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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10140
AMERICA WEST AIRLINES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 86-0418245
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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4000 EAST SKY HARBOR BOULEVARD
PHOENIX, ARIZONA 85034
(Address of principal executive offices)
(Zip Code)
(602) 693-0800
(Registrant's telephone number, including area code)
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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Class B Common Stock, $.01 par value New York Stock Exchange
Class B Common Stock Warrant, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $.01 par value
11 1/4% Senior Unsecured Notes due 2001
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 the 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. / /
As of March 17, 1995, there were 43,966,645 shares of Class B Common Stock
and 1,200,000 shares of Class A Common Stock issued and outstanding. On such
date, 26,936,537 shares of Class B Common Stock, having an aggregate market
value of $225,593,497 were held by non-affiliates of the Registrant. For
purposes of the above statement only, all directors and executive officers of
the Registrant are assumed to be affiliates.
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Sections 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Registrant's 1995 Annual
Shareholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................................. 1
Item 2. Properties................................................................ 9
Item 3. Legal Proceedings......................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders....................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 10
Item 6. Selected Financial Data................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 13
Item 8. Financial Statements and Supplementary Data............................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 43
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 43
Item 11. Executive Compensation.................................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 43
Item 13. Certain Relationships and Related Transactions............................ 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 43
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PART I
ITEM 1. BUSINESS
America West Airlines, Inc. ("America West" or the "Company") is a major
United States air carrier providing passenger, cargo and mail service, with its
primary markets in the western and southwestern regions of the United States.
The Company operates its route system through two principal hubs, Phoenix,
Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio, and serves 47
destinations with a fleet of 87 jet aircraft. The Company currently has
connecting service to an additional 20 destinations through alliances with Mesa
Airlines, Inc. ("Mesa") and to an additional 23 destinations through an alliance
with Continental Airlines, Inc. ("Continental").
The Company emerged from bankruptcy under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code") on August 25, 1994. In connection with its
reorganization in bankruptcy and related operational restructuring, the Company
took significant steps to improve its operations, including (i) reducing its
fleet size from 123 aircraft in July 1991 to 87 as of December 31, 1994,
facilitating a better matching of capacity to demand through elimination of
nonproductive routes; (ii) reducing the aircraft types operated from five to
three to reduce operating costs; (iii) implementing certain enhancements to its
revenue management system to optimize the level of passenger revenues generated
on each flight; (iv) eliminating Company operated commuter service and
introducing code-sharing agreements to expand the scope of service and attract a
broader passenger base; and (v) implementing numerous cost reduction programs,
including a Company-wide pay reduction in August 1991 and the reduction of
aircraft lease rentals to fair market rates in the fall of 1992. America West
was one of only two major United States airlines to report a profit in each
quarter of 1993 and 1994.
BUSINESS STRATEGY
The Company's business strategy is to offer competitive fares while
providing an incrementally higher level of service relative to low cost
carriers. The principal features of the Company's business strategy are as
follows.
Maintain Competitive Pricing While Providing Differentiated
Service. America West currently operates with one of the lowest cost structures
among the major U.S. airlines, based on reported 1994 results. The Company's
operating cost per available seat mile ("ASM") for 1994 was 6.99 cents, which
was approximately 22% less than the average operating cost per ASM of the nine
largest other domestic airlines and was comparable to the cost structure of
Southwest Airlines, Inc. ("Southwest Airlines") on a non-stage length adjusted
basis, which operates in the Company's principal market areas. Management
believes that the Company can continue to offer fares that are competitive with
those offered by low cost carriers in the Company's markets, while providing a
differentiated level of service. Passenger services provided by America West
include assigned seating, participation in computerized reservation systems,
interline ticketing, first class cabins on certain flights, baggage transfer and
various other services. The Company believes that these features distinguish
America West from certain low cost carriers in the Company's markets, including
Southwest Airlines, and enable the Company to attract passengers without
competing solely on the basis of fares.
Achieve Growth in Revenue Passenger Miles. Management believes the
Company's pricing and service strategies, together with a gradual improvement of
general economic activity, will enable the Company to achieve growth in revenue
passenger miles in its existing markets and to expand into certain other North
American markets. Management believes that growth in existing markets will be
achieved in part due to the location of the Company's principal hubs. Both
Phoenix and Las Vegas are experiencing population growth in excess of national
averages, and these hubs are well situated to benefit from an expanding market
for leisure travel.
Expand Service through Alliances. The Company entered into certain
agreements (the "Alliance Agreements") with Continental and Mesa. Such
agreements provide for code-sharing arrangements and
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coordination of flight schedules and include sharing ticket counter space,
linking in part their frequent flyer programs, and coordinating ground handling
operations. Management believes the Alliance Agreements will contribute
significantly to the Company's growth in revenue passenger miles and operating
results.
Maintain a Cost Effective Fleet. In connection with its Reorganization,
the Company substantially reduced its aircraft fleet, reduced the aircraft types
from five to three and renegotiated lease rates for certain aircraft to fair
market rates. As of December 31, 1994, the Company's fleet consisted of 57
Boeing 737s, 17 Airbus 320s and 13 Boeing 757s, with an average age of
approximately 9.1 years. The fleet enables the Company to achieve low fuel costs
compared to industry averages and to enjoy operational efficiencies due to the
limited number of aircraft types. Current plans provide for increasing the
Company's fleet through the acquisition of additional aircraft of the types
currently operated by the Company.
OPERATIONS
Hub Operations. The Company operates primarily through hub airports in
Phoenix and Las Vegas and, to a lesser extent, through its mini-hub in Columbus,
Ohio. The Company schedules banks of flights timed to arrive at the hub from one
direction at approximately the same time and to depart toward the opposite
direction a short time later. The hub system allows the Company to transport
passengers between a large number of destinations with substantially more
frequent service than if each route were served directly.
The Company is the leading airline serving Phoenix Sky Harbor International
Airport with approximately 38% of all enplanements during 1994. In Las Vegas,
the Company is the second largest carrier with approximately 26% of all
enplanements during 1994. In both markets the Company's principal competitor is
Southwest Airlines, which handled approximately 31% and 30% of enplanements in
Phoenix and Las Vegas, respectively, in 1994. America West offers fares
comparable to or below those of its competitors on most routes. America West is
able to use pricing as a part of its strategy because of its ability to provide
service generally comparable to the full service airlines while maintaining a
lower cost structure than these competitors. In selected markets, America West
has chosen not to match Southwest Airlines' fares, but differentiates itself
from Southwest Airlines in these and other markets by providing assigned
seating, interline ticketing, baggage transfer and various other services not
offered by Southwest Airlines.
The Company established a mini-hub at Columbus, Ohio in December 1991. As
of December 31, 1994, the Company provided non-stop jet service to 11
destinations from Columbus. During 1994, the Company enplaned approximately 24%
of the Columbus traffic compared to approximately 23% for USAir, the Company's
principal competitor at Columbus.
The success of the Company's hub system depends on its ability to attract
passengers traveling to and from its hubs, as well as passengers traveling
through the hubs to the Company's other destinations. The Company believes that
several factors have contributed to the success of its operations in Phoenix and
Las Vegas. First, the rate of population growth in these two cities has exceeded
the national average in recent periods. Second, Phoenix and Las Vegas are
popular vacation destinations and, therefore, benefit from the fact that a
growing percentage of airline travelers are leisure or non-business travelers.
Third, the Company believes that certain costs of operating in Phoenix and Las
Vegas are less than in certain other geographic regions. Finally, these hub
operations allow the Company to serve a number of relatively high density routes
that involve short- and medium-haul service without competing directly in the
more intensely competitive long-haul markets against larger carriers.
Hub operations involve certain inefficiencies that are primarily associated
with the need to maintain terminal resources adequate to deal with periods of
peak demand when numerous aircraft converge at the hub, even though this demand
occurs only a few times per day. As a result, certain carriers have emphasized
or announced intentions to initiate "point-to-point" flights not integrated with
hub operations that can potentially serve specific routes at lower cost than
comparable hub operations. Although the Company continually evaluates its
operating strategy in light of changing market conditions, the Company's current
strategy is to increase utilization of its existing hub facilities by increasing
frequency of service on existing routes served by its hub operations and
identifying selected markets into which the Company can expand utilizing its
existing hub operations. An important part of the Company's strategy involves
code-sharing arrangements with
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regional carriers that serve its hub airports and alliances with major or
foreign carriers that complement the Company's operations.
Regional/Commuter Service. A number of passengers served by the Company
arrive at its hub airports via regional or commuter service airlines that serve
the surrounding areas. These airlines typically utilize turboprop rather than
jet aircraft and focus on flights less than 200 miles in length and 90 minutes
in duration. In order to maximize the number of enplanements of passengers from
these commuter airlines, America West has entered into two code-sharing
agreements with Mesa designed to establish Mesa as a feeder carrier for the
Company at its hubs in Phoenix and Columbus.
Alliance Agreements. The Company entered into certain Alliance Agreements
with Continental and Mesa. The Company and Continental agreed to implement
certain code-sharing arrangements, coordinate certain flight schedules, share
ticket counter space, link in part their frequent flyer programs, and coordinate
ground handling operations for mutual benefit. These arrangements are being
implemented in phases, which commenced in the fourth quarter of 1994. The
Company believes that it will realize substantial benefits from such agreements,
which are intended to increase the number of America West enplanements of
Continental passengers and vice versa. In addition, the Company will be able to
offer its existing customers connections to a greater number of destinations
served by Continental, which may permit the Company to further increase its
market share in its hub markets. With Mesa, America West has entered into two
code-sharing agreements that establish Mesa as a feeder carrier for the Company
at its hubs in Phoenix and Columbus. The code-sharing agreements provide for
coordinated flight schedules, passenger handling and computer reservations under
the America West flight designator code, thereby allowing passengers to purchase
one air fare for their entire trip. Mesa connects 12 cities to the Company's
Phoenix hub, operates under the name "America West Express" and has begun to
incorporate the color scheme and commercial logo of America West on certain
aircraft utilized on these routes. Mesa serves eight destinations from the
Company's Columbus mini-hub operation. In August 1994, the Company and Mesa
agreed to extend the terms of these code-sharing agreements until 2004.
Commencing in 1995, Mesa will also offer jet service, on a limited basis, under
its code share agreement with the Company, employing Fokker F70 aircraft.
Mexico and Canada. The Company began service from its Phoenix hub to
Mazatlan and Los Cabos, Mexico in December 1994. In addition, in February 1995,
the Company announced that it has received temporary authority from the
Department of Transportation to commence service in May or June 1995 to
Vancouver, British Columbia with two daily non-stop flights from Phoenix.
COMPETITION AND MARKETING
The airline industry is highly competitive and susceptible to price
discounting, and America West must compete on certain routes with carriers that
may be larger and may have substantially greater resources. The entry of
additional carriers on many of the Company's routes (as well as increased
competition from or the introduction of new services by established carriers)
could negatively impact America West's results of operations. Generally, the
passenger carrier industry is segmented into markets based on the length of trip
and level of service, including long-haul domestic and international routes,
medium-haul (two to three hours) and short-haul (less than two hours) routes
serviced by jet aircraft, and commuter routes served by turboprop aircraft.
America West services primarily short-haul and medium-haul routes connected to
its hub operations, engages only to a limited extent in long-haul flights, which
are dominated by larger carriers, and does not engage in regional commuter
flights, which are primarily served by smaller non-jet carriers. America West
competes primarily with Southwest Airlines at its Phoenix and Las Vegas hub
operations and with USAir and Delta Airlines at its Columbus mini-hub.
As is the case with other carriers, most tickets for travel on America West
are sold by travel agents through computer reservation systems that have been
developed and are controlled by other airlines. Travel agents generally receive
commissions based on the price of tickets sold. Accordingly, airlines compete
not only with respect to the price of tickets sold but also with respect to the
amount of commissions paid. In early 1995, certain of the major domestic
airlines initiated a program to cap the amount of commissions paid to travel
agents at $50 for domestic round-trip tickets with fares of $500 or more. The
Company is in the process of
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evaluating this commission structure but has not yet adopted such a program.
Airlines often pay additional commissions in connection with special revenue
programs. Federal regulations have been promulgated that are intended to
diminish preferential schedule displays and other practices with respect to the
reservation systems that place the Company and other similarly situated users at
a competitive disadvantage to the airlines controlling the systems.
The Company is also preparing to test electronic or paperless ticketing,
which the Company believes would reduce distribution costs. The Company
anticipates implementing a ticketless test program sometime during the second
quarter of 1995.
The Company has implemented certain measures to increase leisure travel
utilizing America West flights. In 1987, the Company developed America West
Vacations, which is a tour packaging division that arranges vacation packages
that include hotel accommodations, air fare and ground transportation in certain
markets. During 1994, this division sold approximately 749,000 room nights, had
approximately 53,250 rental car days, handled approximately 501,400 passengers
and generated approximately $161 million in gross package sales. In 1993, the
Company became the preferred commercial air carrier of the MGM Grand Hotel
Casino and Theme Park ("MGM") in Las Vegas. Pursuant to an agreement with MGM,
America West will develop joint marketing programs that target travel agents and
consumers, which management believes will enhance America West's presence in the
Las Vegas market. America West also is an official airline of Knott's Berry Farm
in Buena Park, California, one of the country's best-known and best-attended
family entertainment parks. The Company sponsors the theme park's America West
Airlines Mystery Lodge, a popular attraction with guests who visit the park.
The Company also has an exclusive arrangement with the Phoenix Suns
professional basketball team pursuant to which the arena in which the team plays
is named "America West Arena," and the Company's name and logo appear throughout
the facility, including on the basketball court. As a result of this
association, the Company receives media exposure during national and local
telecasts of Phoenix Suns basketball games, as well as during other events at
the arena. America West is also the exclusive carrier of the Arizona Cardinals,
the Kansas City Chiefs and the football teams of the University of Southern
California, Arizona State University and The Ohio State University.
FLIGHTFUND
All major airlines have established frequent flyer programs to encourage
travel on that particular carrier. America West offers the FlightFund program
that allows members to earn mileage credits by flying America West and by using
the services of other program participants such as hotels, car rental firms and
other specialty services. FlightFund members are also allowed to earn mileage
credit by flying partner carriers. For example, in 1994, the Company entered
into an Alliance Agreement with Continental that allows FlightFund members to
earn mileage credit on code-share flights. In addition, the Company periodically
offers special short-term promotions that allow members to earn additional free
travel awards or mileage credits. When a FlightFund member accumulates mileage
credits of 20,000 miles, the Company issues mileage award certificates that can
be redeemed for various travel awards, including first class upgrades and
tickets on America West or other airlines participating in America West's
frequent flyer program. Most travel awards are subject to blackout dates and
capacity controlled seating. Mileage award certificates automatically expire
after two years if issued prior to April 1, 1993 and after three years for
certificates issued after that date. Travel is valid up to one year from the
date of ticketing. FlightFund awards may also be redeemed for flights to certain
international destinations and Hawaii. America West is required to purchase
space on other airlines to accommodate such award redemption.
The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
additional passenger. Costs including passenger food, beverages, supplies, fuel,
liability insurance, purchased space on other airlines and denied boarding
compensation are accrued as frequent flyer program participants accumulate
mileage to their accounts. Such unit costs are based upon expenses expected to
be incurred on a per passenger basis. No profit or overhead margin is included
in the accrual for these incremental costs.
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FlightFund's current membership is approximately 2.0 million participants.
At December 31, 1994, 1993 and 1992, the Company estimated that approximately
369,000, 238,000 and 238,000 travel awards were expected to be redeemed.
Correspondingly, the Company had an accrued liability of $9.8 million, $7.4
million and $7.3 million for 1994, 1993 and 1992, respectively. The accrual is
based upon the Company's estimates of mileage earned that will eventually be
redeemed for a travel award.
The number of FlightFund travel awards redeemed for round-trip travel for
the years ended December 31, 1994, 1993 and 1992, was approximately 109,000,
99,000 and 106,000, respectively, representing 2.6%, 2.8% and 3.0% of total
revenue passenger miles for each respective period. The Company does not believe
that the usage of free travel awards results in any significant displacement of
revenue passengers due to the Company's ability to manage frequent flyer travel
by use of blackout dates and limited seat availability.
AIRCRAFT
At December 31, 1994, the Company operated a fleet of 57 Boeing 737s, 17
Airbus A320s and 13 Boeing 757s as follows:
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REMAINING
NUMBER AVERAGE LEASE
AIRCRAFT TYPE STATUS(1) AIRCRAFT AGE (YRS.) TERM (YRS.)
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B737-100.................................. Owned 1 25.3 --
B737-200.................................. Owned 5 15.8 --
B737-200.................................. Leased 17 15.0 5.7
B737-300.................................. Leased 23 7.6 5.5
B737-300.................................. Owned 11 6.2 --
B757-200.................................. Leased 11 8.7 11.0
B757-200.................................. Owned 2 5.3 --
A320...................................... Leased 17 5.0 16.6
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87 9.1 9.2
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(1) Each of the aircraft that is designated as owned serves as collateral for a
loan pursuant to which the aircraft was acquired by the Company or serves as
collateral for a non-purchase money loan.
Beginning in April 1995 through September 1998, leases for 20 of the
Company's aircraft are scheduled to terminate (such aircraft are 12 Boeing
B737-300s, six Boeing B737-200s, one Boeing B757-200 and one Airbus A320-200).
At the option of the lessor, the lease for one of the B737-300 aircraft may be
extended for up to 48 months, and the leases for 10 of the B737-300 aircraft may
each be extended for up to 60 months. There are no contractual options to extend
any other of such leases.
In February 1995, the Company leased a B737-300 aircraft for a term of five
years. Additionally, the Company and the lessor have agreed, subject to final
documentation, to enter into lease agreements for two A320-200 aircraft
beginning in the spring of 1995. All of these aircraft will be leased to the
Company under the 1994 Put Agreement discussed below.
Certain of the Company's aircraft lessors have the option to call their
respective aircraft upon adequate notice to the Company (such notice periods
range from 60 to 180 days). Usually, if such call options are exercised, the
Company has the right of first refusal to retain the aircraft by matching the
terms of bona fide third party offers received by the lessors to lease or
purchase such aircraft. None of these options have been exercised. The last of
these call options expires in July 1997. In addition, certain other of the
Company's aircraft lessors have an option to reset their respective rentals to
the greater of the existing rentals being paid under the leases or the then
current fair market rates. The first round of these resets, involving 11
aircraft, occurred in August 1994. The rentals for seven of these aircraft may
be reset two more times over the remaining lease terms, with the next possible
reset not occurring before August 1996. The call and reset options were granted
to these lessors in exchange for rental reductions and payment deferrals in 1992
and
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1991, respectively. The Company does not believe that the possible exercise of
any or all of these options will have a material effect on its operations.
As a part of the Reorganization, the Company amended a purchase agreement
with AVSA S.A.R.L. ("AVSA") for the acquisition of 24 Airbus A320-200 aircraft
with an aggregate net cost estimated at $1.1 billion. These amendments provide
to the Company reduced prices for and certain options regarding the number and
delivery dates of the aircraft to be acquired under the agreement. The aircraft
are scheduled to be delivered to the Company at the rate of eight per year in
1998, 1999 and 2000. Upon adequate notice to AVSA, the Company may: defer all or
some of the 1998 deliveries to either 2001 or 2002; for every new A320 aircraft
leased to the Company under the 1994 Put Agreement (described below), cancel up
to the number of such leased aircraft (subject to certain conditions); cancel
without cause up to an additional four aircraft; and, with mutual consent,
assign all or some of its delivery positions to Continental. Additionally, AVSA
and the manufacturer of the engines that will power the subject aircraft have
agreed to, if requested by the Company and on its behalf, finance jointly up to
one-half of the aircraft delivered under this agreement, subject to certain
conditions.
In June 1994, the Company entered into a put agreement with a certain
lessor providing the lessor with a right to lease up to eight aircraft to the
Company (the "1994 Put Agreement"). This agreement replaced a similar agreement
with this lessor involving 10 aircraft (none of which were ever leased to the
Company). These aircraft may be new or used B737-300 and B757-200 aircraft (of
which no more than five may be used aircraft) and new or "like new" A320
aircraft. Unless otherwise consented to by the Company, beginning in June 1995
and ending by June 1999, the lessor may, with adequate notice to the Company,
put to the Company up to two aircraft in 1995 and no more than three aircraft
per year thereafter. The rentals for such aircraft will be at the then current
market rates with lease terms ranging from three to 18 years depending on the
type and condition of the aircraft, which will be predetermined by the Company
and the lessor. In connection with the 1994 Put Agreement and for other
consideration, this lessor was paid approximately $30.5 million and issued
certain equity securities by the Company on the Effective Date.
In June 1994, the Company and another lessor cancelled a similar agreement
involving four aircraft. In consideration for such cancellation, the Company
paid the lessor $2.5 million in June 1994 and $2.0 million in August 1994.
In connection with the Plan of Reorganization (the "Plan"), the Company
rejected certain aircraft purchase agreements with The Boeing Company
("Boeing"). As part of this settlement, Boeing retained certain of the Company's
cash purchase deposits that it held under these agreements.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the A320 fleet. Such engines have an estimated
aggregate cost of $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
FACILITIES
America West's principal facilities are associated with its hub operations
in Phoenix, Las Vegas and Columbus. The Company operates from Terminal 4 of
Phoenix Sky Harbor International Airport pursuant to a lease agreement that
includes 28 gates and approximately 258,200 square feet at December 31, 1994.
The Company also leases approximately 25,000 square feet of additional space at
the airport for administrative offices and pilot training. Since 1988, the
Company has owned a 660,000 square foot maintenance and technical support
facility that includes four hangar bays, hangar shops, two flight simulator
bays, and warehouse and commissary facilities.
In Las Vegas, the Company leases approximately 80,000 square feet of space
at McCarran International Airport, which includes seven gates and adjoining
holding room areas. At the Company's Columbus, Ohio
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mini-hub, the Company leases 30,000 square feet and two gates and has the
ability to sublease additional gates from other airlines as the need arises.
Pursuant to the Company's Alliance Agreement with Continental, certain of the
station operations for both carriers have been consolidated in an effort to
reduce operating expenses.
Space for ticket counters, gates and back offices has also been obtained at
each of the other airports served by the Company, either by lease from the
airport operator or by sublease from another airline. Some of the Company's
airport sublease agreements include requirements that the Company purchase
various ground services at the airport from the lessor airline at rates in
excess of what it would cost the Company to provide those services itself.
The Company owns the 68,000 square foot America West Corporate Center at
222 South Mill Avenue in Tempe, Arizona. The Company currently leases
approximately 500,000 square feet of general office and other space in Phoenix
and Tempe, Arizona.
EMPLOYEES
Management believes that the Company's labor force has contributed
significantly to its successful Reorganization. At December 31, 1994, the
Company employed 8,421 full-time and 3,174 part-time employees, the equivalent
of 10,715 full-time employees. During 1994, the Company had 1,685,500 available
seat miles per full-time equivalent employee and 1,141,700 revenue passenger
miles per full-time equivalent employee, based on the number of full-time
equivalent employees at year end.
In January 1995, the Company announced its new compensation program, the
Total Pay Program. This program is designed to provide employees with a pay and
benefits package which is competitive with other low-cost airlines and local
employers. In addition, performance awards of up to 25% of base pay will be made
to employees provided certain annually established operating income targets are
attained. The Total Pay Program is expected to increase non-executive pay by
approximately $25 million annually. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Concurrent with this new compensation program, the Company announced
that it is in the process of strategically overhauling its work processes which
is anticipated to reduce its workforce by approximately 1,300 employees. The
Company anticipates that the cost savings, including the reduction in workforce,
will be about $40 million in 1995 and $48 million annually thereafter. In
addition, in December 1994, the Board of Directors approved the America West
1994 Incentive Equity Plan which authorizes the grant of various stock,
stock-related and cash awards to employees and non-employee directors of the
Company. Such plan is being submitted for approval by the Company stockholders
at the 1995 Annual Meeting of Stockholders.
In October 1993, the Air Line Pilots Association ("ALPA") was certified by
the National Mediation Board as the bargaining representative of the Company's
flight deck crew members. Formal negotiations commenced in April 1994 and are
continuing. In June 1994, the National Mediation Board accepted the Association
of Flight Attendants' ("AFA") petition to represent the Company's CSRs and in
September 1994, the Company's inflight CSRs voted in favor of AFA representation
and contract negotiations have commenced. In April 1994, the Transportation
Workers Union ("TWU") filed a petition to represent the Company's fleet service
personnel which petition was rejected in December 1994. The International
Brotherhood of Teamsters ("IBT") filed applications to represent the Company's
mechanics including related personnel and the Company's flight simulator
technicians in August and September 1994, respectively. Both of these
applications were rejected in December 1994, and the IBT thereafter withdrew the
pending application with respect to stock clerks. The Company cannot predict the
effect, if any, that a future collective bargaining agreement with ALPA and the
AFA would have on the Company's operations or financial performance.
GOVERNMENT REGULATIONS
Noise Abatement and Other Restrictions. The Airport Noise and Capacity Act
of 1990 provides, with certain exceptions, that after December 31, 1999, no
person may operate certain large civilian turbo-jet
7
<PAGE> 10
aircraft in the United States that do not comply with Stage 3 noise levels,
which is the FAA designation for the quietest commercial jets. These regulations
will require carriers to gradually phase out their noisier jets, either
replacing them with quieter Stage 3 jets or equipping them with hush kits to
comply with noise abatement regulations, over a five-year period commencing
December 31, 1994. As of December 31, 1994, approximately 74 percent of America
West's fleet was in compliance with the FAA noise abatement regulations, and the
Company expects that it will meet the thresholds imposed by such regulations
through scheduled retirement of its older aircraft.
Numerous airports, including those serving Boston, Denver, Los Angeles,
Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange
County, Washington, D.C., Burbank and Long Beach have imposed restrictions such
as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on number of average daily departures, which limit the
ability of air carriers to provide service to or increase service at such
airports. In February 1995, the Company obtained approval to increase service at
Orange County's John Wayne Airport, which is a capacity controlled airport, by
five daily flights. The Port Authority of New York and New Jersey is considering
a phaseout of Stage 2 aircraft on a more accelerated basis than that of the FAA
requirement. The Company's Boeing 757-200s, 737-300s and Airbus A320s all comply
with the noise abatement requirements of the airports listed above.
Fuel Tax Increases. In August 1993, the federal government increased taxes
on fuel, including aircraft fuel, by 4.3 cents per gallon. Airlines are exempt
from this tax until October 1, 1995. When implemented, this tax will increase
the Company's annual operating expenses by approximately $13 million based upon
its 1994 fuel consumption levels.
PFC Charges. During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the Department of Transportation (the
"DOT"), to impose passenger facility charges ("PFCs") as a means of funding
local airport projects. These charges, which are intended to be collected by the
airlines from their passengers, are limited to $3.00 per enplanement, and to no
more than $12.00 per round trip. As a result of competitive pressure, the
Company and other airlines have been limited in their abilities to pass on the
cost of the PFCs to passengers through fare increases.
Environmental Matters. The Company is subject to regulation under major
environmental laws administered by state and federal agencies, including the
Clean Air Act, Clean Water Act and Comprehensive Environmental Response
Compensation and Liability Act of 1980. In some locations there are also county
and sanitary sewer district agencies which regulate the Company. The Company
believes that it is in substantial compliance with applicable environmental
regulations.
Aging Aircraft Maintenance. The Federal Aviation Administration (the
"FAA") issued several Airworthiness Directives ("AD") in 1990 mandating changes
to the older aircraft maintenance programs. These ADs were issued to ensure that
the oldest portion of the nation's fleet remains airworthy. The FAA is requiring
that these aircraft undergo extensive structural modifications. These
modifications are required upon the accumulation of 20 years time in service,
prior to the accumulation of a designated number of flight cycles or prior to
1994 deadlines established by the various ADs, whichever occurs later. Six of
the Company's 87 aircraft are currently affected by these aging aircraft ADs and
are in compliance with such ADs. The Company constantly monitors its fleet of
aircraft to ensure safety levels which meet or exceed those mandated by the FAA
or the DOT.
Safety. America West is subject to the jurisdiction of the FAA with
respect to aircraft maintenance and operations, including equipment, dispatch,
communications, training, flight personnel and other matters affecting air
safety. The FAA has the authority to issue new or additional regulations. To
ensure compliance with its regulations, the FAA requires the Company to obtain
operating, airworthiness and other certificates which are subject to suspension
or revocation for cause. In addition, a combination of FAA and Occupational
Safety and Health Administration regulations on both federal and state levels
apply to all of America West's ground-based operations.
Slot Restrictions. At New York City's JFK and LaGuardia Airports,
Chicago's O'Hare International Airport and Washington's National Airport, which
have been designated "High Density Airports" by the
8
<PAGE> 11
FAA, there are restrictions on the number of aircraft that may land and take-off
during peak hours. In the future, these take-off and landing time slot
restrictions and other restrictions on the use of various airports and their
facilities may result in further curtailment of services by, and increased
operating costs for, individual airlines, including America West, particularly
in light of the increase in the number of airlines operating at such airports.
In general, the FAA rules relating to allocated slots at the High Density
Airports contain provisions requiring the relinquishment of slots for nonuse and
permits carriers, under certain circumstances, to sell, lease or trade their
slots to other carriers. All slots must be used on 80% of the dates during each
two-month reporting period. Failure to satisfy the 80% use rate will result in
loss of the slot. The slot would revert to the FAA and be reassigned through a
lottery arrangement.
The Company currently utilizes two slots at New York City's JFK airport,
four slots at New York City's LaGuardia airport, four slots at Chicago's O'Hare
airport and six slots at Washington's National airport. Four of the slots at
Washington's National airport are temporary and the Company's right to utilize
such slots expires in December 1995. The average utilization rates by the
Company of all the foregoing slots range from 86% to 100%.
CRAF Program. In time of war or during a national emergency, United States
air carriers may be required to provide airlift services to the Military Airlift
Command under the Civil Reserve Air Fleet Program (the "CRAF Program").
INSURANCE
The Company has arranged a program of insurance of the types and in the
amounts it believes customary in the airline industry, including coverage for
public liability, passenger liability, property damage, aircraft loss or damage,
cargo liability and workers' compensation. The Company believes such insurance
is adequate as to both risks covered and coverage amounts.
ITEM 2. PROPERTIES
For a description of the Company's properties, see Item 1 of Part I of this
Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company emerged from bankruptcy on August 25, 1994 (the "Effective
Date") after operating as a debtor-in-possession since June 27, 1991, when the
Company filed a voluntary petition to reorganize under Chapter 11 of the
Bankruptcy Code. The U.S. Bankruptcy Court for the District of Arizona (the
"Bankruptcy Court") confirmed the Company's Plan on August 10, 1994. Pursuant to
the Plan, the previously outstanding equity interests in the Company were
canceled as of the Effective Date and new stock was issued. In addition, the
Company's obligations to certain prepetition creditors were restructured and
general unsecured nonpriority prepetition creditors received, in full
satisfaction of their claims, shares of Class B Common Stock and cash. The Plan
also provided for the disposition of numerous other matters, including the
satisfaction of certain other prepetition claims in accordance with negotiated
settlement agreements, the disposition of various types of claims asserted
against the Company, the adherence to the Company's aircraft lease agreements,
the amendment of the Company's aircraft purchase agreements and the release of
the Company's employees from all obligations arising under the Company's stock
purchase plan in consideration for the cancellation of the shares of the stock
securing such obligations. As contemplated by the Plan, certain administrative
and priority tax claims remain pending against the Company, which, if ultimately
allowed by the Bankruptcy Court, would represent general obligations of the
Company. Such claims include claims of various state and local tax authorities,
most of which represent ordinary course pre-bankruptcy tax obligations not paid
during the pendency of the bankruptcy proceedings, certain indemnification
obligations under contractual obligations assumed by the Company pursuant to the
Plan, and various other matters.
In connection with the state and local tax claims, the Company has reserved
certain amounts believed by management to be adequate. With respect to ongoing
indemnity obligations, the Company has been informed
9
<PAGE> 12
by one of its aircraft sublessors that it may assert an administrative claim, in
an unspecified amount, as a result of the Internal Revenue Service potentially
disallowing certain tax benefits claimed by the head lessor of certain aircraft
which are subleased to the Company. The Company is unable to predict whether the
Internal Revenue Service will prevail in matters asserted against the head
lessor and whether the Company will incur any liability in connection with such
claims, or the amount of any such liability, if incurred. The Company also
assumed, pursuant to the Plan, indemnification agreements with its former
directors, certain of whom are named as defendants in an Arizona state court
action brought by Stephen D. Clark, on behalf of himself and others similarly
situated (the "Clark Action"). The Plan provided that the Clark Action be
permanently enjoined and dismissed in consideration of the forgiveness by the
Company of debt owed by employees arising under the Company's stock purchase
plan, and on March 8, 1995, the Bankruptcy Court denied a motion filed by Clark
to dissolve a preliminary injunction entered by the Bankruptcy Court in May
1992. The Company is unable to predict whether the Bankruptcy Court's ruling
will be appealed, whether such ruling will be upheld if appealed, or whether the
Company may incur any liability under its indemnification obligations as a
result of the Clark Action. Management cannot predict whether or to what extent
any of the pending administrative and priority tax claims will result in
liabilities to the Company. Should such liabilities be incurred, future
operating results could be adversely affected. Based on information currently
available, however, management believes that the disposition of these matters
will not have a material adverse effect on the Company's financial condition.
