and all deficiencies or
discrepancies which by their nature are outside Lessee's
maintenance manual limits for unrestricted operation found prior
to or during the return inspection or final inspection or
demonstration delivery flight(s) shall be corrected by repair in
accordance with the approved Lessee's maintenance manual.
C. The fuel, hydraulic, pneumatic, water and waste system leaks on
the Return Aircraft shall be within the limits allowable pursuant
to Lessee's maintenance manual. This is to be demonstrated by
filling all tanks and reservoirs to capacity and performance of a
functional and leak check of all related systems. The cost of
such checks shall be borne by the Lessee.
B-1
<PAGE>
D. The Return Aircraft on return by Lessee and all parts installed
shall have all necessary FAA approved service tags or equivalent
Lessee documents approved by the Lessee's maintenance program.
E. Engines
a. Engine borescope inspections of compressor, burner and
turbine sections of each installed engine shall be conducted
in accordance with Lessor's engine borescope inspection
cards #4930-1, 4930-2 and 4930-3 [for inspections] (or any
such replacement card therefor). Each card shall have
attached thereto findings and comments along with visual
records (photographic or video data). Inspected engines
shall meet the requirements of manufacturer's maintenance
manual. Borescope inspection findings that result in
inspection intervals being reduced to less than 400 hours
will be corrected by engine replacement and/or repair prior
to the return of the Return Aircraft by Lessee.
Borescope inspections shall have been completed by
Lessor/Lessee or its authorized representative, at Lessee's
expense. In the event the APU fails to meet the pneumatic
or electrical load requirements, the APU shall be changed.
b. Each installed engine will be subject to completion of a
power assurance run and review of engine trend analysis with
all engine parameters being within limits in accordance with
the appropriate manufacturer's engine manual. Engine ground
runs for the Return Aircraft shall be conducted in
accordance with Lessor's engine ground run-up card number
DR71-95-18 (or any such replacement card therefor). Engine
Exhaust Gas Temperature ("EGT") shall not exceed a maximum
of 925 DEG. C during ground runs to max power. In the event
EGT exceeds 925 DEG. C and adjustments cannot be accomplished
with the engine installed within eight working hours to
reduce EGT below 925 DEG. C at max power, the engine
installed shall be rejected and a Replacement Engine
installed.
c. No installed engine shall be on "watch" and each such engine
shall comply with the operations specification of Lessee
without waiver or exceptions.
In the event Lessor is no longer maintaining the In-Use Aircraft,
the expense of complying with this paragraph E shall be at
Lessee's sole expense. In the event Lessor is maintaining the
In-Use Aircraft pursuant to Exhibit E hereto, the cost of any
repairs or replacements required by this Paragraph E shall be
borne by the parties in accordance with the other terms of
Exhibit E as if such
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<PAGE>
repairs and replacements were made in the normal course of the
term of the Lease Agreement, except to the extent specifically
set forth in this Exhibit E.
F. The Return Aircraft on return by Lessee shall have a then current
weight and balance report in the final delivery configuration as
required by the FARs provided to Lessor and/or Lessee.
G. All required placards per Lessor's/Lessee's maintenance and
operations specifications must be current, in place and legible.
(In English)
H. Fuselage
(1) Dents, corrosion and abrasions, or any loose, pulled or
missing rivets shall be within the limits of Lessee's
maintenance manual. External patches shall be of a type
consistent with industry standards and approved by Lessee's
maintenance manual. Each repair will have proper
documentation of structural repair manual reference and/or
engineering repair drawings or documentation as applicable.
(2) Windows shall be serviceable in accordance with Lessee's
maintenance manual. Visibility through windows will meet
standard industry standards.
(3) Doors shall be free moving, correctly rigged and be fitted
with serviceable seals, in accordance with Lessee's
maintenance manual limits.
(4) Exterior logos will be removed pursuant to Exhibit E hereto,
by stripping or sanding off the present logo, and repainting
to blend with existing exterior paint in accordance with
standard industry practices.
(5) Unpainted metal surfaces shall be clean and buffed.
I. Wings and Empennage
(1) All leading edges shall be serviceable in accordance with
Lessee's maintenance manual. Any repairs to leading edges
shall be in accordance with Lessee's maintenance manuals.
(2) All control surfaces shall be clean by airline standards and
free of delamination in accordance with Lessee's maintenance
manual.
(3) All unpainted cowlings and fairings shall be buffed and
clean by airline standards and tightly fitted in accordance
with Lessee's maintenance manual limits.
(4) Fuel leaks in the wings shall be within the limits allowed
by Lessee's FAA-approved maintenance program. Temporary
fuel leak repairs
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<PAGE>
will be within the limits allowed, by Lessee's FAA-approved
maintenance program, and permanent repairs may be deferred
until the next C check.
(5) Fuel tanks shall be free from contaminates, as evidenced by
sumping the tanks externally.
J. Interior
(1) The Return Aircraft shall be delivered with Lessee's carpet,
flooring, drapes, tapestries and hard decor as last operated
in revenue service by Lessee, all of which items may be
subsequently used by Lessor in its sole discretion. Upon
return, all logos and markings of Lessee shall be tastefully
removed, where reasonable. Except as otherwise
provided herein, Lessor may retain other severable items
that do not add to the value of the Return Aircraft and that
are not required to be installed in the Aircraft by the FAA.
Lessee shall deliver the Return Aircraft with Lessor's seat
covers.
(2) Ceilings, sidewalls and bulkhead panels shall be clean and
free of major cracks and stains by normal airline standards.
(3) All carpets and seat covers shall be in good condition,
normal wear and tear excepted, clean and stain-free by
normal standards and shall meet current FAA fire resistance
regulations.
(4) All seats shall be serviceable in accordance with
maintenance manual limits in good condition, normal wear and
tear excepted and repainted as reasonably required.
(5) All signs and decals shall be clean and legible by normal
lessee standards.
(6) Floor panels shall be in good condition free of soft spots
and delamination. If field repairs are installed, permanent
repairs may be deferred to the next C Check.
(7) The aircraft interior shall be thoroughly cleaned to the
standards acceptable for passenger revenue flights.
K. Cockpit
(1) All placard and decals shall be clean, secure and legible.
(In English)
(2) All fairing panels shall be free of major stains and major
cracks and shall be clean.
B-4
<PAGE>
(3) Floor coverings shall be clean and effectively sealed as
required by Lessee's maintenance program.
(4) Seat covers shall be in good condition, free of major tears
and major stains, normal wear and tear excepted, and shall
conform to existing fire resistance regulations.
(5) Seats shall be fully serviceable, in good condition, normal
wear and tear excepted, and repainted as reasonably
required.
L. Cargo Compartments
(1) All panels shall be in serviceable condition, normal wear
and tear excepted. All repairs to floor, ceilings or side
walls shall be in accordance with Lessee's maintenance
manuals. If field repairs are installed, permanent repairs
may be deferred to the next C Check.
(2) No cargo containers shall be delivered or returned.
(3) All cargo loading functions will be tested under load
conditions by utilizing one fully loaded cargo container.
(4) One ship set of onboard ovens/coffee makers shall be
included.
M. Landing Gear and Wheel Wells
(1) Shall be clean, free from leaks and in good repair, normal
wear and tear excepted.
(2) All decals shall be clean, secure and legible. (In English)
(3) Brakes will be in good condition. No brake will have less
than one half (1/2) inch of wear remaining on wear
indicator.
N. No structural repairs including corrosion, skin replacement, crack
propagation or SSI programs shall be overdue on the Return Aircraft at
time of redelivery, or be in a deferred status.
O. The Return Aircraft shall be made available on or before the
anticipated date of return by Lessee for an operation test flight, at
Lessee's expense, not to exceed one hour, which test flight shall be
conducted by Lessee using Lessee's standard flight test procedures.
Up to five persons designated by Lessor may participate in such flight
as observers. The Lessor shall identify to the Lessee in writing any
claim of discrepancy between the required condition of the Return
Aircraft at return of the Return Aircraft to the Lessor and the Return
Aircraft's actual condition.
In the event Lessor is no longer maintaining the Return Aircraft, the
expense of correcting any discrepancy shall be at Lessee's sole
expense. In the event Lessor is
B-5
<PAGE>
maintaining the Return Aircraft pursuant to Exhibit E hereto, the cost
of correcting any discrepancy required by this paragraph O(2) shall be
borne by the parties in accordance with the other terms of Exhibit E
as is such actions were taken in the course of the term of the Lease
Agreement.
P. The Return Aircraft shall be in compliance with Stage III Noise
Regulations.
Q. Any FAA mandated corrosion control program will be current as
specified by the manufacturer's corrosion control document or approved
Lessee's corrosion control program.
R. The Return Aircraft shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by
the respective regulatory authorities.
Lessor shall not furnish any sets of cargo containers, catering modules,
catering carts and catering inserts to Lessee hereunder.
B-6
<PAGE>
RETURN INSPECTION AND ACCEPTANCE FLIGHT GROUND INSPECTION
The Return Aircraft shall be made available to Lessor on or before
return of the Return Aircraft, for ground inspection at either Tulsa, Oklahoma
Airport or another Airport satisfactory to Lessor on or before the due date for
return in order that Lessor may reasonably satisfy itself that the Return
Aircraft is in the condition required under this Agreement. The manuals and
technical records shall be made available to Lessor for inspection during such
period prior to return thereof as Lessor reasonably requires. Such inspection
shall be conducted in coordination with Lessee's and Lessor's respective
personnel and Lessor shall be allowed reasonable access to the Return Aircraft
to verify compliance with the conditions set forth in this Agreement. Lessor
shall immediately state orally and confirm in writing within four (4) hours of
the relevant inspection to Lessee each claim of discrepancy. To facilitate such
inspection Lessee will provide reasonable office accommodation at or near the
inspection site (equipped with a telephone and having access to a photocopier,
telecopier and word processing facilities) provided, however, that Lessor shall
indemnify Lessee for all out-of-pocket costs so incurred by Lessor.
B-7
<PAGE>
DOCUMENTS REQUIRED FOR RETURN
Listed below are the documents or Lessee equivalent that will be required upon
delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft
by Lessee. All documents must be valid at time of return and shall incorporate
the most recent revisions issued by the documents controlling regulatory agency:
1. Standard Airworthiness Certificate
2. Certificate of Sanitary Construction
3. A copy of Maintenance Check Manual
4. Airworthiness Directive Compliance Status including Repetitive and Method
of Compliance
5. Status of Time Controlled and Life Limited Parts; Status of Time Controlled
and Life Limited Parts; Status of Airframe, Engines, Auxiliary Power Unit
and Land Gear
6. Report covering any Major Accidents or Repairs on the Aircraft with
Supporting Documentation
7. A review of the Aircraft Log Books
8 FAR Compliance Status including Method of Compliance
9. Alteration/Repair/Modification Records
10. Service Bulletin Status List
11. AOL/Service Letter Status List
12. Supplemental type Certificates issued for Aircraft and Equipment as held by
operator
13. List of Open Items
14. Weight and Balance Records
B-8
<PAGE>
The following manuals or Lessee equivalents will be furnished in hard copy or
reproducible film or in the then current form in which it is used by Lessee.
Unless otherwise indicated, one copy per In-Use Aircraft of each of the
following manuals or equivalents will be provided to Lessee. Additional
copies will be or have been provided pursuant to that certain Manuals
Supplement between Lessor and Lessee, the Interim Aircraft Lease Agreements,
the Interim Aircraft Maintenance Agreement or pursuant to the provisions
hereof and all copies of each of the following shall be returned. All
manuals will be valid at time of return and shall include the most recent
revisions issued by the documents controlling regulatory agency.
1. FAA Approved Flight Manual
2. Flight Crew Operational Manual
3. Performance Manual
4. Airframe Maintenance Manual
5. Airframe Illustrated Parts Catalog
6. Airframe Structures Repair Manual
7. Wiring Diagram Manual
8. Engine Maintenance Manual
9. Engine Illustrated Parts Manual
10. Weight and Balance Records
11. Minimum Equipment List
12. Part Number Conversation List - Operator to Manufacturer P/N
13. Red Book for each microfilm library
NOTE: All documents and manuals must be in English
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<PAGE>
RETURN OF OTHER ENGINES. In the event that any engine not owned or leased by
Lessor shall be installed on the Return Airframe, such engine shall be an engine
suitable to be a Replacement Engine hereunder. Upon return of the Return
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens (other than any Lessor's Liens) and, upon such
conveyance, Lessee will furnish Lessor with a full warranty bill of sale, in
form and substance reasonably satisfactory to it, with respect to such engine
and take such other action as may be reasonably requested in order that title to
such engine may be duly and properly vested in Lessor to the same extent as the
Engine replaced thereby. Upon conveyance by Lessee of good title to such engine
to Lessor, and upon full compliance by Lessee with its obligations hereunder, at
Lessee's expenses, Lessor will transfer to Lessee all rights, title and interest
originally conveyed to Lessor in an Engine constituting part of the Aircraft but
not installed on the Return Airframe at the time of the return of the Return
Airframe "as-is, where-is", free and clear of Lessor's Liens but otherwise
without recourse or warranty, express or implied to Lessee.
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SCHEDULE 4(d)(i)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-1
<PAGE>
SCHEDULE 4(d)(iv)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-2
<PAGE>
SCHEDULE 4(d)(v)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-3
<PAGE>
SCHEDULE 4(d)(vi)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-4
<PAGE>
SCHEDULE 4(d)(vii)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-5
<PAGE>
EXHIBIT E
This Exhibit E has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
E-1
<PAGE>
AIRCRAFT
LEASE AGREEMENT
Dated as of December 12, 1997
Between
AMERICAN AIRLINES, INC., as
Lessor
and
HAWAIIAN AIRLINES, INC., as
Lessee
One (1) DC10-10 Aircraft
Registration No. N162AA
SERIAL Number 46943
with Three GE CF6-6K Engines
This Lease Agreement has been executed in several counterparts. To the extent,
if any, that this Lease Agreement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the original.
The counterpart to be deemed the original shall be the counterpart that is
designated on the signature pages thereof as the original counterpart and no
security interest in this Lease Agreement may be created through the transfer of
any counterpart other than such original counterpart. This is not the original
counterpart.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. DELIVERY AND ACCEPTANCE . . . . . . . . . . . . . . . . . . 13
(a) Time and Place. . . . . . . . . . . . . . . . . . . . . . . 13
(b) Delivery Date . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. Term and Rent . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Basic Rent. . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Supplemental Rent . . . . . . . . . . . . . . . . . . . . . 14
(d) Prohibition Against Setoff, Etc.. . . . . . . . . . . . . . 14
(e) Payment to Lessor . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain
Agreements of Lessee, Representations of Lessee . . . . . 15
(a) Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 16
(c) Waiver of Warranties. . . . . . . . . . . . . . . . . . . . 16
(d) Lessee's Representations and Warranties . . . . . . . . . . 16
(e) Lessor's Representations and Warranties . . . . . . . . . . 18
Section 5. Return of Airframe and Engines. . . . . . . . . . . . . . . 20
(a) Return of Airframe and Serviced Engines . . . . . . . . . . 20
(b) Return of Other Engines . . . . . . . . . . . . . . . . . . 21
Section 6. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7. Registration, Maintenance and Operation; Possession;
Insignia. . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Registration, Maintenance and Operation . . . . . . . . . . 21
(b) Additional Maintenance Provisions . . . . . . . . . . . . . 22
(c) Territorial Restrictions on Use of Aircraft . . . . . . . . 23
(d) Obligations Absolute. . . . . . . . . . . . . . . . . . . . 23
(e) Possession. . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Registration and Insignia . . . . . . . . . . . . . . . . . 23
(g) Replacement of Parts. . . . . . . . . . . . . . . . . . . . 24
(h) Alterations, Modifications and Additions. . . . . . . . . . 24
(i) Manuals and Technical Records . . . . . . . . . . . . . . . 25
(j) Maintenance and Usage . . . . . . . . . . . . . . . . . . . 25
Section 8. Loss, Destruction, Requisition, Etc.. . . . . . . . . . . . 26
(a) Event of Loss to the Aircraft . . . . . . . . . . . . . . . 26
(b) Event of Loss to a Serviced Engine. . . . . . . . . . . . . 26
(c) Application of Payments for Requisition of Title. . . . . . 29
(d) Requisition of Use of the Airframe. . . . . . . . . . . . . 30
(e) Investment of Proceeds Pending Replacement. . . . . . . . . 30
(f) Application of Payments During Default. . . . . . . . . . . 30
Section 9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Liability Insurance . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(b) All Risk Hull Insurance . . . . . . . . . . . . . . . . . . 32
(c) War-Risk Insurance. . . . . . . . . . . . . . . . . . . . . 33
(d) Application of Proceeds . . . . . . . . . . . . . . . . . . 33
(e) Reports, Etc. . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Additional Insurance. . . . . . . . . . . . . . . . . . . . 34
(g) Notice from Lessee; No Modification . . . . . . . . . . . . 34
(h) Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Insurance of Lessor . . . . . . . . . . . . . . . . . . . . 34
(j) Insurance Relating to Allocated Parts . . . . . . . . . . . 34
Section 10. Inspection; Financial Information. . . . . . . . . . . . . 35
(a) Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Financial Information . . . . . . . . . . . . . . . . . . . 35
Section 11. Lessee's Covenants . . . . . . . . . . . . . . . . . . . . 37
(a) Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Certificated Air Carrier. . . . . . . . . . . . . . . . . . 37
Section 12. FAA Recordation and Further Assurances . . . . . . . . . . 37
(a) FAA Recordation . . . . . . . . . . . . . . . . . . . . . . 37
(b) Further Assurances. . . . . . . . . . . . . . . . . . . . . 38
Section 13A. Lessee Events of Default. . . . . . . . . . . . . . . . . 38
Section 13B. Lessor Events of Default. . . . . . . . . . . . . . . . . 39
Section 14A. Lessor Remedies . . . . . . . . . . . . . . . . . . . . . 40
Section 14B. Lessee Remedies . . . . . . . . . . . . . . . . . . . . . 42
(a) Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Limitation on Damages . . . . . . . . . . . . . . . . . . . 43
(c) No Implied Waiver . . . . . . . . . . . . . . . . . . . . . 43
Section 15. Indemnification. . . . . . . . . . . . . . . . . . . . . . 43
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Indemnification for Negligent Acts. . . . . . . . . . . . . 45
(c) Defense of Claims; Settlement . . . . . . . . . . . . . . . 45
(d) Indemnification by Lessor . . . . . . . . . . . . . . . . . 46
(e) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 16. General Tax Indemnity. . . . . . . . . . . . . . . . . . . 46
(a) Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . 46
(b) Exclusions from General Tax Indemnity . . . . . . . . . . . 47
(c) Calculation of General Tax Indemnity Payments . . . . . . . 49
(d) Payment of General Tax Indemnity. . . . . . . . . . . . . . 50
(e) Verification of Calculations. . . . . . . . . . . . . . . . 50
(f) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(g) General Tax Indemnity Contest Provisions. . . . . . . . . . 51
(h) Compromise or Settlement. . . . . . . . . . . . . . . . . . 53
(i) Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(j) Failure to Contest. . . . . . . . . . . . . . . . . . . . . 53
(k) Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 54
(l) Effect of Other Indemnities . . . . . . . . . . . . . . . . 54
Section 17. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(a) Construction; Governing Law . . . . . . . . . . . . . . . . 54
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(c) Lessor's Right to Perform . . . . . . . . . . . . . . . . . 57
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . 57
(e) Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 59
(f) Grant of Security Interest by Lessor. . . . . . . . . . . . 59
(g) Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 59
(h) Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 60
(i) Transaction Expenses. . . . . . . . . . . . . . . . . . . . 60
(j) Entirety. . . . . . . . . . . . . . . . . . . . . . . . . . 60
(k) Force Majeure . . . . . . . . . . . . . . . . . . . . . . . 60
(l) Independent Contractor; No Agency . . . . . . . . . . . . . 61
(m) Certain Consents and Waivers of Lessee. . . . . . . . . . . 61
(n) Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 18. True Lease . . . . . . . . . . . . . . . . . . . . . . . . 63
(a) Intent of the Parties . . . . . . . . . . . . . . . . . . . 63
Section 19. Enforceability in Jurisdictions. . . . . . . . . . . . . . 63
Section 20. No Third-Party Beneficiaries . . . . . . . . . . . . . . . 63
Section 21. Maintenance Obligations. . . . . . . . . . . . . . . . . . 64
Section 22. Amendment of Long-Term Lease Agreement . . . . . . . . . . 64
Section 23. Substitution . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
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Schedule I - Basic Rent
Exhibit A - Lease Supplement No. 1
Exhibit B - Stipulated Loss Value Schedule
Exhibit C - Conditions Precedent to Delivery
Exhibit D - Delivery and Return Conditions
Exhibit E - Supplemental Rent for Maintenance
Schedule 4(d)(i)
Schedule 4(d)(iv)
Schedule 4(d)(v)
Schedule 4(d)(vi)
Schedule 4(d)(vii)
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AIRCRAFT LEASE AGREEMENT
This AIRCRAFT LEASE AGREEMENT, dated as of December 12, 1997, between
AMERICAN AIRLINES, INC., a Delaware corporation, with its principal place of
business at Dallas/Fort Worth International Airport, Texas 75261-9616, and its
successors and assigns ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii
corporation with its principal place of business at 3375 Koapaka Street, Suite
G350, Honolulu, Hawaii 96819 ("Lessee").
WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to
lease to Lessee, the Aircraft (as defined below) upon the terms and conditions
set forth herein; and
WHEREAS, Lessor is certificated under FAA Regulations Part 121 to inspect,
maintain, repair and overhaul the Aircraft with GE CF6-6K Engines; and
WHEREAS, Lessee has requested that Lessor perform certain repair,
maintenance and overhaul services with respect to the Aircraft, other than the
Lessee Assumed Services (as defined below), at a fixed cost per flight hour; and
WHEREAS, Lessee has further requested that Lessor perform certain
additional repair, modification, maintenance and overhaul services on a
time-and-materials basis; and
WHEREAS, Lessor desires to perform such maintenance services for Lessee;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree as follows:
Section 1. DEFINITIONS. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this Lease
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined:
"AADVANTAGE AGREEMENT" means the AAdvantage-Registered Trademark-
Participating Agreement, dated as of September 12, 1994 between Lessee and
Lessor, and all other agreements, instruments, certificates and documents
related thereto or executed or delivered in connection therewith, all as from
time to time amended, supplemented or modified.
"AA STATION" means HNL, LAS, LAX, SEA, SFO or TUL.
"ACARS" means the Aircraft Communications and Reporting System currently
installed on the Aircraft.
"ADS" means Airworthiness Directives issued by the FAA.
"AD EFFECTIVE DATE" shall have the meaning assigned to such term in
Section 4(s) of Exhibit E.
<PAGE>
"ADDITIONAL INSURED" shall have the meaning specified in Section 9 hereof.
"ADDITIONAL SERVICES" means the engineering, inspection, maintenance,
repair and overhaul services that are necessary or appropriate (i) to correct
damage (including replacement at Lessee's expense if Lessor reasonably
determines that the damage (other than ordinary wear and tear) is beyond
economic repair) to the Serviced Aircraft, any Serviced Engines and/or any
Rotable Parts (including Serviced Parts removed during the delivery of
Maintenance Services other than Additional Services) that resulted from (a)
improper use, improper repairs by Persons other than Lessor or its
subcontractors, neglect (other than by Lessor or its subcontractors), or any
cause other than ordinary wear and tear or (b) Foreign Object Damage, (ii) to
complete modifications to the Serviced Aircraft and any Serviced Engines
requested by Lessee to customize the Serviced Aircraft in any manner that
deviates from Lessor's standard configuration (subject to the provisions of
Section 4(q) of Exhibit E which require Lessee to procure and provide certain
Serviced Parts prior to their installation on the Serviced Aircraft), (iii) to
complete modifications (including those modifications mandated by the FAA) to
the Serviced Aircraft the costs of which exceed $1,000 per Serviced Aircraft, or
(iv) to complete any inspections mandated by the FAA that are not included in
Lessor's existing maintenance program and are not related to aging aircraft and
corrosion prevention issues, but excluding Field Trip Maintenance Services, and
On-Call Maintenance Services.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. For
purposes of this definition, "CONTROL" when used with respect to any specified
Person means the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "CONTROLLING" and
"CONTROLLED" have meanings correlative to the foregoing.
"AIRCRAFT" means the Airframe delivered and leased hereunder, together with
the three Engines initially leased hereunder with the Airframe (or any Engine
substituted for any such Engine hereunder), whether or not any of such initial
or substituted Engines may from time to time be installed on the Airframe or may
be installed on any other airframe or on any other aircraft.
"AIRFRAME" means (i) the McDonnell Douglas DC10-10 aircraft (except engines
or Serviced Engines from time to time installed thereon) bearing the U.S.
Registration Number N162AA and Manufacturer's Serial Number 46943 and (ii) any
and all Parts so long as the same shall be incorporated or installed in or
attached to the Airframe or so long as title thereto shall remain vested in
Lessor.
"ALLOCATED PARTS" shall have the meaning assigned to such term in
the Long-Term Lease Agreement.
"ALLOCATED SPARE ENGINE" shall have the meaning assigned to such term in
Section 4(n) of Exhibit F of the Long-Term Lease Agreement.
"AMERICAN AGREEMENTS" mean the Lease Agreement, the Long Term Agreements,
the Ancillary Agreements, 125 Lease, 160 Lease, 161 Lease and the 171 Lease.
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"AMRCG" means AMR Training & Consulting Group, Inc., a Delaware
corporation, and its successors and assigns.
"AMR LEASING" means AMR Aircraft Sales & Leasing Company, a Delaware
corporation, and its successors and assigns.
"ANCILLARY AGREEMENTS" means that certain Manuals Supplement, Amended and
Restated Training Document and FOS Implementation Document, each dated as of
March 31, 1994, and entered into by and between Lessor and Lessee.
"A.O.G." means aircraft on the ground.
"APPLICABLE LAW" means all applicable laws of any Governmental Authority,
including securities laws, tax laws, tariff and trade laws, ordinances,
judgments, decrees, injunctions, writs and orders or like actions of any court,
arbitrator, judicial or quasi-judicial tribunal, governmental agency or
authority in any country and rules, regulations, orders, interpretations,
licenses and permits of any federal, state, county, municipal, regional or other
United States or foreign governmental body, instrumentality, agency or
authority.
"APU" means auxiliary power unit.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Section 101 Et SEQ.), as amended from time to time and any successor statute.
"BASE MAINTENANCE SERVICES" means the inspection, engineering,
maintenance, repair and overhaul services of the Serviced Aircraft, any Serviced
Engines and any Serviced Parts that are ordinarily performed at a Maintenance
Base as part of the scheduled maintenance of the Serviced Aircraft, any Serviced
Engines or any Serviced Parts to repair ordinary wear and tear including,
without limitation, all aircraft heavy maintenance checks and phase checks, but
excluding (i) the inspection, maintenance, repair and overhaul of Parts
described in Section 4(q) of Exhibit E and (ii) Additional Services, Field Trip
Maintenance Services, Line Maintenance Services and On-Call Maintenance
Services.
"BASIC RENT" means the rent payable for the Aircraft pursuant to
Section 3(b), as the same may be adjusted pursuant to Section 16.
"BASIC RENT PAYMENT DATE" means the dates for payment of Basic Rent
described in Schedule I attached hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banking institutions in New York City, New York, Fort Worth,
Texas or Honolulu, Hawaii are authorized or required by law, regulation or
executive order to be closed.
"CHANGE IN CONTROL" means the acquisition by any Person or 13D Group (other
than Airline Investors Partnership, L.P. or its Affiliates) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of Voting
Securities after which such Person or Group owns Voting Securities representing
30% or more of the outstanding Voting Securities.
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"CLAIMS" means actual or threatened claims, demands and suits.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and analogous provisions of any successor statute.