In August 1991, the Securities and Exchange Commission (the "Commission")
informally requested that the Company provide the Commission with certain
information and documentation underlying disclosures made by the Company in
annual and quarterly reports filed with the Commission by the Company in 1991.
The Company has cooperated with the Commission's informal inquiry. On March 29,
1994, the Company's Board of Directors approved the submission of an offer of
settlement for the purpose of resolving the inquiry through the entry of a
consent decree pursuant to which the Company would, while neither admitting nor
denying any violation of the securities laws, agree to comply with its future
reporting obligations under Section 13 of the Exchange Act. The Company was
advised on May 6, 1994 that the Commission agreed to accept the Company's offer
of settlement. In order to implement the settlement, on May 12, 1994 the
Commission issued an "Order Instituting Proceedings Pursuant to Section 21C of
the Exchange Act and Opinion and Order of the Commission" (the "Order") finding
the Company's Form 10-K for the year ending December 31, 1990, violated Section
13(a) of the Exchange Act and Rule 13a-1 thereunder, and that the Company's Form
10-Q for the first quarter of 1991 violated Section 13(a) of the Exchange Act
and Rule 13a-13 thereunder, and ordered that the Company cease and desist from
violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
promulgated under the Exchange Act. The Order provides that the Company neither
admits nor denies any violation of the securities laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information respecting the names, ages, positions and
offices with the Company of the executive officers of the Company who are not
continuing directors or nominees. Information with respect to the executive
officers of the Company who are continuing directors or nominees is set forth in
Item 10 of this Report.
THOMAS F. DERIEG -- Age 54. Senior Vice President -- Operations. Mr. Derieg
joined the Company in July 1994. For the preceding seven years, Mr. Derieg
served as Senior Vice President -- Operations at Aloha Airgroup, Inc. in
Honolulu. Mr. Derieg served in the U.S. Air Force from 1963 to 1969, and from
1970 to 1987 held a variety of positions in areas of operations and maintenance
in the air transportation industry.
10
<PAGE> 13
JOHN R. GAREL -- Age 35. Senior Vice President -- Marketing and Sales. Mr.
Garel agreed to join the Company in March 1995 and begins work in April 1995.
From 1993 until early 1995, Mr. Garel was the Chief Executive Officer of Cadmus
Journal Services, a division of Cadmus Communications located in Baltimore.
Prior to that, Mr. Garel was with Northwest Airlines, serving from 1990 to 1992
as Vice President, Financial Planning and Analysis and, thereafter, as Vice
President, Market Development and Area Marketing. From 1982 to 1990, Mr. Garel
worked for American Airlines in several management and senior capacities.
ROBERT S. NICHOLS, JR. -- Age 50. Senior Vice President -- Customer
Service. Mr. Nichols agreed to join the Company in February 1995 and begins work
in April 1995. Before joining the Company, Mr. Nichols spent 27 years with
Marriott Hotels, Resorts & Suites. From 1991 until 1994 Mr. Nichols held the
position of Senior Vice President, Total Quality Management. From 1984 to 1991
Mr. Nichols served as Regional Vice President from 1982 to 1984 as Vice
President, Human Resources Development and before that in a number of other
positions with Marriott.
MICHAEL A. VESCUSO -- Age 49. Senior Vice President -- Human Resources. Mr.
Vescuso joined the Company in September 1994. Prior to such time, Mr. Vescuso
worked as an organizational and management development consultant. From 1990 to
1992 he was the Director, Organization and Development of Frito-Lay, Inc. From
1978 to 1990, he held several senior management positions at HBJ, Inc.,
including the position of human resources officer.
MARTIN J. WHALEN -- Age 54. Senior Vice President -- Corporate Affairs. Mr.
Whalen joined the Company in July 1986 and served as Senior Vice
President -- Administration and General Counsel until February 1995. From 1980
until July 1986, Mr. Whalen was employed by McDonnell Douglas Helicopter Company
and its predecessors, most recently as Vice President of Administration. He also
held positions in labor relations, personnel and legal affairs at Hughes Airwest
and Eastern Airlines.
C.A. HOWLETT -- Age 51. Vice President -- Public Affairs. Mr. Howlett
joined the Company in January 1995. Prior to such time, Mr. Howlett maintained a
government relations practice as a principal at the law firm of Lewis & Roca in
Phoenix. Mr. Howlett's prior work experience has included senior positions with
Salt River Project, the City of Phoenix and the White House where he served as
special assistant to President Ronald Reagan for intergovernmental affairs.
STEPHEN L. JOHNSON -- Age 38. Vice President -- Legal Affairs. Mr. Johnson
joined the Company in February 1995. From 1993 to 1994, Mr. Johnson served as
Senior Vice President and General Counsel to GE Capital Aviation Services
Limited, in Shannon, Ireland. From 1989 to 1993 Mr. Johnson was employed by GPA
Group plc, also in Shannon, from 1989 to 1991 as Vice President and Senior
Counsel and from 1991 to 1993 as Senior Vice President and General Counsel to
GPA's Leasing Division. From 1982 until 1989, Mr. Johnson was engaged in the
private practice of law.
RAYMOND T. NAKANO -- Age 49. Vice President and Controller. Mr. Nakano
joined the Company in June 1983 and has served as Vice President and Controller
since April 1985. Prior to such time, Mr. Nakano was employed by Continental
Airlines for eight years in various accounting positions, most recently as
Senior Director, General Accounting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") is not publicly traded. The Class B Common Stock, par value $.01
per share (the "Class B Common Stock") has been traded on the New York Stock
Exchange ("NYSE") under the symbol "AWA" since August 26, 1994, the day
following America West's emergence from bankruptcy. The following table sets
forth the high and low
11
<PAGE> 14
closing sales prices of the Class B Common Stock for the third and fourth
quarters of 1994 as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Third Quarter 1994......................................... 15 1/8 12 3/8
Fourth Quarter 1994........................................ 13 6 3/4
</TABLE>
As of March 17, 1995, there were 5 record holders of Class A Common Stock
and 32,843 record holders of Class B Common Stock. Cash dividends have not been
paid on the Class A or the Class B Common Stock. Various agreements between the
Company and certain of its lenders restrict the ability of the Company to pay
cash dividends. The Company does not expect to pay dividends in the foreseeable
future.
Pursuant to the Reorganization, pre-existing equity interests of the
Company were cancelled, the Company's obligations to certain prepetition
creditors were restructured and general unsecured nonpriority prepetition
creditors have received or will receive, in full satisfaction of their claims,
their pro rata share of approximately 26,053,185 shares of Class B Common Stock
and $6,416,214 in cash. As of March 17, 1995, approximately 22.5 million of
these shares have been distributed to creditors and approximately 3.5 million
remain held in reserve for distribution in the settlement of remaining claims.
Holders of the Company's pre-existing common equity interests received, on a pro
rata basis, 2,250,000 shares of Class B Common Stock and warrants to purchase
6,230,769 shares of Class B Common Stock. In addition, pursuant to the exercise
of subscription rights, holders of pre-existing equity interests received
1,615,179 shares of Class B Common Stock for an aggregate purchase price of
$14,357,326 ($8.889 per share), including holders of pre-existing preferred
equity interests who received 125,000 shares of Class B Common Stock for an
aggregate purchase price of $1,111,125.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the period August 26,
1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and
each of the years in the four-year period ended December 31, 1993, are derived
from the financial statements of the Company, which financial statements have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The selected data should be read in conjunction with the financial statements,
the related notes and the independent auditors' report. The independent
auditors' report for the period August 26, 1994 to December 31, 1994, the period
January 1, 1994 to August 25, 1994, and as of December 31, 1994 contains an
explanatory paragraph that states the financial statements of the Reorganized
Company reflect the impact of adjustments to reflect the fair value of assets
and liabilities under fresh start reporting. As a result, the financial
statements of the Reorganized Company are presented on a different basis than
those of the Predecessor Company and, therefore, are not comparable in all
respects. As a result of the Company filing a voluntary petition to reorganize
under Chapter 11 of the U.S. Bankruptcy Code on June 27, 1991 and operating as a
debtor-in-possession until August 25, 1994, the selected financial data for
periods prior to June 27, 1991 are not comparable to periods subsequent to such
date.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
REORGANIZED --------------------------------------------------------------
COMPANY PERIOD
------------ FROM
PERIOD FROM JANUARY 1
AUGUST 26 TO TO YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 25, -------------------------------------------------
1994 1994 1993 1992 1991 1990
------------ ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues.......................... $ 469,766 $ 939,028 $1,325,364 $1,294,140 $1,413,925 $1,315,804
Operating expenses.......................... 430,895 831,522 1,204,310 1,368,952 1,518,582 1,347,435
Operating income (loss)..................... 38,871 107,506 121,054 (74,812) (104,657) (31,631)
Income (loss) before income taxes and
extraordinary items....................... 19,736 (201,209 ) 37,924 (131,761) (222,016) (76,695)
Income taxes................................ 11,890 2,059 759 -- -- --
Income (loss) before extraordinary items.... 7,846 (203,268 ) 37,165 (131,761) (222,016) (76,695)
Extraordinary items (a)..................... -- 257,660 -- -- -- 2,024
Net Income (loss)........................... 7,846 54,392 37,165 (131,761) (222,016) (74,671)
Earnings (loss) per share: (b)
Primary:
Before extraordinary items.............. .17 (7.03 ) 1.50 (5.58) (10.39) (4.26)
Extraordinary items (a)................. -- 9.02 -- -- -- 0.11
Net income (loss)....................... .17 1.99 1.50 (5.58) (10.39) (4.15)
Fully diluted:
Before extraordinary items.............. .17 (4.96 ) 1.04 (5.58) (10.39) (4.26)
Extraordinary items (a)................. -- 6.37 -- -- -- 0.11
Net income (loss)....................... .17 1.41 1.04 (5.58) (10.39) (4.15)
Shares used for computation
Primary................................... 45,127 28,550 27,525 23,914 21,534 18,396
Fully diluted............................. 45,127 40,452 41,509 23,914 21,534 18,396
BALANCE SHEET DATA:
Working capital deficiency.................. $ (47,927) $ (124,375) $ (201,567) $ (51,158) $ (94,671)
Total assets................................ 1,545,092 1,016,743 1,036,441 1,111,144 1,165,256
Long-term debt, less current maturities
(c)....................................... 465,598 620,992 647,015 726,514 620,701
Total stockholders' equity (deficiency)..... 595,446 (254,262) (294,613) (166,510) 21,141
</TABLE>
---------------
(a) Includes extraordinary items of $257.7 million in 1994 resulting from the
discharge of indebtedness pursuant to the consummation of the Plan of
Reorganization and, $2.0 million in 1990, resulting from the purchase and
retirement of convertible subordinated debentures.
(b) Historical per share data for the Predecessor Company is not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(c) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
America West Airlines, Inc. (the "Predecessor Company") filed a voluntary
petition to reorganize under Chapter 11 of the Federal Bankruptcy Code on June
27, 1991. On August 10, 1994, the Plan of Reorganization filed by the
Predecessor Company was confirmed by the Bankruptcy Court and became effective
August 25, 1994 (the "Effective Date"). On August 26, 1994, America West
Airlines, Inc. (the "Reorganized Company" or the "Company") emerged from
bankruptcy and adopted fresh start reporting. For further information regarding
the Plan of Reorganization, see Item 8. Financial Statements and Supplementary
Data -- Note 1 of Notes to Financial Statements.
IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS
In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with Statement of Position 90-7 of the American
Institute of Certified Public Accountants ("Statement 90-7"). Under fresh start
reporting, the reorganization value of the Company has been allocated to its
assets and liabilities on a basis substantially consistent with purchase
accounting. The portion of reorganization value not attributable to specific
tangible assets has been recorded as "Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets". Certain fresh start reporting adjustments,
primarily related to the adjustment of the Company's assets and liabilities to
fair market values, will have a significant effect on the Company's future
statements of operations. The more significant adjustments relate to reduced
depreciation expense on property and equipment, increased amortization expense
relating to reorganization value in excess of amounts allocable to identifiable
assets, increased interest expense and reduced aircraft rent expense.
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is highly competitive and susceptible to price
discounting, and the Company must compete with carriers that are much larger and
have substantially greater resources. The entry of additional carriers on the
Company's routes (as well as increased competition from or the introduction of
new services by established carriers) could negatively impact the Company's
results of operations. In 1994, United Airlines introduced its "Shuttle by
United" service in certain markets served by the Company in the Western U.S.
Currently, approximately 4% of the available seat miles flown by the Company are
subject to this new competition from United, which although not significant in
the context of the Company's entire route system, has exerted some pressure on
the load factor and yield realized by the Company. With respect to 1995, certain
competitors have announced changes to their route schedules which have sharply
limited or entirely eliminated service which had competed with that provided by
the Company. Most significantly affected were certain Midwestern cities
connecting to Phoenix and Las Vegas and the Los Angeles area airports connecting
to Phoenix.
As is the case with other carriers, most tickets for travel on America West
are sold by travel agents through computer reservation systems that have been
developed and are controlled by other airlines. Travel agents generally receive
commissions based on the price of tickets sold. Accordingly, airlines compete
not only with respect to the price of tickets sold but also with respect to the
amount of commissions paid. In early 1995, certain of the major domestic
airlines initiated a program to cap the amount of commissions paid to travel
agents at $50 for domestic round-trip tickets with fares of $500 or more. The
Company is in the process of evaluating this commission structure but has not
yet adopted such a program. Airlines often pay additional commissions in
connection with special revenue programs. Federal regulations have been
promulgated that are intended to diminish preferential schedule displays and
other practices with respect to the reservation systems that place the Company
and other similarly situated users at a competitive disadvantage to the airlines
controlling the systems.
The Company is also preparing to test electronic or paperless ticketing,
which the Company believes would reduce distribution costs. The Company
anticipates implementing a ticketless test program sometime during the second
quarter of 1995.
14
<PAGE> 17
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the periods August 26,
1994 to December 31, 1994, January 1, 1994 to August 25, 1994 and the two-years
ended December 31, 1993. The Company's results of operations for the periods
subsequent to August 25, 1994 have not been prepared on a basis of accounting
consistent with its results of operations for periods prior to August 26, 1994
due to the implementation of fresh start reporting upon the Company's emergence
from bankruptcy.
The Company realized net income of $62.2 million on a combined basis for
1994 compared to net income of $37.2 million for 1993 and a net loss of $131.8
million for 1992. The 1994 results include an extraordinary gain of $257.7
million from the discharge of certain prepetition indebtedness and $273.7
million of reorganization expenses. The results for 1993 include reorganization
expenses of $25 million and losses aggregating $4.6 million primarily resulting
from the disposition of surplus spare aircraft parts and equipment. During 1992,
the Company recorded restructuring charges of $31.3 million, reorganization
expenses of $16.2 million and a gain of $15 million from the sale of its
Honolulu to Nagoya, Japan route.
Total operating revenues were $1.409 billion on a combined basis for 1994,
an increase of 6.3 percent compared to the prior year and 8.9 percent greater
than 1992. Passenger revenues for 1994, 1993 and 1992 were $1.320 billion on a
combined basis, $1.247 billion and $1.215 billion, respectively. Summarized
below are certain capacity and traffic statistics for the years ended December
31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994
PERCENT
CHANGE TO
-----------
1994 1993 1992 1993 1992
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Aircraft (end of period).................................. 87 85 87 2.4 --
Available seat miles (in millions)........................ 18,060 17,190 19,271 5.1 (6.3)
Revenue passenger miles (in millions)..................... 12,233 11,221 11,781 9.0 3.8
Load factor (percent)..................................... 67.7 65.3 61.1 3.7 10.8
Passenger enplanements (in thousands)..................... 15,669 14,740 15,173 6.3 3.3
Average passenger journey miles........................... 979 970 990 .9 (1.1)
Average stage length...................................... 676 645 631 4.8 7.1
Yield per revenue passenger mile (cents).................. 10.79 11.11 10.31 (2.9) 4.7
Revenue per available seat mile:
Passenger (cents)....................................... 7.31 7.25 6.30 .8 16.0
Total (cents)........................................... 7.80 7.71 6.72 1.2 16.1
Average daily aircraft utilization (hours)................ 11.19 10.69 10.47 4.7 6.9
</TABLE>
Passenger revenue per available seat mile increased slightly in 1994
compared to 1993 as the increase in load factor period over period was largely
offset by a decline in average passenger yields. The increase in passenger
revenue per available seat mile in 1994 compared to 1992, was due to
improvements in both load factor and yield. The passenger revenue increases
realized in 1994 reflect a continuation of trends which commenced in 1993
relative to:
- An improved economic climate;
- Elimination of "fare simplification" and a non-recurrence of
industry-wide 50 percent-off sales which occurred in the second and
third quarters of 1992; and
- A stable fleet size for virtually all of 1994. The Company added two
aircraft in mid-December 1994 which increased the fleet size to 87
aircraft.
With the exception of the two aircraft deliveries late in 1994, the Company
operated an 85 aircraft fleet and realized increases in capacity over 1993 as
measured by available seat miles by increasing the average stage length flown by
4.8 percent and by increasing the average daily utilization of the aircraft by
4.7 percent.
15
<PAGE> 18
In the fourth quarter of 1994, certain competitive pricing initiatives were
commenced by other carriers which exerted pressure on both the Company's yield
and the load factor. The result of these initiatives, which have carried over to
the first quarter of 1995, has been softer traffic than was experienced in the
prior year and generally lower yield levels. To address these conditions, the
Company has announced certain fare initiatives of its own, and has selectively
matched fare increases initiated by other carriers, where appropriate.
Revenues from sources other than passenger fares increased to $88.9 million
on a combined basis for 1994 compared to $78.8 million and $79.3 million for
1993 and 1992, respectively. Cargo revenues comprised 49.8 percent, or $44.3
million of other revenues on a combined basis for 1994. For the years 1994, 1993
and 1992, the Company carried 129.6 million, 110.7 million and 116.4 million
pounds of freight and mail, respectively. The balance of other revenues includes
revenues generated from: pilot training; contract services provided to other
airlines for maintenance and ground handling; reduced rate fares; alcoholic
beverage sales and headset rentals and service charges assessed for refunds,
reissues and prepaid ticket advices.
In spite of significant reductions in capacity which have occurred since
1991, operating expense per available seat mile declined to 6.99 cents for 1994
from 7.01 cents for 1993 and 7.10 cents for 1992. The table below sets forth the
major categories of operating expense per available seat mile for 1994, 1993 and
1992.
<TABLE>
<CAPTION>
1994 PERCENT
(IN CENTS) CHANGE TO
----------------------- --------------
1994 1993 1992 1993 1992
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Salaries and related costs........................... 1.83 1.78 1.68 2.8 8.9
Rentals and landing fees............................. 1.47 1.60 1.76 (8.1) (16.5)
Aircraft fuel........................................ .88 .97 .97 (9.3) (9.3)
Agency commissions................................... .64 .62 .55 3.2 16.4
Aircraft maintenance materials and repairs........... .25 .18 .20 38.9 25.0
Depreciation and amortization........................ .47 .48 .45 (2.1) 4.4
Restructuring charges................................ -- -- .16 -- --
Other................................................ 1.45 1.38 1.33 5.1 9.0
----- ----- ----- ---- -----
6.99 7.01 7.10 (.3) (1.5)
==== ==== ==== ==== =====
</TABLE>
The changes in the components of operating expense per available seat mile
are explained as follows:
- The increase in 1994 salaries and related costs compared to 1993 is a
result of an increase in capacity as well as the implementation of the
Moving Forward Pay Program in the second quarter of 1994. Effective April
1, 1994, employee base wages were increased between two percent to eight
percent, depending on the employee's length of service with the Company.
Each employee whose anniversary date occurred between April and December
also received an additional increase of four percent on such anniversary
date, with certain exceptions. Also effective April 1, 1994, the Company
increased its matching contribution to 50 percent of the first six
percent contributed by employees under the Company's 401(k) plan. The
effect of these changes was to increase Salaries and Related Costs in
1994 by approximately $18 million. The Moving Forward Pay Program
replaced the Transition Pay Program which commenced in the second quarter
of 1993 and terminated at the end of the first quarter of 1994. Under the
Transition Pay Program, performance award distributions totaling $6.5
million, including applicable payroll taxes, were made in 1993 upon the
Company meeting or exceeding certain operating income targets. In
addition, commencing in the third quarter of 1993, employee award
distributions based on the greater of .5 percent of an employee's annual
base wage or $125 were made on a quarterly basis. Such payments totaled
$2.6 million, including applicable payroll taxes. In the first quarter of
1994, approximately $3.3 million in distributions were made prior to the
termination of the Transition Pay Program.
- Rentals and landing fees decreased in 1994 compared to 1993 and 1992 for
the following reasons:
- The Company generated more ASMs in 1994 with essentially the same
sized aircraft fleet as in 1993 which, in turn, caused the rate per
ASM to decrease;
16
<PAGE> 19
- Rent reductions were obtained at New York's JFK and Phoenix's Sky
Harbor International Airports;
- Rent expense for aircraft leases were reduced to reflect fair market
rates in August 1994 under fresh start reporting; and
- Certain administrative office space was vacated as part of the
Company's facilities consolidation program.
- Aircraft fuel expense decreased year over year due to the decline in the
average price per gallon to 54.89 cents from 61.05 cents for 1993 and
62.70 cents for 1992.
- Agency commission expense increased in 1994 in comparison to 1993 and
1992 as a result of the increase in passenger revenue per available seat
mile. In addition, the 1994 commission expense increased because a higher
percentage of passenger revenues was generated by America West Vacations
which pays a higher average commission rate on its sales.
- Aircraft maintenance materials and repair expense increased in 1994 as
the result of an increase in average daily utilization of the fleet to
11.19 hours per day in 1994 from 10.69 hours and 10.47 hours for 1993 and
1992, respectively. This higher level of utilization resulted in
increases in line maintenance materials usage, engine repairs and
component repairs.
- Depreciation and amortization expense decreased slightly in 1994 compared
to 1993 as the result of a decrease in depreciation expense arising from
the re-valuation of property and equipment under fresh start reporting
which was partially offset by an increase in amortization expense arising
from the amortization of the reorganization value in excess of amounts
allocable to identifiable assets under fresh start reporting.
Depreciation and amortization expense was higher in 1993 than in 1992
largely as the result of increased heavy engine overhauls.
- Restructuring charges incurred in 1992 consisted of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Write-off for certain assets related to station closures or
route restructuring........................................ $ 9.5
Provision for spare parts for aircraft types no longer in
service.................................................... 12.7
Provision for employee severance............................. 2.3
Loss on return of aircraft................................... 6.8
------
$31.3
=========
</TABLE>
The restructuring charges were necessitated by aircraft fleet reductions
and other operational changes. The Company reduced its fleet to 87
aircraft at the end of 1992 as well as eliminated two of five aircraft
types it operated. Additionally, the number of employees was reduced by
approximately 1,500 employees and service was terminated to ten cities
through the end of 1992.
- The increase in other operating expense for 1994 compared to 1993 and
1992 is due to increased advertising costs and other expenses related to
increased passenger traffic such as credit card discount fees, booking
fees, catering expenses and supplies.
Nonoperating expenses (net of nonoperating income) for 1994, 1993 and 1992
were $327.9 million on a combined basis, $83.1 million and $56.9 million,
respectively. Interest expense increased to $56.6 million in 1994 compared to
$54.2 million in 1993 and $55.8 million in 1992. The increase in interest
expense is primarily the result of the issuance of $123 million of 11 1/4%
Senior Unsecured Notes in connection with the Company's emergence from
bankruptcy protection. In conformity with Statement 90-7, the Company ceased
accruing and paying interest on certain prepetition long-term debt so long as
the Company remained a debtor-in-possession. Had the Company continued to accrue
interest on such debt, interest expense for 1994, 1993 and 1992 would have been
$67.3 million, $73.0 million and $73.9 million, respectively. The Company
incurred expenses of $273.7 million in 1994, $25 million in 1993 and $16.2
million in connection with its
17
<PAGE> 20
efforts to reorganize under Chapter 11. See Item 8. Financial Statements and
Supplementary Data -- Note 1 of Notes to Financial Statements for further
discussion with respect to reorganization.
In connection with its emergence from bankruptcy, the Company entered into
an Alliance Agreement with Continental Airlines which became effective October
1, 1994. On that date, the two airlines began joint marketing of certain
flights, known as code-sharing, which increased the number of destinations that
each carrier serves. Supporting the code-share agreement are programs to
coordinate scheduling and to facilitate customer service through expedited
interline baggage transfers. The agreement offers members of the airlines'
frequent flyer plans new opportunities for mileage accrual as well as shared use
of select membership airport lounges. In addition, the airlines are exploring
opportunities to provide ground support to one another on a select basis in
different cities in which operating efficiencies may be realized.
In September 1994, the Company announced that its flight attendants voted
in favor of collective bargaining representation by the Association of Flight
Attendants (AFA). Negotiations are underway with both the AFA and the Airline
Pilots Association (ALPA), the collective bargaining agent elected to represent
the Company's pilots. The Company is unable to estimate at this time the impact,
if any, that such initial collective bargaining agreements may have on its
operating expenses. During 1994, efforts to unionize the Company's technicians
and fleet services and commissary employees were rejected by those employee
groups. At December 31, 1994, no other employee work group had scheduled or
requested elections seeking to unionize.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, the Company had a working capital deficiency of $47.9
million. The 1994 working capital deficiency decreased from the 1993 deficiency
of $124.4 million as the result of improved profitability, year over year, as
well as the investments made and the financial reorganization which accompanied
the Company's emergence from Chapter 11 protection. On the Effective Date, the
Company received $205.3 million in consideration for the issuance of securities
by the Company consisting of common stock and $100 million principal amount of
11 1/4% Senior Unsecured Notes, due September 1, 2001. In addition, the Company
fully repaid in cash $77.6 million of D.I.P. financing and a $62.7 million
priority term loan. As of December 31, 1994, unrestricted cash and cash
equivalents have increased to $182.6 million from $99.6 million at December 31,
1993 and current maturities of long-term debt have been reduced to $65.2 million
as of December 31, 1994 compared to $125.3 million at December 31, 1993.
Long-term debt, less current maturities has increased to $465.6 million as of
December 31, 1994 compared to $396.4 million at December 31, 1993 as a result of
the issuance of $123 million of 11 1/4% Senior Unsecured Notes of which $23
million were issued to settle certain prepetition claims pursuant to letter
agreements in conjunction with the Company's emergence from bankruptcy.
Stockholders' equity has increased to $595.4 million as of December 31, 1994
compared to a deficit of $254.3 million at December 31, 1993. Net cash provided
by operating activities decreased to $140.1 million on a combined basis for 1994
compared to $153.4 million for 1993 and $76.7 million for 1992. During 1994, the
Company incurred capital expenditures of $75.9 million, which largely consisted
of aircraft modifications and heavy airframe and engine overhauls, compared to
capital expenditures of $54.3 million for 1993.
Effective April 1, 1994, employee base wages were increased between two
percent to eight percent depending on the employee's length of service with the
Company. Generally, each employee whose anniversary date occurs between April
and December 1994 also received an additional increase in base salary on such
date approximating four percent with certain exceptions. The Chairman of the
Board and the President did not participate in the salary increase program. Due
to the current collective bargaining process with the representatives of the
pilots, increase in pilots' salaries were not fully paid but were accrued. The
final distribution, if any, of such potential increase in pilots' salaries will
be determined through the collective bargaining discussions.
Effective April 1, 1994 matching contributions by the Company under the
America West 401(k) Plan were increased from 25 percent to 50 percent of the
first six percent contributed by the employees, subject to
18
<PAGE> 21
certain limitations. This increase restores the Company's matching contribution
to the level that existed prior to the Chapter 11 filing.
On January 1, 1995, the Total Pay Program became effective. The program is
designed to provide employees with a pay and benefits package which is
competitive with other low-cost airlines and local employers. In addition,
performance awards of up to 25% of base pay will be made to employees if
annually established operating income targets are attained. The Total Pay
Program is anticipated to increase non-executive pay by approximately $25
million annually. Concurrent with the announcement of the Total Pay Program, the
Company announced a strategic restructuring program. In an overhaul of its work
processes, the Company anticipates a reduction in 1995 operating expenses of
approximately $40 million by focusing on core operations while streamlining,
outsourcing or eliminating less essential support work. This process is expected
to reduce the Company's workforce by approximately 1,300 employees. In
connection with this process, the Company announced plans in January 1995 to
close its reservations center in Colorado Springs, Colorado and to consolidate
those activities into the Company's three remaining reservations centers. At
December 31, 1994, the Company has provided for $2 million of severance and
other costs in connection with these strategic restructuring efforts.
At December 31, 1994, the Company had net operating loss ("NOL") and
general business tax credit carryforwards of approximately $557.9 million and
$12.7 million, respectively. Under Section 382 of the Internal Revenue Code of
1986, as amended, if a loss corporation has an "ownership change" within a
designated testing period, its ability to use its NOL and credit carryforwards
is subject to certain limitations. The Company is a loss corporation within the
meaning of Section 382. The issuance of certain common stock by the Company
pursuant to the Plan of Reorganization resulted in an ownership change within
the meaning of Section 382. This ownership change entails an annual limitation
(the "Section 382 Limitation") upon the Company's ability to offset any
post-change taxable income with pre-change NOL. Should the Company generate
insufficient taxable income in any post-change taxable year to fully utilize the
Section 382 Limitation of that year, any excess limitation will be carried
forward to use in subsequent tax years, provided the pre-change NOL has not been
exhausted nor has the carryforward period expired.
The Company's reorganization and the associated implementation of fresh
start reporting gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35 percent. Nevertheless, the Company's actual
income tax liability (i.e., income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to tax attributes (including NOL carryforwards, subject to certain
limitations) of the Predecessor Company that serve to reduce the Company's
actual income tax liability. To the extent the tax attributes of the Predecessor
Company reduce the Company's actual income tax liability below the amount of
expense reflected in the financial statements, that difference is applied to
reduce the carrying balance of the Company's Reorganization Value in Excess of
Amounts Allocable to Identifiable Assets.
At December 31, 1994, the Company had on order a total of 24 Airbus
A320-200 aircraft, with an aggregate net cost estimated at $1.1 billion.
Delivery dates of the aircraft will fall in the years 1998 through 2000 with an
option to defer the 1998 deliveries. If new A320 aircraft are delivered as a
result of a renegotiated put agreement (described below), the Company will have
the right to cancel on a one-for-one basis, up to a maximum of eight
non-consecutive aircraft deliveries hereunder, subject to certain conditions.
Additionally, the Company has the option to cancel, without cause, up to an
additional four aircraft, and the Company has the right to assign all or some of
these delivery positions to Continental.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the A320 fleet. Such engines have an estimated
aggregate cost of $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
19
<PAGE> 22
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include the progress payments that will be made in cash, as
opposed to being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995........................................................... $ 3,223
1996........................................................... 32,608
1997........................................................... 58,230
1998........................................................... 379,309
1999........................................................... 355,540
2000........................................................... 350,863
--------------
$1,179,773
===========
</TABLE>
At December 31, 1994, the Company has significant capital commitments for a
number of new aircraft, as discussed above. Although the Company has arranged
for financing for up to one-half of the commitment to AVSA, the Company will
require substantial capital from external sources to meet its remaining
financial commitments. The Company intends to seek additional financing (which
may include public debt financing or private financing) in the future when and
as appropriate. There can be no assurance that sufficient financing will be
obtained for all aircraft and other capital requirements. A default by the
Company under any such commitment could have a material adverse effect on the
Company.
At December 31, 1994, the Company had a put agreement for eight aircraft
with deliveries to start no earlier than June 30, 1995 and end on June 30, 1999.
Under the agreement, new or used B737-300, B757-200, or new or "like new"
A320-200 aircraft may be put to the Company at a rate of no more than two
aircraft in 1995, and with respect to each ensuing year during the put period,
of no more than three aircraft. In addition, no more than five used aircraft may
be put to the Company, and for every new A320 aircraft put to the Company, the
Company has the right to reduce deliveries under the AVSA A320 purchase contract
on a one-for-one basis. During each January of the put period, the Company will
negotiate the type and delivery dates of the put aircraft for that year. The
puts will require a 150-day notice and will be leased at fair market rates for
terms ranging from three to eighteen years, depending on the type and condition
of the aircraft. In 1995, three aircraft (one used B737-300 in February and two
new A320-200s in April) will be delivered to the Company under this agreement.
As part of the agreement, certain cash payments and securities were issued to
the put holder pursuant to the Plan. See Item 8. Financial Statements and
Supplementary Data -- Note 13 of Notes to Financial Statements.