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to such term in
Section 17(d).
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality Agreement
dated November 8, 1993, between AMRCG and Lessee.
"CYCLE" means, with respect to the Serviced Aircraft, one takeoff of such
Serviced Aircraft and the next subsequent landing of such Serviced Aircraft.
"DEFAULT" means any event which with the passage of time or the giving of
notice or both would become a Lessee Event of Default.
"DEFECT" shall have the meaning assigned to such term in Section 5(a) of
Exhibit E.
"DEFERRED PURCHASE CERTIFICATE" has the meaning set forth in the Indenture.
"DELIVERY DATE" means the date on which the Aircraft is delivered by Lessor
to, and accepted by, Lessee.
"DISCOUNT RATE" means the Prime Rate.
"DOT" means the United States Department of Transportation, or any Person,
governmental department, bureau, commission, or agency succeeding to the
functions of such department.
"ENGINE" means (i) each of the three General Electric Model CF6-6K engines
listed by manufacturer's serial numbers in Lease Supplement No. 1, whether or
not from time to time installed on the Airframe or installed on any other
airframe or on any other aircraft and (ii) any Replacement Engine which may from
time to time be substituted pursuant to Section 8 for an Engine leased
hereunder; together in each case with any and all Parts incorporated or
installed in or attached thereto or any and all Parts removed therefrom so long
as title thereto shall remain vested in Lessor in accordance with the terms of
Section 8 after removal from such Engine. Except as otherwise set forth herein,
at such time as a Replacement Engine shall be so substituted, such replaced
Engine shall cease to be an Engine hereunder. The term "Engines" means, as of
any date of determination, all Engines then leased hereunder.
"EVENT OF LOSS" with respect to any Item of Equipment means any of the
following events with respect to such Item of Equipment: (i) loss of such Item
of Equipment or the use thereof due to theft, disappearance, destruction, damage
beyond repair or rendition of such Item of Equipment permanently unfit for
normal use for any reason whatsoever; (ii) any damage to such Item of Equipment
which results in an insurance settlement with respect to such Item of Equipment
on the basis of a total loss whether actual, constructive or arranged; (iii) the
condemnation, confiscation or seizure of, or requisition of title to such Item
of Equipment; (iv) the requisition of use of such Item of Equipment (other than
requisition for use by the Government); (v) the requisition of use of such Item
of Equipment by the Government for any period ending after the expiration of the
Term unless
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Lessor elects, upon 30 days' prior notice, not to treat such requisition as
an Event of Loss at the end of the Term; (vi) as a result of any rule,
regulation, order or other action by the FAA, DOT or other governmental body
of the United States having jurisdiction, the use of such Item of Equipment
in the normal course of air transportation of persons shall have been
prohibited for a period of six consecutive months, unless Lessee, prior to
the expiration of such six-month period, shall have undertaken and shall be
diligently carrying forward all steps which are necessary or desirable to
permit the normal use of such property by Lessee or, in any event, if such
use shall have been prohibited for a period of twelve consecutive months or
if such use is prohibited at the end of the Term, unless at the end of the
Term such use has then been prohibited for less than six consecutive months,
then an Event of Loss shall not be deemed to have occurred hereunder until
the expiration of six consecutive months during which the use of the Item of
Equipment has been so prohibited, but only so long as Lessee continues to pay
Basic Rent to the Lessor on the first day of each month, at the rate set
forth in Schedule I attached hereto and Supplemental Rent pursuant to Exhibit
E hereto, and agrees to and does comply with all other provisions hereof; or
(vii) the operation or location of the Item of Equipment, while under
requisition for use by the Government, in any area excluded from coverage by
any insurance policy in effect with respect to the Item of Equipment required
by the terms of Section 9, if Lessee shall not have obtained indemnity in
lieu thereof from the Government, acceptable to Lessor; PROVIDED that if such
property shall be returned to Lessee in such a condition that Lessee can
within 30 days following the return thereof cause the Item of Equipment to
comply with the maintenance conditions set forth in Section 7 hereof, then
such event shall, at the option of Lessee, not constitute an Event of Loss.
An Event of Loss with respect to the Aircraft shall be deemed to have
occurred if an Event of Loss occurs with respect to the Airframe. In the
case of clauses (i), (ii), (iii) and (iv), the date of an Event of Loss shall
be the date of destruction, damage, requisition, loss, etc. to any Item of
Equipment. In the cases of clauses (v), (vi) and (vii), the date of an Event
of Loss shall be respectively (A) such 180th day or last day of the
applicable Term as the case may be, and (B) the last day of such six month
period or twelve month period, as the case may be and (C) the first day of
such operation or location.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENDABLE PARTS" means (i) Serviced Parts used in the repair and overhaul
of the Serviced Airframe, any Serviced Engines and other Rotable Parts that are
assumed to have no potential for reuse and miscellaneous materials and supplies
consumed during the repair and overhaul process, and (ii) Serviced Parts that
have some potential for repair but that are customarily assumed to be expended.
"EXPENSES" means liabilities, obligations, losses, damages, penalties,
claims (including claims involving liability in tort, strict liability or
otherwise), actions, suits, judgments, costs, expenses and disbursements
(including legal fees and expenses and costs of investigation) of any kind and
nature whatsoever without any limitation as to amount, together with interest
thereon at the Stipulated Interest Rate from the date incurred until reimbursed
hereunder.
"FAA" means the United States Federal Aviation Administration, or any
person, governmental department, bureau, commission or agency succeeding to the
functions of such Administration.
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"FEDERAL AVIATION ACT" or "ACT" means the Federal Aviation Act of 1958, as
amended.
"FIELD TRIP MAINTENANCE SERVICES" means, with respect to the Serviced
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at any
location where Lessor does not have on-site the necessary number of mechanics
trained to work on the particular malfunction experienced by the Serviced
Aircraft, any Serviced Engine or any Serviced Part.
"FLIGHT HOUR" means the amount of time (expressed in hours and rounded
upward to the nearest one-tenth (1/10th) of an hour) during the flight of a
Serviced Aircraft between "wheels off" on takeoff and "wheels on" on landing.
"FOREIGN OBJECT DAMAGE" means damage to a Serviced Engine or any component
thereof caused by any object or material ingested into the Serviced Engine that
results in the breakage or destruction of a Serviced Engine component or a
notch, non-stress related crack, cut, indentation or other depression to the
surface of a Serviced Engine component in each case beyond specification limits
of the Lessor's maintenance program, but excluding the gradual erosion or
smoothing of any Serviced Engine component caused by numerous Flight Hours of
operation.
"GOVERNMENT" means the government of the United States of America, and any
instrumentality or agency thereof.
"GOVERNMENTAL AUTHORITY" means any governmental department, court, bureau,
commission, agency or any other entity, whether of the United States (including
any state or subdivision thereof) or any other country (including any political
subdivision thereof), having jurisdiction over this Lease, the transactions
contemplated hereby, or any document related hereto or thereto or delivered in
connection herewith or therewith, the Serviced Aircraft or the parties hereto.
"HNL" means Honolulu International Airport in Honolulu, Hawaii.
"IATA" means International Air Transport Association.
"INDEMNIFIED PARTY" shall have the meaning assigned to such term in
Section 15.
"INTERIM AIRCRAFT LEASE AGREEMENTS" means the Interim Aircraft Lease
Agreements each dated as of December 30, 1993, May 20, 1994, August 10, 1994 or
August 31, 1994 between AMR Leasing and Lessee, as the same may be amended,
modified or supplemented from time to time.
"INTERIM AIRCRAFT MAINTENANCE AGREEMENT" means the Interim Aircraft
Maintenance Agreement dated as of December 30, 1993 between Lessor and Lessee,
as the same may be amended, modified or supplemented from time to time.
"INTERIM DEFINITIVE AGREEMENTS" means the Interim Aircraft Lease
Agreements, the Interim AAdvantage Participating Carrier Agreement dated as of
December 30, 1993 between Lessee and Lessor, the Interim Aircraft Maintenance
Agreement, the Interim Multihost Agreement dated as of December 30, 1993 between
Lessee and SABRE, the Interim Flight Operating System Agreement dated as of
December 30, 1993 between Lessee and SABRE, the Interim Equipment Master
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Equipment Lease Agreement dated as of December 30, 1993 between Lessee and
SABRE, the Guaranty Agreement dated as of December 10, 1993 executed by HAL,
Inc. and West Maui Airport, Inc. in favor of Lessor, AMRCG, AMR Leasing and
SABRE and the Security Agreement dated as of December 10, 1993 between Lessee,
HAL, Inc. and West Maui Airport, Inc. as debtors and Lessor, AMRCG, AMR Leasing
and SABRE as secured parties, and all other agreements, instruments,
certificates or documents related thereto or executed or delivered in connection
therewith, as amended or modified from time to time.
"INITIAL INDUCTION DATE" means the date that the first DC10-10 Aircraft
leased by Lessee from Lessor is delivered to TUL for its next regularly
scheduled "C" Check, which date is currently expected to be May 11, 1998.
"IN-USE AIRCRAFT" means the Airframe delivered and leased hereunder,
together with the three Serviced Engines or engines installed from time to time
thereon.
"ISSUER INSOLVENCY" shall have the meaning assigned thereto in Section 13A
hereof.
"ITEM OF EQUIPMENT" or "ITEM" means the Airframe or each of the Serviced
Engines, and for purposes of the definition of "Event of Loss" as used in
Section 8(b)(3) hereof, shall mean each Engine.
"LAS" means McCarren International Airport in Las Vegas, Nevada.
"LAX" means Los Angeles International Airport in Los Angeles, California.
"LEASE AGREEMENT", "THIS LEASE AGREEMENT", "THIS LEASE", "THIS AGREEMENT",
"HEREIN", "HEREUNDER", "HEREBY" or other like words mean this Lease Agreement as
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions hereof, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the applicable
provisions hereof.
"LEASE SUPPLEMENT" means Lease Supplement No. 1, substantially in the form
of Exhibit A hereto to be entered into between Lessor and Lessee for the purpose
of leasing the Aircraft under and pursuant to the terms of this Lease, or any
amendment hereto or to any other Lease Supplement entered into subsequent to the
Delivery Date.
"LEASE TERM" means the period from the Delivery Date of the Aircraft until
September 11, 2001, unless earlier terminated in accordance with the provisions
of this Lease.
"LESSEE ASSUMED SERVICES" means those maintenance services set forth on
ATTACHMENT C to Exhibit E to be performed by Lessee at HNL during the Lease Term
and any other maintenance services that the parties mutually agree pursuant to
Section 1 of Exhibit E that Lessee will assume and perform.
"LESSEE EVENT OF DEFAULT" shall have the meaning specified in Section 13A
hereof.
"LESSOR EVENT OF DEFAULT" shall have the meaning specified in Section 13B
hereof.
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"LESSOR WARRANTY" shall have the meaning assigned to such term in
Section 5(a) of Exhibit E.
"LESSOR'S LIENS" means any Lien arising as a result of (i) Claims against
or affecting Lessor, not related to the transactions contemplated by this Lease;
(ii) acts or omissions of Lessor, not related to the transactions contemplated
by this Lease, or not permitted under this Lease; (iii) Taxes or Claims imposed
against Lessor which are not indemnified against by Lessee pursuant hereto; or
(iv) Claims against Lessor arising out of the voluntary or involuntary transfer
by Lessor (without the consent of Lessee) of any of its interests in the
Airframe, any Serviced Engine or any Engine, including, without limitation, by
means of granting a security interest therein, other than a transfer of the
Aircraft pursuant to Section 8 or 14A hereof.
"LIABILITIES" means Claims, liabilities, losses, judgments, damages, fines,
penalties and costs, fees and expenses of any nature incident thereto
(including, without limitation, reasonable attorneys' fees and expenses and
costs of investigation and litigation), whether arising in tort, contract or
otherwise.
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or Claim.
"LINE MAINTENANCE SERVICES" means all customary line maintenance services
to the Serviced Aircraft, any Serviced Engine or any Serviced Part, including
scheduled inspections and servicing of the Serviced Aircraft and related
repairs, but excluding (i) Additional Services, Base Maintenance Services, Field
Trip Maintenance Services and On-Call Maintenance Services and (ii) Lessee
Assumed Services.
"LONG-TERM AGREEMENTS" means the Long-Term Lease Agreement, the 125 Lease
Agreement, the 160 Lease Agreement, the 161 Lease Agreement, the 171 Lease
Agreement, the AAdvantage Participating Carrier Agreement dated as of September
12, 1994 between Lessee and Lessor, the Multihost Agreement dated as of
September 12, 1994 between Lessee and SABRE, the Flight Operating System
Agreement dated as of September 12, 1994 between Lessee and SABRE, the Equipment
Master Lease Agreement dated as of September 12, 1994 between Lessee and SABRE,
and all other agreements, instruments, certificates and documents related
thereto or executed or delivered in connection therewith, all as amended or
modified from time to time.
"LONG-TERM LEASE AGREEMENT" means the Aircraft Lease Agreement dated as of
September 12, 1994 between Lessor and Lessee, as amended, supplemented, modified
and renewed from time to time.
"LOSS PAYMENT DATE" shall have the meaning set forth in Section 8(a)
hereof.
"MAGSA RATES" means the hourly rates applicable to participants in the
Mutual Assistance Ground Service Agreement among Lessor and other participating
IATA carriers as amended from time to time, or any comparable replacement
agreement.
"MAINTENANCE BASE" shall have the meaning assigned to such term in
Section 2(a)(i) of Exhibit E.
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"MAINTENANCE SERVICES" means Additional Services, Base Maintenance
Services, Field Trip Maintenance Services, Line Maintenance Services and On-Call
Maintenance Services but excluding Lessee Assumed Services.
"MAINTENANCE SERVICES TERMINATION DATE" shall have the meaning set forth in
Section 1 to Exhibit E hereto.
"MANUAL" means the Standard Practice Manual mutually prepared by Lessor and
Lessee for administration of this Agreement, a true and correct copy of which
has been provided to Lessor and Lessee, together with any amendments made
thereto from time to time by a party hereto with the consent of the other party
hereto (which consent shall not be unreasonably withheld).
"MANUFACTURER" means, collectively, the respective manufacturers of the
Airframe, each Engine and each Serviced Engine.
"MONTHLY MINIMUM MAINTENANCE AMOUNT" shall have the meaning set forth in
Section 3(f)(i) of Exhibit E hereto.
"NTF" means, with respect to the Serviced Aircraft, any Serviced Engine or
any Serviced Part upon which an inspection has been performed to determine the
existence of a suspected malfunction, that the results of such inspection
indicated there was "no trouble found."
"ON-CALL FIELD STATIONS" means (i) LAS, LAX, SEA and SFO and any other
station requested by Lessee and agreed to in writing by Lessor, and in each
case, at which, pursuant to Section 1 of Exhibit E, Lessee has elected to
perform, and is performing, Line Maintenance Services at such location and
(ii) HNL.
"ON-CALL MAINTENANCE SERVICES" means, with respect to the Serviced
Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical
malfunction, the inspection, maintenance and repair of such malfunction at the
request of Lessee at any of the On-Call Field Stations but excluding Field Trip
Maintenance Services.
"160 LEASE" or "160 LEASE AGREEMENT" means the Aircraft Lease Agreement,
dated as of January 3, 1997 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, all as from time to time amended, supplemented or
modified.
"161 LEASE" or "161 LEASE AGREEMENT" means the Aircraft Lease Agreement,
dated as of December 30, 1995 between Lessee and Lessor, and all other
agreements, instruments, certificates and documents related thereto or executed
or delivered in connection therewith, all as from time to time amended,
supplemented or modified.
"171 LEASE" or "171 Lease Agreement" means the Aircraft Lease Agreement,
dated as of May 15, 1995 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, all as from time to time amended, supplemented or
modified.
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"125 LEASE" or "125 Lease Agreement" means the Aircraft Lease Agreement,
dated as of May 9, 1997 between Lessee and Lessor, and all other agreements,
instruments, certificates and documents related thereto or executed or delivered
in connection therewith, all as from time to time amended, supplemented or
modified.
"OUTSIDE SERVICES" shall have the meaning assigned to such term in
Section 4(f) of Exhibit E.
"PARTS" means (i) any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats and other equipment of whatever
nature (other than complete engines or Serviced Engines), which may from time to
time be incorporated or installed in or attached to the Airframe or any Serviced
Engine, or having been so installed in or attached, are later removed therefrom,
so long as title thereto remains vested in Lessor, and (ii) all Allocated Parts
(other than the Allocated Spare Engine).
"PERMITTED LIENS" means Liens referred to in clauses (i) through (vii) of
Section 6.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or other
form of entity or any government or any agency or political subdivision thereof.
"PHASED-OUT PARTS" means Serviced Parts of a type formerly utilized during
the Lease Term by Lessor but discontinued with respect to Lessor's fleet of
DC10-10 Aircraft that Lessee has properly elected without contravening Section 4
of Exhibit E to continue to utilize on the Serviced Aircraft.
"POOLING AGREEMENT" means the Pooling Agreement dated the date hereof
between Lessor and Lessee, as amended, supplemented and modified from time to
time.
"PRIME RATE" means the per annum rate announced by The Chase Manhattan
Bank, N.A. from time to time as its prime rate in New York, New York.
"RENT" means Basic Rent and Supplemental Rent, collectively.
"REPLACEMENT ENGINE" means a GE CF6-6K engine (or an engine of the same or
another manufacturer of a comparable or an improved model and suitable for
installation and use on the Airframe) which shall have been leased hereunder
pursuant to Section 8, together with all Parts relating to such engine.
"RETURN AIRCRAFT" means upon the return of the Aircraft to Lessor hereunder
pursuant to Section 5, 8, or 14A hereof, the Airframe constituting part of the
Aircraft and the engines or Serviced Engines attached thereto.
"ROTABLE PARTS" means Serviced Parts that customarily have a potential for
reuse through inspection, repair, overhaul or calibration.
"SABRE" means SABRE Decision Technologies, a division of The SABRE Group,
Inc. (formerly known as AMR Information Services, Inc.).
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"SEA" means the Seattle/Tacoma International Airport in Seattle,
Washington.
"SERVICED AIRCRAFT" means the Aircraft.
"SERVICED AIRFRAME" means (i) the Serviced Aircraft (except Serviced
Engines) and (ii) any and all Serviced Parts (except Serviced Parts that
comprise a Serviced Engine) so long as the same shall be incorporated or
installed in, or attached to, such Serviced Aircraft.
"SERVICED ENGINES" means (i) each Engine, so long as Lessee has not
delivered possession of any such Engine to Lessor pursuant to the Pooling
Agreement; (ii) each of the GE CF6-6K engines delivered to Lessee by Lessor
pursuant to the Pooling Agreement so long as such engines have not been
redelivered by Lessee to Lessor under the Pooling Agreement, PROVIDED THAT, for
the purposes of Exhibit E attached hereto, an engine delivered by Lessee to
Lessor thereunder shall remain a Serviced Engine until all Maintenance Services
have been completed thereon; and (iii) the Allocated Spare Engine; and (iv) for
purposes of Exhibit E only, GE CF6-6K engines in transit between Lessor and
Lessee pursuant to Sections 3(d), 3(i) and 4(d)(iii) of Exhibit E.
"SERVICED PART" means any Serviced Aircraft component, including any APU,
landing gear, part, equipment, accessory, instrument, avionics or system and
miscellaneous materials and supplies consumed during operation or inspection,
maintenance, repair and overhaul services.
"SFO" means the San Francisco International Airport in San Francisco,
California.
"STIPULATED INTEREST RATE" means the rate of ten percent (10%) per annum.
"STIPULATED LOSS VALUE" payable with respect to an Event of Loss for the
Airframe and its Serviced Engines shall mean, as of any date of determination,
the amounts set forth in Exhibit B hereto.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which Lessee assumes or agrees to pay hereunder to Lessor or
others, including, without limitation, all Monthly Supplemental Rent Payments
and all other amounts, liabilities and obligations of Lessee to Lessor set
forth in Exhibit E attached hereto.
"TAXES" means any and all fees (including license, documentation and
registration fees), taxes (including income, gross receipts, preferences, sales,
use, turnover, value added, property (tangible and intangible), excise and stamp
taxes), licenses, levies, imposts, duties, charges, surcharges, assessments or
withholdings of any nature whatsoever, together with any and all penalties,
fines, additions to tax and interest thereon in each case imposed by a Taxing
Authority.
"TAXING AUTHORITY" means any Federal, state or local government or other
taxing authority in the United States or any political subdivision or territory
or possession thereof, any international authority and any taxing authority of
any other government or political subdivision or territory or possession
thereof.
"TERM" means the period for which the Aircraft is leased pursuant to
Section 3(a) hereof and Section 3 of the Lease Supplement.
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"13D GROUP" means any partnership, limited partnership, syndicate or other
"group" ( as such term is used in Section 13(d)(3) of the Exchange Act).
"TUL" means Tulsa International Airport in Tulsa, Oklahoma.
"TURN TIME" means, with respect to any particular Maintenance Services, the
period of time ordinarily required by Lessor, exerting its reasonable efforts,
to complete such Maintenance Services in accordance with its customary practices
and procedures or such specified period of time agreed to in writing by Lessor
and Lessee for the performance of any particular Maintenance Services.
"VOTING SECURITIES" means any securities of Lessee entitled to vote
generally in the election of directors, or securities convertible into or
exercisable or exchangeable for such securities.
"WARRANTY CLAIM" means a written notice delivered to Lessor by Lessee of a
Defect in Maintenance Services performed by Lessor, which Defect is claimed to
be within the scope of the warranty provided by Lessor in Section 5(a) of
Exhibit E, such notice specifying in detail the nature of the Defect.
"WARRANTY PERIOD" means, with respect to the Serviced Aircraft, any
Serviced Engine or any Serviced Part upon which Maintenance Services were
performed, that period of time commencing upon redelivery to Lessee of such
Serviced Aircraft, Serviced Engine or Serviced Part after performance of
Maintenance Services thereon and expiring on the first to occur of the
following: (i) the expiration of one hundred twenty (120) days after redelivery
of such Serviced Aircraft, Serviced Engine or Serviced Part to Lessee, or
(ii) the completion of four hundred (400) Flight Hours of operation of such
Serviced Aircraft, Serviced Engine or Serviced Part after redelivery to Lessee.
"WEEKLY SUPPLEMENTAL RENT PAYMENT" shall have the meaning assigned to such
term in Section 3(f) of Exhibit E.
"WEEKLY SUPPLEMENTAL RENT PAYMENT DATE" shall have the meaning assigned to
such term in Section 3(f) of Exhibit E.
RULES OF INTERPRETATION. The following rules of interpretation apply to
this Lease Agreement:
(1) "or" is not exclusive and "include" and "including" are not limiting;
(2) "hereby", "herein", "hereof", "hereunder", "this Lease", "this
Agreement", "Lease Agreement", or other like words refer to this
Aircraft Lease Agreement;
(3) a reference to any agreement or other contract includes permitted
supplements and amendments;
(4) a reference to a law includes any amendment or modification to such
law and any rules or regulations issued thereunder or any law enacted
in substitution or replacement therefor;
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(5) a reference to a Person includes its permitted successors and assigns;
(6) a reference herein to an Article, Section, Exhibit or Schedule is to
the relevant Article, Section, Exhibit or Schedule of this Lease
Agreement;
(7) any right may be exercised at any time and from time to time;
(8) all obligations are continuing obligations;
(9) time shall be of the essence in the performance of all payment
obligations;
(10) the heading of the Articles, Sections, Exhibits, Schedules and
subsections are for the convenience of reference only and shall not
affect the meaning of this Lease Agreement; and
(11) no term or provision herein may be changed, waived, discharged or
terminated orally, but only by written instrument signed by the party
against which the enforcement of the change, waiver, discharge or
termination is sought.
Section 2. DELIVERY AND ACCEPTANCE.
(a) TIME AND PLACE. Lessor hereby agrees (subject to satisfaction of the
conditions set forth in Exhibit C attached hereto) to lease to Lessee hereunder
and Lessee hereby agrees to lease from Lessor hereunder, on the Delivery Date,
the Aircraft, as evidenced by the execution by Lessor and Lessee of Lease
Supplement No. 1 hereunder. Delivery of the Aircraft by Lessor and acceptance
thereof by Lessee shall occur at Lessor's option at LAX or TUL, or such other
location agreed on by Lessor and Lessee.
(b) DELIVERY DATE. The Delivery Date for the Aircraft shall occur on or
about the third week of December, 1997.
Lessor shall deliver the In-Use Aircraft in the condition set forth in Exhibit D
attached hereto, provided that such delivery and fulfillment of delivery
conditions shall, subject to the execution and delivery of Lease Supplement
No. 1 (and satisfaction of the conditions set forth in Exhibit C attached
hereto), be deemed to have been met. Lessor shall use its reasonable efforts to
deliver the In-Use Aircraft on the Delivery Date, but if Lessor is unable to
deliver the In-Use Aircraft on the Delivery Date, it shall deliver the In-Use
Aircraft to Lessee as soon thereafter as possible without any penalty, charge or
damages for late delivery.
Section 3. TERM AND RENT.
(a) TERM. Except as otherwise provided herein (including, without
limitation, pursuant to the definition of Event of Loss), the Term for the
Aircraft shall commence on the Delivery Date and end on September 11, 2001.
Notwithstanding the foregoing, Lessor shall have the right to terminate this
Lease by written notice to Lessee upon the occurrence of a Change in Control and
the relevant Term for each Aircraft shall end on the date specified in such
notice.
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(b) BASIC RENT. Lessee hereby agrees to pay Lessor Basic Rent for the
Aircraft throughout the Term, in advance in the amounts set forth in Schedule I,
on each Basic Rent Payment Date, commencing on the Delivery Date.
(c) SUPPLEMENTAL RENT. Lessee also agrees to pay to Lessor, or to
whosoever shall be entitled thereto, any and all Supplemental Rent promptly as
the same shall become due and owing, including on each Monthly Supplemental Rent
Payment Date (as defined in Exhibit E attached hereto) (or on demand if no due
date is specified), and in the event of any failure on the part of Lessee to pay
any Supplemental Rent, Lessor shall have all rights, powers and remedies
provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. In addition, Lessee shall pay, on demand, as
Supplemental Rent, to the extent permitted by applicable law, an amount equal to
interest at the Stipulated Interest Rate on any part of any installment of Basic
Rent not paid when due for any period for which the same shall be overdue and on
any payment of Supplemental Rent not paid when due or demanded, as the case may
be, for the period until the same shall be paid. The expiration or other
termination of Lessee's obligations to pay Basic Rent hereunder shall not limit
or modify the obligations of Lessee with respect to Supplemental Rent. All
Supplemental Rent to be paid pursuant to this Section 3(c) shall be payable in
the type of funds and in the manner set forth in Section 3(e).