Within the period of January 1, 1995 to December 31, 2000, the Company has
23 aircraft whose lease arrangements are due to expire, 11 of which may be
extended at the option of the lessor. Given this situation and the other
aircraft commitments discussed above, the Company has the flexibility to expand
or contract its fleet as business conditions warrant.
In June 1994, the Company reached a settlement for the cancellation of the
right of a former D.I.P. lender to put four aircraft to the Company. The
settlement called for cash payments of $4.5 million, of which $2.5 million was
paid in June 1994 and $2.0 million was paid on the Effective Date.
The Company had certain aircraft purchase contracts with Boeing. In
connection with the Plan, the Company reached a settlement in which the purchase
contracts were rejected and equipment purchase deposits were kept by Boeing in
full settlement of the rejection damages.
During 1995, leases relating to two Boeing 737-200 aircraft, one Airbus
A320 aircraft and two Boeing 737-300 aircraft are scheduled to expire. The
Company anticipates extending the leases for all of these aircraft with the
exception of the Airbus A320.
20
<PAGE> 23
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios and other financial
covenants with which the Company was in compliance at December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Balance sheets of the Company as of December 31, 1994 and 1993, and the
related statements of operations, cash flows and stockholder's equity
(deficiency) for the period August 26, 1994 to December 31, 1994, the period
January 1, 1994 to August 25, 1994 and for each of the years in the two-year
period ended December 31, 1993, together with the related notes and the report
of KPMG Peat Marwick LLP, independent certified public accountants, are set
forth on the following pages. Other required financial information and schedules
are set forth herein, as more fully described in Item 14 hereof.
21
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Airlines, Inc.
We have audited the accompanying balance sheets of America West Airlines,
Inc. as of December 31, 1994 and 1993, and the related statements of operations,
cash flows and stockholders' equity (deficiency) for the period August 26, 1994
to December 31, 1994, the period January 1, 1994 to August 25, 1994, and for
each of the years in the two-year period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurances 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 America West Airlines, Inc.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the period August 26, 1994 to December 31, 1994, the period January 1,
1994 to August 25, 1994, and for each of the years in the two-year period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements, on August 25,
1994, America West Airlines, Inc. emerged from bankruptcy. The financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis than those of the Predecessor Company and, therefore, are not
comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 24, 1995
22
<PAGE> 25
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 182,581 $ 99,631
Accounts receivable, less allowance for doubtful accounts of $3,531 in 1994 and $3,030
in 1993............................................................................. 57,474 65,744
Expendable spare parts and supplies, less allowance for obsolescence of $483 in 1994
and $7,231
in 1993............................................................................. 24,179 28,111
Prepaid expenses...................................................................... 29,284 34,939
----------- -----------
Total current assets............................................................ 293,518 228,425
----------- -----------
Property and equipment:
Flight equipment...................................................................... 452,177 872,104
Other property and equipment.......................................................... 92,169 180,607
----------- -----------
544,346 1,052,711
Less accumulated depreciation and amortization........................................ 15,882 385,776
----------- -----------
528,464 666,935
Equipment purchase deposits........................................................... 26,074 51,836
----------- -----------
554,538 718,771
----------- -----------
Restricted cash......................................................................... 28,578 46,296
Reorganization value in excess of amounts allocable to identifiable assets, net......... 645,703 --
Other assets, net....................................................................... 22,755 23,251
----------- -----------
$1,545,092 $1,016,743
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt.................................................. $ 65,198 $ 125,271
Accounts payable...................................................................... 77,569 62,957
Air traffic liability................................................................. 127,356 118,479
Accrued compensation and vacation benefits............................................ 15,776 11,704
Accrued interest...................................................................... 13,109 8,295
Accrued taxes......................................................................... 27,061 14,114
Other accrued liabilities............................................................. 15,376 11,980
----------- -----------
Total current liabilities....................................................... 341,445 352,800
----------- -----------
Estimated liabilities subject to Chapter 11 proceedings................................. -- 381,114
Long-term debt, less current maturities................................................. 465,598 396,350
Manufacturers' and deferred credits..................................................... 116,882 73,592
Other liabilities....................................................................... 25,721 67,149
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued at
December 31, 1994................................................................... -- --
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 1,200,000 shares at December 31, 1994................................... 12 --
Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding
43,936,272 shares at December 31, 1994.............................................. 439 --
Preferred stock, $.25 par value. Authorized 50,000,000 shares; Series C 9.75%
convertible preferred stock, issued and outstanding 73,099 shares at December 31,
1993; $1.33 per share cumulative dividend........................................... -- 18
Common stock, $.25 par value. Authorized 90,000,000 shares; issued and outstanding
25,291,102 at December 31, 1993..................................................... -- 6,323
Additional paid-in capital............................................................ 587,149 197,010
Retained earnings (deficit)........................................................... 7,846 (438,626 )
----------- -----------
595,446 (235,275 )
Less deferred compensation and notes receivable -- employee stock purchase plans...... -- 18,987
----------- -----------
Total stockholders' equity (deficiency)......................................... 595,446 (254,262 )
----------- -----------
$1,545,092 $1,016,743
=========== ==========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 26
AMERICA WEST AIRLINES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY -----------------------------------------
------------- PERIOD FROM
PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER 31,
AUGUST 26 TO TO
DECEMBER 31, AUGUST 25, -------------------------
1994 1994 1993 1992
------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger................................................ $ 437,775 $ 882,140 $1,246,564 $1,214,816
Cargo.................................................... 16,648 27,645 40,161 42,077
Other.................................................... 15,343 29,243 38,639 37,247
------------- ----------- ---------- ----------
Total operating revenues............................. 469,766 939,028 1,325,364 1,294,140
------------- ----------- ---------- ----------
Operating expenses:
Salaries and related costs............................... 117,562 213,722 305,429 324,255
Rentals and landing fees................................. 90,822 173,710 274,708 338,391
Aircraft fuel............................................ 58,165 100,646 166,313 186,042
Agency commissions....................................... 37,265 78,988 106,368 106,661
Aircraft maintenance materials and repairs............... 17,590 28,109 31,000 38,366
Depreciation and amortization............................ 26,684 56,694 81,894 86,981
Restructuring charges.................................... -- -- -- 31,316
Other.................................................... 82,807 179,653 238,598 256,940
------------- ----------- ---------- ----------
Total operating expenses............................. 430,895 831,522 1,204,310 1,368,952
------------- ----------- ---------- ----------
Operating income (loss).............................. 38,871 107,506 121,054 (74,812)
------------- ----------- ---------- ----------
Nonoperating income (expenses):
Interest income.......................................... 3,834 470 728 1,418
Interest expense (contractual interest of $44,747,
$72,961 and $73,931 for the periods ended August 25,
1994, and December 31, 1993 and 1992, respectively).... (22,636) (33,998) (54,192) (55,826)
Loss on disposition of property and equipment............ (398) (1,659) (4,562) (1,283)
Reorganization expense, net.............................. -- (273,659) (25,015) (16,216)
Other, net............................................... 65 131 (89) 14,958
------------- ----------- ---------- ----------
Total nonoperating expenses, net..................... (19,135) (308,715) (83,130) (56,949)
------------- ----------- ---------- ----------
Income (loss) before income taxes and extraordinary
item............................................... 19,736 (201,209) 37,924 (131,761)
------------- ----------- ---------- ----------
Income taxes............................................... 11,890 2,059 759 --
------------- ----------- ---------- ----------
Income (loss) before extraordinary item.............. 7,846 (203,268) 37,165 (131,761)
------------- ----------- ---------- ----------
Extraordinary gain on elimination of debt.................. -- 257,660 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ 7,846 $ 54,392 $ 37,165 $ (131,761)
============= =========== ========= =========
Earnings (loss) per share:
Primary:
Income (loss) before extraordinary item................ $ .17 $ (7.03) $ 1.50 $ (5.58)
Extraordinary item..................................... -- 9.02 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ .17 $ 1.99 $ 1.50 $ (5.58)
============= =========== ========= =========
Fully Diluted:
Income (loss) before extraordinary item................ $ .17 $ (4.96) $ 1.04 $ (5.58)
Extraordinary item..................................... -- 6.37 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ .17 $ 1.41 $ 1.04 $ (5.58)
============= =========== ========= =========
Shares used for computation:
Primary.................................................. 45,127 28,550 27,525 23,914
============= =========== ========= =========
Fully diluted............................................ 45,127 40,452 41,509 23,914
============= =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 27
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY --------------------------------------
------------- PERIOD FROM
PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER
AUGUST 26 TO TO 31,
DECEMBER 31, AUGUST 25, ----------------------
1994 1994 1993 1992
------------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 7,846 $ 54,392 $ 37,165 $(131,761)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization............................. 15,538 56,694 81,894 86,981
Amortization of deferred overhauls........................ 356 -- -- --
Amortization of reorganization value in excess of amounts
allocable to identifiable assets........................ 11,145 -- -- --
Amortization of manufacturers' and deferred credits....... (3,961) (2,966) (5,186) (5,869)
Loss on disposition of property and equipment............. 398 1,659 4,562 1,283
Restructuring charges..................................... -- -- -- 31,316
Reorganization items...................................... -- 185,226 18,167 3,188
Extraordinary gain on extinguishment of debt.............. -- (257,660) -- --
Other..................................................... 1,178 (383) (554) 866
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net........... 27,439 (18,769) (927) 19,418
Decrease (increase) in spare parts and supplies, net...... 1,165 397 6,320 (2,384)
Decrease in prepaid expenses.............................. 4,371 1,284 2,627 812
Decrease (increase) in other assets and restricted cash... 1,219 12,971 (5,295) (1,141)
Increase (decrease) in accounts payable................... (17,289) (15,557) 9,014 (8,473)
Increase (decrease) in air traffic liability.............. (26,452) 30,510 8,749 30,723
Increase (decrease) in accrued compensation
and vacation benefits................................... (11,667) 15,739 (1,300) (1,491)
Increase in accrued interest.............................. 7,517 4,694 10,368 25,640
Increase (decrease) in accrued taxes...................... (2,104) 25,999 (1,764) 2,968
Increase (decrease) in other accrued liabilities.......... (13,785) 67,429 644 18,204
Increase (decrease) in other liabilities.................. (4,996) (19,443) (11,126) 6,465
------------- ----------- -------- ---------
Net cash provided by (used in) operating activities..... (2,082) 142,216 153,358 76,745
Cash flows from investing activities:
Purchases of property and equipment......................... (14,658) (61,271) (54,324) (69,208)
Decrease in equipment purchase deposits..................... -- -- -- 14,425
Proceeds from disposition of property....................... 600 334 3,715 383
------------- ----------- -------- ---------
Net cash used in investing activities................... (14,058) (60,937) (50,609) (54,400)
Cash flows from financing activities:
Proceeds from issuance of DIP financing..................... -- -- -- 53,000
Proceeds from issuance of debt.............................. -- 100,000 -- 22,804
Repayment of debt including DIP financing................... (23,355) (173,699) (77,501) (75,871)
Issuance of common stock.................................... 3 114,862 -- --
------------- ----------- -------- ---------
Net cash provided by (used in) financing activities..... (23,352) 41,163 (77,501) (67)
------------- ----------- -------- ---------
Net increase (decrease) in cash and cash equivalents.... (39,492) 122,442 25,248 22,278
------------- ----------- -------- ---------
Cash and cash equivalents at beginning of period.............. 222,073 99,631 74,383 52,105
------------- ----------- -------- ---------
Cash and cash equivalents at end of period.................... $ 182,581 $ 222,073 $ 99,631 $ 74,383
============ =========== ======== =========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 28
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994
AND THE YEARS ENDED DECEMBER 31, 1993, AND 1992
(IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
AND NOTES
CONVERTIBLE CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE --
PREFERRED COMMON COMMON COMMON PAID-IN EARNINGS/ EMPLOYEE STOCK
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) PURCHASE PLANS TOTAL
----------- ------- ------- ------- ---------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1992...................... $ 91 $-- $ -- $5,904 $ 191,825 $(342,358) $ (21,972) $(166,510)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 346,661 shares
of common stock pursuant
to convertible
subordinated
debentures............... -- -- -- 86 3,599 -- -- 3,685
Employee restricted stock
deferred compensation.... -- -- -- -- -- -- 101 101
Employee stock purchase
plan:
Issuance of 7,305 shares
of common stock at:
$.19-$2.63 per share..... -- -- -- 2 (13) -- 81 70
Deferred compensation.... -- -- -- -- (4) -- 1,478 1,474
Preferred stock dividends
Series B: $5.41 per
share.................. -- -- -- -- -- (1,575) -- (1,575)
Series C: $1.33 per
share.................. -- -- -- -- -- (97) -- (97)
Net loss................... -- -- -- -- -- (131,761) -- (131,761)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at December 31,
1992..................... 91 -- -- 5,992 195,407 (475,791) (20,312) (294,613)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 170,173 shares
of common stock pursuant
to Series B convertible
subordinated
debentures............... -- -- -- 43 1,896 -- -- 1,939
Issuance of 1,164,596
shares of common stock
pursuant to convertible
preferred stock.......... (73) -- -- 291 (218) -- -- --
Employee restricted stock
deferred compensation.... -- -- -- -- -- -- 21 21
Employee stock purchase
plan:
Cancellation of 11,330
shares of common stock
at: $.22-$1.59 per
share.................... -- -- -- (3 ) (38) -- 49 8
Deferred compensation.... -- -- -- -- (37) -- 1,255 1,218
Net income................. -- -- -- -- -- 37,165 -- 37,165
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at December 31,
1993..................... 18 -- -- 6,323 197,010 (438,626) (18,987) (254,262)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 336,277 shares
of common stock pursuant
to convertible preferred
stock dividends.......... -- -- -- 84 2,932 -- -- 3,016
Employee stock purchase
plan:
Cancellation of 7,678
shares of common stock
at:
$1.19-$4.03 per share.... -- -- -- (2 ) (49) -- 43 (8)
Deferred compensation.... -- -- -- -- (1) -- 606 605
Issuance of 108,825 shares
of common stock pursuant
to exercise of stock
options.................. -- -- -- 27 166 -- -- 193
Net income................. -- -- -- -- -- 54,392 -- 54,392
Eliminate predecessor
equity accounts in
connection with fresh
start.................... (18)..... -- -- (6,432 ) (200,058) 206,508 -- --
Eliminate employee stock
receivable............... -- -- -- -- -- (18,338) 18,338 --
Record excess of
reorganization value over
identifiable assets...... -- -- -- -- -- 668,702 -- 668,702
Sale of 1,200,000 shares of
Class A common
stock and 14,000,000
shares of Class B common
stock.................... -- 12 140 -- 114,710 -- -- 114,862
Issuance of 29,925,000
shares of new Class B
common stock............. -- -- 299 -- 472,339 (472,638) -- --
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at August 25,
1994..................... -- 12 439 -- 587,049 -- -- 587,500
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 272 shares of
common stock pursuant to
exercise of stock
warrants................. -- -- -- -- 3 -- -- 3
Issuance of 11,000 shares
of restricted stock...... -- -- -- -- 97 -- -- 97
Net income................. -- -- -- -- -- 7,846 -- 7,846
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at December 31,
1994..................... --.$..... $12 $ 439 $ -- $ 587,149 $ 7,846 $ -- $ 595,446
========= ====== ====== ======= ========= ========== =============== =========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 29
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
America West Airlines, Inc., (the "Predecessor Company") filed a voluntary
petition on June 27, 1991, to reorganize under Chapter 11 of the U.S. Bankruptcy
Code. On August 10, 1994, the Plan of Reorganization ("Plan"), filed by the
Predecessor Company, was confirmed and became effective on August 25, 1994 (the
"Effective Date"). On August 25, 1994, America West Airlines, Inc., (the
"Reorganized Company" or the "Company") adopted fresh start reporting in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute
of Certified Public Accountants. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a consistent
basis with such pre-reorganization financial statements and are not comparable
in all respects to financial statements prior to reorganization. For accounting
purposes, the inception date of the Reorganized Company is deemed to be August
26, 1994. A vertical black line is shown in the financial statements to separate
the Reorganized Company from the Predecessor Company since they have not been
prepared on a consistent basis of accounting.
1. CHAPTER 11 REORGANIZATION
The following occurred upon the Effective Date:
- The partners of AmWest Partners, L.P. ("AmWest"), a limited partnership
which includes TPG Partners, L.P. ("TPG"); Continental Airlines, Inc.
("Continental"); and Mesa Airlines, Inc. ("Mesa"); together with Lehman
Brothers, Inc. ("Lehman") and Fidelity Investments ("Fidelity"), as
assignees of AmWest, invested $205.3 million in consideration for the
issuance of securities by the Reorganized Company, consisting of (i)
1,200,000 shares of Class A Common Stock at a price of $7.467 per share;
(ii) 12,981,636 shares of Class B Common Stock, consisting of 12,259,821
shares at a price of $7.467 per share and 721,815 shares at $8.889 per
share (representing shares acquired as a result of cash elections made by
unsecured creditors); (iii) 2,769,231 Warrants to purchase shares of
Class B Common Stock at an exercise price of $12.74 per share and (iv)
$100 million principal amount of 11 1/4% Senior Unsecured Notes, due
September 1, 2001. AmWest was dissolved immediately after the Effective
Date with all rights being delegated to the partners and assignees of
AmWest.
- Pre-existing equity interests of the Company were cancelled, the
Company's obligations to certain prepetition creditors were restructured
and general unsecured nonpriority prepetition creditors received, in full
satisfaction of their claims, their pro rata share of approximately
26,053,185 shares of Class B Common Stock and $6,416,214 in cash. Holders
of the Company's pre-existing common equity interests received, on a pro
rata basis, 2,250,000 shares of Class B Common Stock and Warrants to
purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant
to the exercise of subscription rights, holders of pre-existing equity
interests received 1,615,179 shares of Class B Common Stock for an
aggregate purchase price of $14,357,326 ($8.889 per share), including
holders of pre-existing preferred equity interests. TPG and Fidelity, the
holders of preferred equity interests of the Predecessor Company received
their pro rata share of (i) $500,000 in cash and (ii) 125,000 shares of
Class B Common Stock for an aggregate purchase price of $1,111,125.
- In exchange for certain concessions principally arising from cancellation
of the right of GPA Group plc and/or its affiliates ("GPA") to lease to
America West 10 Airbus A320 aircraft, GPA received Class B Common Stock,
a cash payment and certain rights (note 13).
- The Company entered into certain Alliance Agreements with Continental and
Mesa relating to code-sharing, schedule coordination and certain other
relationships and agreements. With respect to Mesa, a pre-existing code
share agreement was extended to August 2004.
27
<PAGE> 30
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- The Company executed letter agreements with Fidelity and Lehman relating
to the settlement of certain prepetition claims. On October 14, 1994, the
Company issued an additional $23 million of 11 1/4% Senior Unsecured
Notes, due September 2001, and made a prepayment of a $1.3 million lease
obligation. Additionally, cash payments of $2.1 million and $1.2 million
were made to Fidelity and Lehman, respectively.
- The Plan also provided for many other matters, including the satisfaction
of certain other prepetition claims in accordance with negotiated
settlement agreements, the disposition of the various types of claims
asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase
agreements and the release of the Company's employees from all
obligations arising under the Company's stock purchase plan in
consideration for the cancellation of the shares of Predecessor Company
stock securing such obligations.
As of December 31, 1994, distributions on $295 million of allowed general
unsecured claims had been made. Approximately 21.6 million shares of the
Company's Class B Common Stock and cash proceeds equivalent to an additional
524,000 shares have been distributed in settlement. The remaining shares will be
distributed as the remaining general unsecured claims are allowed. To the extent
that the total allowed amount of claims is less than the $345 million reserve
set by the Bankruptcy Court, the holders of such claims will receive a
supplemental distribution.
Reorganization expense recorded by the Predecessor Company consisted of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD FROM DECEMBER 31,
JANUARY 1 TO -------------------
AUGUST 25, 1994 1993 1992
--------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Professional fees and other expenses related to
the Chapter 11 proceedings...................... $ 31,959 $ 9,419 $16,498
Adjustments of assets and liabilities to fair
value........................................... 166,829 -- --
Provisions for settlement of claims............... 66,626 18,231 1,748
Reorganization success bonuses.................... 11,956 -- --
Interest income................................... (3,711) (2,635) (2,030)
--------------- ------- -------
$ 273,659 $25,015 $16,216
=========== ======= =======
</TABLE>
2. FRESH START REPORTING
In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with SOP 90-7. The fresh start reporting common
equity value of $587.5 million was determined by the Company with the assistance
of its financial advisors. The significant factors used in the determination of
this value were analyses of industry, economic and overall market conditions and
the historical and estimated performance of the Company as well as of the
airline industry, discussions with various potential investors and certain other
financial analyses.
Under fresh start reporting, the reorganization value of the entity has
been allocated to the Company's assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
balance sheet as of December 31, 1994. The fresh start reporting adjustments,
primarily related to the adjustment of the Company's assets and liabilities to
fair market values, will have a significant effect on the Company's future
statements of operations. The more significant of these adjustments relate to
reduced depreciation expense on property and equipment, increased amortization
expense relating to reorganization value in excess of amounts allocable to
identifiable assets, and increased interest expense and reduced aircraft rent
expense for leases adjusted to fair market rental rates.
28
<PAGE> 31
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effects of the Plan and fresh start reporting on the balance sheet at
the Effective Date are as follows (in thousands):
<TABLE>
<CAPTION>
(A) (B) (C)
PREDECESSOR ISSUE OF REORGANIZED
COMPANY DEBT DEBT & FRESH START COMPANY
AUG. 25, 1994 DISCHARGE STOCK ADJUSTMENTS AUG. 25, 1994
------------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 156,401 $(140,284) $205,956 $ -- $ 222,073
Accounts receivable, net..................... 77,682 -- 6,831 -- 84,513
Expendable spare parts and supplies.......... 27,715 -- -- (2,371) 25,344
Prepaid expenses............................. 34,540 -- -- (885) 33,655
------------- --------- -------- ----------- -------------
Total current assets........................... 296,338 (140,284 ) 212,787 (3,256) 365,585
Property and equipment, net.................... 702,442 -- -- (138,830) 563,612
Restricted cash................................ 30,503 -- -- -- 30,503
Reorganization value in excess of amounts
allocable
to identifiable assets....................... -- -- -- 668,702 668,702
Other assets, net.............................. 24,497 -- 1,575 (2,449) 23,623
------------- --------- -------- ----------- -------------
Total assets................................... $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
============ ========= ======== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current maturities of long-term debt......... $ 119,185 $(65,014 ) $ -- $ -- $ 54,171
Accounts payable............................. 98,080 6,500 -- 969 105,549
Air traffic liability........................ 153,808 -- -- -- 153,808
Accrued compensation and vacation benefits... 27,443 -- -- -- 27,443
Accrued interest............................. 5,620 -- -- -- 5,620
Accrued taxes................................ 26,613 14,405 -- -- 41,018
Other accrued liabilities.................... 29,161 -- -- -- 29,161
------------- --------- -------- ----------- -------------
Total current liabilities...................... 459,910 (44,109 ) -- 969 416,770
Estimated liabilities subject to Chapter 11
proceedings.................................. 382,769 (382,769 ) -- -- --
Long-term debt, less current maturities........ 368,939 28,934 100,000 -- 497,873
Manufacturers' and deferred credits............ 70,625 -- -- 51,530 122,155
Other liabilities.............................. 57,932 -- -- (30,205) 27,727
Stockholders' equity (deficiency):
Preferred stock.............................. 18 -- -- (18) --
Common stock, Predecessor Company............ 6,432 -- -- (6,432) --
Common stock, Reorganized Company............ -- -- 152 299 451
Additional paid in capital................... 200,058 -- 114,710 272,281 587,049
Accumulated deficit.......................... (474,565) 257,660 (500) 217,405 --
------------- --------- -------- ----------- -------------
(268,057) 257,660 114,362 483,535 587,500
Deferred compensation and notes receivable --
employee stock purchase plans.............. 18,338 -- -- (18,338) --
------------- --------- -------- ----------- -------------
Total stockholders' equity (deficiency)........ (286,395) 257,660 114,362 501,873 587,500
------------- --------- -------- ----------- -------------
Total liabilities & stockholders' equity
(deficiency)................................. $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
============ ========= ======== ========== ============
</TABLE>
---------------
(a) To record the discharge or reclassification of prepetition obligations as
well as the repayment in cash of $77.6 million of D.I.P. financing and a
$62.7 million priority term loan.
(b) To record proceeds received from the issuance of new debt and equity
securities and to record the preferred stock settlement payment of $500,000
and the receipt of approximately $1.1 million for the purchase of Class B
Common Stock.
(c) To record adjustments to reflect assets and liabilities at fair market
values and to record reorganization value in excess of amounts allocable to
identifiable assets.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Reporting for Bankruptcy Proceedings
The Company implemented the guidance as to financial reporting by entities
that have filed petitions with the Bankruptcy Court, provided by SOP 90-7 in the
accompanying financial statements.
29
<PAGE> 32
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to SOP 90-7, prepetition liabilities are reported on the basis of
the expected amounts of such allowed claims, as opposed to the amounts for which
those allowed claims may be settled and are classified as "Liabilities Subject
to Chapter 11 Proceedings". The accrual for interest on such unsecured or
undersecured liabilities was discontinued from the period June 27, 1991 to
August 25, 1994, the Effective Date of the Plan.
(b) Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less and are carried at cost which
approximates market.
(c) Restricted Cash
Restricted cash includes cash deposits securing certain letters of credit
and cash held in Company accounts, but pledged to an institution which processes
credit card sales transactions.
(d) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at average
cost. Allowances for obsolescence are provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(e) Property and Equipment
Property and equipment were recorded at cost as of December 31, 1993 and at
fair market value as of August 25, 1994; subsequent acquisitions are recorded at
cost. Interest capitalized on advance payments for aircraft acquisitions and on
expenditures for aircraft improvements are part of these costs. Interest
capitalized was $621,000 for the period August 26, 1994 through December 31,
1994. No interest was capitalized while the Company was in bankruptcy. Property
and equipment is depreciated and amortized to residual values over the estimated
useful lives or the lease term, whichever is less, using the straight-line
method.
The estimated useful lives for the Company's property and equipment range
from three to twelve years for owned property and equipment and to thirty years
for the reservation and training center and technical support facilities. The
estimated useful lives of the Company's owned aircraft, jet engines, flight
equipment and rotable parts range from eleven to twenty-two years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and included in aircraft
maintenance materials and repairs for the Reorganized Company, as part of fresh
start reporting, and in depreciation and amortization expense for the
Predecessor Company. Additionally, a provision for the estimated cost of
scheduled airframe and engine overhauls required to be performed on leased
aircraft prior to their return to the lessors has been provided.
(f) Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1994 is approximately $11.1 million. As more fully discussed at
Note 9, with respect to the period ended December 31, 1994, a reduction in
reorganization value in excess of amounts allocable to identifiable assets of
$11.9 million was recorded as a result of the utilization of Predecessor Company
tax attributes. The Company assesses the recoverability of this asset based upon
expected future undiscounted cash flows and other relevant information.
30
<PAGE> 33
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Frequent Flyer Awards
The Company maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(h) Manufacturers' and Deferred Credits
In connection with the acquisition of certain aircraft and engines, the
Company receives various credits. Such manufacturers' credits are deferred until
the aircraft and engines are delivered, at which time they are either applied as
a reduction of the cost of acquiring owned aircraft and engines, resulting in a
reduction of future depreciation expense, or amortized as a reduction of rent
expense for leased aircraft and engines. Unamortized amounts were written off at
the Effective Date.
(i) Deferred Credit -- Operating Leases
Operating leases were adjusted to fair market value at the Effective Date.
The net present value of the difference between the contractual lease rates and
the fair market rates has been recorded as a deferred credit in the accompanying
balance sheets. The deferred credit will be increased through charges to
interest expense and decreased on a straight-line basis as a reduction in rent
expense over the applicable lease periods. At December 31, 1994, the unamortized
balance of the deferred credit was $116.9 million.
(j) Revenue Recognition
Passenger revenue is recognized when the transportation is provided. Ticket
sales for transportation which has not yet been provided are reflected in the
financial statements as air traffic liability.
(k) Passenger Traffic Commissions and Related Fees
Passenger traffic commissions and related fees are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and related fees not yet recognized are included as a
prepaid expense.
(l) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As more fully
discussed at Note 9, adoption of the new standard changed the Company's method
of accounting for income taxes from the deferred approach to an asset and
liability approach.
As with the prior standard, the Company continues to account for its
general business credits by use of the flow-through method.
(m) Per Share Data
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflect net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding, dilutive common stock equivalents (stock
options and warrants), and the conversion of outstanding convertible preferred
stock as well as for the Predecessor Company the conversion of convertible
31
<PAGE> 34
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subordinate debentures. Fully diluted earnings per share reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from the
assumed exercise of common stock equivalents but only if the effect of such
adjustments are dilutive.
(n) Reclassification
Certain prior period reclassifications have been made in the Predecessor
Company's financial statements to conform to the Reorganized Company's
presentation.
4. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
-------------- --------------
1994 1993
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, fixed interest rates of 6.00% to 10.79% and
floating
interest rates of various LIBOR + 1.5% to 3.5%,
installments due
through 2008.............................................. $307,077 $402,448
Borrowings under lines of credit, floating interest rates of
Prime + 1% to three month LIBOR + 4%, installments due
through 1999. No available borrowings remain. ............ 24,225 18,589
Notes payable, floating interest rate of Prime + 1%,
installments
due through 1999. (a)..................................... 34,097 --
DIP financing............................................... -- 83,577
-------------- --------------
365,399 504,614
UNSECURED
11 1/4% senior notes, face amount of $123 million, interest
only payments until due in 2001. (b)...................... 120,843 --
Notes payable, fixed interest rates of 6% to 8% and floating
interest rates of three month LIBOR + 3%, installments due
through 2000. ............................................ 41,752 10,734
Other....................................................... 2,802 6,273
-------------- --------------
165,397 17,007
Total long-term debt.............................. 530,796 521,621
Less: current maturities.......................... (65,198) (125,271)
-------------- --------------
$465,598 $396,350
============= =============
</TABLE>
---------------
(a) Approximately $29.5 million was drawn on a letter of credit facility that
secured certain industrial development bonds (the "Bonds") used by the
Company to build its aircraft maintenance facility in Phoenix, Arizona (the
"Hangar"). The issuer of the letter of credit facility was in turn
reimbursed for such draws under a reimbursement agreement among the Company,
that issuer and a certain bank group (the "Banks"). The reimbursement
agreement was secured by the Hangar. At the Effective Date, the Company and
the Banks agreed to facilitate repayment of the obligation created under the
reimbursement agreement with two loans, the principal loan for $29.5 million
and the interest loan for $6.5 million. These two loans are secured by the
Hangar. The interest loan is repaid with monthly level principal payments
and interest at the prime rate plus 1% and matures in August 1996.
Amortization of the principal loan is calculated over 12 years with a five
year maturity in August 1999; and payments are made monthly of level
principal and interest at the prime rate plus 1%, with the balance of the
loan, or $12.5 million, being due at its maturity. Additionally, if the
Company does not re-market the Bonds prior to August 25, 1995 (the proceeds
from which will be used to retire the then outstanding balance of the
32
<PAGE> 35
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal loan), the Company is required to make an additional $5.0 million
principal repayment under the principal loan in October 1995.
(b) On the Effective Date, the Company issued $100 million of 11 1/4% Senior
Unsecured Notes (the "Senior Notes") at a discount of 1.575% as part of the
investment by AmWest, and on October 14, 1994, the Company issued an
additional $23 million of the Senior Notes. The notes mature in September,
2001 and interest is payable in arrears semi-annually commencing on March 1,
1995. The Senior Notes may be redeemed at the option of the Company; (i)
prior to September 1, 1997; (a) at any time, in whole but not in part, at a
redemption price of 105% of the principal amount of the Senior Notes plus
accrued and unpaid interest, if any, to the redemption date or; (b) from
time to time in part from the net proceeds of a public offering of its
capital stock at a redemption price equal to 105% of the principal amount,
plus accrued and unpaid interest, if any, to the redemption date except for
amounts mandatorily redeemed; (ii) on or after September 1, 1997 at any time
in whole or from time to time in part, at a redemption price equal to the
following percentage of principal redeemed, plus accrued and unpaid interest
to the date of redemption, if redeemed during the 12-month period beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
------------ ----------
<S> <C>
1997 105.0%
1998 103.3%
1999 101.7%
2000 100.0%
</TABLE>
The Senior Notes are also subject to mandatory redemption if the Company
consummates a Public Offering Sale, as defined in the Indenture, prior to
September 1, 1997, and immediately prior to such consummation, the Company
has cash and cash equivalents, not subject to any restriction on
disposition of at least $100 million. Then the Company shall redeem the
Senior Notes at a redemption price equal to 104% of the aggregate principal
amount of the Senior Notes so redeemed plus accrued and unpaid interest to
the redemption date. The aggregate redemption price and accrued unpaid
interest of the Senior Notes to be redeemed shall equal the lesser of: (a)
50% of the net proceeds of such Public Offering Sale and; (b) the excess if
any of; (i) $20 million and; (ii) the amount of any net offering proceeds
of any Public Offering Sale received prior to September 1, 1997. The
Indenture contains a limitation on investment covenant with which the
Company was in compliance at December 31, 1994.
At December 31, 1994, the estimated maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995............................................... $ 65,198
1996............................................... 55,566
1997............................................... 48,316
1998............................................... 44,653
1999............................................... 57,203
Thereafter......................................... 259,860
--------------
$530,796
===========
</TABLE>
Secured financings totaling $361 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $422.6 million at
December 31, 1994.
Prepetition long-term debt totaling approximately $224 million was included
in Estimated Liabilities Subject to Chapter 11 Proceedings at December 31, 1993.
As part of the reorganization, approximately $85.6 million of long-term debt was
restructured and included as long-term debt secured at December 31, 1994.
33
<PAGE> 36
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios and other financial covenants for
which the Company was in compliance at December 31, 1994.
5. CAPITAL STOCK
Preferred Stock
The Company's Board of Directors by resolution may authorize the issuance
of the Preferred Stock as a class, in one or more series, having the number of
shares, designations, relative voting rights, dividend rights, liquidation and
other preferences, and limitation that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
Common Stock
The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of common stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
Pursuant to the Stockholders' Agreement, the partners and assignees of
AmWest and GPA will vote all shares of Common Stock owned by them in favor of
the reelection of the initially designated independent directors for as long as
such independent directors continue to serve until the third annual meeting.
In addition to the voting and other provisions of the Stockholders'
Agreement, AmWest and GPA agreed that (i) the partners and assignees of AmWest
will vote in favor of GPA's nominee to the Company's Board of Directors, and
(ii) GPA will vote in favor of the partners and assignees of AmWest's nine
nominees to the Company's Board of Directors for so long as (a) the partners and
assignees of AmWest own at least 5% of the voting equity securities of the
Company, and (b) GPA owns at least 2% of the voting equity securities of the
Company.
Warrants
The Company issued approximately 10.4 million Warrants to purchase Class B
Common Stock with an exercise price of $12.74 per share as part of the
reorganization. The Warrants are exercisable by the holders anytime before
August 25, 1999 and 10.4 million shares of Class B Common Stock have been
reserved for the exercise of these warrants.
6. RESTRICTED STOCK AND STOCK OPTIONS
In December 1994, the Company's Board of Directors approved the America
West Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan") subject to
approval of the stockholders. Under the Incentive Plan, up to 3.5 million shares
of Class B Common Stock may be issued to cover all outstanding awards under this
plan, of which, no more than 1.5 million will be issued as Restricted Stock or
Bonus Stock. The Company's Board of Directors granted 11,000 shares of
restricted stock and 1,267,000 options to purchase common stock at $8.75 per
share, the fair value at date of grant, under the Incentive Plan. Also, 39,000
options to purchase common stock were granted at $8.75 per share, the fair value
at date of grant, to members of the
34
<PAGE> 37
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Board of Directors who are not employees of the Company. As of December 31,
1994, 11,000 shares of restricted stock were vested and 255,000 options to
purchase common stock were exercisable, both contingent upon stockholder
approval of the Incentive Plan.
7. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering essentially
all employees of the Company. Participants may contribute from 1 to 15% of their
pre-tax earnings to a maximum of $9,240 in 1995. In April 1994, the Company
increased the Company matched portion from 25% to 50% of a participant's
contributions up to 6% of the participant's annual pre-tax earnings. The
Company's contribution expense to the plan totaled $3.8 million, $2.1 million
and $2 million in 1994, 1993 and 1992, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Accounts Receivable and Accounts Payable
The carrying amount of accounts receivable and accounts payable
approximates fair value as they are expected to be collected or paid within 90
days of year-end.
Long-term Debt, Including Current Maturities
At December 31, 1994, the fair value of long-term debt, including current
maturities, was approximately $515 million based on quoted market prices for the
same or similar debt including debt of comparable remaining maturities.
9. INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). The Predecessor Company had adopted SFAS
109 as of January 1, 1993. Under SFAS 109, deferred tax assets (subject to a
possible valuation allowance) and liabilities are recognized for the expected
future tax consequences of events that are reflected in the Company's financial
statements or tax returns.
Income tax expense:
For the periods shown below, the Company recorded income tax expense as follows:
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY --------------------------------------
------------------ YEARS ENDED
PERIOD FROM PERIOD FROM DECEMBER 31,
AUGUST 26 TO JANUARY 1 TO -------------
DECEMBER 31, 1994 AUGUST 25, 1994 1993 1992
------------------ ------------------ ---- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Current taxes:
Federal............................... $ -- $1,869 $675 $ --
State................................. 36 190 84 --
---------- ------- ---- ------
36 2,059 759 --
Deferred taxes:......................... -- -- -- --
Income tax expense attributable to
reorganization items.................. 11,854 -- -- --
---------- ------- ---- ------
Income tax expense...................... $ 11,890 $2,059 $759 $
============== ============= ==== ======
</TABLE>
35
<PAGE> 38
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
With respect to the period August 26, 1994 to December 31, 1994, income tax
expense pertains both to income before extraordinary item as well as certain
adjustments necessitated by the effectiveness of the Plan and the resultant
fresh start adjustments to the Company's financial statements. The Company's
reorganization and the associated implementation of fresh start reporting gave
rise to significant items of expense for financial reporting purposes that are
not deductible for income tax purposes. In large measure, it is these
nondeductible (for income tax purposes) expenses that result in an effective tax
rate (for financial reporting purposes) significantly greater than the current
U.S. corporate statutory rate of 35 percent. Nevertheless, the Company's actual
income tax liability (i.e., income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to the utilization of certain tax attributes of the Predecessor
Company that serve to reduce the Company's actual income tax liability. The
excess of financial expense over the Company's actual income tax liability
(approximately $11.8 million) is applied to reduce the carrying balance of the
Company's reorganization value in excess of amounts allocable to identifiable
assets.
For the periods January 1, 1994 to August 25, 1994, and years ended
December 31, 1993 and 1992, income tax expense pertains solely to income before
extraordinary item. No income tax expense was recognized with respect to the
extraordinary gain resulting from the cancellation of indebtedness that occurred
in connection with the effectiveness of the Plan as such gain is not subject to
income taxation.
A reconciliation of taxes at the federal statutory rate ("expected taxes")
of 35% to those reflected in the financial statements (the "effective rate") is
as follows:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------------ ---------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
AUGUST 26 TO JANUARY 1 TO DECEMBER 31,
DECEMBER 31, 1994 AUGUST 25, 1994 1993
------------------ ------------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Taxes at U.S. statutory rate...................... $ 6,908 $ 19,758 $ 13,273
Benefit of loss carryforwards..................... -- (17,889) (12,598)
State taxes....................................... 1,663 190 84
Amortization of reorganization value in excess
of amounts allocable to identifiable assets..... 3,901 -- --
Other............................................. (582) -- --
---------- ------------------ ------------
Total................................... $ 11,890 $ 2,059 $ 759
============== ============= ==========
</TABLE>
As of December 31, 1994, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for Federal
income tax purposes of approximately $557.9 million, $12.7 million and $.57
million, respectively. The net operating loss carryforwards expire during the
years 1999 through 2009 while the business credit carryforwards expire during
the years 1997 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of sec.382 of the Internal Revenue Code) that occurred as a
result of the effectiveness of the Company's Plan of Reorganization, the
Company's ability to utilize its net operating loss and business tax credit
carryforwards may be restricted. The alternative minimum tax credit may be
carried forward without expiration and is available to offset future income tax
payable.
36
<PAGE> 39
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Composition of Deferred Tax Items:
The Company has not recognized any net deferred tax items as of December
31, 1994. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are a result of
the temporary differences related to the items described as follows:
<TABLE>
<CAPTION> REORGANIZED
COMPANY PREDECESSOR COMPANY
----------------- ----------------------------------------
DECEMBER 31, 1994 AUGUST 25, 1994 DECEMBER 31, 1993
----------------- ------------------ -----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax liabilities:
Property and equipment, principally
depreciation and fresh start
differences.......................... $ (71,425) $ (70,367) $(105,242)
----------------- ------------------ -----------------
Deferred tax assets:
Aircraft leases........................... 63,354 65,787 20,594
Reorganization expenses................... 32,654 32,654 16,527
Net operating loss carryforwards.......... 215,119 210,939 212,124
Tax credit carryforwards.................. 13,272 13,272 12,706
Other..................................... 10,892 13,809 9,707
----------------- ------------------ -----------------
Total deferred tax assets....... 335,291 336,461 271,658
----------------- ------------------ -----------------
Valuation allowance....................... (263,866) (266,094) (166,416)
----------------- ------------------ -----------------
Net deferred items.............. $ -- $ -- $ --
============= ============== =============
</TABLE>
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes, the volatility of the industry within
which the Company operates and certain other factors, the Company has
established a valuation allowance principally for the portion of its deductible
temporary differences, including net operating loss and other carryforwards that
may not be available due to expirations or other limitations after consideration
of net reversals of future taxable and deductible amounts. In this context, the
Company has taken into account prudent and feasible tax planning strategies.
After application of the valuation allowance, the Company's net deferred tax
assets and liabilities are zero. If the Company, in future tax periods, were to
recognize tax benefits attributable to tax attributes of the Predecessor Company
(such as net operating loss and other carryforwards), any such benefit would be
applied to reduce the balance of reorganization value in excess of amounts
allocable to identifiable assets.
10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest, net of amounts capitalized, during the period
August 26, 1994 through December 31, 1994, January 1, 1994 through August 25,
1994 and the years ended December 31, 1993 and 1992 was approximately $11
million, $29 million, $44 million and $46 million, respectively.
Cash paid for income taxes during the period August 26, 1994 through
December 31, 1994, January 1, 1994 through August 25, 1994 and the year ended
December 31, 1993 was $425,000, $1,253,000 and $537,000, respectively.
37
<PAGE> 40
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash flows from reorganization items in connection with the Chapter 11
proceedings were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JANUARY 1 TO
AUGUST 25, ----------------------------
1994 1993 1992
------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest received on cash accumulations................ $ 3,711 $ 2,635 $ 2,030
Professional fees paid for services rendered........... 23,563 (7,372) (11,346)
D.I.P. financing issuance costs paid................... -- (1,378) (1,760)
</TABLE>
In addition, during the period August 26 through December 31, 1994, January
1, 1994 through August 25, 1994 and the years ended December 31, 1993 and 1992,
the Company had the following non-cash financing and investing activities:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
-------------- -----------------------------------------
PERIOD FROM PERIOD FROM
AUGUST 26 TO JANUARY 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 25, -------------------------
1994 1994 1993 1992
-------------- ------------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Equipment acquired through capital
leases.................................. $ -- $ 138 $ 709 $ 437
Conversion of long-term debt to common
stock................................... -- -- 1,938 3,685
Notes payable issued to seller............ -- -- 818 22,804
Notes payable issued for administrative
claims.................................. -- -- 11,597 --
Accrued interest reclassified to long-term
debt.................................... -- 5,563 15,137 16,443
Draws taken by third parties letter of
credit.................................. -- -- -- 11,201
Preferred dividend declared but unpaid.... -- -- -- 1,672
</TABLE>
11. EXTRAORDINARY ITEM
The extraordinary gain recorded in the period January 1 through August 25,
1994 includes $257.7 million from the discharge of indebtedness pursuant to the
consummation of the Plan of Reorganization.
12. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1994, the Company had 68 aircraft under operating leases
with remaining terms ranging from five months to approximately 23 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. Certain of the agreements require security deposits
and maintenance reserve payments. The Company also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.
38
<PAGE> 41
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
including those leases entered into through February 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995................................................... $ 212,340
1996................................................... 205,236
1997................................................... 185,753
1998................................................... 163,520
1999................................................... 159,989
Thereafter............................................. 1,172,241
--------------
$2,099,079
===========
</TABLE>
Rent expense (excluding landing fees) was approximately $245 million, $245
million and $307 million for the combined twelve months ended December 31, 1994
and the years ended December 31, 1993 and 1992, respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $11.5 million and bank letters of credit of $17.6 million. The
letters of credit are collateralized by $17.6 million of restricted cash as of
December 31, 1994.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used to
fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
International Airport which have been leased by the Company. Under the operating
lease agreements, which commenced in 1990, the Company is required to make
rental payments sufficient to pay principal and interest when due on the bonds.
On August 25, 1994, the Company entered into a Restated and Amended Trust
Indenture in which the Series 1989 and Series 1990 Bonds were retired
contemporaneously with the issuance of the Series 1994A and Series 1994B Bonds.
Pursuant to the agreement, payment of principal and interest at 8.3% on the
Series 1994A Bonds commenced on the Effective Date and ends on January 1, 2006
while payment of principal and interest at 8.2% on the Series 1994B Bonds
commenced on the Effective Date and ends on January 1, 1999. At December 31,
1994, the outstanding balance was $21.2 million.
(c) Aircraft and Related Equipment Acquisitions
At December 31, 1994, the Company had on order a total of 24 Airbus
A320-200 aircraft with an aggregate net cost estimated at $1.1 billion. Delivery
dates of the aircraft will fall in the years 1998 through 2000 with an option to
defer the 1998 deliveries. If new A320 aircraft are delivered as a result of the
renegotiated put agreement (described below), the Company will have the right to
cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft
deliveries hereunder, subject to certain conditions. The Company also has the
option to cancel without cause up to an additional four aircraft, and the
Company has the right to assign all or some of these delivery positions to
Continental.
At December 31, 1994, the Company had a put agreement for eight aircraft
with deliveries to start not earlier than June 30, 1995 and end on June 30,
1999. Under the agreement, new or "like new" A320-200, or new or used B737-300
or B757-200 aircraft may be put to the Company at a rate of no more than two
aircraft in 1995, and, with respect to each ensuing year during the put period,
of no more than three aircraft. In addition, no more than five used aircraft may
be put to the Company, and for every new A320 aircraft put to the Company, the
Company has the right to reduce the deliveries under the AVSA A320 purchase
contract on a one-for-one basis. During each January of the put period, the
Company will negotiate the type and delivery
39
<PAGE> 42
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dates of the put aircraft for that year. The puts will require 150-day notice
and will be leased at fair market rates for terms ranging from three to eighteen
years, depending on the type and condition of the aircraft. In 1995, three
aircraft (one used B737-300 in February and two new A320-200s in April) will be
delivered to the Company under this agreement. As part of the agreement, certain
cash payments and securities were issued to the put holder pursuant to the Plan
(see Note 13).
The Company had certain aircraft purchase contracts with Boeing. In
connection with the Plan, the Company reached a settlement in which the purchase
contracts were rejected and equipment purchase deposits were kept by Boeing in
full settlement of the rejection damages.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the A320 fleet. Such engines have an estimated
aggregate cost of $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include the progress payments that will be made in cash, as
opposed to being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995........................................................... $ 3,223
1996........................................................... 32,608
1997........................................................... 58,230
1998........................................................... 379,309
1999........................................................... 355,540
2000........................................................... 350,863
--------------
$1,179,773
===========
</TABLE>
At December 31, 1994, the Company has significant capital commitments for a
number of new aircraft, as discussed above. Although the Company has arranged
for financing for up to one-half of such commitment, the Company will require
substantial capital from external sources to meet the remaining financial
commitments. The Company intends to seek additional financing (which may include
public debt financing or private financing) in the future when and as
appropriate. There can be no assurance that sufficient financing will be
obtained for all aircraft and other capital requirements. A default by the
Company under any such commitment could have a material adverse effect on the
Company.
(d) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. At December 31, 1994, approximately 82 percent of the Company's
receivables related to tickets sold to individual passengers through the use of
major credit cards or to tickets sold by other airlines and used by passengers
on America West. These receivables are short-term, generally being settled
shortly after the sale or in the month following usage. Bad debt losses, which
have been minimal in the past, have been considered in establishing allowances
for doubtful accounts.
(e) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against the
Company, which, if ultimately allowed by the Bankruptcy Court, would represent
general obligations of the Company. Such claims include
40
<PAGE> 43
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
claims of various state and local tax authorities and certain contractual
indemnification obligations. Management cannot predict whether or to what extent
any of the pending administrative and priority tax claims will result in
liabilities to the Company. Should such liabilities be incurred, future
operating results could be adversely affected. However, based on information
currently available, management believes that the disposition will not have a
material adverse effect on the Company's financial condition.
13. RELATED PARTY TRANSACTIONS
In exchange for certain concessions principally arising from cancellation
of the right of GPA to lease to America West 10 Airbus A320 aircraft at
specified rates, GPA received (i) 900,000 shares of Class B Common Stock; (ii)
1,384,615 Warrants to purchase shares of Class B Common Stock at an exercise
price of $12.74 per share; (iii) a cash payment of approximately $30.5 million;
(iv) the rights to require the Company to lease up to eight aircraft of types
operated by the Company, which rights must be exercised by June 30, 1999.
The Company has entered into various aircraft and leasing arrangements with
GPA at terms comparable to those obtained from third parties for similar
transactions. The Company leases 16 aircraft from GPA and the rental payments
for such leases amount to $63.1 million, $63.1 million, and $63.8 million for
the combined twelve months ended December 31, 1994, 1993 and 1992, respectively.
As of December 31, 1994, the Company was obligated to pay approximately $1.1
billion under these leases which expire at various times through the year 2013.
The Company has entered into Alliance Agreements with Continental and Mesa,
both of whom invested in the Company. Pursuant to a code-sharing agreement with
Mesa entered into in December 1992, the Company collects a per-passenger charge
for facilities, reservations and other services from Mesa for enplanements on
the Mesa system. Such payments by Mesa to the Company totaled $2.5 million and
$1.9 million for the twelve months ended December 31, 1994 and 1993,
respectively.
In October 1994, the Company issued an additional $23.0 million of 11 1/4%
Senior Unsecured Notes to Fidelity and Lehman in exchange for full settlement of
certain prepetition unsecured claims. Additionally, cash payments of $2.1
million and $1.3 million were made to Fidelity and Lehman, respectively.
14. ESTIMATED LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS AND REORGANIZATION
EXPENSE
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the Code are stayed while the
Company continued business operations as debtor-in-possession. These prepetition
liabilities were settled as part of the Plan and were classified as "Estimated
liabilities subject to Chapter 11 proceedings" prior to the Effective Date.
Estimated liabilities subject to Chapter 11 proceedings as of December 31,
1993 consisted of the following:
<TABLE>
<S> <C>
Long-term debt (including convertible subordinated debentures of
$138.9 million)................................................. $224,642
Accounts payable and accrued liabilities.......................... 113,945
Accrued interest.................................................. 16,808
Accrued taxes..................................................... 25,719
--------
$381,114
========
</TABLE>
41
<PAGE> 44
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. RESTRUCTURING CHARGES
Restructuring charges consist of the following:
<TABLE>
<CAPTION>
1992
--------------
(IN THOUSANDS)
<S> <C>
Write-off for certain assets related to station closures or
route restructuring.......................................... $ 9,529
Provision for spare parts for aircraft types no longer in
service...................................................... 12,651
Provision for employee severance............................... 2,284
Loss on return of aircraft..................................... 6,852
--------------
$ 31,316
===========
</TABLE>
The restructuring charges were necessitated primarily by aircraft fleet
reductions and other operational changes. The Company has reduced its fleet to
87 aircraft and has reduced the number of aircraft types in the fleet from five
to three.
42
<PAGE> 45
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER
----------------------------------------------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues....................... $ 127,315 $342,451
Operating income............................... 8,336 30,535
Nonoperating expense, net...................... (5,293) (13,842)
Income tax expense............................. (1,825) (10,065)
Net income..................................... 1,218 6,628
Earnings per share:
Primary...................................... .03 .15
Fully diluted................................ .03 .15
<CAPTION>
1994 -- PREDECESSOR COMPANY
-----------------------------------------------
<S> <C> <C> <C> <C>
Total operating revenues....................... $345,264 $363,351 230,413
Operating income............................... 37,750 44,146 25,610
Nonoperating expense, net (a).................. (21,943) (23,171) (263,601)
Income tax expense............................. (632) (839) (588)
Net income (a)................................. 15,175 20,136 19,081
Earnings per share:
Primary...................................... .56 .74 .69
Fully diluted................................ .40 .52 .49
<CAPTION>
1993 -- PREDECESSOR COMPANY
-----------------------------------------------
<S> <C> <C> <C> <C>
Total operating revenues....................... 316,605 324,910 335,113 348,736
Operating income............................... 17,168 25,179 32,981 45,726
Nonoperating expense, net...................... (14,990) (14,710) (18,285) (35,145)
Income tax expense............................. (44) (209) (293) (213)
Net income..................................... 2,134 10,260 14,403 10,368
Earnings per share:
Primary...................................... .09 .41 .56 .40
Fully diluted................................ .09 .28 .38 .28
</TABLE>
---------------
(a) During the third quarter of 1994, the Company recorded reorganization
expenses of $255.4 million as well as an extraordinary gain of $257.7
million from the discharge of debt pursuant to the Plan of Reorganization.
43
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting continuing directors and nominees of the Company is
set forth under the caption "Information Concerning Directors and Nominees" in
the Company's Proxy Statement relating to its 1995 Annual Meeting of
Stockholders incorporated by reference into this Form 10-K Report, which will be
filed with the Securities and Exchange Commission in accordance with Rule
14a-6(c) promulgated under the Securities Exchange Act of 1934 (the "1995 Proxy
Statement"). With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
the 1995 Proxy Statement is not being filed as a part hereof. Information
respecting executive officers of the Company who are not continuing directors or
nominees is set forth at Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by Items 10, 11, 12 and 13, reference is
made to the Company's 1995 Proxy Statement, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1994, and
portions of which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The following financial statements and the Independent Auditors' Report are
filed as part of this report on the pages indicated:
Independent Auditors' Report page 22.
Balance Sheets -- December 31, 1994 and 1993 -- page 23.
Statement of Operations -- For the periods August 26, 1994 to December
31, 1994, January 1, 1994 to August 25, 1994, and the years ended December
31, 1993 and 1992 -- page 24.
Statement of Cash Flows -- For the periods August 26, 1994 to December
31, 1994, January 1, 1994 to August 25, 1994, and the years ended December
31, 1993 and 1992 -- page 25.
Statement of Stockholders' Equity (Deficiency) -- For the periods
August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994,
and the years ended December 31, 1993 and 1992 -- page 26.
Notes to Financial Statements -- page 27.
44
<PAGE> 47
(b) Financial Statement Schedule.
The following financial statement schedule is included in this report on
the page indicated:
Independent Auditors' Report on Schedule -- page S-1
Schedule VIII: Valuation and Qualifying Accounts -- page S-2
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
<S> <C>
2.1 The Company's Plan of Reorganization, as amended under Chapter 11 of the Bankruptcy
Code -- Incorporated by reference to the Company's Report on Form 8-K dated
September 9, 1994.
3.1 Restated Certificate of Incorporation of America West Airlines, Inc. -- Incorporated
by reference to the Company's Report on Form 8-K dated September 9, 1994.
*3.2 Restated By-laws of America West Airlines, Inc. -- Incorporated by reference to the
Company's Report on Form 8-K dated September 9, 1994, as amended.
4.1 Indenture for $130,000,000 11 1/4% Senior Notes due 2001 dated August 25, 1994, of
America West Airlines, Inc. and American Bank National Association, as
trustee -- Incorporated by reference to the Company's Report on Form 8-K dated
September 9, 1994.
4.2 Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 Warrant Agreement dated August 25, 1994 between America West Airlines, Inc. and
First Interstate, N.A., as Warrant Agent -- Incorporated by reference to the
Company's Report on Form 8-K dated September 9, 1994.
4.4 Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 Stockholders' Agreement for America West Airlines, Inc. dated August 25, 1994 among
America West Airlines, Inc., AmWest Partners, L.P., GPA Group plc and certain other
Stockholder Representatives -- Incorporated by reference to the Company's Report on
Form 8-K dated September 9, 1994.
4.6 First Amendment to Stockholders' Agreement for America West Airlines, Inc. dated
September 6, 1994 among Air Partners II, L.P., TPG Partners, L.P., TPG Parallel I,
L.P., Continental Airlines, Inc., Mesa Airlines, Inc., GPA Group plc and certain
other stockholder representatives -- Incorporated by reference to the Company's
Report on Form 8-K dated September 9, 1994.
4.6 Registration Rights Agreement dated August 25, 1994 among America West Airlines,
Inc., AmWest Partners, L.P. and other holders -- Incorporated by reference to the
Company's Report on Form 8-K dated September 9, 1994.
4.7 Article 4.0 of the Company's Restated Certificate of Incorporation (included in
Exhibit 3.1 above).
10.1 Third Revised Investment Agreement dated April 21, 1994 between America West
Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference to Exhibit
10.A to the Company's Quarterly Report on Form 10-Q for the period ended March 31,
1994.
10.11 Third Revised Interim Procedures Agreement dated April 21, 1994 between America West
Airlines and AmWest Partners, L.P. -- Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.14 The GPA Term Sheet between America West Airlines, Inc. and GPA Group plc, dated June
13, 1994 -- Incorporated by Reference to the Company's Registration Statement on
Form S-1 (No. 54243), as amended.
10.15 America West Airlines Management Resignation Allowance Guidelines, as amended, dated
November 18, 1993 -- Incorporated by Reference to the Company's Registration
Statement on Form S-1 (No. 54243), as amended.
10.16 Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September
28, 1990 between AVSA, S.A.R.L. ("AVSA") and the Company, together with Letter
Agreement Nos. 1-10, inclusive -- Incorporated by reference to Exhibit 10-(D)(1) to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.
10.17 Loan Agreement, dated as of September 28, 1990, among the Company, AVSA and AVSA, as
agent -- Incorporated by reference to Exhibit 10-(D)(2) to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1990.
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
<S> <C>
10.19 V2500 Support Contract Between the Company and IAE International Aero Engines AG
("IAE"), dated September 28, 1990, together with Side Letters Nos. 1-4,
inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
10.20 Restructuring Agreement, dated December 1, 1991 between the Company and Kawasaki --
Incorporated by reference to Exhibit 10-D(24) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.
10.21 A320 Put Agreement, dated December 1, 1991 between the Company and Kawasaki --
Incorporated by reference to Exhibit 10-D(25) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.
10.22 First Amendment to A320 Put Agreement, dated September 1, 1992 -- Incorporated by
reference to Exhibit 10-R(2) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.23 A320 Put Agreement, dated as of June 25, 1991 between the Company and GPA Group
plc -- Incorporated by reference to Exhibit 10-D(26) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1991.
10.24 First Amendment to A320 Put Agreement, dated as of September 1, 1992 -- Incorporated
by reference to Exhibit 10-S(2) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.25 Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc, GPA Leasing
USA I, Inc. GPA Leasing USA Sub I, and the Company -- Incorporated by reference to
Exhibit 10-D(27) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.26 Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate Airport
Facility Revenue Bonds -- Incorporated by reference to Exhibit 10.e to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1986.
10.27 Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement") among the
City of Phoenix, The Industrial Development Authority of the City of Phoenix,
Arizona and the Company -- Incorporated by reference to Exhibit 10-D(9) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989.
10.28 First Amendment dated August 1, 1990 to Airport Use Agreement -- Incorporated by
reference to Exhibit 10-(D)(9) to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1990.
10.29 Revolving Loan Agreement dated April 17, 1990, by and among the Company, the Bank
signatories thereto, and Bank of America National Trust and Savings Association, as
Agent for the Banks (the "Revolving Loan Agreement") -- Incorporated by reference to
Exhibit 10-1 to the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1990.
10.30 First Amendment dated April 17, 1990 to Revolving Loan Agreement -- Incorporated by
reference to Exhibit 10-(D)(10) to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1990.
10.31 Second Amendment dated September 28, 1990 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1990.
10.32 Third Amendment dated as of January 14, 1991 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990.
10.33 Spares Credit Agreement, dated as of September 28, 1990, between the Company and
IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1990.
10.34 Master Credit Modification Agreement dated as of October 1, 1992, among the Company,
IAE International Aero Engines AG, Intlaero (Phoenix A320) Inc., Intlaero (Phoenix
B737) Inc., CAE Electronics Ltd., and Hughes Rediffusion Simulation
Limited -- Incorporated by reference to Exhibit 10-L to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.
10.35 Credit Agreement, dated as of September 28, 1990 between the Company and
IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1990.
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
<S> <C>
10.36 Amendment No. 1 to the Credit Agreement, dated March 1, 1991 -- Incorporated by
reference to Exhibit 10-(M)(2) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.37 Amendment No. 2 to the Credit Agreement, dated May 15, 1991 -- Incorporated by
reference to Exhibit 10-(M)(3) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.38 Amendment No. 3 to the Credit Agreement, dated October 1, 1992 -- Incorporated by
reference to Exhibit 10-(M)(4) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
*10.39 V2500 Support Contract dated December 23, 1994 between America West Airlines, Inc.
and International Aero Engineers, as amended.
10.40 Key Employee Protection Agreement dated as of June 27, 1994 between America West
Airlines, Inc. and William A. Franke -- Incorporated by reference to the Company's
Registration Statement on Form S-1 (No. 54243), as amended.
10.41 Management Rights Agreement dated August 25, 1994 between TPG Partners L.P., TPG
Genpar, L.P. and America West Airlines, Inc. -- Incorporated by reference to the
Company's Registration Statement on Form S-1 (No. 54243), as amended.
*10.42 Form of America West Airlines, Inc. 1994 Incentive Equity Plan.
*10.43 Employment Agreement dated as of December 1, 1994 between America West Airlines,
Inc. and William A. Franke.
*10.44 Employment Agreement dated as of December 1, 1994 between America West Airlines,
Inc. and A. Maurice Myers, as amended.
*11.1 Computation of Net Income (Loss) per Share.
*24.1 Power of Attorney (included on the signature page of this Report.)
*27 Financial Data Schedules.
</TABLE>
---------------
* Filed herewith
47
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
Date: March 29, 1995 By: /s/ William A. Franke
--------------------------------------
William A. Franke,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West Airlines, Inc.
(the "Company"), do hereby severally constitute and appoint William A. Franke,
A. Maurice Myers and Martin J. Whalen and each or any of them, our true and
lawful attorneys and agents, 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 the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, 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 of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on March 29, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
------------------------------------------ -----------------------------------------------
<S> <C>
/s/ William A. Franke Chairman of the Board and Chief Executive
------------------------------------------ Officer (Principal Executive Officer)
William A. Franke
/s/ A. Maurice Myers President, Chief Operating Officer and Director
------------------------------------------
A. Maurice Myers
/s/ Raymond T. Nakano Vice President and Controller (Principal
------------------------------------------ Financial and Accounting Officer)
Raymond T. Nakano
/s/ Julia Chang Bloch Director
------------------------------------------
Julia Chang Bloch
/s/ Stephen Bollenbach Director
------------------------------------------
Stephen Bollenbach
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
SIGNATURE TITLE
------------------------------------------ -----------------------------------------------
<S> <C>
/s/ Frederick W. Bradley Director
------------------------------------------
Frederick W. Bradley
/s/ James G. Coulter Director
------------------------------------------
James G. Coulter
/s/ John F. Fraser Director
------------------------------------------
John F. Fraser
/s/ Frank B. Ryan Director
------------------------------------------
Frank B. Ryan
/s/ John L. Goolsby Director
------------------------------------------
John L. Goolsby
/s/ Richard C. Kraemer Director
------------------------------------------
Richard C. Kraemer
/s/ John R. Power, Jr. Director
------------------------------------------
John R. Power, Jr.
/s/ Larry L. Risley Director
------------------------------------------
Larry L. Risley
/s/ Richard P. Schifter Director
------------------------------------------
Richard P. Schifter
/s/ John F. Tierney Director
------------------------------------------
John F. Tierney
/s/ Raymond S. Troubh Director
------------------------------------------
Raymond S. Troubh
</TABLE>
49
<PAGE> 52
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
America West Airlines, Inc.
Under date of February 24, 1995, we reported on the balance sheets of
America West Airlines, Inc. as of December 31, 1994 and 1993, and the related
statements of operations, cash flows and stockholders' equity (deficiency) for
the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to
August 25, 1994 and for each of the years in the two-year period ended December
31, 1993, which are included herein. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule as listed in Item 14(b). 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, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
The audit report on the financial statements of America West Airlines, Inc.
referred to above contains an explanatory paragraph that states that as
discussed in Notes 1 and 2 to the financial statements, on August 25, 1994,
America West Airlines, Inc. emerged from bankruptcy. The financial statements of
the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis than those of the Predecessor Company and, therefore, are not comparable
in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 24, 1995
50
<PAGE> 53
AMERICA WEST AIRLINES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994
AND THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------------------------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables:
Period ended:
August 26, 1994 to December 31, 1994........ $2,833 $1,074 $ -- $ 376 $ 3,531
======== ======== ======== ======== =======
Allowance for doubtful receivables:
Period ended:
January 1, 1994 through August 25, 1994..... $3,030 $4,742 $ -- $4,939 $ 2,833
======== ======== ======== ======== =======
Years ended:
December 31, 1993........................... $2,542 $5,474 $ -- $4,986 $ 3,030
======== ======== ======== ======== =======
December 31, 1992........................... $3,603 $3,800 $ -- $4,861 $ 2,542
======== ======== ======== ======== =======
Reserve for obsolescence:
Period ended:
August 26, 1994 to December 31, 1994........ $ -- $ 483 $ -- $ -- $ 483
======== ======== ======== ======== =======
Reserve for obsolescence:
Period ended:
January 1, 1994 through August 25, 1994..... $7,231 $ 794 $ -- $8,025(a) $ --
======== ======== ======== ======== =======
Years ended:
December 31, 1993........................... $6,921 $ 902 $ -- $ 592 $ 7,231
======== ======== ======== ======== =======
December 31, 1992........................... $3,638 $3,283 $ -- $ -- $ 6,921
======== ======== ======== ======== =======
</TABLE>
---------------
(a) Includes fresh start adjustment of approximately $7,885.