(d) PROHIBITION AGAINST SETOFF, ETC. Except as set forth in Section
4(c)(i)(D) of Exhibit E attached hereto, this Lease is a net lease and Lessee's
obligation to pay Rent hereunder shall be absolute and unconditional and shall
not be affected by any circumstance including (i) any claim which Lessee may
have against Lessor or anyone else for any reason whatsoever (whether in
connection with the transactions contemplated hereby or any other transactions),
including any breach by Lessor or any of its Affiliates, of any of its
warranties, agreements or covenants contained herein or in any of the Long-Term
Agreements or any of the documents related hereto or thereto or performance, or
nonperformance by Lessor of any of its duties or obligations to Lessee set forth
in Exhibit E attached hereto, (ii) any defect in the title, registration,
airworthiness, condition, design, operation, or fitness for use of, or any
damage to or loss or destruction of, the Airframe, any Serviced Engine or any
Engine, or any interruption or cessation in or including any such interruption,
cessation or prohibition of the use or possession thereof by Lessee for any
reason whatsoever, resulting from the act of any Governmental Authority; and
(iii) any other circumstance, happening or event whatsoever, whether or not
foreseen or similar to the foregoing; PROVIDED that Lessee's obligations to pay
Basic Rent and Supplemental Rent shall cease with respect to the Aircraft,
except with respect to Rent accrued at such time upon (i) redelivery of the
Aircraft by Lessee to Lessor in accordance with the provisions of Sections 5
hereof; and/or (ii) repossession of the Aircraft by Lessor pursuant to Section
14A hereof, but subject to Lessee's payments of sums specified under said
Section 14A; and/or (iii) with respect to any Item of Equipment, payment by or
on behalf of Lessee to Lessor in full of the Stipulated Loss Value and other
sums specified in Section 8 hereof to be paid by Lessee pursuant to an Event of
Loss with respect to such Item of Equipment. Lessee hereby waives, and hereby
agrees to waive at any future time at the request of Lessor, to the extent now
or then permitted by Applicable Law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or otherwise,
to terminate, cancel, quit or surrender this Lease except in accordance with the
express terms hereof. Each payment of Rent made by Lessee to Lessor shall be
final as to Lessor and Lessee. Lessee shall not
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seek to recover all or any part of any such payment of Rent from Lessor for
any reason whatsoever except manifest error. The parties agree that nothing
contained in this Section 3(d) shall affect or limit any right of Lessee to
collect damages for the breach of any covenant or representation by Lessor
hereunder, including Section 4 hereto or Exhibit E hereto or by any Affiliate
of Lessor under any Long-Term Agreement. Lessee shall pay all costs and
expenses of every character, whether seen or unforeseen, ordinary or
extraordinary or structural or nonstructural, in connection with the
delivery, use, operation, maintenance, return, and repair and reconstruction
of the Airframe and each Serviced Engine by Lessee, including the costs and
expenses particularly set forth in this Lease, except as may be otherwise
expressly set forth in the other documents related hereto.
(e) PAYMENT TO LESSOR. All Rent shall be paid by Lessee to Lessor by wire
transfer of immediately available funds in U. S. Dollars, to such account as
Lessor shall designate to Lessee in writing. Such funds shall be available to
Lessor not later than 3:00 p.m., New York City time on the date of payment.
Whenever any payment of Rent is due on a day other than a Business Day, such
payment shall be made on the next preceding Business Day. All Rent to be paid
by Lessee hereunder shall be paid in full without any deduction or withholding
with respect to Taxes of any nature imposed by any Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall comply with Section 16 below.
Section 4. DISCLAIMER; WARRANTIES RELATING TO THE AIRCRAFT; CERTAIN
AGREEMENTS OF LESSEE, REPRESENTATIONS OF LESSEE.
(a) DISCLAIMER. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS,
WHERE-IS", AND LESSOR DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE, AND
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY
OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE OF ANY ITEM OF EQUIPMENT OR
ENGINE OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE, AS TO THE INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS
TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP IN ANY ITEM OF EQUIPMENT OR ENGINE OR ANY
OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT
THERETO, except for the representations of Lessor set forth in Section 4(e)
below, and that Lessor represents that (i) it has good title to the Aircraft
free of Lessor's Liens and the lawful right to lease the Aircraft to Lessee in
accordance with the terms hereof, (ii) Lessor has the lawful right to lease the
Airframe to Lessee in accordance with the terms hereof, and (iii) that Lessor is
a citizen of the United States of America as defined in Section 40102(a)(15)
(former 101(16)) of the Act. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY TO LESSEE OR ANY OTHER PERSON WITH RESPECT TO (I) ANY LIABILITY, LOSS
OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF
EQUIPMENT OR ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN
OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION THEREWITH; (II) THE USE, OPERATION
OR PERFORMANCE OF ANY ITEM OF EQUIPMENT OR ENGINE OR ANY RISKS RELATING THERETO;
(III) ANY
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INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES; OR (IV) THE DELIVERY HEREUNDER,
OPERATION, SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY ITEM OF
EQUIPMENT EXCEPT AS EXPRESSLY PROVIDED IN THE PROVISIONS OF EXHIBIT E HERETO
RELATING TO THE SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY SERVICED
ENGINE OR SERVICED AIRCRAFT; PROVIDED THAT NOTHING CONTAINED IN THIS SECTION
4(a) SHALL IN ANY WAY LIMIT THE RIGHTS OF LESSEE AGAINST ANY AFFILIATE OF LESSOR
UNDER ANY LONG-TERM AGREEMENT.
(b) QUIET ENJOYMENT. Notwithstanding any other term or provision of this
Agreement, Lessor covenants that, so long as no Lessee Event of Default shall
have occurred and be continuing, it shall not take any action contrary to
Lessee's rights under this Lease, or otherwise through its own actions or
inactions in any way interfere with the quiet enjoyment of the use and
possession of the Aircraft, the Airframe or any Serviced Engines by Lessee;
PROVIDED that no performance or failure by Lessor to perform its obligations
under Exhibit E hereto shall be deemed a breach of this Section 4(b).
(c) WAIVER OF WARRANTIES. LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES
THE BENEFIT OF ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS ON THE PART
OF LESSOR WHICH ARE EXPRESSED OR WOULD OR MIGHT BE IMPLIED IN THIS AGREEMENT
WHETHER BY LAW OR OTHERWISE AND RELATING IN ANY WAY TO THE STATE, CONDITION OR
AIRWORTHINESS OF AN ITEM OF EQUIPMENT OR ENGINE. LESSEE ACKNOWLEDGES THAT THE
PROVISIONS OF SECTIONS 4(a) AND 4(b) HAVE BEEN THE SUBJECT OF FULL DISCUSSION
AND NEGOTIATION BETWEEN LESSEE AND LESSOR AND THAT THE BASIC RENT AND ALL OTHER
AGREEMENTS OF LESSEE AND LESSOR CONTAINED IN THIS AGREEMENT WERE ARRIVED AT IN
CONSIDERATION OF THE PROVISIONS OF SECTIONS 4(a) AND 4(b) SPECIFICALLY INCLUDING
THE DISCLAIMER BY LESSOR SET FORTH IN SECTION 4(a) AND THE WAIVER, RELEASE AND
RENUNCIATION BY LESSEE SET FORTH IN THIS SECTION 4(c).
(d) LESSEE'S REPRESENTATIONS AND WARRANTIES. To induce Lessor to enter
into this Lease Agreement, and any documents contemplated hereby, Lessee makes
the following representations and warranties, each of which shall survive the
execution and delivery of this Lease Agreement and the Delivery Date:
(i) Lessee is a corporation duly incorporated under the laws of the
Territory of Hawaii and is validly existing in good standing under the laws
of the State of Hawaii and has its chief executive office in Honolulu,
Hawaii. Except as set forth on Schedule 4(d)(i) hereto Lessee has all
requisite corporate power and authority to carry on its business as now
conducted, and to execute, deliver and perform its obligations under this
Lease and each Lease Supplement. Lessee is a duly certificated "air
carrier" under Section 41102 (former Section 401) and Section 44705 (former
Section 604) of the Federal Aviation Act and possesses all necessary
licenses or permits required by any Governmental Authority having
jurisdiction over Lessee or the Aircraft to permit Lessee to engage in air
transportation and
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to perform and comply with its obligations under this Lease, and is duly
qualified to do business as a foreign corporation, and is in good standing,
in each jurisdiction in which its failure to so qualify would adversely
and materially affect it or its ability to carry out its obligations under
this Lease;
(ii) this Lease has been duly authorized by all necessary corporate
action on the part of Lessee, does not require any approval of stockholders
of Lessee (or if such approval is required, such approval has been
obtained), and the execution and delivery hereof, and/or the consummation
of the transactions contemplated hereby, and/or compliance by Lessee with
any of the terms and provisions hereof, do not contravene any provisions of
the Articles of Incorporation or By-laws of Lessee, or result in any breach
of, or constitute any default under, or result in the creation of any Lien
upon any assets or property of Lessee under, any (A) indenture, mortgage,
lease, chattel mortgage, deed of trust, conditional sales contract, bank
loan, credit agreement or other material agreement or instrument to which
Lessee is a party or by which Lessee or its properties may be bound or
affected other than the Lien under
this Lease and Permitted Liens, or (B) Applicable Law;
(iii) the execution and delivery by Lessee of this Lease, and the
performance by Lessee of any of the transactions contemplated hereby do not
require the consent or approval of, or registration with, or the giving or
prior notice to any Person, including any federal, state or foreign
governmental authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Lease, and (B) routine reporting requirements of the
Securities and Exchange Commission, the FAA, the DOT or other Governmental
Authorities after the Delivery Date;
(iv) this Lease has been duly executed and delivered by Lessee, and
this Lease, together with Lease Supplement No. 1 when executed and
delivered by Lessee, will constitute legal, valid and binding obligations
of Lessee, fully enforceable, except as set forth on Schedule 4(d)(iv), in
accordance with their respective terms;
(v) except as set forth on Schedule 4(d)(v), there are no pending or,
to the knowledge of Lessee, threatened investigations, suits or proceedings
against it or affecting it or its properties or operations, that, if
determined adversely, would materially adversely affect it, the
consummation of the transactions described in, or the performance of its
obligations under, this Lease Agreement or affect the right, title or
interest of Lessor in the Aircraft;
(vi) except as set forth on Schedule 4(d)(vi), Lessee is not in
violation of, or in default under, any law, ordinance, order, regulation or
authorization of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that could have a material
adverse effect on the business or condition (financial or otherwise) of
Lessee;
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(vii) except as set forth in Schedule 4(d)(vii), Lessee is not in
default, and no condition exists that with notice or lapse of time or both
would constitute a default, under any mortgage, deed of trust, indenture,
or other instrument or agreement to which it is a party, or by which it or
any of its properties or assets may be bound, that would have a material
adverse effect on any of the actions described in, or on its ability to
perform its obligations under, this Lease, and it is not in breach of any
Applicable Law that would have a material adverse effect on it, or any of
the actions described in, or on its ability to perform its obligations
under, this Lease;
(viii) except for the filing for recordation of this Lease, and
Lease Supplement No. 1, and the placing on the Aircraft and on each Engine
of the plates containing the legends referred to in Section 7(f) hereof, no
further filing or recording of this Lease or of any other document
(including any financing statement under Article 9 of the Uniform
Commercial Code) and no further action is necessary or advisable, under the
laws of the United States of America or the State of Hawaii, in order to
fully protect and establish Lessor's title to, and interest in, the
Aircraft and the Engines as against Lessee or any third parties;
(ix) the financial and written information furnished by Lessee in
connection with this Agreement, and the transactions contemplated hereby
does not contain any untrue statement of a material fact or omit to state a
material fact;
(x) No Default or Lessee Event of Default has occurred and is
continuing hereunder;
(xi) Lessee has assets in excess of $5,000,000.00 according to its
most recent financial statement prepared in accordance with generally
accepted accounting principles and is not a "consumer" as that term is
defined in Section 17.45 of the Texas Deceptive Trade Practices-Consumer
Protection Act;
(xii) Lessee is not a consumer as defined by Hawaii Revised Statutes
Section 480-1 (1992 Supp.), and therefore has no right to bring an action
or pursue damages based upon unfair or deceptive acts or practices under
that Section;
(xiii) Lessee is an air carrier under 14 C.F.R. Part 121; and
(xiv) Lessor shall be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to its rights of repossession of the Aircraft,
any Engines, any appliances or spare parts, each as defined in such Section
1110 of the Bankruptcy Code, pursuant to Section 14A hereof.
(e) LESSOR'S REPRESENTATIONS AND WARRANTIES. To induce Lessee to enter
into this Lease Agreement, Lessor makes the following representations and
warranties each of which shall survive the execution and delivery of this Lease
Agreement and the Delivery Date:
(i) the execution and delivery by Lessor of this Agreement have been
duly authorized by all necessary corporate action on the part of Lessor, do
not require any
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approval of stockholders of Lessor (or if such approval is required,
such approval has been obtained), and the execution and delivery hereof,
and/or the consummation by Lessor of the transactions contemplated
hereby, and/or compliance by Lessor with any of the terms and provisions
hereof, do not contravene any provisions of the Certificate of
Incorporation or By-laws of Lessor, or result in any breach of, or
constitute any default under, or result in the creation of any Lien upon
any assets or property of Lessor under, any (A) indenture, mortgage,
lease, chattel mortgage, deed of trust, conditional sales contract, bank
loan, credit agreement or other material agreement or instrument to
which Lessor is a party or by which Lessor or its properties may be
bound or materially affected, which breach or default would have a
material adverse effect on its ability to perform the transactions
contemplated by this Agreement, or (B) any Applicable Law binding on
Lessor, which breach or default would have a material adverse effect on
its ability to perform the transactions contemplated by this Agreement;
(ii) the execution and delivery by Lessor of this Agreement and the
performance by Lessor of its obligations under this Agreement do not
require the consent or approval of, or registration with, or the giving of
prior notice to, any Person including any federal, state or foreign
Governmental Authority or entity having appropriate jurisdiction, except
(A) any such consent, approval, notice registration, notice or action that
has been obtained or as would not affect the validity, enforceability or
binding nature of this Agreement, and (B) routine reporting requirements of
the Securities and Exchange Commission, the FAA, the DOT or other
Governmental Authorities after the Effective Date;
(iii) this Agreement has been duly executed and delivered by Lessor
and, assuming due authorization, execution and delivery by Lessee,
constitutes the legal, valid and binding obligation of Lessor, fully
enforceable against Lessor in accordance with its terms;
(iv) Lessor is not in default, and no condition exists that with
notice or lapse of time or both would constitute a default, under any
material mortgage, deed of trust, indenture, or other instrument or
agreement to which it is a party, or by which it or any of its properties
or assets may be bound, that would have a material adverse effect on its
ability to perform its obligations under this Agreement;
(v) there are no pending or, to the knowledge of Lessor, threatened
investigations, suits or proceedings against it or affecting it or its
properties or operations, that, if determined adversely, would materially
adversely affect the consummation by Lessor of the transactions described
in, or the performance of its obligations under, this Agreement;
(vi) Lessor is not in violation of, or in default under, any
Applicable Law, of any Governmental Authority or any permit or certificate
issued or granted by any Governmental Authority, that would have a material
adverse effect on its ability to perform its obligations under this
Agreement;
(vii) Lessor is certificated under 14 C.F.R. Part 121 to perform
Maintenance Services; and
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(viii) Lessor has the right to transfer possession and use of the
Serviced Engines to Lessee.
Section 5. RETURN OF AIRFRAME AND ENGINES.
(a) RETURN OF AIRFRAME AND SERVICED ENGINES. Upon the termination of this
Lease at the end of the Term or pursuant to Sections 8 or 14A hereof, Lessee
shall return the Return Aircraft by delivering the same, at its own expense, to
Tulsa, Oklahoma (TUL), Marana, Arizona (MZJ), Amarillo, Texas (AMA), Dallas/Fort
Worth International Airport (DFW), or Los Angeles International Airport (LAX) at
Lessor's sole option. Upon the expiration of the Term or pursuant to Sections 8
or 14A, as the case may be, Lessee shall make the redelivered Return Aircraft
available for inspection by Lessor and its representatives and designees. At
the time of the return of the Return Aircraft:
(i) the Return Aircraft shall be in compliance with the Return
Conditions as set forth in Exhibit D;
(ii) the Return Aircraft shall be in compliance with Lessee's
FAA-approved maintenance program;
(iii) each Item of Equipment and Engine shall be free and clear of all
Liens (except Lessor's Liens);
(iv) the Return Aircraft shall be in the same passenger configuration
as when delivered to Lessee, and each Item of Equipment shall be in as good
an operating condition as when delivered to the Lessee on the Delivery
Date, ordinary wear and tear excepted;
(v) Upon the return of the Airframe, either at the end of the Term,
pursuant to Section 8 hereof or pursuant to Section 14A, (i) Lessee shall
have no obligation with respect to the amount of fuel or oil contained in
the Airframe and all fuel or oil remaining on board the Airframe shall be
the property of Lessor without charge and (ii) Lessee shall deliver or
cause to be delivered to Lessor all logs, manuals and data, and inspection,
modification and overhaul records required to be maintained with respect
thereto under applicable rules and regulations of the FAA;
(vi) Subject to the availability of storage space, upon the
termination of the Lease as to the Aircraft, upon request of Lessor, Lessee
shall provide Lessor with storage facilities for such Return Aircraft for a
period not exceeding ninety (90) days in accordance with the applicable
manufacturer's recommendations for storage and FAA regulations and shall
arrange for insurance and maintenance (performance of such maintenance
subject to the availability of Lessee's employees) for such Return
Aircraft during such storage period. The Lessor shall pay Lessee's direct
costs for such storage, maintenance and insurance without mark-up; and
(vii) Any Serviced Engines returned by Lessee on any Return Aircraft
are deemed to be Engines for the purpose of compliance with Return
Conditions.
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So long as Lessor is maintaining the Aircraft pursuant to Exhibit E
attached hereto, the Return Conditions set forth in Exhibit D (other than
Sections 2F(a) and (b), 2k, 2M(2), (4) and (5) and 2P thereof and the obligation
to return all documents required for return set forth in Exhibit D and the
obligation to return the Aircraft clean) shall be deemed to be satisfied with
respect to the Aircraft.
(b) RETURN OF OTHER ENGINES. In the event that any engine that is not a
Serviced Engine shall be installed on the Airframe returned, such engine shall
be an engine suitable to be a Replacement Engine hereunder. Upon return of the
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor
with a full warranty bill of sale, in form and substance reasonably satisfactory
to it, with respect to such engine and take such other action as may be
reasonably requested in order that title to such engine may be duly and properly
vested in Lessor to the same extent as the Engine replaced thereby. Upon
conveyance of good title to such engine to Lessor, and upon full compliance by
Lessee with its obligations hereunder, at Lessee's expenses, Lessor will
transfer to Lessee all rights, title and interest originally conveyed to Lessor
in an Engine constituting part of the Aircraft but not installed on the Airframe
at the time of the return of the Airframe "as-is, where-is", free and clear of
any Lessor's Liens but otherwise without recourse or warranty, express or
implied to Lessee.
Section 6. LIENS. Lessee shall not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Airframe or
any Engine or any Serviced Engine or any Parts, title thereto or any interest
therein or in this Lease except (i) the respective rights of Lessor and Lessee
as herein provided, (ii) the rights of others under agreements or arrangements
to the extent expressly permitted by the terms of Sections 7(e) and 7(h),
(iii) Lessor's Liens, (iv) Liens for Taxes either not yet due or being contested
in good faith (and the payment of which has been bonded to the satisfaction of
Lessor) by appropriate proceedings so long as such proceedings do not involve
any danger of the sale, forfeiture or loss of the Airframe or any Engine or any
Serviced Engine or interest therein, (v) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like liens arising in the ordinary course of
business for amounts the payment of which is either not yet delinquent or is
being contested in good faith (and the payment of which has been bonded to the
satisfaction of Lessor) by appropriate proceedings so long as such proceedings
do not involve any danger of the sale, forfeiture or loss of the Airframe or any
Engine or any Serviced Engine or interest therein, (vi) liens arising out of
judgments or awards against Lessee with respect to which at the time an appeal
or proceeding for review is being prosecuted in good faith and with respect to
which there shall have been secured a stay of execution pending such appeal or
proceeding for review, and (vii) the Pooling Agreement. Lessee shall promptly,
at its own expense, take such action as may be necessary duly to discharge (by
bonding or otherwise) any such Lien not excepted above if the same shall arise
at any time.
Section 7. REGISTRATION, MAINTENANCE AND OPERATION; POSSESSION; INSIGNIA.
(a) REGISTRATION, MAINTENANCE AND OPERATION. Lessee, at its own cost and
expense, shall:
(i) maintain, service, repair, overhaul and test or cause to be
maintained, serviced, repaired, overhauled and tested each Item of
Equipment in accordance with
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Lessee's FAA approved maintenance program, so as to keep each Item of
Equipment (A) in at least as good an operating condition as when
delivered, ordinary wear and tear excepted, and within the acceptable
limits of performance provided in the Manufacturer's manuals, (B) in
conformity with any Manufacturer's operating manual, instructions and
service bulletins and all mandatory service bulletins and such other
non-mandatory Manufacturer's service bulletins reasonably requested by
Lessor and by the Manufacturer, (C) in conformity with all AD's that are
required to be performed with respect to any Item of Equipment during
the Lease Term, (D) in conformity with the requirements of any other
Governmental Authority having jurisdiction over the Item of Equipment,
(E) in such condition that the Airframe and each Serviced Engine will
comply with the FAA type certificate (as in effect from time to time)
issued to the Manufacturer of the Airframe or such Serviced Engine and
in compliance with a maintenance program approved by the FAA so long as
such maintenance program conforms to the maintenance program (as in
effect from time to time) established by the applicable FAA-approved
maintenance review board report for airframes and engines of the same
type, and (F) in such condition as may be necessary to enable the
airworthiness certification of the In-Use Aircraft to be maintained in
good standing at all times (and, in the case of any Engine when it is
not installed on the Airframe, so as to keep such Engine serviceable at
all times except when such Engine is awaiting overhaul, maintenance,
repair, inspection or servicing in the normal course of Lessee's
FAA-approved or compatible maintenance program) under the rules and
regulations of the FAA. All maintenance on the Airframe and Serviced
Engines shall be performed by Lessee in accordance with the standards
set forth above. Lessee shall promptly notify Lessor of any material
change in the maintenance program in respect of the In-Use Aircraft from
that in effect on the Delivery Date;
(ii) not permit the Airframe, any Serviced Engine, or any Part to be
maintained, serviced, repaired, overhauled, tested, used or operated in
violation of any Applicable Law of any Governmental Authority having
jurisdiction or in violation of any airworthiness certificate, license or
registration relating to the Airframe, any Serviced Engine or any Part
issued by any such Governmental Authority. In the event that any such
Applicable Law requires alteration of the Airframe, any Serviced Engine, or
any Part, Lessee will conform thereto or obtain conformance therewith at no
expense to Lessor and will maintain the Airframe, such Serviced Engine or
such Part in proper operating condition under such Applicable Laws;
(iii) maintain or cause to be maintained all records, logs and other
materials required by the FAA or other applicable Governmental Authority to
be maintained in respect of the In-Use Aircraft; and
(iv) promptly furnish to Lessor such information as may be required to
enable Lessor to file any reports required to be filed by Lessor with any
Governmental Authority because of Lessor's ownership of the Aircraft.
(b) ADDITIONAL MAINTENANCE PROVISIONS. Lessee covenants and agrees that
it shall use, operate, maintain, service, repair, overhaul and test or cause to
be used, operated, maintained, serviced, repaired, overhauled and tested, the
Airframe, each Serviced Engine and any Part in at
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least as good manner and with at least as much care as used by Lessee with
respect to other airframes, engines and parts of the same type or utility
owned, leased or operated by Lessee and that it will not discriminate against
the Airframe, any Serviced Engine or any Part (as compared to other
airframes, engines or parts of the same type or utility owned, leased or
operated by Lessee) in the use, operation, maintenance, service, repair,
overhaul or testing of the Airframe, each Serviced Engine or any Part.
(c) TERRITORIAL RESTRICTIONS ON USE OF AIRCRAFT. Lessee agrees not to
operate or locate any Item of Equipment, or suffer such Item to be operated,
(A) unless such Item is covered by insurance as required by the provisions of
Section 9, (B) contrary to the terms of the insurance required by the provisions
of Section 9 of this Lease, (C) in any war zone or recognized or threatened area
of hostilities unless covered to Lessor's satisfaction by war risk insurance,
(D) to or from any airport which is at such time the subject of a prohibition
order of any Governmental Authority of the United States or of any international
authority or treaty organization of which the United States is a member, or
(E) to or from any airport that the aircraft leased by Lessee from Lessor
pursuant to the Long-Term Lease are not operated to or from.
(d) OBLIGATIONS ABSOLUTE. Nothing herein, including Exhibit E hereto,
shall be deemed to affect Lessee's obligations pursuant to this Section 7 or to
impose on Lessor the obligation to pay for or be responsible for the payment of
any maintenance, repair or overhaul. It is understood and agreed that Lessee
shall be responsible for all of its obligations under this Section 7 hereof,
regardless of the performance or non-performance by Lessor of its obligations
described in Exhibit E hereto; PROVIDED that nothing contained in this Lease
shall prohibit Lessee from maintaining a separate action against Lessor for any
default by Lessor of its obligations described on Exhibit E attached hereto. So
long as Lessor is required to maintain the Aircraft pursuant to Exhibit E
hereto, the maintenance requirements of this Section 7 shall be deemed to have
been satisfied to the extent such maintenance has been provided by Lessor
pursuant to Exhibit E hereto.
(e) POSSESSION. Except for the delivery of the Airframe or any Serviced
Engine to Lessor pursuant to Exhibit E hereto or delivery of any Serviced
Engines pursuant to the Pooling Agreement, Lessee shall not sublease or
otherwise in any manner deliver, transfer or relinquish possession of the
Airframe, and shall not, without the prior written consent of Lessor, sublease
or otherwise in any manner deliver, transfer or relinquish possession of any
Serviced Engine or install any Serviced Engine, or permit any Serviced Engine to
be installed, on any airframe other than the Airframe.
(f) REGISTRATION AND INSIGNIA. Lessee shall maintain in the cockpit of
the Airframe adjacent to the airworthiness certificate therein the metal
nameplate bearing the Lessor's name, as owner and lessor. Lessee shall affix as
promptly as practicable after the Delivery Date and thereafter to maintain on
each Engine a metal nameplate bearing the inscription "AMERICAN AIRLINES, INC.,
OWNER AND LESSOR". Lessee may place its customary colors and insignia on the
Airframe or Engines so long as no polished portion of the In-Use Aircraft is
painted. The placement of and colors or insignia on the In-Use Aircraft shall
be performed by Lessor. Provided that Lessor shall (i) remain a citizen of the
United States of America as defined in Section 40102(a)(15) (former 101(16)) of
the Act and (ii) cooperate with the Lessee, Lessee shall maintain continued
registration of the Airframe in Lessor's name under the Act. Except as set
forth in
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Section 7(h) below, no additional modifications may be made to the Aircraft
or any Serviced Engines without the prior written consent of Lessor.
(g) REPLACEMENT OF PARTS. Subject to the provisions of Exhibit E hereof,
Lessee at its own cost and expense, shall promptly replace (or cause to be
replaced) all Parts which may from time to time be incorporated or installed in
or attached to the Airframe or any Serviced Engine and which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 8. In addition, Lessee may, at its own
cost and expense, remove or cause to be removed in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damages beyond repair or
permanently rendered unfit for use; PROVIDED that Lessee, except as otherwise
provided in Section 8, will, at its own cost and expense, replace such Parts as
promptly as possible. All replacement Parts shall be free and clear of all
Liens (except for Permitted Liens), and shall be in as good operating condition
as, and shall have a value and utility at least equal to, the Parts replaced,
assuming such replaced Parts were in the condition and repair required to be
maintained by the terms hereof. All Parts at any time removed from the Airframe
or any Serviced Engine shall remain the property of Lessor, no matter where
located. Immediately upon any replacement Part becoming incorporated or
installed in or attached to the Airframe or any Serviced Engine as above
provided, without further act, (i) title to the replacement Part shall thereupon
vest in Lessor free and clear of all Liens (except for Permitted Liens); and
(iii) such replacement Part shall become subject to this Lease and be deemed
part of the Airframe or such Serviced Engine for all purposes to the same extent
as the Parts originally incorporated or installed in or attached to the Airframe
or such Serviced Engine. Any Parts replaced or supplied by Lessor pursuant to
Exhibit E attached hereto shall be deemed to satisfy the conditions of this
Section.
(h) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Subject to the provisions
of Section 7(a) hereof, and, in addition, so long as Lessor is maintaining the
Aircraft pursuant to Exhibit E attached hereto, in compliance with Exhibit E
attached hereto, Lessee, at its own expense, will make (or cause to be made)
such alterations and modifications in and additions to the Airframe and the
Serviced Engines as may be required from time to time to meet the standards of
the FAA or other Governmental Authority having jurisdiction. In addition and
subject to the terms of Exhibit E hereto, Lessee, at its own expense, may from
time to time make (or cause to be made) such alterations and modifications in
and additions to the Airframe or any Serviced Engine as Lessee may deem
desirable in the proper conduct of its business, including, without limitation,
removal of Parts which Lessee deems obsolete or no longer suitable or
appropriate for use in the Airframe or any Serviced Engine, PROVIDED that (i) no
such alteration, modification, addition or removal shall diminish the fair
market value, utility or remaining useful life of the Airframe or such Serviced
Engine, or impair the condition or airworthiness thereof below the value,
utility, condition and airworthiness thereof immediately prior to such
alteration, modification, addition or removal assuming the Airframe or such
Serviced Engine was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this Lease; and (ii) no
structural modification shall be made without the prior written consent of
Lessor. Title to all Parts incorporated or installed in or attached or added
to the Airframe or any Serviced Engine as the result of such alteration,
modification or addition shall, without further act, vest in Lessor.
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Notwithstanding the foregoing sentence of this Section 7(h), so long as no
Default or Lessee Event of Default shall have occurred and be continuing, Lessee
may, at any time during the Term, remove any Part, PROVIDED that (i) such Part
is in addition to, and not in replacement of or substitution for, (x) any Part
originally incorporated or installed in or attached to the Airframe or any
Serviced Engine at the time of delivery thereof hereunder, or (y) any Part in
replacement of or substitution for any such Part, (ii) such Part is not required
to be incorporated or installed in or attached or added to the Airframe or any
Serviced Engine pursuant to the terms of this Section 7(h), and (iii) such Part
can be removed from the Airframe or such Serviced Engine without causing
material damage to the Airframe or such Serviced Engine and without diminishing
or impairing the value, utility, condition or airworthiness required to be
maintained by the terms of this Lease which the Airframe or such Serviced Engine
would have had at such time had such alteration, modification or addition not
occurred. Upon the removal by Lessee of any Part as provided in the immediately
preceding sentence, title thereto shall, without further act, vest in Lessee and
such Part shall no longer be deemed part of the Airframe or such Serviced Engine
from which it was removed. Any Part not removed by Lessee as provided in such
sentence prior to the return of the Airframe or such Serviced Engine to Lessor
hereunder shall remain the property of Lessor.
(i) MANUALS AND TECHNICAL RECORDS.
Lessee undertakes that:
(1) Throughout the Lease Term, Lessee shall keep, or cause to be
kept, accurate, complete and current records of all flights made
by the Aircraft and each Serviced Engine and of all maintenance
and repairs carried out to the Airframe and each Serviced Engine
and shall allow the Lessor or its agents to examine and make
reasonable copies of the records at any reasonable time upon
giving reasonable notice to Lessee.
(2) The records so kept shall conform with Lessee's approved
maintenance program.
(3) The records so kept shall be part of the manuals and technical
records and shall be the property of Lessor and that at the end
of the relevant Lease Term or upon the repossession or redelivery
of the Aircraft, Lessee shall deliver the relevant records to the
Lessor, provided that Lessee shall be entitled to take and retain
copies thereof.
(4) The Lessee shall provide to the Lessor or its authorized
representative each month a status report containing engine and
airframe utilization in hours and cycles, and other information
which Lessor may reasonably request.
(5) All original records shall be maintained in their original paper
form and shall be the property of the Lessor upon lease
termination.
(j) MAINTENANCE AND USAGE. Except as otherwise expressly provided herein,
throughout the Lease Term, Lessor and Lessee each agrees to perform its
obligations, duties and liabilities set forth in Exhibit E attached hereto.
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Section 8. LOSS, DESTRUCTION, REQUISITION, ETC.
(a) EVENT OF LOSS TO THE AIRCRAFT. Upon the occurrence of an Event of
Loss with respect to the In-Use Aircraft Lessee shall (i) forthwith (and in any
event within five days after such occurrence) give to Lessor written notice of
such Event of Loss and (ii) comply with Section 8(a)(1):
(1) PAYMENT OF STIPULATED LOSS VALUE AND RENT. On or before
the Business Day before the earlier of (i) the 60th day following the
date of the occurrence of such Event of Loss with respect to the
In-Use Aircraft; or (ii) five days following the receipt of insurance
proceeds with respect to such occurrence (the "LOSS PAYMENT DATE"),
Lessee shall pay to Lessor, in the manner and in funds of the type
specified in Section 3(e), an amount equal to the sum of (i) the
Stipulated Loss Value for the In-Use Aircraft calculated as of the
Basic Rent Payment Date next following the Event of Loss (or if the
date of such Event of Loss is a Basic Rent Payment Date, as of such
Basic Rent Payment Date (the "Loss Computation Date")) less any
payment of Basic Rent paid by Lessee after the date of such Event of
Loss and on or prior to the Loss Payment Date, (ii) any installment of
Basic Rent due and owing prior to the Loss Payment Date, (iii) all
Supplemental Rent then due and owing for the Aircraft on the Loss
Payment Date, and (iv) interest on the amounts described in clause (i)
and (ii) hereof from the Loss Computation Date to the Loss Payment
Date at the Prime Rate.
(2) TERMINATION UPON PAYMENT OF STIPULATED LOSS VALUE. Upon
payment in full of the amounts required pursuant to Section 8(a)(1),
(i) Lessee's obligation to pay Basic Rent hereunder with respect to
the Aircraft for any period commencing after the Loss Payment Date
shall terminate (but Lessee shall remain liable for all payments of
Rent, including Basic Rent and Supplemental Rent, including, without
limitation, the Supplemental Rent pursuant to Exhibit E hereto, for
the Aircraft, due through and including the date of such payment),
(ii) the Term for the Aircraft shall end, and (iii) Lessor shall
(subject to the rights of any insurer) transfer to Lessee all of
Lessor's right, title and interest in the Airframe and the Serviced
Engines, if any, which were subject to the Event of Loss "as-is,
where-as", free and clear of Lessor's Liens, but otherwise without
recourse or warranty, express or implied.
(b) EVENT OF LOSS TO A SERVICED ENGINE.
(1) EVENT OF LOSS. Upon the occurrence of an Event of Loss with
respect to a Serviced Engine not then installed on the Airframe, or
upon the occurrence of an Event of Loss with respect to a Serviced
Engine installed on the Airframe but not involving an Event of Loss
with respect to the Airframe, Lessee shall give Lessor prompt written
notice thereof and shall: (i) within sixty (60) days after the
occurrence of such Event of Loss, convey or cause to be conveyed to
Lessor, as replacement for the Serviced Engine with respect to which
such Event of Loss occurred, title to a replacement Serviced Engine
free and clear of Liens (other than Permitted Liens) or (ii) if
mutually agreed between Lessor and Lessee, Lessee shall in lieu of
replacing
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such Serviced Engine pursuant to this Section 8(b)(1), pay or cause to
be paid to Lessor hereunder, within ten (10) days after such agreement,
the Stipulated Loss Value for such Serviced Engine, computed as of the
Basic Rent Payment Date next following the date of such Event of Loss.
(2) CONDITIONS, LESSEE'S OBLIGATIONS. Lessee's right to replace
contemplated by Section 8(b)(1) shall be subject to the fulfillment,
in addition to the requirements contained in Section 9(b), of the
conditions precedent set forth below:
(i) No Default or Lessee Event of Default shall be
continuing on the replacement date;
(ii) Lessee will promptly (all writings referred to below to
be reasonably satisfactory in form and substance to Lessor):
(a) furnish Lessor a bill of sale duly conveying to
Lessor such replacement Serviced Engine, together with such
evidence of title as Lessor may reasonably request;
(b) if the replaced Serviced Engine is an Engine
hereunder, cause a Lease Supplement, subjecting such
Replacement Engine to this Lease, duly executed by Lessee,
to be delivered to Lessor for execution and, upon such
execution, to be duly filed for recordation with the FAA;
(c) furnish Lessor with such evidence of compliance
with the insurance provisions of Section 9 with respect to
such replacement Serviced Engine as Lessor may reasonably
request;
(d) furnish Lessor with a certificate or certification
of a qualified aircraft engineer reasonably satisfactory to
Lessor certifying that such replacement Serviced Engine has
a value, utility and remaining useful life at least equal to
the Serviced Engine so replaced (assuming such Serviced
Engine was in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of
Loss), PROVIDED that in addition to such certificate or
certification, Lessor shall have the right to inspect such
replacement Serviced Engine and shall be reasonably
satisfied that it has a value, utility and remaining useful
life at least equal to the Serviced Engine so replaced
(assuming such Serviced Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss); and
(e) On or before such replacement date, Lessee shall
(i) furnish Lessor with an opinion of independent counsel
reasonably satisfactory to Lessor, that Lessor will suffer
no adverse tax consequences as a result of such replacement
or (ii) have agreed to
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pay to Lessor as an indemnity such amount or amounts as may be
necessary to hold harmless, on an after-tax basis, Lessor
against any and all adverse tax consequences as may result
from such replacement and shall have provided to Lessor
satisfactory assurances regarding Lessee's ability to pay such
indemnity; and
(f) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request
in order that such replacement Serviced Engine be duly and
properly titled in Lessor and leased hereunder to the same
extent as the Serviced Engine replaced thereby.
(3) EVENT OF LOSS TO AN ENGINE, NOT A SERVICED ENGINE. Upon the
occurrence of an Event of Loss to an Engine which is not a Serviced
Engine, Lessor shall give Lessee prompt written notice thereof and
shall within sixty (60) days after the occurrence of such Event of
Loss, lease hereunder to Lessee a Replacement Engine with respect to
such Engine to which such Event of Loss occurred, free and clear of
Liens (other than Permitted Liens). Lessor shall furnish Lessee with
a certificate or certification of a qualified aircraft engineer
reasonably satisfactory to Lessee certifying that such Replacement
Engine has a value, utility and remaining useful life at least equal
to the Engine so replaced, PROVIDED that in addition to such
certificate or certification, Lessee shall have the right to inspect
such Replacement Engine and shall be reasonably satisfied that it has
a value, utility and remaining useful life at least equal to the
Engine so replaced (assuming such Engine was in the condition and
repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss).
(4) CONDITIONS, LESSOR'S OBLIGATIONS. Lessor's obligation to
replace contemplated by Section 8(b)(3) shall be subject to the
fulfillment of the conditions precedent that Lessee and Lessor will
promptly:
(i) cause a Lease Supplement, subjecting such Replacement
Engine to this Lease, duly executed by Lessee and Lessor, to be
delivered to Lessor for execution and, upon such execution, to be
duly filed for recordation with the FAA; and
(ii) take such other actions and furnish such other
certificates and documents as Lessor may reasonably request in
order that such Replacement Engine be duly and properly titled in
Lessor and leased hereunder to the same extent as the Engine
replaced thereby;
PROVIDED that Lessor shall have no obligation to deliver possession of
a Replacement Engine to Lessee so long as a Default or Lessee Event of
Default has occurred and is continuing hereunder.
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(5) RECORDATION AND OPINIONS. Promptly after the recordation of
the Lease Supplement covering any such Replacement Engine pursuant to
the Federal Aviation Act (or in case the Aircraft was at the time of
the Event of Loss subject to registration under the laws of a country
other than the United States, pursuant to the laws of such country),
Lessee shall cause to be delivered to Lessor an opinion of counsel
reasonably satisfactory to Lessor as to the due recordation of such
Lease Supplement pursuant to the Act (or such other laws).
(6) CONVEYANCE; REPLACEMENT ENGINE. Upon compliance by Lessee
with the terms of this Section 8(b), Lessor will (subject to the
rights of any insurer) transfer (other than in the case of the
replacement of an Engine which was not upon the occurrence of the
Event of Loss, a Serviced Engine) to Lessee all of Lessor's right,
title and interest as of the delivery date of such replacement
Serviced Engine in the replaced Serviced Engine, "as-is, where-is",
free and clear of Lessor's Liens but otherwise without recourse or
warranty, express, implied or otherwise.
(7) NO REDUCTION OF BASIC RENT. No Event of Loss with respect
to a Serviced Engine or an Engine under the circumstance contemplated
by this Section 8(b) shall result in any reduction of Basic Rent.
Upon the payment by Lessee to Lessor of the Stipulated Loss Value of
any Serviced Engine, Lessor, shall provide Lessee with a replacement
Serviced Engine.
(8) If Lessor furnishes the replacement Serviced Engine, then
the conditions set forth in Sections 8(b)(2)(ii)(a) and (d) shall be
deemed to be fulfilled.
(c) APPLICATION OF PAYMENTS FOR REQUISITION OF TITLE. Any payments (other
than insurance proceeds the application of which is provided for in Section 9)
received at any time by Lessor, Lessee or from any Governmental Authority or
other Person with respect to any Event of Loss, other than a requisition for
use by the Government not constituting an Event of Loss, will be applied as
follows:
(1) REPLACEMENT OF SERVICED ENGINE. If such payments are
received as a result of an Event of Loss to a Serviced Engine under
circumstances contemplated by Section 8(b), and the Serviced Engine is
replaced, so much of such payments remaining after reimbursement of
Lessor for reasonable costs and expenses, if any, theretofore incurred
by Lessor related to such replacement shall be paid over to, or
retained by, Lessee, provided that Lessee shall have fully performed,
or concurrently therewith will perform, the terms of Section 8(b) with
respect to the Event of Loss for which such payments are made.
(2) LOSS OF AIRFRAME. If such payments are received as a result
of an Event of Loss to the Airframe or the Airframe or Serviced
Engines then installed thereon, so much of such payments as shall not
exceed the amounts payable pursuant to 8(a)(1) shall be applied to pay
such amounts (or reimburse Lessee for its payment of such amounts),
and the balance, if any, of such payment remaining thereafter shall,
first, to the extent of the value of Lessee's interest in such
payment, be paid
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over to Lessee, and, second, the remainder, if any, shall be retained by
Lessor. For purposes of this clause (2), the value of Lessee's interest
in a payment shall be the amount of the Basic Rent due in regard to the
leasing of the Aircraft for the remainder of the applicable Term.
(d) REQUISITION OF USE OF THE AIRFRAME. In the event of the requisition
for use of the Airframe or any Serviced Engines installed on the Airframe during
the Term not constituting an Event of Loss including without limitation,
pursuant to CRAF, Lessee shall promptly notify Lessor of such requisition and
all of Lessee's obligations under this Lease shall continue to the same extent
as if such requisition had not occurred, except to the extent that any failure
or delay in Lessee's performance or observance of such obligations (other than
obligations for the payment of Rent) is caused by such requisition. Unless
Lessor elects to treat such requisition as an Event of Loss, Lessee shall be
obligated to return the Airframe and such Serviced Engines to Lessor pursuant
to, and in all other respects in compliance with the provisions of, Section 5
promptly at the later of the end of the Term or, if Lessor consents, the date of
such return by any such Governmental Authority. All payments received by Lessor
or Lessee from any Governmental Authority for the use of the Airframe and
Serviced Engines during the Term (so long as no Lessee Event of Default shall
have occurred and be continuing) shall be paid over to, or retained by, Lessee;
and all payments received by Lessor or Lessee from the Government for the use of
the Airframe and such Serviced Engines after the Term (or so long as a default
or a Lessee Event of Default shall have occurred and be continuing) shall be
paid over to, or retained by, Lessor, unless such requisition for use by any
Governmental Authority is treated as an Event of Loss in which case all such
payments shall be applied in accordance with Section 8(c)(2).
(e) INVESTMENT OF PROCEEDS PENDING REPLACEMENT. If an Event of Loss shall
occur with respect to a Serviced Engine and the provisions of Section 8(b)
apply, or Lessor receives any insurance proceeds pending completion of repairs
by Lessee to the Airframe or a Serviced Engine, Lessor shall, if requested by
Lessee and if no Lessee Event of Default shall have occurred and be continuing,
use its reasonable efforts to invest, at the request, direction and risk of
Lessee, any payments received theretofore or thereafter with respect to the
Airframe or such Serviced Engine from any insurer under insurance required to be
maintained hereunder or from Lessee or from any Governmental Authority or other
person with respect to the applicable Event of Loss or otherwise. Any such
investments shall be in obligations of the United States or obligations
guaranteed as to principal and interest by the Government or certificates of
deposit issued in the United States by a commercial bank or banks each having a
combined capital, surplus, and undivided profits of at least $250,000,000, in
each case having a stated maturity not later than one year from the date of the
acquisition thereof by Lessor. Lessee will pay to Lessor on demand the amount
of any loss incurred in connection with any such investment. All profits and
losses on such investments and any taxes in respect thereof shall be for the
account of Lessee. In order to make the payments to Lessee provided for in
Section 8 or 9 hereof, Lessor is authorized to sell any obligations purchased as
aforesaid; and Lessor shall not be required to make such payments to Lessee
until Lessor shall have had a reasonable time to sell such obligations and to
obtain the sale proceeds therefrom.
(f) APPLICATION OF PAYMENTS DURING DEFAULT. Any amount for requisition of
title or requisition of use of any Item of Equipment referred to in this
Section 8 which is payable to or
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retainable by Lessee shall not be paid to or retained by Lessee if at the
time of such payment or retention a Default or a Lessee Event of Default
shall have occurred and be continuing, but shall be held by or paid to Lessor
and applied against the obligations of Lessee under this Lease, and at such
time as there shall not be continuing any such Default or Lessee Event of
Default, such amount shall be paid to Lessee to the extent not previously
applied in accordance with this sentence.
Section 9. INSURANCE.
(a) LIABILITY INSURANCE. During the Lease Term and during the next
three years thereafter, Lessee shall maintain (or cause to be maintained) at
no expense to Lessor the following insurance, on a worldwide basis with no
territorial restrictions, except as may be specifically consented to from
time to time by Lessor, such consent not to be unreasonably withheld, with
insurers of recognized responsibility approved by Lessor through nationally
recognized aviation insurance brokers: comprehensive aviation liability
insurance (including third party legal liability, public liability, passenger
legal liability, personal injury liability, passenger's baggage and personal
effects (checked and unchecked) liability, cargo legal liability, mail legal
liability, premises liability, products/completed operations, hangarkeepers
(ground and in-flight) liability and war risks liability (Lloyd's of London
Clause AV.52 or its equivalent), insurance of the indemnification obligations
set forth in Section 15 hereof, and property damage liability insurance with
respect to the In-Use Aircraft in an amount not less than that carried by
Lessee on similar equipment owned or leased by Lessee, PROVIDED that such
liability insurance shall in no event be less than $500,000,000 for any one
accident, or series of accidents arising out of any one event. Lessee shall
not self-insure with respect to any public liability coverage with the
exception of baggage, cargo and mail liabilities. Any policies of insurance
carried in accordance with this Section 9(a) and any policies taken out in
substitution or replacement for any of such policies shall: (1) name Lessor
and its Affiliates and directors, officers, employees, servants and agents as
an additional insured (each such Person an "ADDITIONAL INSURED"), as their
respective interests may appear; (2) provide that in respect of the interest
of each Additional Insured in such policies, the insurance shall not be
invalidated by any action or inaction of Lessee or any other insured, and
shall insure each Additional Insured regardless of any breach or violation of
any warranty, declaration or condition contained in such policies by Lessee;
(3) provide that if the insurers cancel such insurance for any reason
whatever, or if there is any substantial change in policy terms and
conditions or coverage, such cancellation, lapse or change shall not be
effective as to any Additional Insured until thirty days (seven days, or such
other period as may from time to time be customarily obtainable in the
industry, in the case of war risk and allied perils coverage) after receipt
by such Additional Insured of written notice from such insurers of such
cancellation, lapse or change; and (4) provide that no Additional Insured
shall have any obligation or liability for premiums, commissions, assessments
or calls in connection with such insurance. Each liability policy shall (i)
be primary without right of contribution from any other insurance which is
carried by any Additional Insured, (ii) expressly provide that all of the
provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering any Additional Insured,
and (iii) waive any right of the insurers to any subrogation, set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of any Additional Insured or Lessee to the extent of
any moneys due to such Additional Insureds. In the case of the requisition
for use of the In-Use Aircraft or any Serviced Engine by the Government, a
valid agreement by the Government to indemnify Lessee in a manner
satisfactory to
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Lessor against any of the risks which Lessee is required hereunder to insure
against in an amount at least equal to the amount of insurance required to be
maintained for the Aircraft under this Section 9 from time to time shall, to
the extent such indemnity from the Government complies with the requirements
set forth in Section 7(g) hereof, be considered adequate insurance to the
extent of the risks and in the amounts that are the subject of any such
agreement to indemnify.
(b) ALL RISK HULL INSURANCE. During the relevant Term, Lessee shall
maintain (or cause to be maintained) at no expense to Lessor the following
insurance, on a worldwide basis with no territorial restrictions with
insurers of recognized responsibility (A) all-risks (ground, taxing, flight
and ingestion) hull insurance covering the In-Use Aircraft; and (B) all risks
(including transit) Aviation Spare Parts (including Engine and Equipment)
Insurance and (C) at all times that any In-Use Aircraft or any Serviced
Engine is not covered by the insurance described in Section 9(c), coverage
against the perils of (i) strikes, riots, civil commotions or labor
disturbances, (ii) any vandalism, malicious act or act of sabotage, and (iii)
hijacking, or any unlawful seizure or wrongful exercise of control of the
In-Use Aircraft or crew in flight made by any person or persons on board the
In-Use Aircraft without the consent of the insured other than hijacking
committed by persons engaged in a program of irregular warfare for terrorist
purposes, in each case to the extent insured by the standard "buy-back"
provisions to the Airline War Exclusion Clause (AV48B) or its equivalent.
Such insurance shall be for an Agreed Value basis which shall be in an amount
not less than the Stipulated Loss Value. With the consent of Lessor, which
will not be unreasonably withheld, Lessee may self-insure only by way of
standard market deductibles, the risks required to be insured against
pursuant to the preceding two sentences in such amounts as are acceptable to
Lessor in its sole discretion. Any policies carried in accordance with this
Section 9(b) covering the In-Use Aircraft and any policies taken out in
substitution or replacement for any such policies shall (1) name Lessor as
loss payee as its interests may appear; (2) provide that the entire amount of
any loss shall be paid to Lessor or its order; (3) provide that if such
insurance is canceled for any reason whatsoever, or any substantial change is
made in policy terms, conditions or coverage, or the same is allowed to lapse
for non-payment of premium, such cancellation, change or lapse shall not be
effective as to Lessor until thirty days (seven days or such other period as
may from time to time be customarily obtainable in the industry, in the case
of war risk and allied perils coverage), after receipt by Lessor of written
notice from such insurers of such cancellation or lapse or change in policy
terms, conditions or coverage; (4) provide that losses shall be adjusted with
Lessor; (5) provide that in respect of Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and
shall insure such parties regardless of any breach contained in such policies
by Lessee or any other insured; (6) be primary without right of contribution
from any other insurance which is carried by Lessor with respect to its
interest in the In-Use Aircraft; (7) waive any right of subrogation of the
insurers against Lessor; (8) waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of Lessor or Lessee to the extent of any moneys due
to Lessor; and (9) provide that Lessor shall have no obligation or liability
for premiums, commissions, assessments or calls in connection with such
insurance. If the insurance required to be carried pursuant to Sections 9(b)
and 9(c) is effected under separate policies, the insurers shall agree that
if a disagreement arises as to whether a claim is covered by the all-risk
insurance or the war-risk insurance, the insurers will settle such claims on
the basis of a 50-50 claim funding arrangement. In the case of the
requisition for use of the In-Use Aircraft or any Serviced Engine by the
Government, a valid agreement by the Government,
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satisfactory to Lessor, to indemnify Lessee against any of the risks which
Lessee is required hereunder to insure against in an amount at least equal to
the amount of insurance required to be maintained for the In-Use Aircraft
under this Section 9 from time to time shall, to the extent such indemnity
from the Government complies with the requirements set forth in Section 7(g)
hereof, be considered adequate insurance to the extent of the risks and in
the amounts that are the subject of any such agreement to indemnify.
(c) WAR-RISK INSURANCE. During the Lease Term, Lessee shall maintain (or
cause to be maintained), at no expense to Lessor War-Risk and Allied Perils
Aviation Hull (including Spare Parts, Engines and Equipment) Insurance on an
Agreed Value basis, which shall be not less than the Stipulated Loss Value.
Such policy shall (i) insure against those perils excluded under Lessee's All
Risks Hull and Spares policy(ies) by virtue of Lloyd's of London Exclusion
Clause AVN.48B ("War, Hijacking and Other Perils Exclusion Clause") or its
equivalent (other than paragraph (b) thereof relating to nuclear perils), (ii)
provide for payment in U.S. Dollars, (iii) contain a 50/50 clause in accordance
with Lloyd's of London Aviation Clause AVS.103 or its equivalent, (iv) be
endorsed to include coverage for confiscation, requisition, nationalization,
seizure, restraint, detention, appropriation, requisition of title or for use by
any Governmental Authority (except for the government of registry) of the In-Use
Aircraft, (v) provide coverage on a worldwide basis (subject only to such
geographical limits as may be imposed by the hull, war and allied perils
insurance) and (vi) be endorsed to include provisions identical to those
contained in clauses (1), (2), (3), (4), (5), (6), (7), (8), and (9) of Section
9(b).
(d) APPLICATION OF PROCEEDS. Provided no Lessee Event of Default shall
have occurred and be continuing, all insurance payments received under policies
required to be maintained by Lessee pursuant to Section 9 as the result of the
occurrence of an Event of Loss shall be applied in accordance with Section
8(c)(1) or Section 8(c)(2). Insurance payments relating to any property damage
or loss to the In-Use Aircraft or any Serviced Engine not constituting an Event
of Loss with respect thereto will be applied in payment for repairs or for
replacement property in accordance with the terms of Section 8(c) hereof, if not
already paid for by Lessee, and any balance remaining after compliance with such
Sections with respect to such loss shall be paid to Lessee. Any amount
representing proceeds of insurance required to be maintained by Lessee hereunder
which is payable to or retainable by Lessee shall not be paid to or retained by
Lessee if at the time of such payment a Default or a Lessee Event of Default
shall have occurred and be continuing, but shall be held by or paid to Lessor as
security for the obligations of Lessee under this Lease and such amount (to the
extent not previously applied against such obligations) shall be paid to Lessee
at such time as there no longer exists any Default or Lessee Event of Default.
(e) REPORTS, ETC. On or before the Delivery Date (except, with respect to
the insurance required by Section 9(j), prior to the date hereof), and no less
than five (5) Business Days prior to the expiration of any insurance required
pursuant to this Section 9, Lessee shall furnish to Lessor (i) appropriate
certification by each insurer or its authorized signatories and (ii) a report
signed by a firm of independent insurance brokers, then retained by Lessee,
attaching certificates evidencing the insurance and reinsurance then carried and
maintained with respect to the In-Use Aircraft and Allocated Parts and stating
that in the opinion of such firm the insurance then carried and maintained with
respect to the In-Use Aircraft and Serviced Engines or Parts complies with the
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terms hereof. Lessee will cause such firm to advise Lessor in writing promptly
of any material default in the payment of any premium and of any other act or
omission on the part of Lessee of which they have knowledge which might
invalidate or render unenforceable, in whole or in part, any insurance on the
In-Use Aircraft or any Serviced Engine or Parts. Lessee also shall cause such
firm to advise Lessor in writing at least thirty (30) days (seven (7) days, or
such other period as may from time to time be customarily obtainable in the
industry, in the case of war risk and allied perils coverage), prior to the
expiration or termination of any insurance policy carried or maintained with
respect to the In-Use Aircraft or any Serviced Engine any Parts pursuant to
this Section 9.