51
<PAGE> 1
Exhibit 3.2
RESTATED
BYLAWS
OF
AMERICA WEST AIRLINES, INC.
<PAGE> 2
TABLE OF CONTENTS
1. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Offices. . . . . . . . . . . . . . . . . . . . . . . 1
2. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Seal . . . . . . . . . . . . . . . . . . . . . . . . 1
3. MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 1
3.01 Place of Meetings. . . . . . . . . . . . . . . . . . 1
3.02 Annual Meetings. . . . . . . . . . . . . . . . . . . 1
3.03 Special Meetings . . . . . . . . . . . . . . . . . . 1
3.04 Action by Consent in Lieu of a Meeting . . . . . . . 1
3.05 Notice of Meetings . . . . . . . . . . . . . . . . . 1
3.06 Stockholder Notices. . . . . . . . . . . . . . . . . 2
3.07 Adjourned Meetings . . . . . . . . . . . . . . . . . 2
3.08 Quorum and Adjournment . . . . . . . . . . . . . . . 2
3.09 Majority Vote Required . . . . . . . . . . . . . . . 2
3.10 Manner of Voting . . . . . . . . . . . . . . . . . . 2
3.11 Proxies. . . . . . . . . . . . . . . . . . . . . . . 2
3.12 Presiding Officer and Secretary. . . . . . . . . . . 2
3.13 Disregard of Nomination or Proposal. . . . . . . . . 2
3.14 Inspections of Elections . . . . . . . . . . . . . . 3
4. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.01 Powers . . . . . . . . . . . . . . . . . . . . . . . 3
4.02 Number and Classification. . . . . . . . . . . . . . 3
4.03 Nominations. . . . . . . . . . . . . . . . . . . . . 3
4.04 Resignations . . . . . . . . . . . . . . . . . . . . 3
4.05 Removal. . . . . . . . . . . . . . . . . . . . . . . 3
4.06 Vacancies. . . . . . . . . . . . . . . . . . . . . . 3
4.07 Presiding Officers and Secretary . . . . . . . . . . 4
4.08 Annual Meetings. . . . . . . . . . . . . . . . . . . 4
4.09 Regular Meetings . . . . . . . . . . . . . . . . . . 4
4.10 Special Meetings . . . . . . . . . . . . . . . . . . 4
4.11 Quorum and Powers of a Majority. . . . . . . . . . . 4
4.12 Waiver of Notice . . . . . . . . . . . . . . . . . . 4
4.13 Manner of Acting . . . . . . . . . . . . . . . . . . 4
4.14 Compensation . . . . . . . . . . . . . . . . . . . . 4
4.15 Committees . . . . . . . . . . . . . . . . . . . . . . 4
4.16 Committee Procedure. . . . . . . . . . . . . . . . . . 5
4.17 Executive Committee. . . . . . . . . . . . . . . . . . 5
5. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.01 Number . . . . . . . . . . . . . . . . . . . . . . . . 5
5.02 Election of Officers, Qualification and Term . . . . . 6
5.03 Removal. . . . . . . . . . . . . . . . . . . . . . . . 6
5.04 Resignations . . . . . . . . . . . . . . . . . . . . . 6
5.05 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 6
5.06 Salaries . . . . . . . . . . . . . . . . . . . . . . . 6
5.07 The Chairman of the Board. . . . . . . . . . . . . . . 6
5.08 The President. . . . . . . . . . . . . . . . . . . . . 6
5.09 The Vice Presidents. . . . . . . . . . . . . . . . . . 6
5.10 The Secretary and the Assistant Secretary. . . . . . . 6
5.11 The Treasurer and the Assistant Treasurer. . . . . . . 6
5.12 Treasurer's Bond . . . . . . . . . . . . . . . . . . . 7
5.13 Chief Executive Officer. . . . . . . . . . . . . . . . 7
5.14 Chief Operating Officer. . . . . . . . . . . . . . . . 7
6. STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.01 Certificates . . . . . . . . . . . . . . . . . . . . . 7
6.02 Transfers. . . . . . . . . . . . . . . . . . . . . . . 8
6.03 Lost, Stolen or Destroyed Certificates . . . . . . . . 8
6.04 Record Date. . . . . . . . . . . . . . . . . . . . . . 8
6.05 Registered Stockholders. . . . . . . . . . . . . . . . 8
6.06 Additional Powers of the Board . . . . . . . . . . . . 8
7. LIMITATIONS OF OWNERSHIP BY NON-CITIZENS. . . . . . . . . . . . 8
7.01 Definitions. . . . . . . . . . . . . . . . . . . . . . 8
7.02 Policy . . . . . . . . . . . . . . . . . . . . . . . . 9
7.03 Foreign Stock Record . . . . . . . . . . . . . . . . . 9
7.04 Suspension of Voting Rights. . . . . . . . . . . . . . 9
7.05 Beneficial Ownership Inquiry . . . . . . . . . . . . . 9
8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.01 Place and Inspection of Books. . . . . . . . . . . . . 9
8.02 Indemnification of Directors, Officers
Employees and Agents . . . . . . . . . . . . . . . . . 9
8.03 Dividends. . . . . . . . . . . . . . . . . . . . . . . 11
8.04 Execution of Deeds, Contracts, and Other
Agreements and Instruments . . . . . . . . . . . . . . 11
8.05 Checks . . . . . . . . . . . . . . . . . . . . . . . . 11
8.06 Voting Shares in Other Corporations. . . . . . . . . . 11
8.07 Fiscal Year . . . . . . . . . . . . . . . . . . . . . 11
8.08 Gender/Number . . . . . . . . . . . . . . . . . . . . 11
8.09 Paragraph Titles . . . . . . . . . . . . . . . . . . 11
8.10 Amendment . . . . . . . . . . . . . . . . . . . . . . 11
8.11 Restated Certificate of Incorporation . . . . . . . . 11
i
<PAGE> 3
RESTATED
BYLAWS
OF
AMERICA WEST AIRLINES, INC.
(as amended through, and effective on, August 25, 1994)
1. OFFICES.
1.01 Offices. In addition to its registered office in the state of
Del aware, the Corporation shall have a general office at Maricopa County,
Arizona, and such other offices, either within or without the State of
Delaware, at such locations as the Board of Directors ma)' from time to time
determine or the business of the Corporation may require.
2. SEAL.
2.01 Seal. (a) The Corporation shall have a seal, which shall have
inscribed thereon its name and year of incorporation and the words, "Corporate
Seal Delaware."
(b) The seal shall be kept in safe custody by the Secretary of
the Corporation. It shall be affixed by the Chairman of the Board, the
President or any Vice President, the Secretary or any Assistant Secretary, or
the Treasurer to any corporate instrument or document requiring it, by practice
or by law, and when so affixed, it may be attested by the signature of the
officer so affixing it.
3. MEETINGS OF STOCKHOLDERS.
3.01 Place of Meetings. All meetings of stockholders of the
Corporation shall be held at the general office of the Corporation in Maricopa
County, State of Arizona, unless otherwise specified in the notice calling any
such meeting.
3.02 Annual Meetings. (a) The annual meeting of stockholders for 1995
shall be held at the Corporate offices on Tuesday, May 2,1995, at 10:00 am. or
at such other time, date and place as shall be determined by the Board of
Directors, complying with Section 3.05(b) of these Restated Bylaws of the
Corporation. All subsequent annual meetings of stockholders, beginning with the
annual meeting to be held in 1996, shall be held on the first Tuesday of May,
if not a legal holiday, and if a legal holiday, then on the next business day
following, or at such other time, date and place as shall be determined by the
Board of Directors from time to time.
(b) At each annual meeting the stockholders shall, by
plurality of the votes cast, elect Directors and transact such other business
as may properly be brought before them.
(c) The Board of Directors may, in advance of any annual or
special meeting of the stockholders, adopt an agenda for such meeting,
adherence to which the Chairman of the Board may enforce.
3.03 Special Meetings. Special meetings of the stockholders of the
Corporation, for any purpose or purposes, unless otherwise prescribed herein or
by statute, may be called by the Chairman of the Board and shall be called by
the -Secretary at the written request, or by resolution adopted by the
affirmative vote, o! a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. Stockholders of the
Corporation shall not be entitled to request a special meeting of the
stockholders.
3.04 Action by Consent in Lieu of a Meeting. Stockholders may act by
consent in lieu of a meeting in accordance with Delaware Law only in the
removal of directors in accordance with the Restated Certificate of
Incorporation of the Corporation.
3.05 Notice of Meetings. (a) Notices of meetings of stockholders shall
be in writing and shall state the place (which may be within or without the
state of Delaware), date and hour of the meeting and in the case of a special
meeting, the purpose or purposes for which a meeting is called. No business
other than that specified in the notice thereof shall be transacted at any
special meeting.
(b) Such notice shall either be delivered personally or
mailed, postage prepaid, to each stockholder entitled to vote at such meeting
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. If mailed, the notice shall be directed to the stockholder at his or
her address as it appears on the records of the Corporation. Personal delivery
of any such notice to any officer of a corporation or association or to any
member of a partnership shall constitute delivery of such notice to such
corporation, association or partnership.
(c) Notice of any meeting of stockholders need not be given to
any stockholder if waived by such stockholder in writing, whether before or
after such meeting is held, or if such stockholder shall sign the minutes or
attend the meeting.
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3.06 Stockholder Notices. At any meeting of the stockholders, only
such business shall be conducted, and only such proposals shall be acted upon
as shall have been brought before the meeting (i) by, or at the direction of
the Board of Directors or (ii) by any stockholder who complies with the notice
procedures set forth in this Section 3.06 (or for election of directors, with
the notice provisions set forth in Section 4.03).
(a) For a proposal to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the stockholder to be
timely must be so delivered or received no later than the close of business on
the tenth (10th) day following the earlier of the day on which such notice of
the date of the scheduled annual meeting was mailed or the day on which such
public disclosure was made.
(b) A stockholder's notice to the Secretary shall in addition
set forth as to each matter the stockholder proposes to bring before the
meeting (i) a brief description of the proposal desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares which
are beneficially owned by the stockholder on the date of such stockholder
notice and (iv) any material interest of the stockholder in such proposal.
3.07 Adjourned Meetings. When a meeting is adjourned to another time
or place, unless otherwise provided by these Restated Bylaws, notice need not
be given of the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting the
stockholders may transact any business which might have been transacted at the
original meeting. If an adjournment is for more than thirty (30) days or if
after an adjournment a new record date is fixed for the adjourned meeting#a
notice of the adjourned meeting shall be given to each stockholder entitled to
vote at the meeting.
3.08 Quorum and Adjournment. Except as otherwise provided by law, by
the Restated Certificate of Incorporation of the Corporation or by these
Restated Bylaws, the presence, in person or by proxy, of the holders of a
majority of the aggregate voting power of the stock issued and outstanding,
entitled to vote thereat, and the voting rights of which are not suspended,
shall be requisite and shall constitute a quorum for the transaction of
business at all meetings of stockholders. If, however, such majority shall
not be present or represented at any meeting of stockholders, the stockholders
present, although less than a quorum, shall have the power to adjourn the
meeting.
3.09 Majority Vote Required. When a quorum is present at any meeting
of stockholders, the affirmative vote of the majority of the aggregate voting
power of the shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall constitute the act of the
stockholders, unless by express provision of law, the Restated Certificate of
Incorporation or these Restated Bylaws a different vote is required, in which
case such express provision shall govern and control.
3.10 Manner of Voting. At each meeting of stockholders, each
stockholder having the right to vote, and whose voting rights have not been
suspended shall be entitled to vote in person or by proxy. Proxies need not be
filed with the Secretary of the Corporation until the meeting is called to
order, but shall be filed before being voted. Each stockholder shall I be
entitled to vote each share of stock having voting power registered in his name
on the books of the Corporation on the record date fixed, as provided in
Section 6.04 of these Restated Bylaws, for the determination of stockholders
entitled to vote at such meeting. All elections of directors shall be by
written ballot.
3.11 Proxies. (a) At any meeting of stockholders, any stockholder may
be represented and vote by proxy or proxies appointed by a written form of
proxy. In the event that any form of proxy shall designate two or more persons
to act as proxies, a majority of such persons present at the meeting or, if
only one shall be present, then that one shall have and may exercise all of the
powers conferred by the form of proxy upon all of the persons so designated
unless the form of proxy shall otherwise provide.
(b) The Board of Directors may, in advance of any annual or
special meeting of the stockholders, prescribe additional regulations
concerning the manner of execution and filing of proxies and the validation of
the same, which are intended to be voted at any such meeting.
3.12 Presiding Officer and Secretary. At each meeting of stockholders,
the Chairman of the Board shall preside and the Secretary shall act as
Secretary of the meeting.
3.13 Disregard of Nomination or Proposal. Except as otherwise provided
by law, the Restated Certificate of Incorporation or these Restated Bylaws, the
person presiding over any meeting of the stockholders shall have the power and
duty to determine whether a nomination or any other business proposed to be
brought before
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the meeting was made in accordance with the procedures set forth in this
Article 3 or Section 4.03 and, if any proposed nomination or business is not in
compliance with such provisions, to declare that such defective proposal or
nomination shall be disregarded.
3.14 Inspections of Elections. The Board of Directors by resolution
shall appoint one or more inspectors of election (which may include individuals
who serve the Corporation in other capacities including, without limitation, as
officers, employees, agents or representatives of the Corporation) to act at
any meeting of the stockholders and make a written report thereof. Such
appointments shall be made in accordance with, and each inspector shall have
the duties prescribed by, Section 231 of the General Corporation Law of the
State of Delaware (the "DGCL").
4. DIRECTORS.
4.01 Powers. The Board of Directors shall exercise all of the power of
the Corporation except such as are by law, or by the Restated Certificate of
Incorporation of this Corporation or by these Restated Bylaws conferred upon or
reserved to the stockholders of any class or classes.
4.02 Number and Classification. (a) The Board of Directors of the
Corporation shall consist of up to fifteen (15) members, which number may be
increased or decreased from time to time by resolution duly adopted by such
Board, provided that at no time shall there be fewer than nine (9) or more than
fifteen (15) members (except for increases above fifteen (15) caused by a
provision allowing holders of preferred stock to elect additional directors in
the event of nonpayment of dividends) and provided her that, the Stockholders'
Agreement dated as of August 25, 1994 among the Corporation and others, for so
long as it remains in force and effect (as supplemented and amended from time
to time, herein "Stockholders' Agreement"), shall prescribe the exact number of
directors and their method of election, removal and replacement. No decrease in
the number of Directors shall have the effect of shortening the term of any
incumbent Director.
(b) Subject to and at such time as provided in the Restated
Certificate of Incorporation, the number of Directors shall be divided into
three (3) classes, as nearly equal in number as may be, to serve staggered
three-year terms on the Board of Directors. In the case of any increase in the
number of Directors of the Corporation, the additional Directors shall be so
classified that all classes of Directors shall be increased equally as nearly
as may be, and the additional Directors shall be elected as provided herein by
the Directors or by the stockholders at an annual meeting. In case of any
decrease in the number of Directors of the Corporation, all classes of
Directors shall be decreased equally, as nearly as may be. Election of
Directors shall be conducted as provided in the Restated Certificate of
Incorporation, in these Bylaws, or by applicable law.
(c) At all times the composition of the Board of Directors
shall comply in all respects with the U.S. citizenship requirements of the
Federal Aviation Act of 1958, as amended.
4.03 Nominations. Except as otherwise provided in the Stockholders'
Agreement, no person shall be elected to the Board of Directors of this
Corporation at an annual meeting of the stockholders, or at a special meeting
called for that purpose, unless a written nomination of such person to the
Board of Directors (i) by a stockholder of the Corporation who is entitled to
vote at such meeting shall be received by the Secretary of the corporation at
least ninety (90) days prior to such meeting or (ii) is made by or at the
direction of the Board of Directors.
4.04 Resignations. Any Director may resign at any time by giving
written notice to the Board of Directors or the Secretary. Such resignation
shall take effect at the date of receipt of such notice or at any later time
specified therein. Acceptance of such resignation shall not be necessary to
make it effective.
4.05 Removal. Except as otherwise provided in the Stockholders'
Agreement, at any special meeting of the stockholders duly called as provided
herein, any Director may, by a vote of the holders of stock representing a
majority of the voting power of all the shares of stock issued and outstanding
and entitled to vote thereat, be removed from office with or without cause, and
the successor of the Director so removed may be elected at such meeting.
Stockholders shall have the right to act by written consent only in the removal
of directors in accordance with the Stockholders' Agreement or any other voting
agreement of even date with the Restated Certificate of Incorporation by and
between GPA Group plc and AmWest Partners, L.P., for so long as any such
agreement remains in force and effect. In the absence of such an election, any
vacancy may be filled as provided in Section 4.06.
4.06 Vacancies. (a) Except as otherwise provided in the Stockholders'
Agreement, in case any vacancy shall occur on the Board of Directors because of
death, resignation, retirement, disqualification, removal, an increase in the
authorized number of Directors or any other cause, the Board of Directors may,
at any meeting, by resolution adopted by the affirmative vote of a majority of
the Directors then in office, though less than a quorum, elect a Director to
fill such vacancy.
(b) If, as a result of a disaster or emergency (as determined
in good faith by the then remaining Directors), it becomes impossible to
ascertain whether or not vacancies exist on the Board of Directors, and a
person is or persons are elected by Directors, in good faith believe themselves
to be a majority of the remaining
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Directors, to fill a vacancy or vacancies that said remaining Directors in good
faith believe exists, then the acts of such person or persons who are so
elected as Directors shall be valid and binding upon the corporation and the
stockholders, although it may subsequently develop that at the time of the
election (i) there was in fact no vacancy or vacancies existing on the Board of
Directors, or (ii) the Directors who so elected such person or persons did not
in fact constitute a majority of the remaining Directors.
4.07 Presiding Officer and Secretary. At each meeting of the Board of
Directors, the Chairman of the Board shall preside, and the Secretary shall act
as secretary of the meeting.
4.08 Annual Meetings. The Board of Directors shall meet each year
immediately following the annual meeting of stockholders, at the place where
such meeting of stockholders has been held, or at such other place as shall be
fixed by the person presiding over the meeting of the stockholders at which
such Directors are elected, for the purpose of organization, election of
officers, and consideration of such other business as the Board considers
relevant to the management of the Corporation.
4.09 Regular Meetings. Regular meetings of the Board of Directors
shall be held on such dates and at such times and places, within or without the
state of Delaware, as shall from time to time be determined by the Board of
Directors, provided that the Board of Directors shall hold at least four (4)
regular meetings in each year. In the absence of any such determination, such
meetings shall be held at such times and places, within or without the State of
Delaware, as shall be designated by the Chairman of the Board on not less than
three (3) calendar days' notice (specifying the time and place of the meeting
and the agenda therefor) to each Director, given verbally or in writing either
personally, by telephone, by facsimile transmission, by mail, by telegram or by
telex.
4.10 Special Meetings. Special meetings of the Board of Directors
shall be held at the call of the Chairman of the Board at such times and
places, within or without the State of Delaware, as he or she shall designate,
on not less than three (3) calendar days' notice (specifying the time and place
of the meeting and the agenda therefor) to each Director, given verbally or in
writing either personally, by telephone, by facsimile transmission, by mail, by
telegram or by telex. Special meetings shall be called by the Secretary on like
notice at the written request of a majority of the Directors.
4.11 Quorum and Powers of a Majority. At all meetings of the Board of
Directors and of each committee thereof, a majority of the members shall be
necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of the Board of Directors or such
committee, unless by express provision of law, of the Restated Certificate of
Incorporation or these Restated Bylaws, a different vote is required, in which
case such express provision shall govern and control. In the absence of a
quorum, a majority of the members present at any meeting may, without notice
other than announcement at the meeting, adjourn such meeting from time to time
until a quorum is present.
4.12 Waiver of Notice. Notice of any meeting of the Board of
Directors, or any committee thereof, need not be given to any member if waived
by him or her in writing, whether before or after such meeting is held, or if
he or she shall sign the minutes or attend the meeting.
4.13 Manner of Acting. (a) Members of the Board of Directors, or any
committee thereof, may participate in any meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating therein can hear each
other, and participation in a meeting by such means shall constitute presence
in person at such meeting.
(b) Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or such committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or such committee.
4.14 Compensation. (a) The Board of Directors, by a resolution or
resolutions may fix, and from time to time change, the compensation of
Directors.
(b) Each Director shall be entitled to reimbursement from the
Corporation for his or her reasonable expenses incurred in attending meetings
of the Board of Directors or any committee thereof.
(c) Nothing contained in these Restated Bylaws shall be
construed to preclude any Director from sending the Corporation in any other
capacity and from receiving compensation from the Corporation for services
rendered to it in such other capacity.
4.15 Committees. The Board of Directors may, by resolution or
resolutions adopted by the affirmative vote of a majority of the Board of
Directors, designate one or more committees, each committee to consist of two
or more Directors, which to the extent provided in said resolution or
resolutions shall have and may exercise the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation;
that no such committee shall have the power to (i) elect Directors, (ii) alter,
amend, or repeal these Bylaws or any resolution of the Board relating to such
committee, (iii) appoint any member of such committee, (iv) declare
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any dividend or make any other distribution to the stockholders of the
Corporation or (v) take any other actions which may lawfully be taken only by
the full Board of Directors. Such committee or committees shall have such name
or names as may be determined from time to time by resolutions adopted by the
Board of Directors.
4.16 Committee Procedure. (a) Except as otherwise provided by these
Restated Bylaws, each committee shall adopt its own rules governing the time,
place and method of holding its meetings and the conduct of its proceedings and
shall meet as provided by such rules or by resolution of the Board of
Directors. Unless otherwise provided by these Restated Bylaws or any such rules
or resolutions, notice of the time and place of each meeting of a committee
shall be given to each member of such committee as provided in Section 4.10 of
these Restated Bylaws with respect to notices of special meetings of the Board
of Directors.
(b) Each committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required.
(c) Any member of any committee, other than a member thereof
serving ex-officio, may be removed from such committee either with or without
cause, at any time, by resolution adopted by the affirmative vote of a majority
of the Board of Directors at any meeting thereof. Any vacancy in any committee
shall be filled by the Board of Directors in the manner prescribed by these
Restated Bylaws for the original appointment of the members of such committee.
4.17 Executive Committee. There shall be established an Executive
Committee consisting of three (4) members. The Chairman of the Board shall be a
member and shall act as Chairman of the Executive Committee. In addition, the
Board of Directors shall elect from its members the remaining members of the
Executive Committee.
The Executive Committee shall, to the full extent of the DGCL, have and
may exercise in the internals between meetings of the Board of Directors, all
the powers of the whole Board of Directors in its management of the affairs and
business of the Corporation, except the power or authority to:
(a) amend the Restated Certificate of Incorporation;
(b) adopt any agreement of merger or consolidation;
(c) recommend to stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets;
(d) recommend to stockholders a dissolution of the Corporation or a
revocation of a dissolution;
(e) amend these Bylaws;
(f) appoint or remove a member of any committee established by the
Board of Directors, fill vacancies on the Board of Directors,
remove an officer elected by the Board of Directors, or raise or
lower any officer's salary; or
(g) declare dividends or authorize the issuance of stock.
Meetings of the Executive Committee may be called at any time by the
Chairman of the Board and shall be held at the general office of the
Corporation or at such other place, within or without the State of Delaware, as
the Chairman of the Board may designate, on not less than one (1) day's notice
to each member of the Executive Committee, given verbally or in writing either
personally, by telephone, by facsimile transmission, by mail, by telegram or
telex.
5. OFFICERS.
5.01 Number. (a) The officers of the corporation shall include a
Chief Executive Officer, a President, one or more Vice Presidents (including
one or more Executive Vice Presidents and one or more Senior Vice Presidents if
deemed appropriate by the Board of Directors), a Secretary and a Treasurer. The
Board of Directors shall also elect a Chairman of the Board pursuant to Section
5.02. The Board of Directors may also elect such other officers as the Board of
Directors may from time to time deem appropriate or necessary. Except for the
Chairman of the Board, none of the officers of the Corporation need be a
Director of the Corporation. Any two or more offices may be held by the same
person, but no officer shall execute, acknowledge, or verify any instrument in
more than one capacity.
(b) The Chairman of the Board shall be the Chief Executive
Officer unless the Board of Directors, by resolution adopted by the affirmative
vote of not less than a majority of the Directors then in office, designates
the President or some other person as Chief Executive Officer. The President
shall be the Chief Operating Officer. If at any time the offices of the
Chairman of the Board and Chief Executive Officer shall not be filled, the
President shall also be the Chief Executive Officer.
(c) The Board of Directors may delegate to the Chief Executive
Officer the power to appoint one or more employees of the corporation as
divisional or
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departmental vice presidents and fix the duties of such appointees. However, no
such divisional or departmental vice president shall be considered as an
officer of the Corporation, the officers of the Corporation being limited to
those officers elected by the Board of Directors.
5.02 Election of Officers. Qualification and Term. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
at the first meeting of the Board of Directors held after each annual meeting
of the stockholders. Each such officer shall hold office for one (I) year and
until a successor shall have been duly elected and shall qualify in his or her
stead unless the Board of Directors shall have provided by contract or
otherwise in any particular case, or until such officer shall have resigned and
his or her resignation shall have become effective, or until such officer shall
have been removed in the manner hereinafter provided. Notwithstanding anything
in this Section 5.02 to the contrary, the Chairman of the Board may be elected
only by the vote of a majority of the Directors then in office (who may include
the Director who is or is to be the Chairman of the Board).
5.03 Removal. Except as otherwise expressly provided in a contract
duly authorized by the Board of Directors, any officer elected by the Board of
Directors may be removed, either with or without cause, at any time by
resolution adopted by the affirmative vote of a majority of the Board of
Directors at any meeting thereof; provided that the Chairman of the Board may
be removed by the vote of a majority of the Directors then in office (excluding
the Director who is the Chairman of the Board).
5.04 Resignations. Any officer of the Corporation may resign at any
time by giving written notice to the Board of Directors or the Chairman of the
Board. Such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
5.05 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term by election by the Board of Directors at any meeting
thereof.
5.06 Salaries. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors from time to time, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
Director of the Corporation.
5.07 The Chairman of the Board. (a) The Chairman of the Board shall
have the powers and duties customarily and usually associated with the office
of the Chairman of the Board. The Chairman of the Board shall preside at
meetings of the stockholders and of the Board of Directors. In the event the
Chairman of Board's temporary absence or disability and the absence or
disability of the President, the Chairman of the Board shall have the power to
designate any Director to preside at any or all meetings of the stockholders
and of the Board of Directors.
(b) If at any time the office of President shall not be
filled, or in the event of the disability of the President, the Chairman of the
Board (if one shall be elected) shall have the duties and powers of the
President. The Chairman of the Board shall have such other powers and perform
such greater or lesser duties as may be delegated to him from time to time by
the Board of Directors.
5.08 The President. In the event of the disability of the Chairman of
the Board, the President shall have the powers and duties of the Chairman of
the Board. The President shall serve as chief operating officer and shall have
such other powers and perform such other duties as may be delegated to him or
her from time to time by the Board of Directors or the Chairman of the Board.
5.09 The Vice Presidents. Each Vice President shall have such powers
and perform such duties as may from time to time be assigned to him or her by
the Board of Directors, the Chairman of the Board or the President.
5.10 The Secretary and the Assistant Secretary. (a) The Secretary
shall attend meetings of the Board of Directors and meetings of the
stockholders and record all votes and minutes of all such proceedings in a book
kept for such purpose and shall perform like duties for the committees of
Directors as provided for in these Restated Bylaws when required. The Secretary
shall give, or cause to be given, notice of all meetings of stockholders and of
the Board of Directors (except in case of meetings called by the Chairman of
the Board in accordance with Sections 4.09 or 4.10). He or she shall have
charge of the stock ledger (unless responsibility for maintaining the stock
ledger is delegated to a transfer agent by the Board of Directors pursuant to
Section 6.06) and such other books and papers as the Board of Directors may
direct. He or she shall hue all such further powers and duties as generally are
incident to the position of Secretary or as may from time to time be assigned
to him or her by the Board of Directors or the Chairman of the Board.
(b) Each Assistant Secretary shall have such powers and
perform such duties as may from time to time be assigned to him or her by the
Board of Directors, the Chairman of the Board or the Secretary. In case of the
absence or disability of the Secretary, the Assistant Secretary designated by
the Secretary (or, in the absence of such designation, the senior Assistant
Secretary) shall perform the duties and exercise the powers of the Secretary.
5.11 (a) The Treasurer and the Assistant Treasurer. The Treasurer
shall have custody of the corporate funds and securities and shall keep full
and accurate
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accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors. He or she may endorse all commercial documents requiring
endorsements for or on behalf of the Corporation and may sign all receipts and
vouchers for payments made to the Corporation.
(b) The Treasurer shall disburse funds of the Corporation as
may from time to time be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and render to the Board of Directors, the
Chairman of the Board and President, whenever they may require it, an account
of all transactions undertaken by him or her as Treasurer and of the financial
condition of the Corporation.
(c) The Treasurer shall also maintain adequate records of all
assets, liabilities and transactions of the corporation and shall see that
adequate audits thereof are currently and regularly made. The Treasurer shall
have such other powers and perform such other duties that generally are
incident to the position of Treasurer or as may from time to time be assigned
to him or her by the Board of Directors, the Chairman of the Board or the
President.
(d) Each Assistant Treasurer shall have such powers and
perform such duties as may from time to time be assigned to him or her by the
Board of Directors, the Chairman of the Board, the President or the Treasurer.
In case of the absence or disability of the Treasurer, the Assistant Treasurer
designated by the Treasurer (or, in the absence of such designation, the senior
Assistant Treasurer) shall perform the duties and exercise the powers of the
Treasurer.
5.12 Treasurer's Bond. If required by the Board of Directors, the
Treasurer or any Assistant Treasurer shall give the Corporation a bond in such
form and with such surety or sureties as arc satisfactory to the Board of
Directors for the faithful performance of the duties of office and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
5.13 Chief Executive Officer. The Chief Executive Officer shall have,
subject to the supervision, direction and control of the Board of Directors,
the general powers and duties of supervision, direction and management of the
affairs and business of the Corporation usually vested in the chief executive
officer of a Corporation, including, without limitation, all powers necessary
to direct and control the organizational and reporting relationships within the
Corporation. If at any time the office of Chairman of the Board shall not be
filled, the Chief Executive Officer shall have the powers and duties of the
Chairman of the Board.
5.14 Chief Operating Officer. The Chief Operating Officer shall,
subject to the supervision, direction and control of the Chief Executive
Officer and the Board of Directors, manage the day-to-day operations of the
Corporation and, in general, shall assist the Chief Executive Officer.
6. STOCK
6.01 Certificates. Certificates or shares of the stock of the
Corporation shall be issued under the seal of the Corporation, or facsimile
thereof, and shall be numbered and shall be entered in the books of the
Corporation as they are issued. Each certificate shall bear a serial number,
shall exhibit the holder's name and the number of shares evidenced thereby and
shall be signed by the Chairman of the Board or a Vice Chairman, if any, or the
Chief Executive Officer or the President or any Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person or entity
were such officer, transfer agent or registrar at the date of issue.
6.02 Transfers. Transfers of stock of the Corporation shall be made on
the books of the Corporation only upon surrender to the Corporation of a
certificate for the shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, provided such succession,
assignment, or transfer is not prohibited by the Restated Certificate of
Incorporation, the Bylaws, applicable law, or contract. Thereupon, the
Corporation shall issue a net certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
6.03 Lost. Stolen or Destroyed Certificates. Any person claiming a
certificate of stock to be lost, stolen or destroyed shall make an affidavit or
an affirmation of that fact, and shall give the Corporation a bond of indemnity
in satisfactory form and with one or more satisfactory sureties, whereupon a
new certificate may be issued of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed.
6.04 Record Date. (a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at all the meeting of the
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the
7
<PAGE> 10
Board of Directors shall fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (l) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
(b) If no record date is fixed by the Board of Directors, (i)
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the date on which notice is given, or, if notice is waived by all
stockholders entitled to vote at the meeting, at the close of business on the
day next preceding the day on which the meeting was held and (ii) the record
date for determining stockholders for any other purpose shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto.