(f) ADDITIONAL INSURANCE. Lessee at its option and at its sole cost and
expense may obtain insurance with respect to its interest in the In-Use
Aircraft, PROVIDED that such insurance does not prevent Lessee from obtaining
the insurance required by this Section 9; and PROVIDED FURTHER, that such
additional insurance does not prevent Lessor from obtaining insurance for its
own account with respect to the In-Use Aircraft in excess of Stipulated Loss
Value. No such insurance shall be subject to this Section 9. Lessor may carry
for its own account at its sole cost and expense insurance with respect to its
interest in the In-Use Aircraft but in no event shall such insurance prevent
Lessee from carrying insurance required by this Section 9 or adversely affect
the cost thereof.
(g) NOTICE FROM LESSEE; NO MODIFICATION. Lessee shall forthwith notify
Lessor of any event which may give rise to a claim under the insurance required
pursuant to this Section 9.
(h) REINSURANCE. In the event of any reinsurance of the risks set forth
in Section 9(b) the following clause shall be incorporated into such reinsurance
policies:
"Reinsurers hereby agree that notwithstanding the insolvency,
liquidation, bankruptcy, dissolution of or similar proceedings
affecting Insurers in respect of a total loss or other claim whereas
provided by the Lease such claim will be paid to the person or persons
named as loss payee under the primary insurance and that Reinsurers
shall in lieu of payment to the Insured, its successors in interest
and assigns, pay to the person named as loss payee under the primary
insurance that portion of any loss due for which the reinsurers would
otherwise be liable to pay the Insurers (subject to proof of loss),
it being understood and agreed that any such payment by the Reinsurers
shall (to the extent of such payment) fully discharge and release the
Reinsurers from any and all further liability in connection therewith,
subject to such clause not contravening any law of the government of
registration."
(i) INSURANCE OF LESSOR. Lessor agrees to maintain throughout the Lease
Term Hangarkeeper's Legal Liability Insurance that, in accordance with the terms
and conditions of the policy, covers the Serviced Aircraft during periods in
which the Serviced Aircraft is within custody and control of Lessor for an
amount not less than the Stipulated Loss Value.
(j) INSURANCE RELATING TO ALLOCATED PARTS. During the Term, Lessee shall
maintain (or cause to be maintained) at no expense to Lessor the following
insurance with respect to the Allocated Parts with insurers of recognized
responsibility satisfactory to Lessor: (A) All Risks Property Insurance and
(B) coverage against the perils of (i) strikes, riots, civil commotions or labor
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disturbances or (ii) vandalism, malicious acts or acts of sabotage. Such
insurance shall be for an aggregate amount of no less than $1,600,000. With the
written consent of Lessor, Lessee may self-insure, only by way of deductibles,
the risks required to be insured against pursuant to the preceding two sentences
in such amounts as are acceptable to Lessor in its sole discretion. Any
policies carried in accordance with this Section 9(j) covering the Allocated
Parts and any policies taken out in substitution or replacement for any such
policies shall (1) name Lessor as sole loss payee; (2) provide that the entire
amount of any loss shall be paid to Lessor or its order; (3) provide that if
such insurance is canceled for any reason whatsoever, or any substantial adverse
change is made in policy terms, conditions or coverage, or the same is allowed
to lapse for non-payment of premium, such cancellation, change or lapse shall
not be effective as to Lessor until thirty (30) days after receipt by Lessor of
written notice from such insurers of such cancellation or lapse or change in
policy terms, conditions or coverage; (4) provide that losses shall be adjusted
with Lessor; (5) provide that in respect of Lessor, such insurance shall not be
invalidated by any action or inaction of Lessee or any other insured and shall
insure such parties regardless of any breach contained in such policies by
Lessee or any other insured; (6) waive any right of subrogation of the insurers
against Lessor; (7) waive any right of the insurers to set-off or counterclaim
or any other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (8)
provide that Lessor shall not have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. Lessee
shall bear the risk of loss to the extent of any deficiency in any effective
insurance coverage with respect to loss or damage to all or any portion of the
Allocated Parts.
Section 10. INSPECTION; FINANCIAL INFORMATION.
(a) INSPECTION. During the Lease Term, Lessee shall furnish to Lessor
such information concerning the location, condition, use and operation of the
In-Use Aircraft as such party may reasonably request. Lessee shall permit
any person designated in writing by Lessor, at such Lessor's expense, to
visit and inspect (at any reasonable time, provided that such inspection
shall not unreasonably interfere in any material respect with Lessee's
business operations or operation or maintenance of the In-Use Aircraft) the
In-Use Aircraft and the records maintained in connection therewith and, at
such designating party's expense, to make copies of such records as such
party may reasonably designate. Lessor shall not have any duty to make any
such inspection and shall not incur any liability or obligation by reason of
making or not making any such inspection. Any such inspection of the In-Use
Aircraft shall be a visual, walk-around inspection which may include going on
board the In-Use Aircraft and shall not include opening any panels, bays, or
the like, PROVIDED that any such designee of Lessor shall be entitled to be
present during any maintenance check of the In-Use Aircraft at which any
panels, bays or the like may be opened and shall have the right to inspect
such items during such maintenance check. Upon written request from Lessor,
Lessee shall provide such requesting party with the anticipated dates of any
scheduled major maintenance checks (including any "C", heavy "C" or "D"
check) occurring within the six-month period following such request.
(b) FINANCIAL INFORMATION. Lessee also agrees to furnish to Lessor during
the Lease Term:
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(1) as soon as possible and in any event within ten (10) days
after the occurrence of a Default or Lessee Event of Default, a
certificate of Lessee, signed by a vice president of Lessee, setting
forth in detail the nature of such Default or Lessee Event of Default
and the action which the Lessee proposes to take with respect thereto;
(2) from time to time, such information as Lessor may reasonably
request with respect to the operations of Lessee in order to determine
whether the covenants, terms and provisions of this Lease have been
complied with by Lessee;
(3) such information as may be required to enable Lessor to file
any reports required to be filed with any Governmental Authority
because of Lessor's ownership of the Items of Equipment;
(4) as soon as available, quarterly and year-end unaudited
Reports of Financial and Operating Statistics for Large Certified Air
Carriers (U.S. Department of Transportation Form 41 Schedule A);
(5) as soon as available, and in any event within sixty (60)
days after the end of each of the first three fiscal quarters, an
unaudited balance sheet of the Lessee and its consolidated
subsidiaries, as of the end of such quarter and related unaudited
statements of income and retained earnings of the Lessee and its
consolidated subsidiaries, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the
preceding fiscal year;
(6) as soon as available, and in any event within 120 days after
the end of each fiscal year of Lessee, a financial report for the
Lessee for such year, including therein a balance sheet of Lessee as
of the end of such fiscal year and related statements of income and
retained earnings and changes in financial position of the Lessee for
such fiscal year, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all in reasonable
detail and as certified by the Lessee's public accountants, including
their certificate and accompanying comments;
(7) promptly upon their becoming available, one copy of each
financial statement, report, notice or proxy statement sent by Lessee
to stockholders generally and of each regular or periodic report,
registration statement or prospectus filed by Lessee with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and of any order issued by any Governmental
Authority in any proceeding in which Lessee is a party; and
(8) from time to time, such statistical information concerning
the In-Use Aircraft as Lessor may reasonably request to enable Lessor
to evaluate, calculate and/or report any Taxes.
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Section 11. LESSEE'S COVENANTS.
(a) MERGER. Lessee shall not consolidate with or merge into any other
corporation, or convey, transfer or lease all or substantially all of its assets
to any Person, unless (i) the corporation formed by such consolidation or into
which Lessee is merged or the Person who acquires by conveyance, transfer or
lease all or substantially all of the assets of Lessee (the "Successor"): (A)
remains entitled to the benefits of Section 1110 of the Bankruptcy Code with
respect to this Lease; and (B) shall execute and deliver to Lessor an agreement
containing an assumption by such Successor of the due and punctual performance
and observance of each covenant and condition of this Lease Agreement to be
performed or observed by Lessee; (ii) immediately after giving effect to such
transaction, no Default or Lessee Event of Default shall have occurred and be
continuing hereunder; (iii) Lessee shall have delivered to Lessor, an officer's
certificate and an opinion of independent counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and the assumption
agreement described in clause (i) above comply with this Section 11(a) and that
all conditions precedent herein provided for relating to such transaction have
been complied with (except that such opinion need not cover the matters referred
to in clause (ii) above and may rely, as to factual matters, on an officer's
certificate of Lessee) and, in the case of such opinion, that such assumption
agreement has been duly authorized, executed and delivered by the Successor,
constitutes its legal, valid and binding obligation and is enforceable against
such Successor in accordance with its terms, that Lessor shall continue to be
entitled to the benefits and protections set forth in Section 1110 of the
Bankruptcy Code; and (iv) Lessor shall not suffer any adverse tax consequences
as a result of such consolidation, merger or transfer which is not indemnified
by Lessee in accordance with the terms hereof or against which Lessor is
otherwise indemnified in form and substance reasonably satisfactory to Lessor.
Upon any consolidation or merger, or any conveyance, transfer or lease of
all or substantially all of the assets of Lessee as an entirety in accordance
with this Section 11(a), the Successor shall succeed to, be substituted for, and
may exercise every right and power of, and shall assume every obligation and
liability of, Lessee under this Lease Agreement with the same effect as if the
Successor had been named as Lessee herein and therein. No such consolidation or
merger or conveyance, transfer or lease of all or substantially all of the
assets of Lessee shall have the effect of releasing Lessee or any Successor
which shall theretofore have become such in the manner prescribed in this
Section 11(a) from its liability hereunder. Nothing contained herein shall
permit any lease, sublease or other arrangement for the use, operation or
possession of the In-Use Aircraft or Engines except in compliance with the
applicable provisions of this Lease.
(b) CERTIFICATED AIR CARRIER. Lessee will continue to be a certificated
air carrier authorized to engage in scheduled air transportation under the
Federal Aviation Act.
Section 12. FAA RECORDATION AND FURTHER ASSURANCES.
(a) FAA RECORDATION. Lessee shall cause this Lease, all Lease Supplements
and any and all additional instruments which shall be executed pursuant to the
terms hereof so far as permitted by Applicable Laws or regulations, to be duly
kept, filed and recorded, and maintained of record, in accordance with the
applicable law of the government of registry of the Aircraft, which shall be in
the office of the FAA. The cost of all such action shall be borne by Lessor.
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(b) FURTHER ASSURANCES. Each party hereto shall, at its expense, promptly
and duly execute and deliver to the other party such further documents and
promptly take such further action not inconsistent with the terms hereof as the
other party may from time to time reasonably request in order more effectively
to carry out the intent and purpose of this Lease or to perfect and protect the
rights and, with respect to Lessor, remedies created or intended to be created
hereunder.
Section 13A. LESSEE EVENTS OF DEFAULT. The following events shall
constitute Lessee Events of Default (each a "Lessee Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessee Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied or
waived by Lessor in writing:
(a) Lessee shall fail to make any payment of Basic Rent or Supplemental
Rent due pursuant to Exhibit E hereto, as and when due or shall fail to make any
other payment of Supplemental Rent within five (5) Business Days after delivery
to Lessee of notice from Lessor that the amount shall have become due hereunder;
or
(b) Lessee shall fail to procure, carry and maintain any insurance
required by Section 9 hereof; PROVIDED that in the case of insurance with
respect to which cancellation, change or lapse for nonpayment of premium shall
not be effective as to Lessor for 30 days (five days in the case of any war risk
and allied perils coverage, or if shorter, such other period as may be customary
in the industry for such notice of cancellation) after receipt of notice by
Lessor of such cancellation, change or lapse, no such failure to carry and
maintain insurance shall constitute a Lessee Event of Default hereunder until
the earlier of (i) the date such insurance is no longer in effect as to Lessor,
or (ii) the date such failure shall have continued unremedied for a period of 20
days (five days in the case of any war risk and allied perils coverage, or if
shorter, such other period as may be customary in the industry for such notice
of cancellation) after receipt by Lessor of the notice of cancellation, change
or lapse; or
(c) Lessee shall fail to perform or observe, breach or be in default under
Sections 5, 7(c), 10(c), or 11 hereof; or
(d) Lessee shall fail to perform or observe, breach or be in default under
any other covenant, condition or agreement to be performed or observed by it
hereunder and such failure shall continue unremedied for a period of thirty (30)
Business Days after written notice thereof by Lessor; or
(e) any material representation or warranty made by Lessee herein or in
any document or certificate furnished by Lessee in connection herewith or
pursuant hereto shall prove to have been incorrect in any material respect when
made; or
(f) Lessee shall fail to pay any sums which are or become due and owing
under any Interim Aircraft Lease Agreement, the Interim Aircraft Maintenance
Agreement, the Long-Term Lease Agreement, the July Lease Agreement or the
November Lease Agreement or shall fail to perform under any indemnification
obligations contained in any Interim Aircraft Lease Agreement,
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the Long-Term Lease Agreement, the 160 Lease Agreement, the 161 Lease
Agreement, the 125 Lease Agreement, the 171 Lease Agreement or the Interim
Aircraft Maintenance Agreement; or
(g) Reserved; or
(h) all or substantially all of Lessee's airline operations are suspended
for more than two days; or
(i) Lessee shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a substantial
part of its property, or Lessee shall be unable to pay its debts generally as
they become due, or shall make a general assignment for the benefit of
creditors, or Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy law (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee in any such proceeding,
or Lessee by voluntary petition, answer or consent shall seek relief as debtor
under the provisions of any other present or future bankruptcy or other similar
law providing for the reorganization or winding-up of corporations, or providing
for an agreement, composition, extension or adjustment with its creditors or
Lessee shall take any corporate action to authorize any of the foregoing; or
(j) a petition against Lessee in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and any
decree or order adjudging Lessee a bankrupt or insolvent in such proceeding
shall remain in force undismissed and unstayed for a period of sixty (60) days
after such adjudication or, in case the approval of such petition by a court of
competent jurisdiction is required, the petition as filed or amended shall be
approved by such a court as properly filed and such approval shall not be
withdrawn and the proceeding shall not be dismissed within sixty (60) days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to Lessee, any court of competent
jurisdiction shall enter an order or decree assuming custody or control of
Lessee or of any substantial part of its property and such custody or control
remains in force unrelinquished, unstayed and unterminated for a period of
thirty (30) days; or
(k) obligations of Lessee for the payment of borrowed money shall not be
paid when the same become due after the expiration of any applicable grace
period, if the effect of such default is to cause obligations in excess of
$20,000,000 to be accelerated or otherwise declared to be due and unpaid prior
to their stated maturity.
Section 13B. LESSOR EVENTS OF DEFAULT. The following events shall
constitute Lessor Events of Default (each a "Lessor Event of Default") (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any Governmental
Authority) and each such Lessor Event of Default shall be deemed to exist and
continue so long as, but only as long as, it shall not have been remedied, or
waived by Lessee in writing:
(a) Lessor shall fail to procure, carry and maintain any insurance
required by Section 9(i) to be carried and maintained by Lessor;
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(b) Lessor shall fail to perform or observe, breach or be in default
under any other covenant, condition or agreement to be performed or
observed by Lessor hereunder and such failure shall continue unremedied for
a period of thirty (30) Business Days after written notice thereof by the
Lessee; PROVIDED the existence of any Defect shall not constitute a Lessor
Event of Default so long as Lessor promptly commences and diligently
complies with its warranty obligations under Section 5 of Exhibit E;
(c) Any material representation or warranty made by Lessor herein or
in any document or certificate furnished by Lessor in connection herewith
or pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) Lessor shall consent to the appointment of a custodian, receiver,
trustee or liquidator (or other similar official) of itself or of a
substantial part of its property, or Lessor shall be unable to pay its
debts generally as they become due, or shall make a general assignment for
the benefit of creditors, or Lessor shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against
Lessor in any such proceeding, or such party by voluntary petition, answer
or consent shall seek relief as debtor under the provisions of any other
present or future bankruptcy or other similar law providing for the
reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors or
Lessor shall take any corporate action to authorize any of the foregoing;
or
(e) A petition against Lessor in a proceeding under any bankruptcy or
other insolvency law (as now or hereafter in effect) shall be filed, and
any decree or order adjudging Lessor a bankrupt or insolvent in such
proceeding shall remain in force undismissed and unstayed for a period of
sixty (60) days after such adjudication or, in case the approval of such
petition by a court of competent jurisdiction is required, the petition as
filed or amended shall be approved by such a court as properly filed and
such approval shall not be withdrawn and the proceeding shall not be
dismissed within sixty (60) days thereafter, or if, under the provisions of
any law providing for reorganization or winding-up of corporations which
may apply to Lessor, any court of competent jurisdiction shall enter an
order or decree assuming custody or control of such party or of any
substantial part of its property and such custody or control remains in
full force unrelinquished, unstayed and unterminated for a period of thirty
(30) days.
Section 14A. LESSOR REMEDIES. Upon the occurrence of any Lessee Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare this Lease to be in default by a written
notice to Lessee and Lessor may concurrently therewith or at any time
thereafter, as part of the same or a separate written notice, declare this Lease
to be terminated, and immediately proceed to do any one or more of the following
as Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect; PROVIDED that upon the occurrence of any Lessee Event of Default
described in Section 13A(i) or (j) above, this Lease Agreement shall
automatically be in default, and Lessor may elect to do any of the following,
without prior notice to Lessee:
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(a) Lessor may terminate this Lease;
(b) Lessor may cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return promptly the
In-Use Aircraft and any Serviced Engines, as Lessor may so demand to Lessor
or its order in the manner and condition required by, and otherwise in
accordance with all the provisions of, Section 5, as if the Airframe and
Engines were being returned at the end of the Term, or Lessor, at its
option, may enter upon the premises where the Airframe or Engine is located
and take immediate possession of and remove the same (together with any
engine or any part which is not an Engine but which is installed on an
Airframe, subject to all of the rights of any owner, lessor, lienor or
secured party of such engine or the Airframe; it being agreed that such
engine or airframe, as the case may be, shall be held for the account of
any such owner, lessor, lienor or secured party, or, if such engine is
owned by Lessee, may, at the option of Lessor, be exchanged with Lessee for
an Engine in accordance with the provisions of Section 8(b)) without the
necessity for first instituting proceedings, or by summary proceedings or
otherwise, all without liability accruing to Lessor for or by reason of
such entry or taking of possession, whether for the restoration of damage
to property caused by such taking or otherwise;
(c) Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to recover damages for the breach thereof;
(d) Lessor, to the extent permitted by applicable law, may with or
without taking possession thereof, sell any Airframe or Engine at public or
private sale, as Lessor may determine, or otherwise dispose of, hold, use,
operate, lease to others or keep idle all or the Airframe or Engine as
Lessor, in its sole discretion, may determine, all free and clear of any
rights of Lessee except as hereinafter set forth in this Section 14A and
without any duty to account to Lessee with respect to such action or
inaction or for any proceeds with respect thereto;
(e) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights specified above with respect to all
or the Airframe or Engine, Lessor, by written notice to Lessee specifying a
payment ten days from such written notice, may demand that the Lessee pay
to Lessor, and Lessee shall pay to Lessor, on the payment date specified in
such notice, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the Basic Rent for the Aircraft due for periods
commencing on or after the date specified for payment in such notice), any
unpaid Basic Rent for the Aircraft due for periods prior to the payment
date specified in such notice plus an amount equal to the excess, if any,
of the present worth of the aggregate unpaid Basic Rent due under this
Lease for the Airframe or Engine, discounted quarterly at the Discount
Rate, over the fair market rental value therefor, discounted in like
manner;
(f) in the event Lessor, pursuant to paragraph (d) above, shall have
sold all or any Airframe or Engine, Lessor, in lieu of exercising its
rights under paragraph (e) above with respect to the Airframe or such
Engine or part thereof, may, if it shall so elect, demand
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that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the date of
such sale as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the installments of Basic Rent for the Aircraft due after the
Basic Rent Payment Date preceding such date of sale) any unpaid Basic Rent
with respect to the Aircraft due prior to such date PLUS the amount of any
deficiency between the net proceeds of such sale (after deduction of all
reasonable costs of sale) and the Stipulated Loss Value of the Aircraft,
computed as of the Basic Rent Payment Date on or immediately succeeding the
date of such sale together with interest, if any, on the amount of such
deficiency, at the Stipulated Interest Rate, from the date of such sale to
the date of actual payment of such amount;
(g) [Intentionally Left Blank]
(h) Lessor may rescind this Lease as to any or all Airframe and any
or all Engines, or may exercise any other right or remedy which may be
available to it under applicable law;
(i) Lessee shall be liable for any and all unpaid Rent and for all
legal fees and other costs and expenses incurred by reason of the
occurrence of any Lessee Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs or expenses incurred in
connection with the return of any Item of Equipment in accordance with the
terms of Section 5 hereof or in placing such Item of Equipment in the
condition and with airworthiness certificates as required by Section 5; and
(j) No remedy referred to in this Section 14A is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor or its Affiliates at law
or in equity, and the exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of
any or all of such other remedies under either this Lease or any other
agreement between Lessor or its Affiliates and Lessee. No express or
implied waiver by Lessor of any Lessee Event of Default shall in any way
be, or be construed to be a waiver of any future or further Lessee Event of
Default. To the extent permitted by Applicable Law, Lessee hereby waives
any and all rights to notice and to a judicial hearing with respect to the
repossession of any Item of Equipment by Lessor upon the occurrence of a
Lessee Event of Default.
Section 14B. LESSEE REMEDIES.
(a) REMEDIES. Upon the occurrence of a Lessor Event of Default and at any
time thereafter so long as the same shall be continuing, Lessee may, at its
option, declare a default by a written notice to Lessor; PROVIDED that Lessee's
remedies shall in all respects be limited as set forth in Section 5(b) and 5(g)
of Exhibit E and this Section 14B. At any time after delivery of such written
notice to Lessor, so long as Lessor shall not have remedied all outstanding
Lessor Events of Default Lessee may proceed pursuant to Section 6 of Exhibit E
to enforce performance by Lessor of its covenants and obligations under Exhibit
E to this Agreement and to recover damages for the breach thereof, but only to
the extent permitted under Section 14B(b) and Section 5(b) and 5(g) of Exhibit
E. Subject to Section 5(b) and 5(g) of Exhibit E and Section 14B(b), Lessor
shall be liable for any and all unpaid amounts due from it hereunder and for all
legal fees and other costs and
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expenses incurred by reason of the occurrence of any Lessor Event of Default
or the exercise of Lessee's remedies with respect thereto.
(b) LIMITATION ON DAMAGES. WITHOUT LIMITING THE PROVISIONS OF SECTION 4
OF THIS AGREEMENT AND NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
LESSOR SHALL HAVE NO OBLIGATION OR LIABILITY WHETHER ARISING IN CONTRACT
(INCLUDING WARRANTY), TORT (INCLUDING ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR
GROSS NEGLIGENCE) OR STRICT LIABILITY OR OTHERWISE FOR LOSS OF USE, REVENUE OR
PROFIT OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH RESPECT TO ANY BREACH OF THIS AGREEMENT OR THE PROCEDURES SET FORTH IN THE
MANUAL (OR ANY MANUAL REFERENCED THEREIN) OR ANY NONCONFORMANCE OR DEFECT IN ANY
SERVICE OR WORKMANSHIP OR ANY SERVICED PART OR OTHER MATERIAL, COMPONENT,
ACCESSORY, EQUIPMENT OR PRODUCT PROVIDED OR DELIVERED PURSUANT TO THIS
AGREEMENT. FURTHERMORE, LESSOR'S LIABILITY FOR DAMAGES, IF ANY, ARISING AS A
RESULT OF ANY BREACH OF, OR DEFAULT BY LESSOR UNDER, THIS AGREEMENT (INCLUDING
ANY BREACH OF WARRANTY) SHALL IN NO EVENT EXCEED LESSEE'S DIRECT, ACTUAL AND
REASONABLE DAMAGES (AFTER TAKING INTO ACCOUNT AMOUNTS THAT WOULD HAVE BEEN PAID
TO LESSOR AS SUPPLEMENTAL RENT BUT FOR SUCH BREACH OR DEFAULT) SUFFERED BY
LESSEE TO OBTAIN SUBSTITUTE COMPARABLE MAINTENANCE SERVICES FOR THE AIRCRAFT FOR
THE REMAINDER OF THE LEASE TERM AFTER THE DATE OF SUCH BREACH OR DEFAULT.
(c) NO IMPLIED WAIVER. No express or implied waiver by Lessee of any
Lessor Event of Default shall in any way be, or be construed to be a waiver of
any future or further Lessor Event of Default.
Section 15. INDEMNIFICATION.
(a) GENERAL. LESSEE DOES HEREBY ASSUME LIABILITY FOR, AND DOES HEREBY
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS LESSOR AND ANY AFFILIATE OF LESSOR
AND THEIR RESPECTIVE SUCCESSORS, PERMITTED ASSIGNS, SHAREHOLDERS, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS AND SERVANTS (EACH THEREOF, WITH ITS RESPECTIVE
AFFILIATES, SUCCESSORS, PERMITTED ASSIGNS, AGENTS AND SERVANTS REFERRED TO
HEREIN AS AN "INDEMNIFIED PARTY") FROM AND AGAINST, AND ON WRITTEN DEMAND TO
PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS THE CASE MAY
BE, ANY AND ALL EXPENSES OR LIABILITIES IMPOSED ON, CHARGED TO, RECOVERED FROM,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY AS A RESULT OF ANY CLAIM
BY A PERSON (OTHER THAN LESSEE UNDER SECTION 5(a) OF EXHIBIT E AND 14B HEREOF)
RELATING TO OR ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE
INTERIM AIRCRAFT LEASE AGREEMENTS, THE INTERIM AIRCRAFT MAINTENANCE AGREEMENT,
THE POOLING AGREEMENT, THE MANUAL (OR ANY OTHER LESSOR MANUAL REFERENCED
THEREIN) OR ANY MAINTENANCE SERVICES, OUTSIDE SERVICES, SERVICED ENGINES OR
SERVICED PARTS PROVIDED HEREUNDER, OR ANY FAILURE BY
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LESSEE OR LESSOR TO PERFORM HEREUNDER, INCLUDING CLAIMS FOR INJURY TO OR
DEATH OF PERSONS (INCLUDING ANY EMPLOYEES OR AGENTS OF LESSEE WHO ENTER
LESSOR'S PREMISES PURSUANT TO SECTION 4(g) OF EXHIBIT E AND ALL INVITEES,
GUESTS, PASSENGERS, SHIPPERS, EMPLOYEES AND AGENTS OF LESSEE), AND DAMAGE TO
OR DESTRUCTION OF PROPERTY (INCLUDING PROPERTY OF LESSEE AND OF ITS INVITEES,
GUESTS, PASSENGERS, EMPLOYEES AND AGENTS AND PROPERTY OF EACH INDEMNIFIED
PARTY). THE FOREGOING INDEMNITY OBLIGATIONS SHALL INCLUDE THE OBLIGATION OF
LESSEE TO INDEMNIFY EACH INDEMNIFIED PARTY FROM AND AGAINST, AND ON WRITTEN
DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS
THE CASE MAY BE, ANY AND ALL EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST ANY INDEMNIFIED PARTY RELATING TO OR ARISING OUT OF (i) ANY ACTION OR
INACTION OF LESSEE; (ii) THE MANUFACTURE OF THE AIRFRAME AND SERVICED ENGINES
(INCLUDING LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AND PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT); (iii) THE OWNERSHIP OF THE AIRCRAFT
AND, EXCEPT AS PROVIDED IN SECTION 15(d) BELOW, SERVICED ENGINES, DURING THE
TERM OF THIS LEASE; (iv) THE DELIVERY, NONDELIVERY, REDELIVERY, LEASE,
REGISTRATION, ASSIGNMENT, TRANSFER, POSSESSION, USE, OPERATION, CONDITION,
SALE OR RETURN OR OTHER DISPOSITION OF THE AIRFRAME AND SERVICED ENGINES AND
PARTS BY LESSEE (INCLUDING INJURY, DEATH OR PROPERTY DAMAGE SUFFERED BY
PASSENGERS, SHIPPERS OR OTHERS), AND ENVIRONMENTAL CONTROL, NOISE AND
POLLUTION REGULATIONS; (v) THE CONDITION UPON RETURN OF THE AIRFRAME AND
SERVICED ENGINES AND PARTS, TO THE EXTENT SUCH CONDITION DOES NOT COMPLY WITH
SECTION 5 HEREOF OR (vi) (WITHOUT LIMITING ANY OF THE FOREGOING) ANY BREACH
BY LESSEE OF, NONCOMPLIANCE BY LESSEE WITH, OR MISREPRESENTATION BY LESSEE
MADE OR DEEMED MADE IN, UNDER OR IN CONNECTION WITH, THIS LEASE OR ANY OTHER
DOCUMENT REQUIRED TO BE DELIVERED PURSUANT HERETO, OR ANY WARRANTY,
CERTIFICATE OR AGREEMENT MADE OR DELIVERED IN, UNDER OR IN CONNECTION
HEREWITH OR THEREWITH. THE FOREGOING INDEMNITY OBLIGATIONS OF LESSEE SHALL
NOT INCLUDE THE OBLIGATION TO INDEMNIFY (i) EMPLOYEES OF LESSOR AND ITS
AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO
ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO
LESSOR AND ITS AFFILIATES OR (ii) SUBCONTRACTORS TO LESSOR AND ITS AFFILIATES
WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN
EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND
ITS AFFILIATES. LESSEE ALSO SHALL NOT BE REQUIRED TO INDEMNIFY ANY
INDEMNIFIED PARTY FOR (i) LIABILITIES RESULTING FROM ACTS (INCLUDING FAILURE
TO ACT) OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY,
(ii) DAMAGE TO OR DESTRUCTION OF PROPERTY OF AN INDEMNIFIED PARTY, WHILE
WITHIN SUCH INDEMNIFIED PARTY'S SOLE CARE, CUSTODY AND CONTROL, TO THE EXTENT
RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR
AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO
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LESSOR AND ITS AFFILIATES, (iii) ACTS, OMISSIONS OR EVENTS THAT OCCUR AFTER
FULL AND FINAL COMPLIANCE BY LESSEE WITH THE TERMS OF THIS LEASE OR AFTER AN
AIRCRAFT, ANY SERVICED ENGINE OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR
PART HAS BEEN RETURNED TO LESSOR PURSUANT TO THE TERMS HEREOF, OR THE POOLING
AGREEMENT AS SUCH ACTS, OMISSIONS OR EVENTS RELATE TO SUCH RETURNED AIRCRAFT,
ANY SERVICED ENGINE, OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART
AFTER ITS RETURN; OR (iv) ANY TAX EXCEPT TO THE EXTENT AND AS SET FORTH IN
SECTION 16 HEREOF AND SECTION 3(h) OF EXHIBIT E.
(b) INDEMNIFICATION FOR NEGLIGENT ACTS. WITHOUT LIMITING SECTION 15(a),
LESSOR AND LESSEE EXPRESSLY INTEND THAT LESSEE SHALL HOLD HARMLESS, DEFEND AND
INDEMNIFY EACH INDEMNIFIED PARTY AGAINST CLAIMS (OTHER THAN CLAIMS THAT ARE
EXPRESSLY EXCEPTED IN SECTION 15(a)) THAT ARISE AS A RESULT OF THE NEGLIGENCE
(WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR OR ANY OTHER INDEMNIFIED PARTY
AND AS A RESULT OF THE JOINT OR CONCURRENT NEGLIGENCE (WHETHER ACTIVE, PASSIVE
OR IMPUTED) OF LESSOR, ANY OTHER INDEMNIFIED PARTY AND LESSEE.
(c) DEFENSE OF CLAIMS; SETTLEMENT. IF ANY INDEMNIFIED PARTY SHALL HAVE
KNOWLEDGE OF ANY CLAIM OR LIABILITY REQUIRED TO BE INDEMNIFIED AGAINST UNDER
THIS SECTION 15, SUCH INDEMNIFIED PARTY SHALL GIVE REASONABLY PROMPT WRITTEN
NOTICE THEREOF TO LESSEE AFTER BECOMING AWARE OF SUCH CLAIM, BUT THE FAILURE OF
SUCH INDEMNIFIED PARTY SO TO NOTIFY LESSEE SHALL NOT RELIEVE LESSEE FROM ANY
LIABILITY THAT IT WOULD OTHERWISE HAVE TO SUCH INDEMNIFIED PARTY HEREUNDER
EXCEPT TO THE EXTENT, AND ONLY TO THE EXTENT, THAT LESSEE DEMONSTRATES THAT THE
DEFENSE OF SUCH CLAIM OR LIABILITY IS PREJUDICED THEREBY. LESSEE AND LESSEE'S
INSURERS SHALL HAVE THE RIGHT, AT THEIR SOLE COST AND EXPENSE, TO INVESTIGATE,
DEFEND OR, EXCEPT AS LIMITED HEREINAFTER, COMPROMISE ANY CLAIM FOR WHICH
INDEMNIFICATION IS SOUGHT UNDER THIS SECTION 15 UPON ACKNOWLEDGMENT BY LESSEE OR
SUCH INSURER OF ITS LIABILITIES TO EACH INDEMNIFIED PARTY IN RESPECT THEREOF.
LESSEE SHALL ASSUME ALL RESPONSIBILITY FOR ANY CLAIM COVERED BY THE FOREGOING
INDEMNITY, AND THE INDEMNIFIED PARTY SHALL PROVIDE REASONABLE ASSISTANCE AND
COOPERATION DURING THE DEFENSE OR SETTLEMENT OF THE CLAIM. EXCEPT AS LIMITED
HEREAFTER, LESSEE SHALL HAVE COMPLETE CONTROL OF THE DEFENSE OR SETTLEMENT OF
SUCH CLAIM OR COMPROMISE THEREOF; PROVIDED THAT COUNSEL SELECTED BY LESSEE SHALL
BE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY. NO COMPROMISE OR SETTLEMENT
OF ANY CLAIM MAY BE EFFECTED BY LESSEE WITHOUT THE INDEMNIFIED PARTY'S CONSENT,
WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, NO CONSENT SHALL BE
REQUIRED IF (i) THERE IS NO FINDING OR ADMISSION OF ANY VIOLATION OF ANY LAW BY
THE INDEMNIFIED PARTY OR ANY VIOLATION OF THE RIGHTS OF ANY PERSON BY THE
INDEMNIFIED PARTY, (ii) THERE IS NO EFFECT ON ANY CLAIM
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THAT MAY BE MADE BY THE INDEMNIFIED PARTY, AND (iii) THE RELIEF PROVIDED IS
THE SOLE RESPONSIBILITY OF LESSEE. EACH INDEMNIFIED PARTY SHALL HAVE THE
RIGHT, BUT NOT THE DUTY, AT ITS OWN EXPENSE, TO PARTICIPATE IN THE DEFENSE
AND/OR SETTLEMENT OF ANY CLAIM WITH COUNSEL OF ITS OWN CHOOSING WITHOUT
RELIEVING LESSEE OF ANY OBLIGATIONS HEREUNDER. LESSEE AND ITS COUNSEL SHALL
COOPERATE WITH THE INDEMNIFIED PARTY'S COUNSEL AND SHALL SUPPLY THE
INDEMNIFIED PARTY WITH SUCH INFORMATION REASONABLY REQUESTED BY THE
INDEMNIFIED PARTY AS IS NECESSARY OR ADVISABLE FOR THE INDEMNIFIED PARTY TO
PARTICIPATE IN ANY PROCEEDING TO THE EXTENT PERMITTED BY THIS SECTION 15, BUT
CONTROL OF THE MATTER SHALL REMAIN WITH LESSEE.
ANY PAYMENT OR INDEMNITY PURSUANT TO THIS SECTION 15 SHALL INCLUDE THE
AMOUNT, IF ANY, NECESSARY TO HOLD THE INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX
BASIS (TAKING INTO ACCOUNT ANY CURRENT TAX BENEFITS TO WHICH ANY SUCH
INDEMNIFIED PARTY IS ENTITLED) AS A RESULT OF THE MATTER INDEMNIFIED AGAINST
UNDER THIS SECTION 15 FROM ALL TAXES REQUIRED TO BE WITHHELD BY LESSEE OR PAID
BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH PAYMENT OR INDEMNITY UNDER THE
LAWS OF ANY FEDERAL, STATE OR LOCAL GOVERNMENT OR TAXING AUTHORITY IN THE UNITED
STATES OR ANY TERRITORY, COMMONWEALTH OR POSSESSION OF THE UNITED STATES OR BY
ANY FOREIGN GOVERNMENT OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF.
(d) INDEMNIFICATION BY LESSOR. IF A PERSON WHICH HAS A LIEN ON ANY
SERVICED ENGINE TAKES POSSESSION OF OR INTERFERES WITH LESSEE'S QUIET ENJOYMENT
OR USE OF A SERVICED ENGINE, LESSOR SHALL INDEMNIFY AND HOLD HARMLESS LESSEE
FROM ANY AND ALL COSTS, LIABILITIES AND DAMAGES INCURRED BY LESSEE RELATING TO
OR ARISING THEREFROM.
(e) SURVIVAL. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
SECTION 15 SHALL SURVIVE ANY TRANSFER OF TITLE OR POSSESSION OF THE SERVICED
AIRCRAFT, ANY SERVICED ENGINE OR ANY SERVICED PART, ANY TERMINATION OR
EXPIRATION OF THIS AGREEMENT OR ANY IMPOSSIBILITY OF PERFORMANCE OF THIS
AGREEMENT OR FRUSTRATION OF PURPOSE OF THIS AGREEMENT.
Section 16. GENERAL TAX INDEMNITY.
(a) TAX INDEMNITY. (i) Except as provided in Section 16(b), Lessee agrees
that each payment of Rent and any other amounts payable to Lessor (with any
affiliate of Lessor and their respective successors, permitted assigns,
shareholders, directors, officers, employees, agents and servants referred to
herein as a "TAX INDEMNIFIED PARTY") by Lessee under this Lease shall be paid in
full without any deduction or withholding with respect to Taxes of any nature
whatsoever imposed by the United States or any other Taxing Authority unless
Lessee is prohibited by Applicable Law from doing so, in which event Lessee
shall (a) ensure that the deduction or withholding does not
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exceed the minimum amount legally required; (b) immediately pay to Lessor or
any other Person entitled to receive such payment an additional amount (as
Supplemental Rent) in such amount, net of any Taxes thereon, and at such
time as shall result in the net amount actually received by Lessor or such
other Person being, after all deductions or withholdings, equal to the full
amount which would have been received by Lessor or such other Person had such
deduction or withholding not been made and shall be free of expense to the
Lessor or such other Person for collection or other charges; (c) pay to the
relevant Taxing Authority within the period for payment permitted by
Applicable Law the full amount of all deductions or withholdings; and (d)
upon the request of Lessor or such other Person furnish to Lessor or such
other Person, as the case may be, within the period for payment permitted by
Applicable Law, an official receipt of the relevant Taxing Authority for all
amounts deducted or withheld as aforesaid; and
(ii) Except as provided in Section 16(b) hereof, Lessee shall pay,
protect, save, and on written demand shall indemnify and hold harmless on an
after-tax basis each Tax Indemnified Party from and against any and all Taxes
imposed against any Tax Indemnified Party, Lessee or the Serviced Aircraft by
any Taxing Authority in connection with or relating to (A) the construction,
financing, refinancing, purchase, acquisition, acceptance, rejection, delivery,
nondelivery, transport, ownership, registration, reregistration, assembly,
possession, repossession, operation, location, use, condition, maintenance,
repair, sale, return, abandonment, preparation, installation, storage,
redelivery, manufacture, leasing, subleasing, modification, rebuilding,
importation, reimportation, transfer of title, transfer of registration,
exportation, reexportation or other application or disposition of, or the
imposition of any Lien (or the incurrence of any liability to refund or pay over
any amount as the result of any Lien) on, the Serviced Aircraft, the Serviced
Airframe, and any Serviced Engine or any Serviced Part or interest therein,
(B) payments of Basic Rent or Supplemental Rent or the receipts or earnings
arising therefrom or received with respect to the Serviced Aircraft, the
Serviced Airframe, any Serviced Engine or any Serviced Part or interest therein,
(C) the Serviced Aircraft, any Serviced Airframe, any Serviced Engine or any
Serviced Part or interest therein, (D) otherwise with respect to or in
connection with the transactions contemplated by this Lease, and (E) any
out-of-pocket penalties, late payment fees, interest, costs and expenses
fairly attributed to any of the foregoing incurred by any Tax Indemnified
Party.
(b) EXCLUSIONS FROM GENERAL TAX INDEMNITY. The provisions of
subsection 16(a) shall not apply to a Tax Indemnified Party in the case of:
(i) Taxes that are imposed on or measured by the net income, excess
profits, receipts (other than any excise or gross receipts tax imposed by
the State of Hawaii), franchises, capital or conduct of business of such
Tax Indemnified Party, other than any such taxes which are imposed in lieu
of any sales, use or value added taxes;
(ii) any other Taxes based on, or measured by, the net income of such
Tax Indemnified Party (other than (x) Taxes which are, or are in the nature
of, sales, use or rental taxes or (y) Taxes imposed by any Taxing Authority
(other than a taxing authority for the jurisdiction in which such Tax
Indemnified Party is doing business) as a result of a nexus between the
jurisdiction of the Taxing Authority and any Item of Equipment or any Part
or any part or the activities in the jurisdiction of the Taxing Authority
of Lessee, any sublessee
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or any other user of the Aircraft (other than such Tax Indemnified Party or
any Affiliate thereof) or any Affiliate of any of the foregoing);
(iii) Taxes that are imposed as a result of (y) any voluntary
sale, assignment, transfer or other disposition by such Tax Indemnified
Party of any interest of such Tax Indemnified Party in the Aircraft, the
Airframe, any Serviced Engine, any Part, or any interest therein, unless
such sale, assignment, transfer or disposition results from (1) action
taken by or on behalf of such Tax Indemnified Party as provided in or
permitted by this Lease in connection with or by reason of any Lessee Event
of Default that has occurred and is continuing or any exercise by the
Lessor of any of its remedies in connection with any such Lessee Event of
Default as provided in or permitted by the Lease, or (2) any replacement or
substitution by the Lessee of any Engine or any Part; or (z) any
involuntary transfer of any of the foregoing interests in connection with
any bankruptcy or other proceeding for the relief of debtors in which such
Tax Indemnified Party is the debtor or any foreclosure by a creditor of
such Tax Indemnified Party;
(iv) Taxes in the nature of penalties, additions to tax, interest or
fines resulting directly from the negligence of the Tax Indemnified Party
in connection with the preparation or filing of any tax return unless such
Tax Indemnified Party files any tax return in a manner requested by Lessee,
required to be filed by such Tax Indemnified Party without regard to the
transactions contemplated by this Lease, the payment of any taxes shown
thereon or the conduct of any proceeding in respect thereof, except to the
extent attributable to the failure of Lessee to perform its obligations or
to otherwise perform its duties and responsibilities pursuant to this
Lease, including, without limitation, the obligation to make payments
hereunder;
(v) so long as no Lessee Default or Event of Default shall be
continuing, Taxes imposed with respect to any period after (i) the
expiration of the Term and the return of the Aircraft to the Lessor in
accordance with Section 5 of this Lease or (ii) the earlier discharge in
full of Lessee's obligation to pay the Stipulated Loss Value and all other
amounts due under this Lease; provided, however, that this exception shall
not apply to Taxes (x) relating to events occurring or matters arising upon
or prior to such expiration and return or discharge, or (y) imposed on or
with respect to any payments due after such expiration and return or
discharge until after such payments have been made;
(vi) Taxes to the extent of the excess of such Taxes over the amount
of such Taxes which would have been imposed and indemnified against had
there not been a sale, assignment, transfer or other disposition (whether
voluntary or, if resulting from bankruptcy, foreclosure (other than
foreclosure resulting from a Lessee Event of Default) or similar
proceedings in which such Tax Indemnified Party is the debtor, involuntary)
by a Tax Indemnified Party of any interest of such Tax Indemnified Party in
the Aircraft, the Airframe, any Serviced Engine, or any Part, unless such
transfer results from action taken by or on behalf of such Tax Indemnified
Party after a Lessee Event of Default has occurred and while it is
continuing or any exercise by the Lessor of any of its remedies in
connection with any such Lessee Event of Default;
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(vii) Taxes arising out of or caused by any willful misconduct or
gross negligence of such Tax Indemnified Party;
(viii) with respect to any Tax Indemnified Party, any Tax that
results solely from such Tax Indemnified Party or a related Tax Indemnified
Party engaging in transactions other than those contemplated by this Lease
or any Long-Term Agreement, or those in which such Tax Indemnified Party is
currently engaged;
(ix) sales tax incurred by Lessor in connection with the maintenance
of the Serviced Aircraft pursuant to Attachment A to Exhibit E hereto,
other than any such tax, whether in the form of a sales tax, gross receipts
tax or other functional equivalent of a sales tax imposed by the State of
Hawaii;
(x) any Tax to the extent such Tax would not have been imposed if a
Tax Indemnified Party or a related Tax Indemnified Party had not engaged in
activities in the jurisdiction imposing such Tax which activities are
unrelated to the transactions contemplated by the this Lease or the other
Long Term Agreements, but only to the extent such Tax would not have been
payable in the absence of such unrelated activities; or
(xi) any failure of a Tax Indemnified Party to comply with (I)
certification, information, documentation, reporting or other similar
requirements concerning the nationality, residence, identity or connection
with the jurisdiction imposing such Tax, if such compliance is required by
statute or by regulation of the jurisdiction imposing such Tax as a
precondition to relief or exemption from such Tax; or (II) any other
certification, information, documentation, reporting or other similar
requirements under the Tax laws or regulations of the jurisdiction imposing
such Tax that would establish entitlement to otherwise applicable relief or
exemption from such Tax; provided, however, that the exclusion set forth in
this subsection 16(a)(x) shall not apply if (v) such failure to comply was
due to a failure of the Lessee to provide such Tax Indemnified Party with
the information required to be supplied by the Lessee in order for such Tax
Indemnified Party to comply with such requirement or due to a failure of
the Lessee to notify such Tax Indemnified Party of such requirement and
such Tax Indemnified Party was not otherwise aware of such requirement; or
(w) such failure to comply was done upon the advice, concurrence and/or
direction or with the knowledge of the Lessee.
(c) CALCULATION OF GENERAL TAX INDEMNITY PAYMENTS.
(i) Lessee agrees that, with respect to any payment or indemnity to a
Tax Indemnified Party under Section 16 hereof, the Lessee's indemnity
obligations shall include the payment of an amount necessary to hold such
Tax Indemnified Party harmless on an after-tax basis from all Taxes
required to be paid by such Tax Indemnified Party with respect to such
payment or indemnity (including any payments made pursuant to this
subsection 16(c) under the laws of any Taxing Authority.
(ii) If any Tax Indemnified Party shall realize a current tax benefit
as a result of any Taxes paid or indemnified against by the Lessee under
this Section 16 (except to the
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extent previously taken into account in computing the indemnity paid with
respect to such Taxes), such Tax Indemnified Party shall, so long as no
Lessee Event of Default shall have occurred and be continuing and no
payment is due and owing by Lessee under this Lease or any Long-Term
Agreement, pay to the Lessee an amount which, after subtraction of any
further tax savings such Tax Indemnified Party realizes as a result of
the payment thereof, is equal to the amount of such current tax benefit,
but only after the Lessee shall have made all payments then due and owing
to such Tax Indemnified Party pursuant to this Lease and the Long-Term
Agreements; PROVIDED that any subsequent loss of any tax benefit paid
to the Lessee hereunder shall be treated as a Tax subject to
indemnification in accordance with subsection 16(a) (without regard to any
exclusions set forth in subsection 16(b) or the provisions of
subsection 16(g); and PROVIDED FURTHER, that such Tax Indemnified Party
shall not be obligated to make any payment pursuant to this
subsection 16(c) to the extent that the amount of such payment would exceed
(x) the amount of all prior payments by Lessee to such Tax Indemnified
Party pursuant to this subsection 16(c), less (y) the amount of all prior
payments by such Tax Indemnified Party to Lessee hereunder. Each such Tax
Indemnified Party shall in good faith use reasonable efforts in filing its
tax returns and in dealing with taxing authorities to seek and claim any
such tax benefit.
(d) PAYMENT OF GENERAL TAX INDEMNITY. Unless otherwise requested by a Tax
Indemnified Party, or unless the Tax is being contested in accordance with the
provisions of subsections 16(g) hereof, the Lessee shall pay when due any Tax
for which it is liable pursuant to this Section 16 directly to the appropriate
Taxing Authority, or, upon written demand, shall reimburse a Tax Indemnified
Party for the payment of any such Tax made by such Tax Indemnified Party.
Within 30 days after the date of each payment by the Lessee of any Tax referred
to in the preceding sentence, the Lessee shall upon request furnish such Tax
Indemnified Party the original or a copy of the receipt for the Lessee's payment
of such Tax or such other evidence of payment of such Tax as is reasonably
acceptable to such Tax Indemnified Party. The Lessee shall also cause to be
furnished, promptly upon request, such data as such Tax Indemnified Party
reasonably may require that are within the reasonable control or possession of
Lessee and are not otherwise reasonably obtainable by such Tax Indemnified Party
to enable such Tax Indemnified Party to comply with the requirements of any
Taxing Authority in respect of any Tax referred to in subsection 16(a) hereof.
(e) VERIFICATION OF CALCULATIONS. At the request of Lessee, the accuracy
of any calculation of the amount or amounts payable to a Taxing Authority or a
Tax Indemnified Party pursuant to this Section 16 shall be verified by
independent public accountants selected by such Tax Indemnified Party and
reasonably satisfactory to Lessee, and such verification shall be binding on
both the Tax Indemnified Party and Lessee. In order, and to the extent
necessary, to enable such independent accountants to verify such amounts, such
Tax Indemnified Party shall provide to such independent accountants (for their
confidential use and not to be disclosed to Lessee or any other person) all
information reasonably necessary for such verification. Such verification shall
be at the expense of Lessee.
(f) REPORTS. If any report, return or statement is required to be filed
with respect to any Tax which is subject to indemnification under this
Section 16, the Lessee shall timely file the same,
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except for any such report, return or statement which a Tax Indemnified Party
has notified the Lessee that it intends to file. The Lessee shall either
file such report, return or statement so as to show the ownership of the
Aircraft in the Lessor and send a copy of such report, return or statement to
such Tax Indemnified Party or, where the Lessee is not so permitted to file
in the name of such Tax Indemnified Party, shall notify such Tax Indemnified
Party of such requirements and cooperate reasonably with such Tax Indemnified
Party with respect thereto.
(g) GENERAL TAX INDEMNITY CONTEST PROVISIONS.
(i) NOTICE. If a Tax Indemnified Party receives a written notice
regarding the imposition of a Tax, or if at the conclusion of any audit by
any Taxing Authority there is a proposed adjustment regarding any Tax which
if agreed to by such Tax Indemnified Party would result in the imposition
of a Tax for which such Tax Indemnified Party would seek indemnification
from the Lessee in an amount equal to or in excess of $25,000 pursuant to
this Section 16, such Tax Indemnified Party shall within the lesser of:
(A) 30 days after receipt of such written notice by a responsible officer
of such Tax Indemnified Party or promptly after the conclusion of such
audit; or (B) not less than ten (10) days prior to the expiration of the
statutory period to respond, so notify the Lessee in writing; provided,
however, that the failure so to notify the Lessee shall not diminish the
Lessee's obligations hereunder, except in the event that Lessee's rights to
contest such tax shall have been precluded by such failure, and after such
contest, Lessor would not have been liable for such taxes and except for
any interest or penalties related to any late or missed payment dates.
(ii) CONTEST PROVISIONS. If requested by the Lessee in writing, a Tax
Indemnified Party shall in good faith contest in the name of such Tax
Indemnified Party or, if requested by the Lessee and if such contest does
not in such Tax Indemnified Party's reasonable discretion involve or
potentially involve taxes imposed on such Tax Indemnified Party that are
not indemnified against hereunder, to contest in the name of the Lessee (or
permit the Lessee, if requested by the Lessee, to contest in the name of
the Lessee or the Tax Indemnified Party) the validity, applicability and
amount of the imposition of any Tax or any proposed adjustment that would
give rise to the proposed imposition of any Tax by (a) resisting payment
thereof, if such Tax Indemnified Party in its sole and reasonable
discretion shall determine such course of action to be appropriate, (b) not
paying the same except under protest, if protest is necessary and proper,
or (c) if payment shall be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings;
provided, however, that (u) such Tax Indemnified Party shall not be
required to contest such imposition or proposed adjustment if the aggregate
amount of an indemnity on an after-tax basis, would be less than $25,000,
(v) no Lessee Event of Default has occurred and is continuing, (w) such Tax
Indemnified Party has been provided with an opinion of independent tax
counsel selected by such Tax Indemnified Party and reasonably acceptable to
the Lessee (the cost of which shall be borne by the Lessee) to the effect
that a reasonable basis in law or in fact exists that such Tax Indemnified
Party will prevail in such contest, (x) such Tax Indemnified Party, at its
sole option, may at any time forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority and, in
lieu thereof, continue to contest the claim in any permissible judicial
forum selected
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by such Tax Indemnified Party, (y) Lessee shall have agreed
to pay such Tax Indemnified Party (or, in the case of item (iii) below,
lend to such Tax Indemnified Party on an interest-free basis (and in such
case pay any additional amount as shall be required to hold such Tax
Indemnified Party harmless on a net after-tax basis from any adverse tax
consequences attributable to the loan), on demand, all reasonable
out-of-pocket costs and expenses which such Tax Indemnified Party incurs in
connection with and reasonably allocable to contesting such imposition or
adjustment, including, without limitation, (i) all legal, accountants' and
investigatory fees and disbursements, (ii) the amount of any interest,
penalties or additions to tax (to the date such payment is made) payable as
a result of contesting such adjustment, and (iii) if such contest is to be
initiated by the payment of, and the claiming of a refund for, the amount
of such imposition or adjustment, funds sufficient to make such payment of,
and the claiming of a refund for, the amount of such imposition or
adjustment, funds sufficient to make such payment (and in the event such
contest is finally determined adversely, the amount of such loan shall be
applied against the Lessee's obligation to indemnify such Tax Indemnified
Party for the Tax which was the subject of such contest), and (z) such
proceedings do not involve any risk (other than a remote risk) of the sale,
forfeiture or loss of the Aircraft, the Airframe, any Serviced Engine or
any Part or interest therein or, if there is such a risk, Lessee has
provided to such Tax Indemnified Party a bond in form and substance
reasonably satisfactory to such Tax Indemnified Party in an amount
sufficient to protect such Tax Indemnified Party from any detriment that
would be suffered by the Lessor as a result of such sale, forfeiture, or
loss or has otherwise protected such Tax Indemnified Party in a manner
acceptable to such Tax Indemnified Party and there is no risk or the
imposition of criminal penalties. Such Tax Indemnified Party will consult
with Lessee regarding any contest and will consider in good faith any
suggestions made by Lessee with respect to the most favorable forum for,
and the conduct of, such contest; provided, however, that, unless such Tax
Indemnified Party elects to permit Lessee to conduct such contest, such
contest shall be controlled by such Tax Indemnified Party and conducted by
independent counse selected by such Tax Indemnified Party or by "in-house"
counsel of such Tax Indemnified Party and reasonably acceptable to Lessee.