(c) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided that the Board of Directors may fix a new
record date for the adjourned meeting.
6.05 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares as the person entitled to exercise the rights referred to ill Section
6.04 and shall not be bound to recognize any equitable or other claim to or
interest in any such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the laws of the State of Delaware.
6.06 Additional Powers of the Board. (a) In addition to those powers
set forth in Section 4.01, the Board of Directors shall have power and
authority to make all such rules and regulations as it shall deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
(b) The Board of Directors may appoint and remove transfer
agents and registrars of transfers, and may require all stock certificates to
bear the signature of and such transfer agent and/or any such registrar of
transfers.
(c) The Board of Directors shall have power and authority to
create and issue (whether or not in connection with the issue and sale of any
stock or other securities of the Corporation) warrants, rights or options
entitling the holders thereof to purchase from the Corporation any shares of
any class or classes or any other securities of the Corporation for such
consideration and to such persons, firms or corporations as the Board of
Directors, in its sole discretion, may determine, setting aside from the
authorized but unissued stock of the Corporation the requisite number of shares
for issuance upon the exercise of such warrants. rights or options. Such
warrants. rights or options shall be evidenced by such instrument or
instruments as shall be approved by the Board of Directors. The terms upon
which, the time or times (which may be limited or unlimited in duration) at or
within which, and the price or prices at which any such shares or other
securities may be purchased from the Corporation upon the exercise of any such
warrant, right or option shall be such as shall be fixed and stated in a
resolution or resolutions of the Board of Directors providing for the creation
and issue of such warrants, rights or options.
7. LIMITATIONS OF OWNERSHIP BY NON-CITIZENS.
7.01 Definitions. (a) "Act" shall mean the Federal Aviation Act of
1958, as amended (Title 49 United States Code) or as the same may be from time
to time amended.
(b) "Beneficial Ownership," "Beneficially Owned" or "Owned
Beneficially' refers to beneficial ownership as defined in Rule 13d-3 (without
regard to the 60-day provision in paragraph (d)(l)(i) thereof under the
Securities Exchange Act of 1934, as amended.
(c) "Foreign Stock Record" shall have the meaning set forth
Section 7.03.
(d) "Non-Citizen" shall mean any person or entity who is not a
"Citizen of the United States" as defined in Section 101 of the Act, including
any agent, trustee or representative of a Non-Citizen.
(e) "Own or Control" or "Owned or Controlled" shall mean (i)
ownership of record, (ii) beneficial ownership or (iii) the power to direct, by
agreement, agency or in any other manner, the voting of Stock. Any
determination by the Board of Directors as to whether Stock is Owned or
Controlled by a Non-Citizen shall be final.
(f) "Permitted Percentage" shall mean twenty five percent
(25%) of the voting power of the Stock.
(g) "Stock" shall mean the outstanding capital stock of the
corporation entitled to vote; provided, however, that for the purpose of
determining the voting power of Stock that shall at any time constitute the
Permitted Percentage, the voting Power of Stock outstanding shall not be
adjusted downward solely because shares of Stock may not be entitled to vote by
reason of any provision of this Article 7.
8
<PAGE> 11
7.02. It is the policy of the Corporation that, consistent with the
requirements of Section 101 of the Act, Non-Citizens shall not Own or Control
more than the Permitted Percentage and, if Non-Citizens nonetheless at any time
Own or Control more than the Permitted Percentage, the voting rights of the
Stock in excess of the Permitted Percentage shall be automatically suspended in
accordance with Sections 7.03 and 7.04 below.
7.03 Foreign Stock Record. The Corporation or any transfer agent
designated by it shall maintain a separate stock record (the "Foreign Stock
Record") in which shall be registered Stock known to the corporation to be
Owned or Controlled by Non-Citizens. The Foreign Stock Record shall include (i)
the name and nationality of each such Non-Citizen, (ii) the number of shares of
Stock Owned or controlled by such Non-Citizen and (iii) the date of
registration of such shares in the Foreign Stock Record. In no event shall
shares in excess of the Permitted Percentage be entered on the Foreign Stock
Record. In the event that the Corporation shall determine that stock registered
on the Foreign Stock Record exceeds the Permitted Percentage, sufficient shares
shall be removed from the Foreign Stock Record so that the number of shares
entered therein does not exceed the Permitted Percentage. Stock shall be
removed from the Foreign Stock Record in reverse chronological order based upon
the date of registration therein.
7.04 Suspension of Voting Rights. If at any time the number of shares
of Stock known to the Corporation to be Owned or Controlled by Non-Citizens
exceeds the Permitted Percentage, the voting rights of Stock Owned or
Controlled by Non-Citizens and not registered on the Foreign Stock Record at
the time of any vote or action of the stockholders of the Corporation shall,
without further action by the Corporation, be suspended. Such suspension of
voting rights shall automatically terminate upon the earlier of the (i)
transfer of such shares to a person or entity who is not a Non-Citizen, or (ii)
registration of such shares on the Foreign Stock Record, subject to the final
sentence of Section 7.03.
7.05 Beneficial Ownership Inquiry. (a) The Corporation may by notice
in writing (which may be included in the form of proxy or ballot distributed to
stockholders in connection with the annual meeting or any special meeting of
the stockholders of the Corporation, or otherwise) require a person that is a
holder of record of Stock or that the Corporation knows to have, or has
reasonable cause to believe has; Beneficial Ownership of Stock to certify in
such manner as the Corporation shall deem appropriate (including by way of
execution of any form of proxy or ballot of such person) that, to the
knowledge of such person:
(i) all Stock as to which such person has record ownership or
Beneficial Ownership is owned and controlled only by Citizens of the
United States; or
(ii) the number and class or series of Stock owned of record or
Beneficially Owned by such person that is owned or controlled by
Non-Citizens is as set forth in such certificate.
(b) With respect to any Stock identified in response to clause
(a)(ii) above, the Corporation may require such person to provide such further
information as the Corporation may reasonably require in order to implement
the provisions of this Article 7.
(c) For purposes of applying the provisions of this Article 7 with
respect to any Stock, in the event of the failure of any person to provide the
certificate or other information to which the Corporation is entitled pursuant
to this Section 7.05, the Corporation shall presume that the Stock in question
in owned or controlled by Non-Citizens.
8.0 MISCELLANEOUS.
8.01 Place and Inspection of Books. (a) The books of the Corporation
other than such books as are required by law to be kept within the State of
Delaware shall be kept in the State of Arizona or at such place or places
either within or without the State of Delaware as the Board of Directors may
from time to time determine.
(b) At least ten (10) days before each meeting of
stockholders, the officer in charge of the stock ledger of the Corporation
shall prepare a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or. if not specified, at the place ',~#ere the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
(c) The Board of Directors shall determine from time to time
whether and, allocated, when and under what conditions and regulations the
accounts and books of the Corporation (except such as ma>' be by law
specifically open to inspection or as otherwise provided b>' these Restated
Bylaws) or any of them shall be open to the inspection of the stockholders and
the stockholders' rights in respect thereof.
8.02 Indemnification of Directors. Officer, Employees and Agents. (a)
The Corporation shall indemnify any person who was or is a company or is
threatened to be
9
<PAGE> 12
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that such person is or was a Director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses, including
attorneys' fees, judgments, fines and amounts paid or owed in settlement
actually and reasonably paid or incurred by him or her or rendered or levied
against him or her in connection with such action, suit or proceeding if he or
she acted in good faith and in a manner lie or she reasonably believed to be in
or not opposed to the best interests of the Corporation; and with respect to
any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not, in itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership; joint venture, trust, employee benefit plan or other
enterprise, against expenses, including attorneys' fees, actually and
reasonably paid or incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation; provided however, that no indemnification shall
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
(c) The Corporation shall, at the discretion of the Board of
Directors, indemnify all employees and agents of the Corporation (other than
Directors and officers) to the extent that Directors and officers shall be
indemnified pursuant to subsections (a) and (b).
(d) To the extent that a person who may be entitled to
indemnification by the Corporation under this section is or has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in subsections (a) and (b), or in defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses, including
attorney's fees, actually and reasonably paid or incurred by him or her in
connection therewith.
(e) Any indemnification under subsections (a), (b), or (c)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Director, officer, employee or agent
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in subsection (a) or (b). Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or
proceeding, (ii) if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, (iii) by [the stockholders, or (iv) in any case in which
applicable law makes court approval a prerequisite to indemnification, by the
court in which such action, suit or proceeding was brought or another court of
competent jurisdiction.
(f) Expenses, including attorneys' fees, incurred by an
officer or Director in defending a civil, criminal, administrative, or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the Director or officer to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation as authorized in this section. Such
expenses, including attorneys' fees, incurred by other employees and agents
shall be so paid upon terms and conditions, if an', as the Board of Directors
deems appropriate.
(g) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of the
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(h) The provisions of this section shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall
inure to the benefit of the estate, executors, administrators, spouse: heirs,
legatees or devisees of a person entitled to indemnification hereunder and the
term "person'," there used in the section shall include the estate, executors,
administrators, spouse. heirs, legatees or devisees of such person.
10
<PAGE> 13
(i) For the purposes of this Section 8.02, (i) "employee
benefit plan" and "fiduciary" shall be deemed to include, but not be limited
to, the meanings set forth, respectively, in Sections 3(3) and 21(A) of the
Employee Retirement Income Security Act of 1974, as amended, and references to
the judgments, fines and amounts paid or owed in settlement or rendered or
levied shall be deemed to encompass and include excise taxes required to be
paid pursuant to a applicable law in respect of any transaction involving an
employee benefit plan, (ii) references to the Corporation shall be deemed to
include any predecessor corporation and any constituent corporation absorbed in
a merger, consolidation or other reorganization of or by the Corporation which,
if its separate existence had continued, would have had power and authority to
Indemnify its directors, officers, employees, agents or fiduciaries so that any
person who was a director, officer, employee, agent or fiduciary of such
predecessor or constituent corporation, or served at the request of such
predecessor or constituent corporation as a director, officer", employee, agent
or fiduciary of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, shall stand in the same position
under the provisions of this Section 8.02 with respect to the Corporation as
such person would have with respect to such predecessor or constituent
corporation if its separate existence had continued, and (iii) all other terms
shall be deemed to have the meanings for such terms as set forth in Section 145
of the DGCL.
8.03 Dividends. (a) Dividends may be declared at the discretion of the
Board of Directors at any meeting thereof.
(b) Dividends may be paid to stockholders in cash or, when the
Directors shall so determine, in stock. A Director shall be fully protected in
relying in good faith upon the books of account of the Corporation or
statements prepared by any of its officers as to the value and amount of the
assets: liabilities or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared.
(c) Before payment of any dividend or any distribution of
profits, there may be set aside out of the said surplus of the Corporation such
sum or sums as the Board of Directors from time to time, in its discretion
think's proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for such other purpose as the Board of Directors shall think
conducive to the interests of the Corporation and the Board of Directors may
abolish any such reserve in the manner in which it was created.
8.04 Execution of Deeds, Contracts and Other Agreements and
Instruments. Subject to the specific directions of the Board of Directors, all
deeds, mortgages and bonds entered into by the Corporation all other written
contracts and agreements to which the Corporation shall be a party shall be
executed in its name by the Chairman of the Board, the President, or a Vice
President, or such other person or persons as may be authorized by any such
officer.
8.05 Checks. All checks, drafts, acceptances, notes and other orders,
demands or instruments in respect to the payment of money may be signed or
endorsed on behalf of the Corporation by such officer or officers or by such
agent or agents as the Board of Directors may from time to time designate.
8.06 Voting Shares in Other Corporations. The Chairman of the Board of
the Corporation (or any other Director designated by a majority of the Board of
Directors) may vote any and all shares held by the Corporation in any other
corporation.
8.07 Fiscal Year. The fiscal year of tie Corporation shall correspond
with the calendar year.
8.08 Gender/Number. As used in these Restated Bylaws, the masculine,
feminine or neuter gender, and the singular or plural number, shall each
include the others whenever the context so indicates.
8.09 Paragraph Titles. The titles of the paragraphs have been inserted
as a matter of reference only and shall not control or affect the meaning or
construction of any of the terms and provisions hereof.
8.10 Amendment. These Restated Bylaws may be altered, amended or
repealed by the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote at any meeting
of stockholders or by resolution adopted by the affirmative vote of not less
than a majority of the Directors in office at any annual or regular meeting of
the Board of Directors or at any special meeting of the Board of Directors if
notice if the proposed alteration, amendment or repeal be contained in the
notice of such special meeting.
8.11 Restated Certificate of Incorporation. Notwithstanding anything
to the contrary contained herein, if any provision contained in these Restated
Bylaws is inconsistent with or conflicts with a provision of the Restated
Certificate of the Corporation, such provision of these Restated Bylaws shall
be superseded by the inconsistent provision in the Restated Certificate of
Incorporation to the extent necessary to give effect to such provision in the
Restated Certificate of Incorporation.
11
<PAGE> 14
AMERICA WEST AIRLINES, INC.
Certificate as to Bylaws
I, Martin J. Whalen, do hereby certify that (i) I am the duly elected
and qualified Secretary of America West Airlines, Inc., a Delaware corporation
(the "Company"), (ii) I have access to the Company's corporate books and
records and am familiar with the matters therein contained and herein
certified, (iii) I am authorized to execute and deliver this certificate in the
name and on behalf of the Company and (iv) attached hereto as Exhibit "A" is a
true, correct and complete copy of the Bylaws of the Company as in effect on
the date hereof.
WITNESS my signature this 25th day of August, 1994.
/s/
------------------------------
Martin J. Whalen, Secretary
State of Delaware
Office of the Secretary of State
I. EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "AMERICA WEST AIRLINES, INC.", FILED IN THIS OFFICE ON THE
EIGHTEENTH DAY OF AUGUST, A.D. 1993, AT 3:30 O'CLOCK P.M.
/s/
----------------------------------
Edward J. Freel, Secretary of State
<PAGE> 1
EXHIBIT 10.39
V2500(R)
SUPPORT CONTRACT
BETWEEN
IAE INTERNATIONAL AERO ENGINES AG
AND
AMERICA WEST AIRLINES, INC.
<PAGE> 2
INDEX
<TABLE>
<S> <C> <C>
Commencement
Recitals
CLAUSE 1 DEFINITIONS
CLAUSE 2 SALE OF PURCHASED ITEMS
2.1 Intent
2.2 Agreement to Place Orders
2.3 Type Approval and Changes in Specification
2.4 Inspection and Acceptance
2.5 Delivery, Shipping, Title and Risk of Loss or Damage
2.6 Price
2.7 Payment
CLAUSE 3 SPARE PARTS PROVISIONS
3.1 Intent and Term
3.2 ATA Standards
3.3 Initial Provisioning
3.4 Change in Initial Provisioning Data
3.5 Discontinuance of Initial Provisioning Data -
Use of Procurement Data
3.6 Stocking of Spare Parts
3.7 Lead Times
3.8 Ordering Procedure
3.9 Modifications to Spare Parts
3.10 Inspection
3.11 Delivery and Packing
3.12 Prices
3.13 Payment
3.14 Resale of Surplus Spare Parts
3.15 Purchase by AWA from Others
3.16 Special Tools, Ground Equipment and Consumable
Stores
3.17 Conflict
CLAUSE 4 WARRANTIES, GUARANTEES AND LIABILITIES
CLAUSE 5 PRODUCT SUPPORT
CLAUSE 6 MISCELLANEOUS
6.1 Delay in Delivery
6.2 Patents
6.3 Credit Reimbursement
6.4 Non-Disclosure and Non-Use
6.5 Taxes
6.6 Amendment
6.7 Assignment
6.8 Exhibits
6.9 Headings
6.10 Law
6.11 Notices
6.12 Exclusion of Other Provisions and Previous Understandings
6.13 Term of Contract
6.14 Costs and Fees
EXHIBIT A CONTRACT SPECIFICATION
EXHIBIT B PURCHASED ITEMS, PRICE, ESCALATION FORMULA, AND DELIVERY SCHEDULE
EXHIBIT C PRODUCT SUPPORT
EXHIBIT D WARRANTIES, GUARANTEES AND PLANS
D-1 ENGINE AND PARTS SERVICE POLICY
D-2 NACELLE SERVICE POLICY
D-3 NON-INSTALLATION ITEMS WARRANTY
D-4 PARTS COSTS GUARANTEE
D-5 RELIABILITY GUARANTEE
D-6 INFLIGHT SHUTDOWN GUARANTEE
D-7 FUEL CONSUMPTION RETENTION GUARANTEE
D-8 EXHAUST GAS TEMPERATURE GUARANTEE
</TABLE>
<PAGE> 3
THIS CONTRACT is made this 23d day of December, 1994
BETWEEN
IAE INTERNATIONAL AERO a joint stock company organized and
ENGINES AG existing under the laws of Switzerland,
whose registered office is at
Stampfenbachstrasse 73, 8035 Zurich,
Switzerland (hereinafter called "IAE")
and
AMERICA WEST AIRLINES, INC. a corporation organized and existing
under the laws of United States of
America whose registered office is at
4000 East Sky Harbour Boulevard, Sky
Harbour International Airport, Phoenix,
Arizona 85034, U.S.A. (hereinafter
called "AWA")
WHEREAS:
A. AWA has firmly committed to purchase from AVSA S.A.R.L. twenty-four
(24) new A320-200 aircraft to be powered by IAE V2527-A5 engines; and
B. IAE is prepared to supply to AWA V2527-A5 spare engines, modules,
spare parts, special tools, ground equipment, product support services
and consumable stores for the support and operation of the V2500
Propulsion Systems;
NOW THEREFORE IT IS AGREED AS FOLLOWS:
CLAUSE 1 DEFINITIONS
In this Contract, unless the context otherwise requires:
1.1 "Aircraft" means the new A320-200 aircraft powered by new Engines and
being acquired by AWA from AVSA for delivery as follows:
<TABLE>
<CAPTION>
1998 1999 2000
<S> <C> <C> <C>
January 1 1 1
February 1 1 1
March 1 1 1
May 1 1 1
July 1 1 1
September 1 1 1
October 1 1 1
November 1 1 1
----------------------------------------------------------
TOTALS FOR YEAR 8 8 8
</TABLE>
1.2 "AVSA" means AVSA S.A.R.L., a societe a responsibilite limitee
organized and existing under the Laws of the Republic of France,
having its registered office located at 2, Rond-Point Maurice
Bellonte, 31700 Blagnac France.
1.3 "Basic Contract Price" means the basic price of each item of the
Purchased Items as specified in Exhibit B to this Contract.
1.4 "Engine(s)" means the IAE V2527-A5 aero engine described in the
Specification.
1.5 "Initial Provisioning" means the establishment by AWA of an initial
stock of Spare Parts.
1.6 "Initial Provisioning Data" means information supplied by IAE to AWA
for Initial Provisioning purposes.
1.7 "Initial Provisioning Orders" means orders for Spare Parts for Initial
Provisioning purposes.
1.8 "Installation Items" means Engines, modules, accessories, exhaust
systems, nacelles and all ancillary equipment therefor described in
the Specification which are being supplied pursuant to this Contract
for installation in the Aircraft.
1.9 "Lead Time" means the period between acceptance by IAE of an order of
AWA and commencement of delivery.
1.10 "Non-Installation Items" means jigs, tools, handling and transportation
equipment and all equipment whatsoever to be supplied pursuant to this
Contract for use with the Installation Items and not for installation
in the Aircraft.
1.11 "Other Supplies" means special tools, ground equipment and consumable
stores (e.g. oils, greases, dyes and penetrants).
1.12 "Procurement Data" means information supplied by IAE to AWA about
Spare Parts required to replenish the said initial stock.
1.13 "Purchased Items" means those Installation Items and Non-Installation
Items specified in Exhibit B to this Contract.
1.14 "Service Bulletins" means those service bulletins containing advice
and instructions issued by IAE to AWA from time to time in respect of
Engines.
1.15 "Spare Parts" means spare parts for Engines excluding the items listed
in the Specification as being items of supply by AWA.
1.16 "Specification" means the IAE Contract Specification No. IAE S27A5
which forms Exhibit A to this Contract.
1.17 "Supplies" means Installation Items, Non-Installation Items, Spare
Parts and any other goods or services supplied pursuant to this
Contract.
1.18 "Vendor Parts" means Spare Parts described in Initial Provisioning
Data or Procurement Data which are not manufactured pursuant to the
detailed design and order of IAE.
<PAGE> 4
CLAUSE 2 SALE OF PURCHASED ITEMS
2.1 Intent
Subject to the provisions of this Contract, IAE agrees to sell to AWA
and AWA agrees to buy from IAE, the Purchased Items.
2.2 Agreement to Place Orders
2.2.1 AWA confirms that it has entered into a firm and binding
agreement with the AVSA for the purchase of at least
twenty-four (24) firm, new Aircraft powered by new V2527-A5
Engines for delivery as set forth in Clause 1.1 above.
2.2.2 AWA hereby enters into a firm and binding agreement with IAE
for the purchase of six (6) new V2527-A5 Spare Engines for
delivery as set forth in Exhibit B to the Contract.
2.3 Type Approval and Changes in Specification
2.3.1 IAE will manufacture the Purchased Items to the Specification.
After the date of this Contract the Purchased Items may be
varied from time to time by Change Orders in writing which
shall set forth in detail:
2.3.1.1 The changes to be made in the Purchased Items
and
2.3.1.2 The effect (if any) of such changes on the
Specification (including but not limited to
performance and weight), on
interchangeability of the Purchased Items in
the airframe, on prices and on dates of
delivery of the Purchased Items.
Change Orders shall not be binding on either party until
signed by IAE and AWA but upon being so signed shall
constitute amendments to this Contract.
2.3.2 IAE may make any changes in the Purchased Items which do not
adversely affect the Specification (including but not limited
to performance and weight), interchangeability of the
Purchased Items in the airframe, prices or dates of delivery
of the Purchased Items. In the case of such permitted
changes, a Change Order shall not be required. Provided it
will not create any undue burden, IAE will provide reasonable
notification of all such changes to AWA prior to delivery.
2.3.3 At the time of delivery of the Purchased Items there is to be
in existence a Type Approval Certificate in accordance with
the provisions of the Specification.
2.3.4 The Specification has, however, been drawn with a view to the
requirements of the Certification Authority referred to in the
Specification and the official interpretations of such
requirements in existence at the date of this Contract (such
requirements and interpretations being hereinafter referred to
as "Current Rules"). Subject to Clause 2.3.2 above IAE and
AWA agree that they will execute an approparite Change Order
in respect of any change required to the Purchased Items to
enable such Purchased Items to conform to the requirements of
the Certification Authority and the official interpretations
of such requirements in force at the date of delivery of such
Purchased Items.
2.3.5 The price of any Change Order is to be borne:
2.3.5.1 in the case of changes required to conform to
the Current Rules - by IAE; and
2.3.5.2 in any other case - by AWA.
2.4 Inspection and Acceptance
2.4.1 Conformance to the Specification of Purchased Items which are
Installation Items will be assured by IAE through the
maintenance of procedures, systems and records approved by the
Engine Certification Authority. Conformance documentation
will be issued and signed by personnel authorized for such
purposes.
2.4.2 Conformance to the Specification of Purchased Items which are
Non-Installation Items will be assured by IAE conformance
documentation.
2.4.3 Upon issue of conformance documentation pursuant to Clause
2.4.1 or Clause 2.4.2 above, AWA shall be deemed to have
accepted the Purchased Items and that the Purchased Items
conform to the Specification. IAE shall, subject to the
permission of the appropriate governmental authorities,
arrange for AWA to have reasonable access to the appropriate
premises in order to examine the Purchased Items prior to the
issue of conformance documentation and to witness Engine
acceptance tests.
2.4.4 If AWA refuses or hinders delivery, or if IAE at AWA's written
request agrees to delay delivery, of any of the Purchased
Items, AWA shall nevertheless pay or cause IAE to be paid
therefor as if, for the purposes of payment only, the
Purchased Items had been delivered. Upon receipt of full
payment by IAE, and at the request of AWA, IAE shall provide
to AWA evidence of good title for such Purchased Items at
which time risk of loss shall pass to AWA.
2.4.5 In any of the cases specified in Clause 2.4.4 above, AWA shall
also pay to IAE such reasonable sum as IAE shall require in
respect of storage, maintenance and insurance of those
Purchased Items.
2.5 Delivery, Shipping, Title and Risk of Loss or Damage
2.5.1 IAE will deliver the Purchased Items, at its option, either
ex-works Connecticut, U.S.A., or to such other state within
the U.S.A. as the parties will determine by agreement, in
accordance with the delivery schedule set out in Exhibit B to
this Contract.
<PAGE> 5
2.5.2 Upon such delivery, title to and risk of loss of or damage to
the Purchased Items shall pass to AWA.
2.5.3 AWA will notify IAE at least four (4) weeks before the time
for delivery of the Purchased Items of its instructions as to
the marking and shipping of the Purchased Items.
2.6 Price
The Purchase Price for each of the Purchased Items shall be the Basic
Contract Price, amended pursuant to Clause 2.3 above, and escalated in
accordance with the escalation formula contained in Exhibit B to this
Contract.
2.7 Payment
2.7.1 AWA will make payment in United States Dollars as follows:
2.7.1.1 Upon signature of this Contract, AWA shall
pay to IAE a deposit of ten percent (10%) of
the Estimated Purchase Price of the Purchased
Items.
2.7.1.2 Eighteen (18) months before the scheduled
delivery of each of the Purchased Items, AWA
shall pay to IAE a further deposit of ten
percent (10%) of the Estimated Purchase Price
of such item.
2.7.1.3 Twelve (12) months before the scheduled
delivery of each of the Purchased Items, AWA
shall pay to IAE a further deposit of ten
percent (10%) of the Estimated Purchase Price
of such item.
2.7.1.4 On delivery of each of the Purchased Items,
AWA shall pay to IAE the balance of the
Purchase Price of such item.
2.7.2 IAE shall have the right to require AWA to make additional
deposits in respect of price changes arising from the
provisions of Clause 2.3 above on a similar basis to that
specified in Clause 2.7.1 above.
2.7.3 AWA undertakes that IAE shall receive the full amount of
payments falling due under this Clause 2.7, without any
withholding or deduction whatsoever.
2.7.4 All payments under this Clause 2.7 shall be made by cable or
telegraphic transfer and shall be deposited not later than the
due date of payment with the following bank for the account of
IAE: National Westminster Bank plc
New York Branch
175 Water Street
New York, NY 10038
Account No. 00078700
ABA No. 026002749
2.7.5 For the purpose of this Clause 2.7 "payment" shall only be
deemed to have been made to the extent cleared or good value
funds are received in the numbered IAE bank account specified
in sub-clause 2.7.4 above.
2.7.6 For the purpose of this Clause 2.7, the "Estimated Purchase
Price" of any of the Purchased Items shall be calculated in
accordance with the following formula:
P = Bx(1.06) (N)
where:
P is the Estimated Purchase Price
B is the applicable Basic Contract Price
N is the year of scheduled delivery minus the
year for which the Basic Contract Price is defined.
CLAUSE 3 SPARE PARTS PROVISIONS
3.1 Intent and Term
3.1.1 For as long as AWA owns and operates one or more Aircraft in
regular commercial service, IAE shall provide that adequate
supplies of Spare Parts are available for sale to AWA under
this Contract. In consideration thereof, IAE shall sell to
AWA and, except as hereinafater provided, AWA shall buy from
IAE AWA requirements of the following Spare Parts.
3.1.1.1 All Spare Parts manufactured pursuant to the
detailed design and order of IAE where IAE is
the only source from which AWA can purchase
such Spare Parts in an unused condition and
in quantities sufficient to meet AWA's
requirements; and
3.1.1.2 Vendor Parts for which direct supply
arrangements between the manufacturers of
such Vendor Parts and AWA cannot be
established. Except for the purposes of
Initial Provisioning pursuant to Clause 3.3
below, AWA shall notify IAE in writing not
less than twelve (12) months before scheduled
delivery that AWA intends to purchase such
Vendor Parts from IAE.
3.1.2 In an emergency, IAE shall sell to AWA Vendor Parts which it
is not obliged to sell under this Contract, but which it has
in stock or otherwise has reasonably available to it.
3.2 ATA Standards
<PAGE> 6
The parties to this Contract shall comply with the requirements of ATA
Specifications 200 and 300, provided that any of the parties shall be
entitled to negotiate reasonable changes in those procedures or
requirements of the said specifications which, if complied with
exactly, would result in an undue operating burden or unnecessary
economic penalty.
3.3 Initial Provisioning
3.3.1 To assist AWA's Initial Provisioning, IAE shall supply AWA
with Initial Provisioning Data in accordance with ATA
Specification 200, subject to Clause 3.2 above.
3.3.2 Details of the format and precise nature of the said Initial
Provisioning Data, including the applicable revision numbers
of ATA Specification 200, definition of Spare Parts
Categories, and Lead Times, and agreement on technical
publications shall be agreed between IAE and AWA at a
preliminary meeting held for this purpose at a time and place
to be agreed.
3.3.3 The said Initial Provisioning Data shall cover all Spare
Parts, including agreed Vendor Parts, which may be reasonably
required for AWA's operation of the Installation Items.
3.3.4 Before AWA places Initial Provisioning Orders, a conference
shall be held for the review of Initial Provisioning Data
supplied by IAE under Clause 3.3.1 above. The said conference
shall be held approximately eighteen (18) months before
Aircraft delivery and shall be attended by the personnel of
each party directly responsible for Initial Provisioning;
provided, however, that with respect to the GPA Aircraft said
conference will be held at a time which will allow the parties
reasonable lead time prior to delivery.
3.4 Change In Initial Provisioning Data
IAE shall, free of charge, progressively and promptly revise Initial
Provisioning Data in accordance with ATA Specification 200 to take
into account any changes which may materially affect provisioning
decisions.
3.5 Discontinuance of Initial Provisioning Data - Use of Procurement Data
3.5.1 Use of Initial Provisioning Data shall be discontinued on a
date to be agreed by the parties hereto, but in any event no
later than the date of delivery of the last Aircraft firmly
ordered by AWA at the date of this Contract. On or before the
said date IAE shall furnish AWA with Procurement Data
complying with ATA Specification 200 and shall revise the said
Procurement Data as a matter of routine thereafter.
3.5.2 Procurement Data shall be used to enable AWA to continue to
order Spare Parts to support the Installation Items.
3.6 Stocking of Spare Parts
Upon request, AWA shall provide IAE with information reasonably
required to enable IAE to organize the manufacture and stocking of
Spare Parts efficiently.
3.7 Lead Times
3.7.1 Spare Parts for Initial Provisioning shall be delivered on or
before the dates specified in AWA's orders, provided that the
said dates comply with the terms of this Contract and do not
call for delivery more than three (3) months before the
scheduled date of delivery of the first Aircraft to AWA and
provided further that delivery of the total Initial
Provisioning quantity shall be effected against a schedule
commensurate with AWA fleet build up and Aircraft utilization.
3.7.2 Save as herein provided, replenishment Spare Parts shall be
delivered within the Lead Time specified in the IAE Spare
Parts Catalog, except for certain major Spare Parts which
shall be designated in Initial Provisioning Data and
Procurement Data as being available at prices and lead times
to be quoted upon request.
3.7.3 If any order for replenishment Spare Parts shall call for a
quantity materially in excess of AWA's normal requirements,
IAE shall use its best efforts to complete such order in
accordance with Clause 3.7.1 above, provided however, that IAE
shall have the right to notify AWA and IAE may request a
special delivery schedule. If AWA confirms that the full
quantity ordered is required, delivery of the order shall be
effected at delivery dates specified by IAE and the Lead Times
provided by this Clause shall not apply.
3.7.4 In an emergency, IAE shall endeavor to deliver Spare Parts,
including certain major Spare Parts referred to in Clause
3.7.2 above, within the time limits specified by AWA. The
action to be taken on such orders shall be advised as follows
within the following time periods from IAE's receipt of such
notice:
3.7.4.1 AOG orders - within 4 hours;
3.7.4.2 other emergency orders - within 24 hours;
3.7.4.3 orders for items of which AWA is out-of-stock
- within 7 days.
3.8 Ordering Procedure
3.8.1 After receipt of Initial Provisioning Data, AWA shall place
its Initial Provisioning Orders in sufficient time to allow
IAE to commence delivery prior to delivery of the first
Aircraft. AWA shall use its best efforts to give priority to
ordering major items designated in the Initial Provisioning
Data.
3.8.2 Subsequent orders for Spare Parts shall be placed by AWA from
time to time as may be appropriate. AWA shall give IAE as
much notice as possible of any change in its operation,
including, but not limited to, changes in maintenance or
overhaul arrangements affecting its requirements of Spare
Parts, including Vendor Parts.
<PAGE> 7
3.8.3 IAE shall promptly acknowledge receipt of each order for Spare
Parts in accordance with ATA Specification 200 procedure.
Unless qualified, such acknowledgement, subject to variation
in accordance with Clause 3.7.3 above, shall constitute an
acceptance of the order under the terms of this Contract.