In the event that such Tax Indemnified Party elects to permit the Lessee to
conduct such contest, the independent counsel selected by the Lessee to
conduct such contest shall be reasonably satisfactory to such Tax
Indemnified Party. If requested by the Lessee in writing, such Tax
Indemnified Party will appeal (or, if desired by such Tax Indemnified
Party, permit the Lessee to appeal) any adverse judicial determination,
provided that, as a condition to the commencement of the appeal of such
adverse judicial determination, (a) such Tax Indemnified Party shall
receive, at the Lessee's expense, an opinion of independent counsel,
selected by such Tax Indemnified Party and reasonably satisfactory to
Lessee, to the effect that a more likely than not probability of success
exists for such appeal and (b) Lessee shall have acknowledged its liability
to such Indemnified Party for an indemnity payment as a result of such tax
claim if such Tax Indemnified Party shall not prevail in the contest;
provided, however, that such Tax Indemnified Party shall not be required to
appeal any adverse judicial determination to the United States Supreme
Court.
Notwithstanding anything contained in this subsection 16(g) to the
contrary, no Tax Indemnified Party shall be required to contest any claim if the
subject matter thereof shall be of a
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continuing nature and shall have previously been decided pursuant to the
contest provisions of this subsection 16(g) (including a contest pursuant to
the contest provisions hereof in which the Tax Indemnified Party may be
required to contest such a claim if there shall have been a change in the law
(including, without limitation, amendments to statutes or regulations,
administrative ruling and court decisions)) or Lessee shall have provided new
facts after such claim shall have been so previously decided, and such Tax
Indemnified Party shall have received an opinion of independent tax counsel
selected by such Tax Indemnified Party and approved by the Lessee (the cost
of which shall be borne by the Lessee) to the effect that, as a result of
such change or new facts, it is more likely than not that the position which
such Tax Indemnified Party or the Lessee, as the case may be, had asserted in
such previous contest, would prevail; PROVIDED that the provisions of this
paragraph shall not require an Tax Indemnified Party to file an amended tax
return or refund claim for any prior taxable period.
(h) COMPROMISE OR SETTLEMENT. A Tax Indemnified Party shall have the
right to settle or compromise a contest if such Tax Indemnified Party has
provided Lessee a reasonable opportunity to review a copy of that portion of
the settlement or compromise proposal which relates to the Tax for which such
Tax Indemnified Party is seeking indemnification hereunder, PROVIDED that, if
(i) such Tax Indemnified Party fails to provide the Lessee such a reasonable
opportunity to review such portion of such proposal or (ii) after such
reasonable opportunity to review such proposal the Lessee in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
the Lessee shall not be obligated to indemnify such Tax Indemnified Party
hereunder to the extent of the amount attributable to the Tax to which such
settlement or compromise relates as to which the Lessee has reasonably withheld
its consent. If such Tax Indemnified Party effects a settlement or compromise
of such contest without giving notice to the Lessee or, notwithstanding that the
Lessee has reasonably withheld its consent thereto, such Tax Indemnified Party
shall repay to the Lessee such amounts theretofore advanced by the Lessee
pursuant to clause (y)(iii) of subsection 16(g)(i) hereof as relate to such
claim, to the extent the Lessee has reasonably withheld its consent to the
settlement or compromise thereof.
(i) REFUNDS. If any Tax Indemnified Party shall obtain a refund of all or
any part of any Taxes that the Lessee shall have paid for such Tax Indemnified
Party or for which the Lessee shall have reimbursed such Tax Indemnified Party,
such Tax Indemnified Party shall, so long as no Default or Lessee Event of
Default shall have occurred and be continuing and no payment is due and owing by
the Lessee under this Agreement or any Long-Term Agreement, pay to the Lessee an
amount which is equal to the sum of the amount of such refund, plus any interest
received attributable thereto net of any net taxes payable by such Tax
Indemnified Party with respect to the receipt or accrual of such interest and
the payment thereof to the Lessee, but only after the Lessee shall have made all
payments then due and owing to such Tax Indemnified Party pursuant to this
Section 16; PROVIDED, HOWEVER, that any subsequent loss of any refund paid to
the Lessee hereunder shall be treated as a Tax subject to indemnification in
accordance with this Section 16 (without regard to any exclusions set forth in
subsection 16(b) or the provisions of subsection 16(g).
(j) FAILURE TO CONTEST. Notwithstanding anything to the contrary
contained in this subsection 16(g), a Tax Indemnified Party may at any time
decline to take any further action with respect to a proposed adjustment or the
imposition of a Tax; PROVIDED that if the Lessee has properly
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requested such action pursuant to, and is otherwise entitled to require any
action to be taken by a Tax Indemnified Party pursuant to the provisions of
subsection 16(g), and such Tax Indemnified Party has failed to contest, or
permit the Lessee to contest, such proposed adjustment or the imposition of
such Tax, such Tax Indemnified Party shall be deemed to have waived its right
to any Indemnity payment that would otherwise be payable by the Lessee
pursuant to this Section 16 in respect of such adjustment or the imposition
of such Tax. In such event, such Tax Indemnified Party shall reimburse the
Lessee for all amounts previously advanced by the Lessee to such Tax
Indemnified Party with respect to such proposed adjustment pursuant to clause
(y)(iii) of subsection 16(g) hereof. If an Tax Indemnified Party fails to
contest or to permit a contest hereunder, such Tax Indemnified Party will not
be required to pay over the Lessee any amount representing tax benefits
described in subsection 16(c)(B) hereof which result from the payment of
Taxes as to which such Tax Indemnified Party has been deemed to have waived
its right to any indemnity payment hereunder.
(k) INTEREST. To the extent permitted by applicable law, interest at the
Stipulated Interest Rate shall be paid, on demand, on any amount not paid when
due, pursuant to Section 16 until the same shall be paid. Such interest shall
be paid in the same manner as the unpaid amount in respect of which such
interest is due.
(l) EFFECT OF OTHER INDEMNITIES. The Lessee's obligations under the
indemnities provided for in this Agreement and the Long-Term Agreements shall be
those of a primary obligor whether or not the Person indemnified shall also be
indemnified with respect to the same matter under the terms of this Agreement,
any Lease or any Long-Term Agreement or any other document or instrument, and
the Person seeking indemnification from the Lessee pursuant to any provisions of
this Agreement may proceed directly against the Lessee without first seeking to
enforce any other right of indemnification.
Section 17. MISCELLANEOUS
(a) CONSTRUCTION; GOVERNING LAW. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by Applicable Law, the parties hereby waive any provision of law which renders
any provisions hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by written instrument signed by the party against which the enforcement
of the change, waiver, discharge or termination is sought; and, in compliance
with Section 2A-208(b) of the Texas Business and Commerce Code requiring a
separate signature of this provision, Lessee has signed in the space provided
below. Any consent or approval specified herein of a party hereto may be
withheld entirely in such party's discretion unless it is herein expressly
provided that such consent may not be unreasonably withheld.
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No waiver of a breach of any provision of this Lease Agreement by either
party shall constitute a waiver of any subsequent breach of the same or any
other provision hereof, and no waiver shall be effective unless in writing.
HAWAIIAN AIRLINES, INC.
By:
------------------------------------------
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By:
-----------------------------------------
Lyn F. Anzai,
Vice President, General Counsel
and Corporate Secretary
The captions in this Lease are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. THIS LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF TEXAS (EXCLUDING THE CONFLICT OF LAW PROVISIONS THERETO), INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
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(b) NOTICES. All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder or under any instrument,
certificate or other instrument delivered in connection with the transactions
described herein shall be in writing, shall be addressed as provided below and
shall be considered as properly given (a) if delivered in person, (b) if sent by
overnight delivery service (including, without limitation, Federal Express, UPS,
Emery, Purolator, DHL, Air Borne, and other similar overnight delivery
services), (c) if sent by telecopier (upon receipt by the sender thereof of
evidence that a clean transmission of such telecopy was made to the recipient
thereof) and, in such case, dispatching a copy of such notice by the methods
described in clause (a) or (b) above. All notices shall be effective upon
delivery; PROVIDED that if any notice is tendered to an addressee, such notice
shall be effective upon tender. For the purposes of notice the addresses of the
parties shall be as set forth below; PROVIDED that any party shall have the
right to change its address for notice hereunder to any other location by giving
thirty (30) days' notice to the other parties in the manner set forth
hereinabove. The initial addresses of the parties hereto are as follows:
If to Lessor: American Airlines, Inc.
4333 Amon Carter Boulevard
MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate Development and Treasurer
Telecopier: (817) 967-2199
Telephone: (817) 967-1227; and
American Airlines, Inc.
Maintenance & Engineering Center
3900 N. Mingo Road
Tulsa, Oklahoma 74115
Attention: Senior Vice President,
Maintenance and Engineering
Telecopier: (918) 292-2203
Telephone: (918) 292-2612
WITH COPIES TO: American Airlines, Inc.
4333 Amon Carter Boulevard
MD 5675
Ft. Worth, Texas 76155
Attention: Corporate Secretary
Telecopier: (817) 967-4313
Telephone: (817) 967-1254; and
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Haynes and Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202-3789
Attention: Janice V. Sharry
Telecopier:(214 651-5940
Telephone: (214) 651-5000
IF TO LESSEE: Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-Finance
Telecopier: (808) 836-4795
Telephone: (808) 835-3075
WITH COPIES TO: Hawaiian Airlines, Inc.
3375 Koapaka Street
Suite G350
Honolulu, Hawaii 96819
Attention: Vice President-General Counsel
Telecopier: (808) 835-3690
Telephone: (808) 835-3610
(c) LESSOR'S RIGHT TO PERFORM. If Lessee fails to perform any of its
obligations hereunder, Lessor may (but shall not be obligated to) discharge such
obligation, and the amount of the expenses of Lessor incurred in connection with
such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand
together with interest thereon at the Stipulated Interest Rate to but excluding
the date of payment. Lessor shall use its best efforts to give Lessee prior
notice of Lessor's intention to discharge any such obligation.
(d) CONFIDENTIALITY.
(i) CONFIDENTIAL INFORMATION. For purposes of this Agreement,
confidential information shall mean any and all (i) trade secrets,
(ii) confidential or other proprietary information of a party or its
Affiliates concerning past, present or future research, development,
business activities or affairs, finances, properties, methods of operation,
processes and systems, (iii) customer lists, and (iv) other customer
information, whether oral, written or contained in any magnetic, electronic
or other media; PROVIDED that in order for a party's information to be
considered confidential hereunder such information, if non-oral, must be
marked by such party as confidential; and PROVIDED FURTHER that oral
information must be specified as confidential at the time of disclosure
(collectively, "Confidential Information"). Notwithstanding the foregoing,
the parties expressly acknowledge and agree that the terms and conditions
of this Agreement set forth in Exhibit E of this Agreement constitute
Confidential Information. The party which receives
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Confidential Information from the other party agrees to maintain such
information in secrecy at all times, using the same degree of care with
respect to such Confidential Information as it uses in protecting its own
proprietary information, trade secrets and similar items; PROVIDED that
Confidential Information may be used in an action by one party to this
Agreement against the other if subject to the conditions set forth in (ii)
below. Information of either party which would otherwise be considered
Confidential Information shall not be considered Confidential Information
if such information is in the public domain, or is placed in the public
domain through no violation of this Agreement, or is lawfully obtained from
another source free of restriction.
(ii) USE OF CONFIDENTIAL INFORMATION. Except to the extent expressly
permitted in Section 4(l) of Exhibit E, neither party shall sell, transfer,
publish, disclose, display or otherwise make available the Confidential
Information of the other party to any third party (and third parties shall
be deemed also to include Affiliates of the party so restricted which are
not parents or subsidiaries), except as may be required by Applicable Law
in which case the party from whom disclosure is sought shall promptly
notify the other party. To the extent that the other party objects to
disclosure of such Confidential Information, the party from which
disclosure is sought shall (i) use reasonable and lawful efforts to resist
making any disclosure of such Confidential Information, (ii) use reasonable
and lawful efforts to limit the amount of such Confidential Information to
be disclosed, and (iii) use all reasonable efforts to obtain a protective
order or other appropriate relief to minimize the further dissemination of
any Confidential Information to be disclosed. In addition, neither party
shall disclose the Confidential Information of the other party to any
employee or agent except on a need-to-know basis. Each party shall use
reasonable efforts to inform all such employees and agents that the
Confidential Information of the other party is subject to this
non-disclosure obligation. Furthermore, neither party shall use the
Confidential Information of the other party for any purpose other than as
expressly provided in this Agreement.
(iii) TERMINATION. Upon termination of this Agreement for any
cause or reason, each party shall, within ninety (90) days of such
termination, either deliver to the other party or destroy all of such other
party's Confidential Information (including all copies thereof other than
copies of this Agreement) at the option of the other party then in its
possession and shall purge any copies thereof encoded or stored on magnetic
or other electronic media or processors; PROVIDED that neither Lessee nor
Lessor shall be required to purge or destroy any Confidential Information
that is reasonably necessary in connection with the resolution of any
disputes which may have arisen pursuant to the terms of this Agreement.
(iv) NO ADEQUATE REMEDY. Each party acknowledges and agrees that the
other party will have no adequate remedy at law if there is a breach or
threatened breach of this Section 17(d) and, accordingly, that the other
party shall be entitled to an injunction against such breach. Nothing
herein shall be construed as a waiver of any other legal or equitable
remedies that may be available to either party if the other party breaches
this Section 17(d).
(v) SURVIVAL. The restrictions of this Section 17(d) shall survive
for a period of eight (8) years after the termination or expiration of this
Agreement.
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(vi) AFFILIATES. The Affiliates of Lessor and Lessee shall comply in
all respects with the restrictions of this Section 17(d) and Lessor and
Lessee, respectively, shall in all respects be responsible for their
compliance.
(vii) OTHER CONFIDENTIALITY AGREEMENTS. The provisions of this
Section 17(d) are in addition to, and shall not be deemed to affect the
terms and provisions of, the Confidentiality Agreement. To the extent the
terms hereof may be deemed to be inconsistent with the terms of the
Confidentiality Agreement or such Confidentiality Agreement shall be
silent, this Agreement shall control with respect to this Agreement and any
Confidential Information relating hereto. Upon the written consent of
Lessor, which consent shall not be unreasonably withheld, Lessee may
provide this Agreement to third party lenders or investors of Lessee;
PROVIDED that the party receiving this Agreement shall, prior to obtaining
it, enter into a confidentiality agreement with Lessee for the benefit of
Lessor in substantially the form of this Section 17(d).
(e) COUNTERPARTS. This Lease and the Lease Supplement No. 1 may be
executed in several counterparts, each of which shall be deemed an original, and
all such counterparts shall constitute one and the same instrument. To the
extent that this Lease constitutes chattel paper, as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the counterpart marked as the "Original" and containing
the receipt therefor executed by the applicable secured party on the signature
page thereof.
(f) GRANT OF SECURITY INTEREST BY LESSOR. In compliance with the terms of
this Section, Lessor may grant a security interest in this Lease as collateral
for a loan provided Lessor notifies Lessee at least ten (10) Business Days
before granting such security interest. The rights of Lessee under this Lease
shall be superior in all respects to the rights of any such lender and Lessor
shall require any such lender to agree in writing in form and substance
reasonably satisfactory to Lessee that such lender's rights in and to the
Aircraft and under the Lease shall be subject and subordinate to the terms of
this Lease to receive all such performance from Lessor as may from time to time
be required by the terms hereof. Lessee agrees to reasonably cooperate with
Lessor in connection with Lessor's efforts to grant such security interest and
to provide, at Lessor's cost and expense, such documents and certificates in
connection therewith as Lessor may reasonably request, PROVIDED, that anything
in this Section 17(f) to the contrary notwithstanding, the consummation of any
such loan shall not increase the actual or potential responsibilities or
liabilities of the Lessee or deprive Lessee of any of its rights or privileges
under the Long-Term Agreements.
(g) SURVIVAL. Except as otherwise expressly set forth herein or in the
Long-Term Agreements, the representations, warranties and covenants set forth in
this Agreement, and the obligations hereunder, shall survive any transfer of
title or possession of the Serviced Aircraft, any Serviced Engines or any
Serviced Part, any termination or expiration of this Agreement or any
impossibility of performance of this Agreement or frustration of purpose of this
Agreement.
(h) ASSIGNMENT. SUBJECT TO THE TERMS HEREOF, THIS AGREEMENT SHALL BIND
AND BENEFIT LESSOR, LESSEE, AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED
ASSIGNS. LESSOR MAY ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR
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DELEGATE ANY OR ALL OF ITS OBLIGATIONS HEREUNDER TO ANY AFFILIATE OF LESSOR;
PROVIDED THAT LESSOR SHALL NOT ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR
DELEGATE ANY OR ALL OF ITS OBLIGATIONS UNDER EXHIBIT E OR ANY RELATED
PROVISIONS OF THIS AGREEMENT TO ANY AFFILIATE THAT IS NOT CERTIFICATED BY THE
FAA TO PERFORM MAINTENANCE SERVICES. SUBJECT TO THE PROVISIONS OF SECTION
4(f) OF EXHIBIT E, LESSOR MAY SUBCONTRACT CERTAIN SPECIFIC TYPES OF
MAINTENANCE SERVICES CONSTITUTING LESS THAN ALL OR SUBSTANTIALLY ALL OF THE
MAINTENANCE SERVICES TO BE PERFORMED HEREUNDER, AND, IN CONNECTION THEREWITH,
ASSIGN CERTAIN OF ITS RIGHTS AND DELEGATE CERTAIN OF ITS OBLIGATIONS UNDER
EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, LESSOR MAY ASSIGN ALL OR
SUBSTANTIALLY ALL OF ITS RIGHTS AND/OR DELEGATE ALL OR SUBSTANTIALLY ALL OF
ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT
TO ANY PERSON CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES SUBJECT
ONLY TO SECTION 3(f)(ii)(C) OF EXHIBIT E. LESSEE MAY NOT (EITHER VOLUNTARILY
OR INVOLUNTARILY) ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS
HEREUNDER.
(i) TRANSACTION EXPENSES. Lessee agrees to pay the reasonable
out-of-pocket costs and expenses incurred by Lessor in connection with the
preparation, execution and delivery of any amendments, modifications or
waivers requested by Lessee or resulting from any requests of Lessee under
this Agreement. Except as specifically set forth herein, each of Lessor and
Lessee shall be responsible for their own legal and out-of-pocket expenses
arising from the transactions contemplated herein.
(j) ENTIRETY. This Lease Agreement, the Lease Supplements, the
Confidentiality Agreement and the Letter of Credit embody the entire agreement
between the parties hereto and thereto concerning the subject hereof and thereof
and such agreements terminate and supersede all prior or contemporaneous
agreements, discussions, undertakings, and understandings, whether written or
oral, express or implied, between the parties hereto and thereto concerning the
subject hereof and thereof.
(k) FORCE MAJEURE. Lessor shall not be liable to Lessee for a failure or
delay in the performance of any obligation or agreement contained herein, if
such failure or delay arises from any cause beyond Lessor's reasonable control,
including any act, omission, or breach of this Lease Agreement by Lessee, acts
of God, action or regulation of any Governmental Authority, fire, the elements,
flood, earthquakes, explosions, accidents, mechanical or electrical failures,
acts of the public enemy, war, civil disturbance, rebellion, insurrection, work
stoppage, strikes (including any mechanic, flight attendant or pilot strike),
labor dispute or difference with workers, regardless of whether or not Lessor
(or its Affiliate) is capable of settling such labor problem, or any other
cause, whether similar or dissimilar, beyond Lessor's reasonable control;
PROVIDED, HOWEVER, that, notwithstanding the foregoing, with respect to
Maintenance Services and related obligations as provided in Exhibit E hereto,
the provisions of Section 4(c)(i) of Exhibit E shall apply.
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(l) INDEPENDENT CONTRACTOR; NO AGENCY.
Nothing in this Agreement is intended or shall be construed to create or
establish any agency, partnership, or joint venture or fiduciary relationship
between the parties and neither Lessee nor any of its Affiliates has any
authority to act for or to incur any obligations on behalf of or in the name of
Lessor or any of its Affiliates and neither Lessor nor any of its Affiliates has
any authority to act for or to incur any obligations on behalf of or in the name
of Lessee or any of its Affiliates by virtue of this Agreement. The parties
hereto acknowledge and agree that nothing contained herein creates any fiduciary
duties between the parties or their respective Affiliates.
(m) CERTAIN CONSENTS AND WAIVERS OF LESSEE.
(i) JURISDICTION. Except as set forth in Section 6 of Exhibit E
hereto,
(a) Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of: (i) the United States District Court for the
Northern District of Texas, and of the courts of the State of Texas in
Tarrant County, and (ii) to the United States District Court for the
District of Hawaii (other than the Court), and of the courts of the State
of Hawaii in Honolulu County, for the purposes of any suit, action or other
proceeding arising out of this Lease Agreement or the subject matter hereof
brought by any other party, and (iii) any federal, state or foreign court
of competent jurisdiction where the In-Use Aircraft may be located from
time to time for the purpose of Lessor exercising any rights and remedies
under this Lease Agreement, including, without limitation, repossession of
the In-Use Aircraft. Lessor and Lessee each agrees that neither of them
will bring any suit, action or other proceeding arising out of this Lease
Agreement, the subject matter herein, or any of the transactions described
herein, in any jurisdiction other than the jurisdictions described above.
(b) To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim (i) that it is
not personally subject to the jurisdiction of the above-named courts, (ii)
that the suit, action or proceeding is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or
its property, (iv) that the venue of the suit, action or proceeding is
improper, or (v) that this Lease Agreement or the subject matter hereof may
not be enforced in or by such courts;
(c) Lessee agrees to designate CT Corporation in Texas as its
agent for service of process in Texas, and Lessor agrees to designate CT
Corporation in Hawaii as its agent for service of process in Hawaii.
Lessor and Lessee each agrees that submission to jurisdiction and
designation of an agent for service of process set forth above is made
solely for the express benefit of the other party and is effective solely
for purposes of this Lease Agreement;
(d) Final judgment against a party in any suit in any court of
competent jurisdiction shall be conclusive, and may be enforced in other
jurisdictions, to the extent permitted by Applicable Law, by suit on the
judgment, a certified and true copy of which, to
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the extent permitted by Applicable Law, shall be conclusive evidence of the
fact and the amount of any indebtedness or liability of the party therein
described; and
(e) To the extent that any party or any of its property is or
becomes entitled at any time to any immunity on the grounds of sovereignty
or otherwise, from any legal action, suit or proceeding, from setoff or
counterclaim, from the jurisdiction of any competent court, from service of
process, from attachment prior to judgment, from attachment in aid of
execution, or from jurisdiction, that party for itself and its property
does hereby irrevocably and unconditionally waive, and agrees not to plead
or claim any such immunity with respect to its obligations, liabilities or
any other matter arising hereof. Such agreement shall be irrevocable and
not subject to withdrawal in any and all jurisdictions including under the
Foreign Sovereign Immunities Act of 1976 of the United States of America.
(ii) WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE TRIAL
BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT OR ANY
MATTER RELATED HERETO.
(iii) OTHER WAIVERS. LESSEE AGREES AND ACKNOWLEDGES THAT UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS LEASE AGREEMENT, LESSOR SHALL
SUFFER IRREPARABLE HARM FOR WHICH MONEY DAMAGES WILL NOT BE ADEQUATE OR CANNOT
BE READILY ASCERTAINED. IN FURTHERANCE THEREOF, LESSEE AGREES THAT IT WILL TAKE
NO ACTION TO HINDER, DELAY OR INTERFERE WITH ANY ACTIONS TAKEN BY LESSOR IN
CONNECTION WITH THE REPOSSESSION OF THE IN-USE AIRCRAFT. SPECIFICALLY, LESSEE
WILL NOT TAKE ANY ACTION WHICH WOULD REQUIRE THE LESSOR TO BREACH THE PEACE IN
CONNECTION WITH REPOSSESSION OF THE IN-USE AIRCRAFT. LESSEE CONSENTS TO THE
ISSUANCE OF ANY ORDER OF ANY COURT OF COMPETENT JURISDICTION ENABLING LESSOR TO
REPOSSESS THE IN-USE AIRCRAFT, FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT,
WITHOUT THE NECESSITY OF LESSOR POSTING OR ISSUING ANY BOND. IN ADDITION,
LESSEE AGREES THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN
SECTIONS 13A(I) OR (J) OF THE LEASE AGREEMENT, LESSEE SHALL NOT TAKE ADVANTAGE
OF ANY PERIODS SPECIFIED IN SECTIONS 365 OR 1110 OF THE BANKRUPTCY CODE DURING
WHICH IT MIGHT RETAIN POSSESSION OF THE IN-USE AIRCRAFT OR THE PROVISIONS OF THE
AUTOMATIC STAY SET FORTH IN SECTION 362 OF THE BANKRUPTCY CODE, AND, WITHOUT
LIMITING OTHER REMEDIES AVAILABLE TO LESSOR, SHALL EITHER IMMEDIATELY UPON THE
FILING OF ANY BANKRUPTCY PETITION TURN OVER THE IN-SERVICE AIRCRAFT TO LESSOR OR
PAY ALL AMOUNTS THEN DUE AND OWING HEREUNDER AND THEREAFTER ACCRUING UNDER THIS
LEASE AGREEMENT. IN THE EVENT THAT AN ORDER IS ISSUED GIVING LESSOR POSSESSION
OF ANY IN-USE AIRCRAFT, LESSEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO RETURN OF
POSSESSION OF SUCH AIRCRAFT, AND COVENANTS THAT IT WILL NOT SEEK ANY ORDER
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PERMITTING IT TO RETAIN OR REPOSSESS SUCH AIRCRAFT, BY POSTING A BOND OR
OTHERWISE. IN THE EVENT THAT ANY COURT DECLINES TO ISSUE AN ORDER PERMITTING
LESSOR TO REPOSSESS ANY IN-USE AIRCRAFT UNLESS LESSOR POSTS OR ISSUES A BOND, OR
LESSOR ELECTS NOT TO REQUEST THAT THE REQUIREMENT FOR SUCH A BOND BE WAIVED,
LESSEE HEREBY AGREES THAT (IF LESSOR SO ELECTS) THE AMOUNT OF SUCH BOND SHALL
NOT BE REQUIRED TO EXCEED ONE YEAR'S BASIC RENT FOR SUCH AIRCRAFT.
(n) OFFSET. Until all Deferred Basic Rent is paid under the Long-Term
Lease Agreement (provided that on the date all Deferred Basic Rent is paid
thereunder, all other Rent then due and payable thereunder and hereunder has
also been paid; such date being the "Setoff Release Date") Lessor, AMRCG, SABRE
and AMS shall each have the right to setoff and recoup any sums payable to
Lessee against any sums payable by Lessee to Lessor, AMRCG, SABRE or AMS
pursuant to this Lease Agreement, the other Long-Term Agreements or otherwise.
Until the Setoff Release Date Lessor shall also have the right to setoff and
recoup any amounts payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to
this Lease Agreement, or the other Long-Term Agreements by drawing upon any
letter of credit or withdrawing any portion or all of the Deposit (which may
constitute all or a portion of the Letter of Credit). Nothing set forth in this
Subsection 17(n) or Subsection 17(n) of the Long-Term Lease Agreement, the July
Lease Agreement or the November Lease Agreement shall otherwise limit Lessor's
right to draw upon or withdraw from the Letter of Credit to the extent otherwise
set forth herein or in any Long-Term Agreement.
Section 18. TRUE LEASE
(a) INTENT OF THE PARTIES. It is the intent of the parties to this lease
that it will be a true lease and not a "finance lease" as defined in Section
168(f) of the Internal Revenue Code of 1954, as amended and in effect prior to
the Tax Reform Act of 1986 (P.L. 99-154) or a "conditional sale" as defined in
49 U.S.C. Section 40102(a)(18) (former 1301) and that the Lessor shall at all
times be considered to be the owner of the Aircraft which is the subject of this
Lease for the purposes of 49 U.S.C. Section 44103 (former 1401) and for all
Federal, state, city and local income taxes or for franchise taxes measured by
net income and that this Lease conveys to the Lessee no right, title or interest
in the Aircraft except as a lessee.