3.8.4 Subject to Clause 3.72.2 below, IAE shall accept "control
shipdates" as defined in ATA Specification 200 in orders for
Spare Parts provided that such dates allow IAE its applicable
Lead Times in making shipment and are not subject to
cancellation by AWA at less than twelve (12) calendar months'
notice.
3.8.5 If IAE notifies AWA that certain Spare Parts are packed in
standard package quantities (hereinafter called "SPQ's") or
that a minimum sales quantity (hereinafter called "MSQ")
applies, AWA's subsequent orders for such Spare Parts shall be
for SPQ's or multiples thereof with a minimum of one MSQ.
3.8.6 Unless AWA shall have specified "Total Quantity Required" on
its orders, IAE shall be entitled to consider an order for
inexpensive Spare Parts complete if at least ninety percent
(90%) of the quantity ordered is delivered. For the purpose
of this Clause the term "inexpensive" shall mean a price
listed in the IAE Spare Parts Catalog at less than Ten U.S.
Dollars ($10) per unit, but shall be subject to review by IAE
from time to time.
3.8.7 Not later than the time of placing Initial Provisioning
Orders, AWA shall provide IAE with full shipping instructions
applicable to both Initial Provisioning Orders and to
subsequent standard replenishment orders for Spare Parts to be
placed by AWA.
3.9 Modifications to Spare Parts
3.9.1 IAE shall be entitled to make modifications or changes to the
Spare Parts ordered by AWA hereunder. IAE shall promptly
inform AWA by means of Initial Provisioning Data, Procurement
Data and Service Bulletins when such modified Spare Parts (or
Spare Parts introduced by a repair scheme) become available
for supply hereunder. Notification of such availability shall
be given to AWA before delivery.
3.9.2 Modified Spare Parts may be supplied unless the modifications
stated in Service Bulletins, in the recommended or optional
category, are considered by AWA to be unacceptable and AWA so
states in writing to IAE within ninety (90) days of the
transmittal date of a Service Bulletin, in which case AWA
shall be entitled to place a single order for AWA's
anticipated total requirement of pre-modified Spare Parts, at
a price and delivery schedule to be agreed.
3.9.3 Unless AWA notifies IAE in writing under the provisions of
Clause 3.9.2 hereof, IAE may supply at the expense of AWA a
modification of any Spare Part ordered (including any
additional Spare Part needed to ensure interchangeability),
provided that the said modification has received the approval
of the Certification Authority. The delivery of such Spare
Parts shall begin on dates indicated by Service Bulletin. The
delivery schedule shall be agreed at the time when orders for
modifications are accepted by IAE.
3.9.4 If Spare Parts required for incorporation of a modification
are not ordered as a kit, AWA's orders must distinguish them
from normal replacement Spare Parts in accordance with ATA
Specification 200.
3.10 Inspection
3.10.1 Conformance to the Specification of Installation Items will be
assured by IAE through the maintenance of procedures, systems
and records approved by the Certification Authority.
Conformance documentation will be issued and signed by
personnel authorized for such purpose.
3.10.2 Conformance of Non-Installation Items will be assured by IAE
conformance documentation.
3.10.3 Upon the issue of conformance documentation in accordance with
Clauses 3.10.1 or 3.10.2 above, AWA shall be deemed to have
accepted the Installation Items and Non-Installation Items and
that such Items conform to specification.
3.11 Delivery and Packing
3.11.1 IAE shall deliver Spare Parts and Other Supplies ex-works, the
IAE point of manufacture. Shipping documents and invoices
shall be in accordance with ATA Specification 200.
3.11.2 Upon such delivery, title to and risk of loss of or damage to
the said Spare Parts and Other Supplies shall pass to AWA.
3.11.3 In accordance with ATA Specification 200 requirements, AWA
shall advise IAE at time of order of its instructions as to
the marking and shipping of the Spare Parts and Other
Supplies.
3.11.4 The packaging of Spare Parts shall normally be in accordance
with ATA Specification 300 Category 2 standard and shall be
free of charge to AWA. Category 1 standard packaging if
required by AWA shall be paid for by AWA.
3.12 Prices
3.12.1 Subject to Clause 3.7.2 above, prices of all Spare Parts shall
be quoted in U.S. Dollars, in the IAE Spare Parts Price
Catalog, Initial Provisioning Data and Procurement Data. Such
prices shall represent net unit prices, ex-works the IAE
point of manufacture.
3.12.2 Prices applicable to each order placed by AWA hereunder shall
be the prices in effect on the date IAE receives such order,
except when delivery of Spare Parts against any
<PAGE> 8
order is scheduled to take place after the Lead Time stated in
the IAE Spare Parts Price Catalog, in which event the prices
for such items shall be those prices in effect ninety (90) days
prior to the scheduled time for delivery in accordance with
Clause 3.12.3 below.
3.12.3 IAE may from time to time adjust its prices for Spare Parts
upon not less than ninety (90) days notice to AWA, except that
prices for Spare Parts quoted in Initial Provisioning Data
shall be firm, provided that:
3.12.3.1 Orders are placed within three (3) months of
receipt by AWA of Initial Provisioning Data,
and
3.12.3.2 Ordered quantities are agreed by IAE, and
3.12.3.3 Deliveries are scheduled to be made prior to
the scheduled date for delivery of the first
Aircraft as at the date of supply by IAE of
Initial Provisioning Data.
If for any reason orders are placed or subsequently
rescheduled to specify delivery more than six (6) months after
the date of first Aircraft delivery as scheduled at the date
of supply by IAE of Initial Provisioning Data, then the prices
for such items shall be those prices in effect ninety (90)
days prior to the scheduled time for delivery of such items
against a schedule commensurate with AWA fleet build up and
Aircraft utilization. Notwithstanding the above, individual
price errors in the calculation of prices may be adjusted
without advance notice to AWA.
3.12.4 On request by AWA, prices of Spare Parts or other materials
not included in the Spare Parts Price Catalog shall be quoted
within a reasonable time by IAE.
3.13 Payment
3.13.1 Payment for all purchases under this Clause 3 shall be made by
AWA to IAE within thirty (30) days after the date of delivery.
3.13.2 AWA undertakes that IAE shall receive payment in U.S. Dollars
of the full amount of payments falling due under this Clause
3.13, without any withholding or deduction whatsoever.
3.13.3 All payments under this Clause 3.13 shall be made by cable or
telegraphic transfer to, and shall be deposited not later than
the due date of payment with:
National Westminster Bank plc
New York Branch
175 Water Street
New York, NY 10038
Account No. 00078700
ABA No. 026002749
3.13.4 For the purpose of this Clause 3.13, payment shall only be
deemed to have been made to the extent cleared or good value
funds are received in the numbered IAE bank account specified
in sub-clause 3.13.2 above.
3.14 Resale of Surplus Spare Parts
3.14.1 At any one time during the fifth year after delivery of AWA's
first Aircraft, AWA shall have the right to sell to IAE any
unused, serviceable and currently usable Spare Parts which
were purchased hereunder in accordance with the
recommendations of IAE contained in Initial Provisioning Data
and which are surplus to AWA's reasonable future needs,
provided that such surplus has not been created due to a
change in or cessation of AWA's operation of the Aircraft on
which IAE based its Initial Provisioning recommendations.
3.14.2 Spare Parts to be resold shall be identified on lists
submitted by AWA to IAE at the time of resale and shall be
delivered at AWA's cost to IAE, at the factory of the
Manufacturer or other mutually agreed location.
3.14.3 Prices for Spare Parts resold to IAE under Clause 3.14.1 above
shall be the unit net prices paid therefor by AWA. All
payments made by IAE under this Clause 3.14 shall be by way of
credit note to AWA's account at IAE.
3.14.4 IAE is prepared at any time to consider the repurchase of
Spare Parts from AWA, if they are surplus to AWA's
requirements.
3.15 Purchase by AWA from Others
3.15.1 AWA may purchase from another A320-200 operator Spare Parts,
which by virtue of Clause 3.1 above are required to be
purchased from IAE:
3.15.1.1 on an occasional basis; or
3.15.1.2 where the said operator has published details
of excessive stock holdings of the Spare
Parts concerned; or
3.15.1.3 pursuant to a pooling arrangement or joint
use agreement between AWA and the said
operator.
3.15.2 Subject to the conditions specified below, in the following
circumstances AWA may obtain from established and approved
sources, other than IAE or other A320-200 operators, Spare
Parts which by virtue of Clause 3.1 above are required to be
purchased from IAE:
3.15.2.1 as a temporary expedient in the event of a
temporary but material failure by IAE to
supply Spare Parts as required herein; or
<PAGE> 9
3.15.2.2 during any period when IAE is hindered or
prevented from delivering Spare Parts due to
circumstances beyond its control provided AWA
is thereby able to obtain the Spare Parts it
requires sooner than IAE is able to supply
them, and provided further that AWA will not
unreasonably thereby increase its stock of
the Spare Parts; or
3.15.2.3 where IAE identifies a Spare Part as a
standard part.
AWA's rights under sub-clause 3.15.2 above are subject to AWA
being unable to satisfy its requirements for Spare Parts
under the provisions of sub-clause 3.15.1 above.
3.15.3 Nothing in this Clause 3.15 shall be deemed to extend the
obligations of IAE or to diminish the limitations upon such
obligations under the Warranties referred to in sub-clauses
4.1 and 4.2 below.
3.15.4 Notwithstanding any extension of the time of delivery in
accordance with the provisions of Clause 6.1.1 below, AWA
shall be entitled to cancel all or part of any order on IAE
for Spare Parts which, pursuant to the terms of Clauses
3.15.2.1 and 3.15.2.2 are purchased from another source by
giving reasonable notice of cancellation of the said order.
3.15.5 In the event that AWA purchases Spare Parts under this Clause
3.15, AWA shall give written notice to IAE of the extent of
such purchase supported by any other technical information
which IAE may reasonably require.
3.16 Special Tools, Ground Equipment and Consumable Stores
IAE shall sell Other Supplies to AWA subject to the terms and
conditions of this Contract, but the detailed procedures of this
Contract with regard to Initial Provisioning, Procurement Data,
prices, stocking and Lead Time shall not apply. Technical data for
special tools and ground equipment shall be in accordance with ATA
Specification 101.
3.17 Conflict
In the event of any conflict between the provisions of this Contract
and the provisions of ATA Specifications 101, 200 and 300, the
provisions of this Contract shall prevail.
CLAUSE 4 WARRANTIES, GUARANTEES AND LIABILITIES
4.1 IAE warrants to AWA that at the time of delivery of the Supplies sold
hereunder such Supplies will be free of defects in material and
manufacture and will conform substantially to IAE's applicable
specifications as stipulated in this Contract. IAE's liability and
AWA's remedies under this warranty are limited to the repair or
replacement, at IAE's election, of Supplies or parts thereof returned
to IAE at the factory of the manufacturer which are shown to IAE's
reasonable satisfaction to have been defective; provided, that written
notice of the defect shall have been given by AWA to IAE within ninety
(90) days after the first operation or use of the Supplies (or if the
Supplies are installed in new Aircraft, within ninety (90) days after
acceptance of such Aircraft by its first operator) but in no event
later than one (1) year after the date of delivery of such Supplies by
IAE. Transportation charges for the return of defective Supplies to
IAE pursuant to this Clause 4.1 and their reshipment to AWA and the
risk of loss thereof will be borne by IAE only if the Supplies are
returned in accordance with written shipping instructions from IAE.
4.2 In addition, IAE grants and AWA accepts the following:
4.2.1 V2500 Engine and Parts Service Policy
4.2.2 V2500 Nacelle and Parts Service Policy
4.2.3 V2500 Non-Installation Items Warranty
4.2.4 Parts Cost Guarantee
4.2.5 Reliability Guarantee
4.2.6 Inflight Shutdown Guarantee
4.2.7 Fuel Consumption Rentention Guarantee
4.2.8 Exhaust Gas Temperature Guarantee
The Service Policies, Warranties and Guarantees referred to in this
Clause 4.2 are hereinafter called the "Warranties." The above Service
Policies, Warranties and Guarantees together form Exhibit D to this
Contract.
4.3 The parties agree that those of the Warranties set out in Clauses
4.2.1 and 4.2.2 above wherein AWA may be referred to as the "Operator"
shall also apply to any equipment which falls within the categories of
equipment referred to in the Warranties manufactured, supplied or
inspected by IAE howsoever and whenever (whether before, on or after
the date first above written) acquired by AWA from whatsoever source
including but not limited to any V2500 aero engines and any associated
equipment therefor, and any parts for such engines and associated
equipment which form part of any aircraft acquired from the
manufacturer.
4.4 The Warranties are personal to AWA and the obligations of IAE
thereunder shall only apply insofar as AWA has ownership and
possession of the Supplies covered thereunder.
4.5 AWA shall inform any person to whom it intends to sell, lease, loan or
otherwise dispose of any of the Supplies or equipment referred to in
Clause 4.3 above that such person may obtain from IAE a direct
warranty agreement incorporating those of the Warranties set out in
Clauses 4.2.1 and 4.2.2. AWA shall also use its reasonable endeavors
to ensure that such person shall enter into a direct warranty
agreement with IAE prior to delivery of any of the Supplies or such
equipment to such person.
4.6 IAE and AWA agree that the intent of the Warranties provided in Clause
4.2 is to provide specified benefits or remedies to AWA as a result of
specified events. It is not the intent
<PAGE> 10
however to duplicate benefits or remedies provided to AWA by IAE or
another source, e.g., another equipment manufacturer or lessor, as a
result of the same event. Therefore, the terms of the Warranties
notwithstanding, AWA agrees that it shall not be eligible to receive
benefits or remedies from IAE if it stands to receive or has received
benefits or remedies from IAE or another source as a result of the same
event.
4.7 AWA accepts that the Warranties granted to AWA under Clauses 4.1, 4.2
and 4.3 above together with the express remedies provided to AWA in
respect of the Supplies in accordance with this Contract are expressly
in lieu of, and AWA hereby waives, all other remedies, conditions and
warranties, expressed or implied including without limitation, ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE, and all other obligations and liabilities whatsoever of IAE
and of its shareholders whether in contract or in tort or otherwise for
any defect, deficiency, failure, malfunctioning or failure to function
of any item of the Supplies or of the equipment referred to in Clause
4.3 above, howsoever and whenever acquired by AWA from whatever sources
and AWA agrees that neither IAE nor any of its shareholders shall be
liable to AWA upon any claim therefor or upon any claim howsoever
arising out of the manufacture or supply or inspection by IAE of any
item of the Supplies or of such equipment or any other item of whatever
nature, whether in contract or in tort or otherwise, except as
expressly provided in the said Warranties, and AWA assumes all risk and
liability whatsoever not expressly assumed by IAE in the said
Warranties.
4.8 IAE and AWA agree that this Clause 4 has been the subject of
discussion and negotiation, is fully understood by the parties and the
price of the Supplies and other mutual agreements of the parties set
forth in this Contract are arrived at in consideration of:
4.8.1 the express Warranties of IAE and AWA's rights thereunder; and
4.8.2 the exclusions, waivers and limitations set forth in Clause
4.7 above.
CLAUSE 5 PRODUCT SUPPORT SERVICES
5.1 IAE will make available to AWA the Product Support Services described
in Exhibit C to this Contract. Except when identified in such Exhibit
as requiring separate contractual arrangements, such Product Support
Services shall be supplied at no additional charge to AWA and subject
to the provisions of this Contract. IAE may delegate the performance
of product support services to an affiliated company.
CLAUSE 6 MISCELLANEOUS
6.1 Delay in Delivery
6.1.1 If IAE is hindered or prevented from delivering any of the
Supplies within the time for delivery specified in this
Contract (as such time may be extended pursuant to the
provisions of this Contract) by reason of:
6.1.1.1 any cause beyond the reasonable control of
IAE, or
6.1.1.2 fires, industrial disputes or introduction of
essential modifications the time for delivery shall be
extended by a period equal to the period for which delivery
shall have been so hindered or prevented, and IAE shall not be
under any liability whatsoever in respect of such delay.
6.1.2 If, by reason of any of the causes embraced by Clause 6.1.1
above, IAE is hindered or prevented from delivering any goods
(which are the same as and include the Supplies) to purchasers
(including AWA) then IAE shall have the right to allocate such
goods, as they become available, at its own discretion among
all such purchasers and IAE shall not be under any liability
whatsoever to AWA for delay in delivery to AWA resulting from
such allocation by IAE and the time for delivery shall be
extended by a period equal to the delay resulting from such
allocation by IAE.
6.1.3 Should IAE inexcusably delay delivery of any item of the
Supplies beyond the time for delivery specified in this
Contract (as such time may be extended pursuant to the
provisions of this Contract), then in respect of the first two
(2) months of such delay, IAE shall not be under any liability
whatsoever and thereafter in respect of any further delay in
delivery the damages recoverable by AWA from IAE as AWA's sole
remedy shall not exceed 1/2% (one half percent) of the
purchase price of the item of Supplies so delayed in respect
of each month of such further delay (and prorata for any
period of less than one (1) month) subject to an overall
maximum of 3 1/2% (three and one half percent) of the purchase
price of the item of the Supplies so delayed.
6.1.4 The right of AWA to claim damages shall be conditional upon
the submission of a written claim therefor, within thirty (30)
days from the date on which IAE notifies AWA that the item of
the Supplies so delayed is ready for delivery, or from the
date on which AWA exercises the right of cancellation in
respect of such item conferred in accordance with Clause 6.1.5
below, whichever date shall first occur.
6.1.5 Should IAE delay delivery of any item of the Supplies beyond
the time for delivery specified in this Contract (as such time
may be extended pursuant to the provisions of this Contract)
for a period of twelve (12) months then, in addition to the
right of AWA under Clause 6.1.3, AWA shall be entitled to
refuse to take delivery of such item on giving IAE notice in
writing within one (1) month after the expiration of such
period of twelve (12) months. Upon receipt of such notice IAE
shall be free from any obligation in respect of such item
except that IAE shall refund to AWA any deposits made in
respect of the purchase price of such item of the Supplies.
<PAGE> 11
6.2 Patents
6.2.1 IAE shall, subject to the conditions set out in this Clause
and as the sole liability of IAE in respect of any claims for
infringement of industrial property rights, indemnify AWA
against any claim that the use of any of the Supplies by AWA
within any country to which at the date of such claim the
benefits of Article 27 of the Convention on International
Civil Aviation of 7th December l944 (The Chicago Convention)
apply, infringes any patent, design, or model duly granted or
registered provided, however, that IAE shall not be liable to
AWA for any consequential damage or any loss of use of the
Supplies or of the Aircraft in which the Supplies may be
incorporated arising as a result directly or indirectly of any
such claim.
6.2.2 AWA will give immediate notice in writing to IAE of any such
claim whereupon IAE shall have the right at its own expense to
assume the defense of or to dispose of or to settle such claim
in its sole discretion and AWA will give IAE all reasonable
assistance and will not by any act or omission do anything
which may directly or indirectly prejudice IAE in this
connection.
6.2.3 IAE shall have the right to substitute for any allegedly
infringing Supplies substantially equivalent non-infringing
supplies.
6.2.4 The indemnity contained in Clause 6.2.1 above shall not apply
to claims for infringement in respect of (i) Supplies
manufactured to the specific design instructions of AWA; (ii)
Supplies not of IAE design (but IAE shall in the event of any
claim for infringement pass on to AWA so far as it has the
right to do so the benefits of any indemnity given to IAE by
the designer, manufacturer or supplier of such Supplies);
(iii) the manner or method in which any of the Supplies is
installed in the Aircraft; or (iv) any combination of any of
the Supplies with any item or items other than Supplies.
6.3 Credit Reimbursement
If AWA should not accept delivery of a total of at least twenty (20)
Aircraft on order from AVSA (eight (8) of which Aircraft may be
existing "puts" from GPA) the date of this Contract and the Purchased
Items ordered in accordance with this Contract, including the firmly
ordered new V2500 Spare Engines, then, without prejudice to IAE's
other rights under this Contract, the value of any credits, hardware
or other concessions received by AWA pursuant to this Contract
(including any Side Letters and Amendments) will be adjusted to
amounts to be determined in good faith by IAE. If at the time of such
adjustment, the credits, hardware values or value of other concessions
which have been received by AWA exceed the final adjusted amounts AWA
will promptly reimburse IAE in an amount equal to such excess plus
interest on the excess amounts calculated from the time each
respective amount was applied or value received until reimbursement.
Interest will be calculated at a rate equal to the New York Citibank
prime rate in effect at the time each respective amount was applied or
value was received plus two percent (2%) per annum.
6.4 Non-Disclosure and Non-Use
6.4.1 Subject to Clause 6.4.3 below, AWA agrees to hold in
confidence any Information which it acquires directly or
indirectly from IAE and agrees not to use the same other than
for the purpose for which it was disclosed without the written
approval of IAE. The expression "Information" in this Clause
6.4.1 includes but is not limited to all oral or written
information, know-how, data, reports, drawings and
specifications, and all provisions of this Contract.
6.4.2 AWA shall be responsible for the observance of the provisions
of Clause 6.4.1 above by its employees.
6.4.3 The provisions of Clause 6.4.1 above shall not apply to
information which is or becomes generally known in the aero
engine industry nor shall the provisions of Clause 6.4.1 above
prevent any necessary disclosure of information to enable AWA
itself to operate, maintain or overhaul Supplies.
6.4.4 With respect to Supplies ordered by AWA for delivery to a
destination outside the U.S.A., AWA shall be responsible for
obtaining any required authorization including an Export
License, Import License, Exchange Permit or any other
governmental authorization required in connection with the
transactions contemplated under this Contract. AWA shall
restrict disclosure of all information and data furnished
thereto under this Agreement and shall ship the direct product
of such information and data to only those destinations
permitted under such governmental authorization.
6.4.5 In the event that any of the "Information" as described in
Clause 6.4.1 is required to be disclosed by AWA through a
valid governmental, judicial or regulatory agency order, or as
a result of compliance with any valid and enforceable law, AWA
agrees to limit the disclosure to only those portions of the
Information specifically required to be disclosed by such
order, and to maintain the confidentiality of as much of the
Information as legally possible.
6.5 Taxes
6.5.1 Subject to Clause 6.5.2 below, IAE shall pay all imposts,
duties, fees, taxes and other like charges levied by the
governments of the United Kingdom, the United States of
America, the Federal Republic of Germany, Japan and Italy or
any agency thereof in connection with the Supplies prior to
their delivery.
<PAGE> 12
6.5.2 All amounts stated to be payable by AWA pursuant to this
Contract exclude any value added tax, sales tax or taxes on
turnover. In the event that the supply of goods or services
under this Contract is chargeable to any value added tax,
sales tax or taxes on turnover, such tax will be borne by AWA.
6.5.3 AWA shall pay all other imposts, duties, fees, taxes and other
like charges by whomsoever levied.
6.6 Amendment
This Contract shall not be amended in any way other than by agreement
in writing, entered into by the parties hereto after the date of this
Contract, which is expressly stated to amend this Contract.
6.7 Assignment
Neither party may assign any of its rights or obligations hereunder
without the written consent of the other party (except that IAE may
assign its rights to receive money hereunder). Any assignment made in
violation of this Clause 6.7 shall be null and void.
6.8 Exhibits
In the event of any conflict or discrepancy between the Exhibits
(which are hereby expressly made a part of this Contract) and Clauses
of this Contract then the Clauses shall prevail.
6.9 Headings
The Clause headings and the Index do not form a part of this Contract
and shall not govern or affect the interpretation of this Contract.
6.10 Law
This Contract shall be subject to and interpreted and construed in
accordance with the Laws of the State of New York, United States of
America.
6.11 Notices
Any notice to be served pursuant to this Contract is to be sent by
fax, or certified mail, return receipt requested, or by telex to:
In the case of IAE:
IAE International Aero Engines AG
628 Hebron Avenue
Glastonbury, Connecticut 06033-2595 U.S.A.
Telex No. 443603l INTLAERO
Fax No. (203) 659-1410
Attention: Business Director & Chief Legal Officer
In the case of AWA:
America West Airlines, Inc.
4000 East Sky Harbour Boulevard
Sky Harbour International Airport
Phoenix, Arizona 85034 U.S.A.
Attention: Sr. V.P. Operations
Telex No. 755089
Fax No. (602) 693-5811
or in each case to such other place of business as may be notified
from time to time by the receiving party.
6.12 Exclusion of Other Provisions and Previous Understandings
6.12.1 This Contract contains the only provisions governing the sale
and purchase of the Supplies and shall apply to the exclusion
of any other provisions on or attached to or otherwise forming
part of any order form of AWA, or any acknowledgement or
acceptance by IAE, or of any other document which may be
issued by either party relating to the sale and purchase of
the Supplies.
6.12.2 The parties agree that neither of them have placed any
reliance whatsoever on any representations, agreements,
statements or understandings made prior to the signature of
this Contract, whether orally or in writing, relating to the
Supplies, other than those expressly incorporated in this
Contract, which has been negotiated on the basis that its
provisions represent their entire agreement relating to the
Supplies and shall supersede all such representations,
agreements, statements and understandings.
6.13 Term of Contract
6.13.1 This Contract shall be in force and effect from the date of
execution hereof by both parties and remain in force and
effect until the earlier of twenty (20) years from the date of
execution hereof by both parties, or the date on which AWA no
longer owns or operates any of the Aircraft, whichever occurs
first.
<PAGE> 13
6.13.2 So long as AWA operates V2500 powered Aircraft in regular
commercial service, this Contract will be automatically
renewed from year to year thereafter unless at least thirty
(30) days prior to the end of the original period or of any
subsequent yearly period, as the case may be, written notice
is given to the contrary by either party to the other, except
that (i) any orders placed hereunder prior to said notice of
non-renewal shall continue to be subject to all terms and
conditions hereof, and (ii) where the terms and conditions of
this Contract have been incorporated by reference into another
agreement, such terms and conditions shall remain in effect
for, and for the full term of, such other agreement.
IN WITNESS WHEREOF the parties hereto have caused this Contract to be signed on
their behalf by the hands of their authorized officers the day and year first
before written:
For IAE International Aero Engines AG ____________________
In the presence of ____________________
For America West Airlines, Inc. ____________________
In the presence of ____________________
<PAGE> 14
EXHIBIT A
CONTRACT SPECIFICATION
V2500 TURBOFAN ENGINE MODEL SPECIFICATION
FAA Commercial Type Certificate E40NE Model V2527 - A5
Spec. No. IAE S27A5
SEA LEVEL RATINGS
(With Ideal Inlet and Exhaust Systems - See GENERAL NOTES)
Net Thrust lb
-------------
Takeoff Rating (Static) 24,800
Takeoff Rating (at 0.2 Mn) 22,020
Maximum Continuous Rating 22,240
DESCRIPTION
Type - An axial flow, two spool, turbofan engine with fan and multistage
compressors driven by multistage reaction turbines and designed for operation
with fixed area mixed exhaust system. Installation Drawing No. 4W6199. The
Engine Installation Drawing shows the Engine envelope and provides dimensions
and data for the engine installation interfaces.
FUEL AND OIL
Fuel - Specification MIL-T-5624, MIL-T-83133 or ASTM-D-1655
Oil - Specification MIL-L-23699 Type II
Oil Consumption, Maximum (As measured over a 10-Hour Period) 0.15 U.S. gal/hr
STANDARD EQUIPMENT
Included in Engine Price
(Partial List Comprised of Major Items)
FUEL SYSTEM AND CONTROL SYSTEM:
LP/HP Fuel Pump, Fuel Filter Element, Fuel Temperature Sensor, Fuel
Diverter/Back to Tank Valve, Fuel Distribution Valve, P2T2 Relay Box, Electronic
Engine Control (EEC), Dedicated Generator, P4.9 Sensors and Manifold, Fuel
Metering Unit, Fuel Supply Pipe, Fuel Nozzles.
IGNITION SYSTEM:
Ignition Exciter, Igniter Plug, Ignition Lead (2 each) (without power source).
AIR SYSTEM:
No. 4 Bearing Compartment Heat Exchanger, HP/LP Active Clearance Control Valve,
Active Clearance Control Valve Actuator,LP Compressor Bleed Valve Master
Actuator, LP Compressor Bleed Valve Slave Actuator, Variable Stator Vane
Actuator, HP Compressor Bleed Valves, HP Compressor Bleed Valve Solenoids, HPT
Cooling Valve and Solenoid.
ENGINE INDICATING SYSTEM:
Exhaust Gas Temperature (EGT) Thermocouples, EGT Harness and Junction Box, No. 4
Bearing Scavenge Pressure Transducer, Fuel Filter and Scavenge Differential
Pressure Switches, Scavenge Oil Temperature Sensor, Oil Pressure Transmitter,
Low Oil Pressure Switch, Vibration Transducers and Harness, Oil Quantity
Transmitter, Magnetic Chip Detectors, Fuel Flowmeter.
OIL SYSTEM:
Oil Tank, Air Cooled Oil Cooler, Fuel Cooled Oil Cooler, Pressure Oil Filter
Element, Air Cooled Oil Cooler Modulating Valve, Scavenge Oil Filter Housing
Assembly and Element, No. 4 Bearing Compartment Scavenge Valve, Electrical Power
Generator Fuel Cooled Oil Cooler.
MISCELLANEOUS:
EEC Harnesses - Fan and Core, Ignition Supply Harness, General Service Harness,
Nose Spinner, Core Fuel Drains, Airframe Accessory Mounting Pads and Drives,
Various Brackets on working flanges for attachment of Nacelle and Aircraft
Equipment Electrical Power Generator Piping to Cooler, P2T2 Probe.
ADDITIONAL EQUIPMENT
Available at Increased Price
Shipping Stand
Engine Condition Monitoring Instrumentation
Items of ADDITIONAL EQUIPMENT should be ordered at the time of Engine
procurement in order to assure availability of this equipment at the time of
Engine shipment.
GENERAL NOTES
The specified Sea Level Static Ratings are ideal and are based on U.S.
Standard Atmosphere 1962 conditions, the specified fuel and oil, an ideal
inlet pressure recovery, no fan or compressor air bleed or load on accessory
drives, a mixed exhaust system having no internal pressure losses and with a
mixed primary nozzle velocity coefficient equal to 1.0.
Takeoff rating is the maximum thrust certified for takeoff operation. The
specified takeoff thrust is available at and below ISA + 56oF (31oC) ambient
temperature.
Maximum Continuous Rating is the maximum thrust certified for continuous
operation. The specified thrust is available at and below ISA + 18oF (10oC)
ambient temperature.
<PAGE> 15
Maximum Climb Rating is the maximum thrust approved for normal climb operation.
Maximum Cruise Rating is the maximum thrust approved for normal cruise
operation.
Guaranteed Calibration Stand Performance values for specific engine
applications are provided in Appendix A to this specification.
Unless otherwise specified, engines will be supplied with the STANDARD EQUIPMENT
listed. The Electrical Power Generator Fuel Cooled Oil Cooler and any drains,
brackets and Electrical Power Generator piping, and other external hardware
supplied with the Engine are certified by the FAA-NER to FAR Part 33
requirements.
V2500 TURBOFAN ENGINE MODEL SPECIFICATION
Appendix A
FOR A COMPLETE PROPULSION SYSTEM INCLUDING ENGINE AND NACELLE TO BE INSTALLED
IN THE AIRBUS INDUSTRIE A320 AIRPLANE GUARANTEED CALIBRATION STAND PERFORMANCE
<TABLE>
<CAPTION>
Sea Level Static
----------------
Net Max. Specific.
Thrust Fuel Consumption
lb. lb/hr/lb Thrust
------ -----------------
<S> <C> <C>
Takeoff Rating 24,200 TBD
Maximum Continuous Rating 21,750 TBD
90% of Maximum Continuous Rating 19,570 TBD
</TABLE>
See GENERAL NOTES of the basic specification for rating definitions.
The ratings specified in this Appendix are attainable on the test stand at U.S.
Standard Atmosphere 1962 conditions, with the specified fuel and oil, the air
inlet and exhaust system described below, and without fan or compressor air
bleed for aircraft systems, or load on accessory drives. The air inlet and
exhaust system are shown on Propulsion System Drawing No. 745-7000 and consist
of the air inlet duct assembly, fan duct assembly, mixed nozzle assembly and
other associated V2500 Nacelle System hardware as would be installed in the
Airbus Industrie A320 airplane. The specified calibration stand performance
represents installed performance and is based on fuel having a LHV of 18,400
Btu/lb.