Section 19. ENFORCEABILITY IN JURISDICTIONS. Any provision of this
Lease which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 20. NO THIRD-PARTY BENEFICIARIES. Except for rights and
benefits conferred on certain of Lessor's Affiliates as set forth in this Lease
Agreement, all rights, remedies, and obligations of the parties hereunder shall
accrue or apply solely to the parties hereto or their permitted successors or
assigns and there is no intent to benefit any third parties.
Section 21. MAINTENANCE OBLIGATIONS. Lessee and Lessor agree that
notwithstanding the provisions of the Long-Term Lease Agreement, including
Exhibit F thereto, which by its terms
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relates to the provision of maintenance services by Lessor of all DC10-10
aircraft leased by Lessor to Lessee, the terms of this Lease Agreement shall
govern the maintenance of the Aircraft. The Long-Term Lease Agreement,
including Exhibit F thereto shall continue in full force and effect as to all
other Serviced Aircraft (as defined in the Long-Term Lease Agreement) other
than the aircraft which are subject to the 160 Lease Agreement, the 161 Lease
Agreement, the 125 Lease Agreement and the 171 Lease Agreement which shall
remain subject to the maintenance provisions set forth in Exhibit E of the
the 160 Lease Agreement, the 161 Lease Agreement, the 125 Lease Agreement and
the 171 Lease Agreement, respectively.
Section 22. AMENDMENT OF LONG-TERM LEASE AGREEMENT. Lessor and Lessee
agree that the occurrence of any Lessee Event of Default hereunder shall
constitute a "Lessee Event of Default" under the Long-Term Lease Agreement, the
160 Lease Agreement, the 161 Lease Agreement, the 125 Lease Agreement and the
171 Lease Agreement.
Section 23. SUBSTITUTION. During the Term, Lessor shall have the right
to substitute from time to time, on 90 days prior written notice to Lessee, a
comparable McDonnell Douglas DC10-10 aircraft (the "SUBSTITUTE AIRCRAFT") for
the Aircraft (the "REPLACED AIRCRAFT") then subject to this Lease. The
Substitute Aircraft shall be delivered to Lessee, at Lessor's expense, at LAX,
or such other location agreed on by Lessor and Lessee, on the date specified in
Lessor's notice to Lessee. Lessor agrees that any Substitute Aircraft shall be
in the same seat configuration and in the same or better interior condition as
the Replaced Aircraft, and in the event that Lessee is not required to purchase
Maintenance Services from Lessor pursuant to the terms of Exhibit E hereto, any
Substitute Aircraft shall be in at least substantially the same condition (other
than with respect to maximum take-off weight), and with at least the same number
of Flight Hours remaning to the next scheduled "C Check", as the Replaced
Aircraft. Lessee agrees, at Lessor's expense, to execute and deliver all
documents (including Lease Supplements hereto, or at Lessor's request, a
replasement Lease Agreement in the form hereof) and take such other measures
requested by Lessor and necessary to accomplish such substitution.
[Next following page is the signature page.]
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IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Agreement
to be duly executed as of the day and year first above written.
Lessor:
AMERICAN AIRLINES, INC.
By:
-------------------------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
Lessee:
HAWAIIAN AIRLINES, INC.
By:
-------------------------------------------
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By:
-------------------------------------------
Lyn F. Anzai,
Vice President, General Counsel
and Corporate Secretary
NA971200.061
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SCHEDULE I
This Schedule I has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
<PAGE>
EXHIBIT A TO LEASE AGREEMENT
LEASE SUPPLEMENT NO. 1
THIS LEASE SUPPLEMENT NO. 1, dated , 1997, between AMERICAN
AIRLINES, INC., a Delaware corporation ("Lessor"), and HAWAIIAN AIRLINES, INC.,
a Hawaii corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee have heretofore entered into the Aircraft Lease
Agreement dated as of December 12, 1997 (the "Lease Agreement", defined terms
used herein are as therein defined), which provides in Section 2 for the
execution of a Lease Supplement substantially in the form hereof for the purpose
of leasing the Aircraft under the Lease Agreement on its Delivery Date in
accordance with the terms hereof; and
WHEREAS, the Lease Agreement relates to the airframe and engines described
below, and a counterpart of the Lease Agreement is attached to and made a part
of this Lease Supplement, and this Lease Supplement, together with such
attachment, is being filed for recordation on the date hereof with the FAA as
one document;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and pursuant to Section 2 of the Lease Agreement, the Lessor and
Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts
and leases from Lessor, under the Lease Agreement as hereby supplemented, the
McDonnell Douglas DC10-10 aircraft (the "Aircraft") which consists of the
following components (which may or may not be attached to each other at the
moment of acceptance hereunder):
(i) airframe: U.S. registration number N162AA; manufacturer's serial no.
46943; and
(ii) three General Electric CF6-6K engines bearing manufacturer's
serial nos. 451284, 451183 and 451169 (each of which engines has 750 or
more rated takeoff horsepower or the equivalent of such horsepower).
2. The Term for the Aircraft commences on the date of this Lease
Supplement.
3. The Term shall commence on the date hereof and shall end on
September 11, 2001, unless earlier terminated in accordance with the provisions
of the Lease Agreement.
4. Lessee hereby confirms its agreement to pay to Lessor Basic Rent for
the Aircraft throughout the Term in accordance with Section 3 of the Lease
Agreement and to pay Supplemental Rent pursuant to Exhibit E attached to the
Lease.
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<PAGE>
5. All of the provisions of the Lease Agreement are hereby incorporated
by reference in this Lease Supplement on and as of the date of this Lease
Supplement to the same extent as if fully set forth herein.
6. This Lease Supplement is being delivered in the State of Texas and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Texas, including all matters of construction, validity and
performance.
7. This Lease Supplement may be executed in several counterparts, each
fully-executed counterparts all of which shall be deemed an original, and all
such counterparts shall constitute one and the same instrument. To the extent
that this Lease Supplement constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Lease Supplement may be created through the transfer
or possession of any counterpart other than the counterpart marked as the
"Original".
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed and delivered as of the date and year first above
written.
AMERICAN AIRLINES, INC.
By:
---------------------------------------
Jeffery M. Jackson
Vice President - Corporate
Development and Treasurer
HAWAIIAN AIRLINES, INC.
By:
---------------------------------------
Clarence K. Lyman,
Vice President-Finance, Treasurer
and Assistant Corporate Secretary
By:
---------------------------------------
Lyn F. Anzai,
Vice President, General Counsel
and Corporate Secretary
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<PAGE>
EXHIBIT B
This Exhibit B has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
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<PAGE>
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<PAGE>
EXHIBIT C
CONDITIONS PRECEDENT TO DELIVERY
1. The Aircraft shall have been tendered for delivery to Lessee in the
condition required by the Lease at LAX or such other location as Lessor and
Lessee may have agreed to in writing.
2. On the Delivery Date, the representations and warranties of Lessor set
forth in the Lease Agreement shall be true and accurate as if made on such
date.
3. This Lease and Lease Supplement No. 1 shall have been executed and
delivered to Lessor for filing for information with the FAA in Oklahoma
City, Oklahoma.
4. The receipt by Lessor from Lessee not later than two (2) days prior to the
Delivery Date of the following, dated as of such Delivery Date, all of
which shall be satisfactory in form and substance to Lessor:
(a) copies of the articles of incorporation and by-laws of Lessee,
certified to be true and up to date copies by a duly authorized
officer thereof;
(b) copies of resolutions of the board of directors of Lessee authorizing
Lessee to enter into and perform the Lease Agreement and the
transactions contemplated hereby, certified to be true and up to date
copies by a duly authorized officer of Lessee;
(c) a closing certificate and an incumbency certificate of a duly
authorized officers of Lessee setting out the names and signatures of
the person or persons authorized to sign the Lease Agreement;
(d) Opinion of in-house counsel to Lessee in form and substance reasonably
satisfactory to Lessor, and the opinion of independent counsel
confirming the applicability of the protections of Section 1110 of the
Bankruptcy Code to the Lease Agreement;
(e) certificate acceptable in form and substance to Lessor evidencing the
insurance required by Section 9 of the Lease Agreement;
(f) receipt by Lessor of the first installment of Basic Rent pursuant to
Section 3 of the Lease Agreement and Supplemental Rent pursuant to
Exhibit E to the Lease Agreement and payment of all amounts then due
under any Long-Term Agreement; and
(g) Execution and delivery by Lessee of any financing statements required
by Lessor.
5. Execution by Lessee of the Lease Termination relating to this Lease
Agreement.
6. The Final Order (as defined in the Long-Term Lease Agreement) confirming
the Plan shall be and remain in full force and effect.
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<PAGE>
7. The Long-Term Agreements are in full force and effect.
8. No Default or Lessee Event of Default shall have occurred and be continuing
and no "Event of Default" or "Termination Event" shall have occurred and be
continuing under the Interim Definitive Agreements or Long-Term Agreements;
PROVIDED HOWEVER, that the effectiveness of this Lease Agreement shall not
be deemed to be a waiver by either party to this Lease Agreement or any of
the Interim Definitive Agreements of any claims (whether or not disclosed)
such party may have against the other party under the Interim Definitive
Agreements or the Long Term Agreements.
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<PAGE>
EXHIBIT D
TO LEASE AGREEMENT
DELIVERY AND RETURN CONDITIONS
The following conditions shall apply to the In-Use Aircraft upon delivery of the
In-Use Aircraft by Lessor to Lessee and upon return of Return Aircraft to the
Lessor by the Lessee pursuant to this Agreement.
CONDITION OF IN-USE AIRCRAFT UPON DELIVERY AND
RETURN AIRCRAFT UPON RETURN
Lessor and Lessee agree that Lessor shall deliver the In-Use Aircraft to Lessee
AS-IS, WHERE-IS; and Lessee shall return the Return Aircraft to the Lessor in
compliance with all of the following provisions:
1. Inspection of "on-condition" and "condition monitored" components will have
been accomplished when due and all such items shall be serviceable.
2. It is the intent of the parties that the condition of the In-Use Aircraft
at the time of delivery of the Return Aircraft at the termination of the Lease
shall be to conform to that of the standards of international air
transportation, with the interior and exterior in good repair and appearance,
without significant corrosion, or structural maintenance work deferred, and with
all Airworthiness Directives in full compliance. It is further the intent of
the Lease that the Return Aircraft and its Serviced Engines will be readily
transferable to the registration of another carrier without having to undergo
significant repairs, refurbishment or modification being required on the Return
Aircraft. At the time of such return, the Return Aircraft shall comply with the
following conditions:
A. Upon return to Lessor, the Return Aircraft shall comply with
Lessee's FAA-approved maintenance program.
B. All deferred maintenance items and all deficiencies or
discrepancies which by their nature are outside Lessee's
maintenance manual limits for unrestricted operation found prior
to or during the return inspection or final inspection or
demonstration delivery flight(s) shall be corrected by repair in
accordance with the approved Lessee's maintenance manual.
C. The fuel, hydraulic, pneumatic, water and waste system leaks on
the Return Aircraft shall be within the limits allowable pursuant
to Lessee's maintenance manual. This is to be demonstrated by
filling all tanks and reservoirs to capacity and performance of a
functional and leak check of all related systems. The cost of
such checks shall be borne by the Lessee.
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<PAGE>
D. The Return Aircraft on return by Lessee and all parts installed
shall have all necessary FAA approved service tags or equivalent
Lessee documents approved by the Lessee's maintenance program.
E. Engines
a. Engine borescope inspections of compressor, burner and
turbine sections of each installed engine shall be conducted
in accordance with Lessor's engine borescope inspection
cards #4930-1, 4930-2 and 4930-3 [for inspections] (or any
such replacement card therefor). Each card shall have
attached thereto findings and comments along with visual
records (photographic or video data). Inspected engines
shall meet the requirements of manufacturer's maintenance
manual. Borescope inspection findings that result in
inspection intervals being reduced to less than 400 hours
will be corrected by engine replacement and/or repair prior
to the return of the Return Aircraft by Lessee.
Borescope inspections shall have been completed by
Lessor/Lessee or its authorized representative, at Lessee's
expense. In the event the APU fails to meet the pneumatic
or electrical load requirements, the APU shall be changed.
b. Each installed engine will be subject to completion of a
power assurance run and review of engine trend analysis with
all engine parameters being within limits in accordance with
the appropriate manufacturer's engine manual. Engine ground
runs for the Return Aircraft shall be conducted in
accordance with Lessor's engine ground run-up card number
DR71-95-18 (or any such replacement card therefor). Engine
Exhaust Gas Temperature ("EGT") shall not exceed a maximum
of 925 DEG. C during ground runs to max power. In the event
EGT exceeds 925 DEG. C and adjustments cannot be accomplished
with the engine installed within eight working hours to
reduce EGT below 925 DEG. C at max power, the engine
installed shall be rejected and a Replacement Engine
installed.
c. No installed engine shall be on "watch" and each such engine
shall comply with the operations specification of Lessee
without waiver or exceptions.
In the event Lessor is no longer maintaining the In-Use Aircraft,
the expense of complying with this paragraph E shall be at
Lessee's sole expense. In the event Lessor is maintaining the
In-Use Aircraft pursuant to Exhibit E hereto, the cost of any
repairs or replacements required by this Paragraph E shall be
borne by the parties in accordance with the other terms of
Exhibit E as if such
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repairs and replacements were made in the
normal course of the term of the Lease Agreement, except to the
extent specifically set forth in this Exhibit E.
F. The Return Aircraft on return by Lessee shall have a then current
weight and balance report in the final delivery configuration as
required by the FARs provided to Lessor and/or Lessee.
G. All required placards per Lessor's/Lessee's maintenance and
operations specifications must be current, in place and legible.
(In English)
H. Fuselage
(1) Dents, corrosion and abrasions, or any loose, pulled or
missing rivets shall be within the limits of Lessee's
maintenance manual. External patches shall be of a type
consistent with industry standards and approved by Lessee's
maintenance manual. Each repair will have proper
documentation of structural repair manual reference and/or
engineering repair drawings or documentation as applicable.
(2) Windows shall be serviceable in accordance with Lessee's
maintenance manual. Visibility through windows will meet
standard industry standards.
(3) Doors shall be free moving, correctly rigged and be fitted
with serviceable seals, in accordance with Lessee's
maintenance manual limits.
(4) Exterior logos will be removed pursuant to Exhibit E hereto,
by stripping or sanding off the present logo, and repainting
to blend with existing exterior paint in accordance with
standard industry practices.
(5) Unpainted metal surfaces shall be clean and buffed.
I. Wings and Empennage
(1) All leading edges shall be serviceable in accordance with
Lessee's maintenance manual. Any repairs to leading edges
shall be in accordance with Lessee's maintenance manuals.
(2) All control surfaces shall be clean by airline standards and
free of delamination in accordance with Lessee's maintenance
manual.
(3) All unpainted cowlings and fairings shall be buffed and
clean by airline standards and tightly fitted in accordance
with Lessee's maintenance manual limits.
(4) Fuel leaks in the wings shall be within the limits allowed
by Lessee's FAA-approved maintenance program. Temporary
fuel leak repairs
D-3
<PAGE>
will be within the limits allowed, by Lessee's FAA-approved
maintenance program, and permanent repairs may be deferred
until the next C check.
(5) Fuel tanks shall be free from contaminates, as evidenced by
sumping the tanks externally.
J. Interior
(1) The Return Aircraft shall be delivered with Lessee's carpet,
flooring, drapes, tapestries and hard decor as last operated
in revenue service by Lessee, all of which items may be
subsequently used by Lessor in its sole discretion. Upon
return, all logos and markings of Lessee shall be tastefully
removed, where reasonable. Except as otherwise
provided herein, Lessor may retain other severable items
that do not add to the value of the Return Aircraft and that
are not required to be installed in the Aircraft by the FAA.
Lessee shall deliver the Return Aircraft with Lessor's seat
covers.
(2) Ceilings, sidewalls and bulkhead panels shall be clean and
free of major cracks and stains by normal airline standards.
(3) All carpets and seat covers shall be in good condition,
normal wear and tear excepted, clean and stain-free by
normal standards and shall meet current FAA fire resistance
regulations.
(4) All seats shall be serviceable in accordance with
maintenance manual limits in good condition, normal wear and
tear excepted and repainted as reasonably required.
(5) All signs and decals shall be clean and legible by normal
lessee standards.
(6) Floor panels shall be in good condition free of soft spots
and delamination. If field repairs are installed, permanent
repairs may be deferred to the next C Check.
(7) The aircraft interior shall be thoroughly cleaned to the
standards acceptable for passenger revenue flights.
K. Cockpit
(1) All placard and decals shall be clean, secure and legible.
(In English)
(2) All fairing panels shall be free of major stains and major
cracks and shall be clean.
D-4
<PAGE>
(3) Floor coverings shall be clean and effectively sealed as
required by Lessee's maintenance program.
(4) Seat covers shall be in good condition, free of major tears
and major stains, normal wear and tear excepted, and shall
conform to existing fire resistance regulations.
(5) Seats shall be fully serviceable, in good condition, normal
wear and tear excepted, and repainted as reasonably
required.
L. Cargo Compartments
(1) All panels shall be in serviceable condition, normal wear
and tear excepted. All repairs to floor, ceilings or side
walls shall be in accordance with Lessee's maintenance
manuals. If field repairs are installed, permanent repairs
may be deferred to the next C Check.
(2) No cargo containers shall be delivered or returned.
(3) All cargo loading functions will be tested under load
conditions by utilizing one fully loaded cargo container.
(4) One ship set of onboard ovens/coffee makers shall be
included.
M. Landing Gear and Wheel Wells
(1) Shall be clean, free from leaks and in good repair, normal
wear and tear excepted.
(2) All decals shall be clean, secure and legible. (In English)
(3) Brakes will be in good condition. No brake will have less
than one half (1/2) inch of wear remaining on wear
indicator.
N. No structural repairs including corrosion, skin replacement, crack
propagation or SSI programs shall be overdue on the Return Aircraft at
time of redelivery, or be in a deferred status.
O. The Return Aircraft shall be made available on or before the
anticipated date of return by Lessee for an operation test flight, at
Lessee's expense, not to exceed one hour, which test flight shall be
conducted by Lessee using Lessee's standard flight test procedures.
Up to five persons designated by Lessor may participate in such flight
as observers. The Lessor shall identify to the Lessee in writing any
claim of discrepancy between the required condition of the Return
Aircraft at return of the Return Aircraft to the Lessor and the Return
Aircraft's actual condition.
In the event Lessor is no longer maintaining the Return Aircraft, the
expense of correcting any discrepancy shall be at Lessee's sole
expense. In the event Lessor is
D-5
<PAGE>
maintaining the Return Aircraft pursuant to Exhibit E hereto, the
cost of correcting any discrepancy required by this paragraph O(2)
shall be borne by the parties in accordance with the other terms of
Exhibit E as is such actions were taken in the course of the term
of the Lease Agreement.
P. The Return Aircraft shall be in compliance with Stage III Noise
Regulations.
Q. Any FAA mandated corrosion control program will be current as
specified by the manufacturer's corrosion control document or approved
Lessee's corrosion control program.
R. The Return Aircraft shall be in compliance with all mandatory
environmental, noise, air pollution and other standards prescribed by
the respective regulatory authorities.
Lessor shall not furnish any sets of cargo containers, catering modules,
catering carts and catering inserts to Lessee hereunder.
<PAGE>
RETURN INSPECTION AND ACCEPTANCE FLIGHT GROUND INSPECTION
The Return Aircraft shall be made available to Lessor on or before
return of the Return Aircraft, for ground inspection at either Tulsa, Oklahoma
Airport or another Airport satisfactory to Lessor on or before the due date for
return in order that Lessor may reasonably satisfy itself that the Return
Aircraft is in the condition required under this Agreement. The manuals and
technical records shall be made available to Lessor for inspection during such
period prior to return thereof as Lessor reasonably requires. Such inspection
shall be conducted in coordination with Lessee's and Lessor's respective
personnel and Lessor shall be allowed reasonable access to the Return Aircraft
to verify compliance with the conditions set forth in this Agreement. Lessor
shall immediately state orally and confirm in writing within four (4) hours of
the relevant inspection to Lessee each claim of discrepancy. To facilitate such
inspection Lessee will provide reasonable office accommodation at or near the
inspection site (equipped with a telephone and having access to a photocopier,
telecopier and word processing facilities) provided, however, that Lessor shall
indemnify Lessee for all out-of-pocket costs so incurred by Lessor.
D-7
<PAGE>
DOCUMENTS REQUIRED FOR RETURN
Listed below are the documents or Lessee equivalent that will be required upon
delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft
by Lessee. All documents must be valid at time of return and shall incorporate
the most recent revisions issued by the documents controlling regulatory agency:
1. Standard Airworthiness Certificate
2. Certificate of Sanitary Construction
3. A copy of Maintenance Check Manual
4. Airworthiness Directive Compliance Status including Repetitive and Method
of Compliance
5. Status of Time Controlled and Life Limited Parts; Status of Time Controlled
and Life Limited Parts; Status of Airframe, Engines, Auxiliary Power Unit
and Land Gear
6. Report covering any Major Accidents or Repairs on the Aircraft with
Supporting Documentation
7. A review of the Aircraft Log Books
8 FAR Compliance Status including Method of Compliance
9. Alteration/Repair/Modification Records
10. Service Bulletin Status List
11. AOL/Service Letter Status List
12. Supplemental type Certificates issued for Aircraft and Equipment as held by
operator
13. List of Open Items
14. Weight and Balance Records
D-8
<PAGE>
The following manuals or Lessee equivalents will be furnished in hard copy or
reproducible film or in the then current form in which it is used by Lessee.
Unless otherwise indicated, one copy per In-Use Aircraft of each of the
following manuals or equivalents will be provided to Lessee. Additional copies
will be or have been provided pursuant to that certain Manuals Supplement
between Lessor and Lessee, the Interim Aircraft Lease Agreements, the Interim
Aircraft Maintenance Agreement or pursuant to the provisions hereof and all
copies of each of the following shall be returned. All manuals will be valid at
time of return and shall include the most recent revisions issued by the
documents controlling regulatory agency.
1. FAA Approved Flight Manual
2. Flight Crew Operational Manual
3. Performance Manual
4. Airframe Maintenance Manual
5. Airframe Illustrated Parts Catalog
6. Airframe Structures Repair Manual
7. Wiring Diagram Manual
8. Engine Maintenance Manual
9. Engine Illustrated Parts Manual
10. Weight and Balance Records
11. Minimum Equipment List
12. Part Number Conversation List - Operator to Manufacturer P/N
13. Red Book for each microfilm library
NOTE: All documents and manuals must be in English
D-9
<PAGE>
RETURN OF OTHER ENGINES. In the event that any engine not owned or leased by
Lessor shall be installed on the Return Airframe, such engine shall be an engine
suitable to be a Replacement Engine hereunder. Upon return of the Return
Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free
and clear of all Liens (other than any Lessor's Liens) and, upon such
conveyance, Lessee will furnish Lessor with a full warranty bill of sale, in
form and substance reasonably satisfactory to it, with respect to such engine
and take such other action as may be reasonably requested in order that title to
such engine may be duly and properly vested in Lessor to the same extent as the
Engine replaced thereby. Upon conveyance by Lessee of good title to such engine
to Lessor, and upon full compliance by Lessee with its obligations hereunder, at
Lessee's expenses, Lessor will transfer to Lessee all rights, title and interest
originally conveyed to Lessor in an Engine constituting part of the Aircraft but
not installed on the Return Airframe at the time of the return of the Return
Airframe "as-is, where-is", free and clear of Lessor's Liens but otherwise
without recourse or warranty, express or implied to Lessee.
D-10
<PAGE>
SCHEDULE 4(d)(i)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-1
<PAGE>
SCHEDULE 4(d)(iv)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-2
<PAGE>
SCHEDULE 4(d)(v)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-3
<PAGE>
SCHEDULE 4(d)(vi)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-4
<PAGE>
SCHEDULE 4(d)(vii)
Refer to letter dated December 15, 1995 from Lessee to Lessor.
S4-5
<PAGE>
EXHIBIT E
This Exhibit E has been intentionally omitted for recording purposes, as
the parties deem the information contained therein to be confidential financial
information.
E-1
<PAGE>
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
Hawaiian Airlines, Inc.:
We consent to incorporation by reference in Registration Statement Nos.
033-064299, 333-09667, 333-09669, 333-09671, and 333-09673 on Form S-8 of
Hawaiian Airlines, Inc. of our reports dated February 26, 1998, relating to
the balance sheets of Hawaiian Airlines, Inc. as of December 31, 1997 and
1996, and the related statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997,
and relating to the financial statement schedule of Hawaiian Airlines, Inc.
for the three-year period ended December 31, 1997, which reports appear in
the December 31, 1997 annual report on Form 10-K of Hawaiian Airlines, Inc.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 25, 1998
<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.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ JOHN W. ADAMS Chairman of the March 31, 1998
- -------------------------- Board of Directors
John W. Adams
/s/ PAUL J. CASEY President and March 31, 1998
- -------------------------- Chief Executive Officer
Paul J. Casey (Principal Executive Officer)
/s/ JOHN L. GARIBALDI Executive Vice President March 31, 1998
- -------------------------- Chief Financial Officer
John L. Garibaldi (Principal Financial and
Accounting Officer)
/s/ TODD G. COLE Director March 31, 1998
- --------------------------
Todd G. Cole
/s/ ROBERT G. COO Director March 31, 1998
- --------------------------
Robert G. Coo
/s/ WILLIAM BOYCE LUM Director March 31, 1998
- --------------------------
William Boyce Lum
/s/ RENO MORELLA Director March 31, 1998
- --------------------------
Reno Morella
<PAGE>
SIGNATURE TITLE DATE
/S/ ARTHUR J. PASMAS Director March 31, 1998
- --------------------------
Arthur J. Pasmas
/s/ SAMSON PO'OMAIHEALANI Director March 31, 1998
- --------------------------
Samson Po'omaihealani
/s/ EDWARD Z. SAFADY Director March 31, 1998
- --------------------------
Edward Z. Safady
/S/ SHARON SOPER Director March 31, 1998
- --------------------------
Sharon Soper
/S/ THOMAS J. TRZANOWSKI Director March 31, 1998
- --------------------------
Thomas J. Trzanowski
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<CURRENT-ASSETS> 66,141
<PP&E> 83,408
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0
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<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 37,237 5,389
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0 0
0 0
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<TOTAL-COSTS> 382,446 348,805
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<TABLE> <S> <C>
<PAGE>
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<S> <C> <C> <C>
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<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 45,072 33,618 32,772
<SECURITIES> 0 0 0
<RECEIVABLES> 30,576 31,994 35,993
<ALLOWANCES> 500 500 500
<INVENTORY> 8,336 9,372 9,347
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<PP&E> 65,055 70,658 72,897
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0 0 0
0 0 0
<COMMON> 401 404 405
<OTHER-SE> 81,422 83,234 87,054
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<SALES> 99,766 203,626 308,985
<TOTAL-REVENUES> 99,766 203,626 308,985
<CGS> 104,270 206,131 306,237
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<OTHER-EXPENSES> 239 585 869
<LOSS-PROVISION> 0 0 0
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<INCOME-TAX> 2,398 2,075 1,394
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<TABLE> <S> <C>
<PAGE>
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<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 13,452 15,182 66,393
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<RECEIVABLES> 24,215 26,554 25,726
<ALLOWANCES> 500 500 500
<INVENTORY> 7,554 7,150 7,410
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<PP&E> 47,922 48,859 52,373
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0 0 0
0 0 0
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<TOTAL-COSTS> 93,666 186,571 283,192
<OTHER-EXPENSES> 22 350 541
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<EPS-PRIMARY> .03 .04 .09
<EPS-DILUTED> 0 .04 .08
</TABLE>