The maximum thrust specific fuel consumption values will be determined
based on the production acceptance to inflight correlation established after the
completion of airplane certification. The following items are included in
establishing the specified performance guarantees:
(a) Air inlet duct contours
(b) Air inlet duct acoustic treatment
(c) Fan duct and mixed nozzle contours
(d) Fan reverser blocker doors and drag links
(e) Fan duct and mixed nozzle acoustictreatment
(f) Fan duct bleed openings except that the precooler bleed duct is
shut off
(g) Fan air leakage with the exhaust system conforming to that shown on
the Engine Installation Drawing
(h) Fan air bleed for component cooling and nacelle ventilation
<PAGE> 16
EXHIBIT B
PURCHASED ITEMS, PRICE,
ESCALATION FORMULA, AND
DELIVERY SCHEDULE
<PAGE> 17
EXHIBIT B
PURCHASED ITEMS, PRICE,
ESCALATION FORMULA AND DELIVERY SCHEDULE
Exhibit B
<TABLE>
<CAPTION>
Purchased Basic Contract Price Delivery
Item No.: U.S. Dollars (July 1988) Qty. Date
--------------- ------------------------ ---- ------------
<S> <C> <C> <C>
1. V2500-A5 Spare Engine 4,210,000 1 January 1998
2. V2500-A5 Spare Engine 4.210,000 1 May 1998
3. V2500-A5 Spare Engine 4,210,000 1 October 1998
4. V2500-A5 Spare Engine 4.210,000 1 March 1999
5. V2500-A5 Spare Engine 4,210,000 1 January 2000
6. V2500-A5 Spare Engine 4,210,000 1 October 2000
</TABLE>
ESCALATION FORMULA
1. Any Basic Contract Price or other Sum expressed to be subject to
escalation from a Base Month to a month of delivery or other date of
determination will be subject to adjustment in accordance with the
following formula:
P = Pb ( 0.60 L + 0.30 M + 0.10 E )
Lo Mo Eo
Where:
P = The Invoiced Purchase Price or Escalated Sum rounded to the
nearest dollar.
Pb = The Basic Contract Price or other Sum.
Lo = The "Average Hourly Earnings of Aircraft Engine and Engine
Parts Production Workers" SIC Code 3724 published by the
Bureau of Labor Statistics in the U.S. Department of Labor
for the month preceding the Base Month by four months.
L = The "Average Hourly Earnings of Aircraft Engine and Engine
Parts Production Workers" SIC Code 3724 for the month
preceding the month of delivery or other date of
determination by four months.
Mo = The "Producer Price Index, Code 10, For Metals and Metal
Products" published by the Bureau of Labor Statistics in the
U.S. Department of Labor for the month preceding the Base
Month by four months.
M = The "Producer Price Index, Code 10, For Metals and Metal
Products" for the month preceding the month of delivery or
other date of determination by four months.
Eo = The "Producer Price Index, Code 5, For Fuel and Related
Products and Power" published by the Bureau of Labor
Statistics in the U.S. Department of Labor for the month
preceding the Base Month by four months.
E = The "Producer Price Index, Code 5, For Fuel and Related
Products and Power" for the month preceding the month of
delivery or other date of determination by four months.
2. The values of the factors 0.60 L and 0.30 M and 0.10 E
- - -
L M E
respectively, shall be determined to the nearest fourth decimal place.
If the fifth decimal is five or more, the fourth decimal place shall be
raised to the next higher number.
3. If the U.S. Department of Labor ceases to publish the above codes or
modifies the basis of their calculation, then IAE may substitute any
officially recognized and substantially equivalent statistics.
4. The Basic Contract prices contained in this Exhibit B are subject to
escalation from a Base Month of July 1988 to the month of delivery
using Lo, Mo and Eo values for March 1988.
5. If the application of the formula contained in this Exhibit B results
in a Purchase Price which is lower than the Basic Contract Price, the
Basic Contract Price will be deemed to be the Purchase Price for such
Supplies.
<PAGE> 18
EXHIBIT C
PRODUCT SUPPORT
<PAGE> 19
PRODUCT SUPPORT
FOR THE
V2500 ENGINE
IAE INTERNATIONAL AERO ENGINES AG
Issue No. 3
<PAGE> 20
INDEX
I. INTRODUCTION
II. CUSTOMER SUPPORT
- Customer Support Engineer
- Field Services Representatives
- Customer Training
III. CUSTOMER SERVICES
- Engine Warranty Services
- Maintenance Center Support
- Maintenance Facilities Planning Service
- Tooling and Support Equipment Services
- Product Support Technical Publications
- Lease Engine Program Support
IV. TECHNICAL SERVICES GROUP
- Product Support Engineering
- Powerplant Maintenance Engineering
- Customer Performance Engineering
- Diagnostic Systems Engineering
- Human Engineering
- Flight operations Engineering
- Repair Services
- Field Operations Data Analysis
V. SPARE PARTS SUPPORT
- Spare Parts Support
VI. BUSINESS SUPPORT GROUP
- Customer Maintenance Support
- Engine Reliability and Economic Forecasts
- Logistics Support Studies
<PAGE> 21
I. INTRODUCTION
International Aero Engines AG (IAE) will make the following support
personnel and services available to the V2500 engine customer: Flight
Operations Engineering, Customer Performance Engineering, Field
Representatives, Customer Maintenance Support, Product Support
Engineering, Powerplant Maintenance Engineering, Field Operations Data
Analysis, Human Engineering, Repair Services, Warranty Administration,
Maintenance Facilities Planning, Tooling and Support Equipment
Services, Product Support Technical Publications, Customer Training,
Spare Parts Support and Engine Overhaul and Repair Service Centers.
To make these support services readily available to you, our customer,
in the most efficient manner the Customer Support Group has been
established and assigned primary responsibility within IAE for customer
contact and communications. A Manager, Customer Support Engineer is
assigned to maintain direct liaison with each individual Customer. A
description of the various product support services available to each
customer follows. IAE reserves the right to withdraw or modify the
services described herein at any time at its sole discretion. No such
withdrawal or modification shall diminish the level of services and
support which the Customer may be entitled to receive with respect to
V2500 engines for which an acceptable order has been placed with IAE or
with respect to aircraft with installed V2500 engines for which a firm
and unconditional order has been placed with the aircraft manufacturer,
prior to the announcement of any such withdrawal or modification.
II. CUSTOMER SUPPORT GROUP
CUSTOMER SUPPORT MANAGER
The Customer Support Manager provides a direct liaison between the
airline customer's Engineering, Maintenance, Logistics and Financial
organizations and the corresponding functions within IAE. The Customer
Support Manager assigned to each airline is responsible for
coordinating and monitoring the effort of the Product Support
Department functional organization to achieve timely and responsive
support for the airline.
The Customer Support Manager provides the following specific services
to the airline customer:
- Technical recommendations and information.
- Refurbishment, Modification and Conversion program planning
assistance.
- Coordination of customer repair, maintenance and logistics
requirements with the appropriate Product Support functional
groups.
- Assist with preparation of all engine warranty/service policy
claims as may be requested by AWA.
The Customer Support Manager will represent the airline customer in IAE
internal discussions to ensure that the best interests of the customer
and IAE are considered when making recommendations to initiate a
program, change or improvement in the V2500 engine.
FIELD REPRESENTATIVES
IAE Field Representatives provide the following services to the airline
customer:
- 24 Hour Support
- Maintenance Action Recommendations
- Daily Reporting on Engine Technical Problems
- On-The-Job Training to include hands-on maintenance task as
requested by AWA
- Service Policy Preparation Assistance
- Prompt Communication with IAE
In addition to the two full time dedicated IAE Field Representatives
already identified, IAE will work with AWA, once AWA outstation
requirements are identified, to establish a Customer Support Plan to
provide adequate introductory coverage for the V2500.
ENGINE MAINTENANCE SUPPORT SERVICE
Field Representatives assist airline customer personnel in the necessary
preparation for engine operation and maintenance. The Representative, teamed
with Customer Support Manager will work closely with the airplane manufacturer's
field support team particularly during the initial period of aircraft operation.
Field Representatives are in frequent contact with the IAE offices on technical
matters. Information and guidance received from the home office is transmitted
promptly to the airline which allows the airline to share in all related
industry experience. The practice permits immediate use of the most effective
procedures and avoidance of unsuccessful techniques. The IAE office contact
ensures that IAE Field Representatives know, in detail, the latest and most
effective engine maintenance procedures and equipment being used for maintenance
and overhaul of V2500 engines. They offer technical information and
recommendations to airlines personnel on all aspects of maintenance, repair,
assembly, balancing, testing, and spare parts support of IAE.
ON-THE-JOB TRAINING
Field Representatives will conduct on-the-job training for the
airline's maintenance personnel. This training continues until the maintenance
personnel have achieved the necessary level of proficiency. Training of new
maintenance personnel will be conducted on a continuing basis.
SERVICE POLICY ADMINISTRATION
Field Representatives will provide administrative and technical assistance in
the application of the IAE Engine and Parts Service Policy to ensure expeditious
and accurate processing of airline customer claims.
CUSTOMER TRAINING
IAE Customer Training offers airline customers the following support:
- Technical Training at Purpose Built Facilities
<PAGE> 22
- On-site Technical Training
- Technical Training Consulting Service
- Training Aids and Materials
TRAINING PROGRAM
The IAE Customer Training Center will have an experienced full-time training
staff which conducts formal training programs for airline customers'
maintenance, training and engineering personnel. The standard training programs
are designed to prepare customer personnel, prior to the delivery of the first
aircraft, to operate and maintain the installed engines. Standard courses in
engine operation, line maintenance, heavy maintenance, performance and
trouble-shooting are also available throughout the production life of the
engine. The courses utilize the latest teaching technology, training aids and
student handouts. Customer Training will coordinate the scheduling of specific
courses as required. The following is the curriculum of standard courses for
IAE. On-site technical training, technical training consulting services and
customized courses may be provided upon customer request and subject to separate
contractual arrangements.
Maintenance and Provisioning Planner's Course
This two day course is designed specifically for experienced gas turbine
personnel who will be responsible for planning and provisioning for maintenance
on the V2500 engine. Discussions are concentrated in the following subject
areas:
- Engine construction features internal and external hardware.
- Engine systems operation, major components accessibility for
removal/replacement.
- Maintenance concepts, repair and replacement requirements and special
tooling.
The course is normally conducted in conjunction with two to three days of
consultations with IAE Spare Parts personnel or Support Equipment Personnel to
acquaint the customer with that Group's procedures and services including
computerized services.
Staff Orientation
This course is designed to familiarize key staff, supervisory and operations
planning personnel with engine construction features, fundamental systems
operation, performance characteristics, operational procedures and general
maintenance practices.
Flight Crew Familiarization
This course is designed to provide flight crew personnel with classroom
familiarization training in the following subject areas:
- Basic Engine Design Features
- Engine Systems and Airframe Interface
- Ground Operational Procedures
- Malperformance Analysis Concepts
V2500 General Familiarization
This course is designed to provide training for customer maintenance planning,
engineering and instructor personnel in the following subject areas:
- Construction Features
- Applied Performance
- Engine Systems
- Installed/Uninstalled Operation
- Maintenance Concepts
Note: This course contains no "hands-on" training.
Engine Troubleshooting
This course designed to develop the skills of V2500 experienced personnel in
detecting, analyzing and correcting malfunctions in the V2500 engine systems
and the engine/airframe interfaces. Classroom and shop training are provided in
the following subject areas:
- Troubleshooting Philosophy
- Systems Review
- Systems Troubleshooting
- Systems/Component Isolation Procedures
- Performance Parameter Analysis
- Practical Application of Troubleshooting Procedures
V2500 Familiarization and Non-flight Performance
This course is designed specifically for power plant engineering, condition
monitoring and instructor personnel. Performance characteristics are studied
in-depth with consideration given to basic performance losses attributable to
module deterioration. It does not include specific, in-depth, module
performance analysis.
Line Maintenance and Troubleshooting
This course is designed for key line maintenance and troubleshooting personnel
who have not received previous formal training on the V2500 engine. The
classroom phases provide the student with the information essential for timely
completion of line maintenance activities. The training focuses on the
following subject areas:
- Engine Description
- Systems operation
- Applied Performance
- Ground Operations
- Troubleshooting Procedures
- Practical Phase Line Maintenance Tasks
<PAGE> 23
V2500 Familiarization and Modular Maintenance
Provides experienced heavy maintenance personnel with engine modular disassembly
and assembly training. The training is concentrated in the following subject
areas:
- Engine Description Overview
- Engine Systems Overview
- Heavy Maintenance Tasks *
* Course duration and "hands-on" coverage are contingent on the
availability of an engine and required tooling.
III. CUSTOMER SERVICES
The Customer Services Group is dedicated to providing prompt and
accurate assistance to you, our V2500 airline customer. The Customer
Services Group provides the following categories of Assistance and
Support to the V2500 airline customer:
- Engine Warranty Services
- Maintenance Center Support
- Maintenance Facilities Planning Service
- Tooling and Support Equipment Services
- Product Support Technical Publications
- Lease Engine Program Support
ENGINE WARRANTY SERVICES
Engine Warranty Services will provide the following support for the
V2500 engine airline customer:
- Prompt administration of claims concerning Engine Warranty,
Service Policy, other support programs and Guarantee Plans.
- Investigation of part condition and part failure.
- Material provisioning administration for Controlled Service
Use programs and other material support.
PROMPT ADMINISTRATION
Each airline customer is assigned a Warranty Analyst whose job is to
provide individual attention and obtain prompt and effective
settlements of Warranty and Service Policy claims. A typical claim
properly submitted is generally settled, including issuance of
applicable credit memo, within thirty days. Experience generated by
much of the data derived from such claims often enables IAE to monitor
trends in operating experience and to address and often eliminate
potential problems.
INVESTIGATION AND REPORTS
Parts returned to IAE pursuant to the terms of the Service Policy are
investigated in appropriate detail to analyze and evaluate part
condition and cause of part failure. A report of findings is prepared
and forwarded to the airline customer and to all IAE departments
involved. In the case of vendor parts, the vendor is promptly informed.
Reports often include recommendations to preclude repetition of the
problem.
CONTROLLED SERVICE USE PROGRAMS AND MATERIAL SUPPORT
IAE shall assume responsibility for the planning, sourcing, scheduling
and delivery of Controlled Service Use material, warranty replacement
material, service campaign, material and program support material
subject to the terms of special contracts with customers. Urgent
customer shipments, both inbound and outbound, are monitored, traced,
routed and expedited as required. The receipt and movement of customer
owned material returned to IAE is carefully controlled, thus assuring
an accurate accounting at all times.
MAINTENANCE CENTER SUPPORT
IAE will arrange for the establishment of Maintenance Centers which
will be available to accomplish repairs, modifications and conversions,
as well as the complete overhaul of the V2500 engine subject to IAE's
standard terms and conditions for such work. Through the use of the IAE
established Maintenance Centers and its capabilities, an operator can
minimize or eliminate the need for investment in engine support areas
depending on the level of maintenance he elects the Maintenance Center
to perform. Savings in specific engine support areas, such as spare
parts inventory, maintenance and test tooling, support equipment and
test facilities, can be demonstrated. Use of the Maintenance Center can
also minimize the need for off-wing maintenance and test personnel with
their associated overhead.
MAINTENANCE FACILITIES PLANNING SERVICE
Maintenance Facilities Planning Service offers the following support
to IAE customer:
- General Maintenance Facility Planning Publications
- Customized Facility Plans
- Maintenance Facility and Test Cell Planning Consultation
Services
Maintenance Facilities Planning Service provides general and
customized facility planning data and consultation services. Facility
Planning Manuals for the V2500 engine will present the maintenance
tasks, facility equipment and typical departments floor plans showing
arrangement of equipment required to accomplish the tasks for all
levels of maintenance. The Facility Equipment Manual is a catalogue of
standard facility equipment such as lathes, process tanks, hoists,
cranes, etc., which is suitable for use in the maintenance and testing
of IAE engines. Customized facility planning services and consulting
services are offered subject to separate contractual arrangements.
Customized facility plans are developed to meet the requirements of
customers' specific fleet sizes, activities and growth plans. The
plans identify floor space,
<PAGE> 24
facility equipment, utilities and manpower requirements. on-site
surveys are conducted as a part of customized plan development to
determine the adaptability of existing facilities and equipment for
the desired maintenance program. These plans provide floor plan
layouts to show recommended locations for work stations, major
equipment, marshalling and storage areas, workflow patterns, and
structural and utility requirements to accommodate all the engine
models that are maintained in the customer's shop. The Maintenance
Facilities Planning Service also provides consultant services which
are specifically related to the development of engine test cells, and
the adaptation of existing maintenance facilities to accommodate
expanding production requirements and/or new or additional IAE models.
TOOLING AND SUPPORT EQUIPMENT SERVICES
The Tooling and Support Equipment Services Group assists the customer
by providing the following services:
- Support Equipment Manufacturing/Procurement Documentation
- Engine Accessory Test Equipment and Engine Transportation
Equipment Specifications
- Support Equipment Logistics Planning Assistance
SUPPORT EQUIPMENT DOCUMENTATION
The tooling and Support Equipment Services Group designs the special
support equipment required to disassemble, assemble, inspect, repair
and test IAE engines. Special support equipment design drawings and
Support Equipment Master Data Sheets, which describe how to use the
support equipment, are supplied to customers in the form of 35mm
aperture cards. Support equipment designs are kept current with engine
growth, and tool Bulletins are issued to customers as part of
continuing configuration management service. Updated Design and Master
Data Sheets Aperture Cards and Tool Bulletins are periodically
distributed to all IAE customers.
ENGINE ACCESSORY TEST EQUIPMENT AND
ENGINE TRANSPORTATION EQUIPMENT REQUIREMENTS
Engine accessory test equipment and engine transportation equipment
general requirements and specifications are defined and made available
to IAE customers. If requested, the Tooling and Support Equipment Group
will assist customers in the definition of engine accessory test and
engine transportation equipment required for specific IAE needs.
SUPPORT EQUIPMENT LOGISTICS PLANNING ASSISTANCE
The Tooling and Support Equipment Group will provide, at the customer's
request, special support equipment lists which reflect the customer's
unique requirements such as mix of engine models and desired level of
maintenance to aid in support equipment requirements planning.
PRODUCT SUPPORT TECHNICAL PUBLICATIONS
IAE and its subcontractors provide the required publications and
maintenance information as described below to support the maintenance
and modification requirements of the airline customer. The publications
are prepared in general accordance with Air Transport Association of
America (ATA) Specification No. 100 and will be available to the
airline customer prior to the delivery of the first aircraft.
Customization services and media options will be available for
procurement at established prices.
ON-WING MAINTENANCE DATA
IAE supplies the airplane manufacturer with all the necessary
information required to perform "On-Aircraft" engine maintenance,
troubleshooting, and servicing. This information is developed through
close coordination between the airplane manufacturer and IAE and is
integrated by the airplane manufacturer into his maintenance
publications.
TECHNICAL PUBLICATIONS
Listed and described below are the publications that will be provided
to support the airline customer's maintenance program:
Engine Manual
The Engine Manual is a document which will be structured in accordance
with ATA 100 section 2-13-0 with JEMTOSS applied in accordance with
section 2-13-14. Potential customer applications will be applied. The
manual will provide in one place the technical data requirements for
information needed to maintain the engine and the maximum potential
number of parts that could, regardless of design responsibility, remain
with the engine when it is removed from the airplane. Additionally the
manual shall include coverage of interrelated parts (e.g. thrust
reverser, cowlings, mounts, etc.) that whilst they can stay with the
airplane when the engine is removed can be removed for maintenance
purpose in lieu of individual component maintenance manuals.
Customized Engine Manuals can be prepared to incorporate customer
originated material related to data or procedures originated by or
peculiar to a specific IAE customer. Such customized Manuals are
provided by separate contractual arrangements. Customer material
authorized by the appropriate Airworthiness Authorities can be
incorporated into customized Manuals and will be identified in the
margin by the customer's initials.
Standard Practices Manual
The Standard Practices Manual supplements the Engine Manual by
providing, in a single document, all IAE recommended or approved
general procedures covering general torques, riveting, lockwiring,
cleaning policy, inspection policy standard repairs, etc., and marking
of parts.
<PAGE> 25
Illustrated Parts Catalog
The Illustrated Parts Catalog will be structured in accordance with ATA
2-14-0 and is a document which is used in conjunction with the Engine
Manual for the identification and requisitioning of parts and
assemblies. Its ATA structure is to be compatible with the Engine
Manual Structure. Additionally the manual shall include coverage of
interrelated parts (e.g. thrust reverser, cowlings, mounts, etc.) that
whilst they can stay with the airplane when the engine is removed can
be removed for maintenance purpose in lieu of individual component
maintenance manuals.
IAE Proprietary Component Maintenance Manuals
These manuals will be structured in accordance with ATA 2-5-0 and will
cover data for chapters other than 71, 72, and 78.
Subcontractor Component Maintenance Manuals
These manuals will be structured in accordance with ATA 2-5-0 and are
prepared directly by the accessory manufacturers. All accessory data is
subject to IAE prepublication review and approval.
Engine and Accessory Component service Bulletins
Each Engine and Accessory Component Service Bulletin will be produced
in accordance with ATA 2-7-0. They will cover planning information,
engine or component effectivity, reason for Bulletin, recommended
compliance, manpower requirements, and tooling information relating to
parts repair or modification. Subcontractor prepared Accessory
Component Service Bulletins are reviewed by IAE prior to issuance.
Alert Service Bulletins will be issued on all matters requiring the
urgent attention of the airline customer and will generally be limited
to items affecting safety. The Bulletin will contain all the necessary
information to accomplish the required action.
Operating Instructions
Engine operating instructions are presented in the form of General
Operating Instructions supplemented by V2500 Specific Engine Operating
Instructions which provide operating information, procedures, operating
curves and engine limits.
Facilities Planning and Facility Equipment Manuals
The Facilities Planning Manual outlines the requirements for
engine/component overhaul, maintenance, and test facilities in terms of
basic operations, processes, time studies and equipment. The Facility
Equipment Manual lists and describes the facility equipment used for
engine maintenance, overhaul and repair.
Support Equipment Numerical Index
The Indexes, prepared for each major engine model, provide a listing,
in numeric sequence, by maintenance level, of all IAE ground support
equipment required to maintain and overhaul the engine. The Listings
are cross-indexed to the applicable engine dash model and to the
chapter and section of the Engine Manual.
Publications Index
This index contains a listing of available technical manuals covering
components of the V2500 Nacelle.
Service Bulletin Index
This index will be in a format and on a revision schedule as determined
by IAE.
Computer Software Manual
Data, will be supplied in accordance with ATA
102 revision 2 except where such data are prohibited due to proprietary
or Government restrictions.
REVISION SERVICES
Regular, temporary, and "as required" revisions to technical
publications will be made during the service life of IAE equipment. The
utilization of advanced techniques and equipment provides the airline
customer with expedited revision service.
DISTRIBUTION MEDIA OPTIONS
IAE will provide IAE technical publications to the airline customer on
roll microfilm at 24:1 reduction or magnetic tape. Media options such
as microfilm at 36:1 reduction, microfiche, and two side or one-sided
paper copy of reproducible quality will be available for procurement at
established prices.
LEASE ENGINE PROGRAM SUPPORT
An engine lease program will be made available to V2500 Airline
Customers subject to IAE's standard terms and conditions of lease. Pool
spares will be stationed at selected locations to assure emergency
protection against aircraft-on-ground (AOG) situations or to provide
supplemental support during "zero spares" conditions. The lease engines
will be incorporate the highest maintenance standards and configuration
levels. Availability will be subject to prior demand, however, the
program logistics will be continually reviewed to assure the most
effective deployment of available pool engines.
<PAGE> 26
IV. TECHNICAL SUPPORT GROUP
The Technical Support Group provides the following categories of
Technical Support to the airline customer:
- Product Support Engineering
- Powerplant Maintenance Engineering
- Customer Performance Engineering
- Diagnostic System Engineering
- Human Engineering
- Flight Operations Engineering
- Repair Services
- Field Operations Data Analysis
PRODUCT SUPPORT ENGINEERING
Product Support Engineering is responsible for the overall technical
support to the customers. The following services are provided:
- Technical Problem Identification/Corrective Action
Implementation
- Technical Communication
- Engine conversion Program Definition and Management
- Engine Upgrade and Commonality Studies
- Engine Hardware Retrofit Programs
- Controlled Service Use Programs and Material Support
- Engine Maintenance Management Plans
- Engine Incident Investigation Assistance
TECHNICAL SUPPORT
Technical information supplied through IAE Field Representatives,
Customer Support Managers, customer correspondence and direct meetings
with airlines' representatives permits assessment of the factors
involved in technical problems and their impact on engine reliability
and operating costs. Resolution of these problems is coordinated with
responsible groups within IAE and the necessary corrective action is
defined. In certain situations the corrective action involves the
establishment of Service Evaluation programs for proposed
modifications, and the establishment of warranty assistance programs in
conjunction with the IAE Warranty Administration Department. Product
Support Engineering will assist customers in the implementation of
recommended corrective action and improvements principally through
official IAE technical communications, and direct customer contact.
TECHNICAL COMMUNICATIONS
Product Support Engineering is responsible for the release of technical
communications. Primary communication modes involves release of limits
and procedures through engine and maintenance manual revisions and the
requirements associated with engine upgrade and/or conversion,
durability and performance improvements, and problem resolution through
Service Bulletins is provided by All Operator Letters and/or wires or
direct technical written response to individual customer inquiries.
ENGINE CONVERSION PROGRAMS
Product Support Engineering defines minimum configuration levels for
conversion of service engine models. They serve to assist the customer
with the implementation of conversion programs into existing fleets by
providing preliminary planning cost estimates and technical planning
information regarding tooling, material and instructional requirements.
Conversion programs are monitored for problem areas and Product support
Engineering initiates and implements corrective action as may be
necessary.
ENGINE HARDWARE RETROFIT PROGRAMS
Engine campaigns are carried out to provide retrofit of engine hardware
configuration when required on delivered engines. This involves
assisting in the marshalling of hardware, special tools, manpower and
the scheduling of engine and material to campaign sites.
ENGINE MAINTENANCE MANAGEMENT PLANS
Planning documents, tailored for individual operators, are developed to
serve as Engine Maintenance Management Program criteria. These are
directed toward the objective of ensuring cost-effective operation with
acceptable post-repair test performance, providing engine reliability
to achieve maximum time between shop visits, and minimizing the adverse
effects to operation of inflight shutdowns and delays/cancellations.
Through the institution of specific maintenance recommendations, proper
engine performance, durability, and hot section parts lives can be
achieved.
ENGINE INCIDENT INVESTIGATION ASSISTANCE
Assistance is provided to an airline in conducting engine incident
investigations in responding to the requirements of the appropriate Air
Worthiness authority.
LINE MAINTENANCE AND TROUBLESHOOTING
Line Maintenance and Troubleshooting Seminars can be conducted at the
IAE Training Center with the objective of improving line maintenance
effectiveness fleetwide. Specialized training on V2500 line maintenance
and troubleshooting can be provided through on-site workshops by
special contractual arrangement. Troubleshooting support is provided
primarily through powerplant troubleshooting procedures which are
published in IAE and airframe manufacturers manuals. When an airline
encounters an engine problem and corrective action taken has not been
effective, more direct support in troublehshooting and maintenance can
also be provided to the
<PAGE> 27
customers line maintenance personnel. Instructions on V2500 powerplant
troubleshooting and maintenance can also be provided to customers line
maintenance personnel.
AIRLINE SHOP MAINTENANCE
Reviews of shop practices and procedures of individual airlines can be
conducted to determine the most efficient and cost-effective methods
for maintenance and repair of the V2500 in the environment in which the
airline must maintain that engine.
POWERPLANT MAINTENANCE ENGINEERING
Powerplant Maintenance Engineering covers responsibility for maximizing
engine maintainability, establishing maintenance concepts and
requirements and providing maintenance support plant for IAE.
This group provided the following services:
- Definition of Maintenance Tasks and Resource Requirements
- Planning Guides
MAINTENANCE ENGINEERING
Powerplant Maintenance Engineering conducts design reviews and
comprehensive maintenance analysis of new engine designs and engine
design changes to maximize engine maintainability consistent with
performance, reliability, durability and life cycle cost
considerations. Maintenance concepts, requirements and tasks are
established to minimize maintenance costs. This group represents the
customer's maintainability interests in internal IAE operations and
upon request will assist the customer in resolving specific maintenance
task problems.
PROGRESSIVE MAINTENANCE PLANNING
Powerplant Maintenance Engineering also provides Planning Guides based
upon Maintenance Task Analysis. The guides present engine maintenance
requirements, their subordinate tasks and the required resources to
accomplish on-aircraft engine maintenance and the off-aircraft repair
of engines by modular section/build group replacement. Maintenance
requirements are also presented for the refurbishment of modular
section/build group by parts replacement, the complete repair of parts,
the refurbishment of accessory components and for engine testing. The
data in the Planning Guides is presented in a manner that is primarily
intended to assist new operators by providing a phased introduction of
new engines into their shops and to capitalize on the design
maintainability features for the engine when they are developing their
maintenance plans. Powerplant Maintenance Engineering will assist new
operators in planning a gradual, technically feasible, and economically
acceptable expansion from line maintenance of installed engines through
the complete repair of parts and accessory components.
CUSTOMER PERFORMANCE ENGINEERING
Customer Performance Engineering provides for the following types of
technical assistance to the airline customer:
- Engine Performance Analysis Computer Programs for Test Cell
Use
- Test Cell Correlation Analysis and Correction Factors
- Engine Stability Procedures and Problem Analysis
Although much of the above support is provided in the form of
procedures, data and recommendations in various publications, the group
also answers inquiries of a performance nature which are forwarded to
IAE by individual customers.
ENGINE PERFORMANCE ANALYSIS
Technical support is provided in a number of areas related to
operational suitability including the development of the test
requirements and performance limits for the Adjustment and Test Section
of the Engine Manual. Computer programs that will assist the operator
in analyzing engine performance using test cell data can be provided
subject to IAE then current standard license fees and Terms and
Conditions.
TEST CELL CORRELATION
Technical assistance is provided to the customer for developing
appropriate corrections to be used for specific test configurations at
customer owned test cell facilities. Reports are provided presenting
correlation analyses and IAE recommended test cell corrections which
permit comparison of the performance of customer tested engines with
the respective Engine Manual limits and guarantee plan requirements.
ENGINE STABILITY
Technical support is provided to ensure that engine stability and
starting reliability are maintained. Service evaluation programs for
proposed improvements are initiated and monitored to determine their
effectiveness. In addition, problems relating to engine control systems
which impact engine stability and performance are analyzed.
DIAGNOSTIC SYSTEMS ENGINEERING
Diagnostic Systems Engineering is responsible for the technical support
of customer acquisition of inflight engine data and the assessment of
engine performance through the use of that data. Diagnostic Systems
Engineering personnel provide the following services:
- Guidance to help customers define their engine monitoring
system requirements.
- Development of hardware specifications and computer programs
(by separate contractual arrangement) to satisfy engine
diagnostic requirements.
- Coordination of all IAE airborne diagnostic support activity.
<PAGE> 28
GUIDANCE IN DEFINING ENGINE MONITORING SYSTEMS REQUIREMENTS
Diagnostic Systems Engineering can provide consultation services to
assist the customer in defining his engine condition and performance
monitoring requirements and in selection of appropriate hardware and
software systems to meet those requirements and options between the
customer, airframe manufacturer, and Airborne Integrated Data System
(AIDS) manufacturer.
DEVELOPMENT AND COORDINATION
Diagnostic Systems Engineering personnel can develop hardware
specification and make computer software available to accomplish Engine
Condition Monitoring (ECM) and performance analysis of engine modules
using AIDS data. Engine condition monitoring procedures, of both the
manual and computerized variety can also be developed and provided in
support of the customer's selected method of engine condition
monitoring. Computer software will be provided to the customer subject
to IAE's then current standard license fees and Terms and Conditions.
Diagnostic Systems Engineering personnel also coordinate activities of
cognizant functional groups at IAE to provide engine related
information to the customer, airframe manufacturer, and AIDS equipment
vendor during the planning, installation, and operation of AIDS.
HUMAN ENGINEERING
Human Engineering supplies data on task time and skill requirements
necessary for accomplishing maintenance procedures. Task data provided
includes estimates of the man-hours, elapsed time and job skills
necessary to accomplish maintenance tasks as described in IAE's Manual
and Service Bulletins. Data is supplied for "on" and "off" aircraft
maintenance tasks up to modular disassembly/assembly. Additional
selected task data can be supplied on disassembly/assembly to the piece
part level and on parts repair. In addition, the group can help solve
problems related to skill requirements, body dimensions, or excessive
man-hours encountered in accomplishing maintenance tasks.
FLIGHT OPERATIONS ENGINEERING
Flight Operations Engineering provides the airline customer with the
following technical assistance concerning installed engine operations:
- Introduction of new equipment
- Problem resolution and assistance with in-service equipment
- Contractual commitment and development program support
- Publication of engine operations literature and performance
aids
NEW EQUIPMENT
In accordance with customer needs, a Flight Operations Engineer can
provide on-site assistance in the training of operations personnel and
help in solving engine operational problems that might arise during the
initial commercial service period. Such assistance can include
participation in initial delivery flights, engine operational reviews,
and flight crew training activity.
PROBLEM RESOLUTION - IN-SERVICE EQUIPMENT
In accordance with a mutually agreed upon plan, a Flight Operations
Engineer can perform cockpit observations to identify or resolve engine
operating problems and to assess installed engine performance.
CONTRACTUAL SUPPORT AND DEVELOPMENT PROGRAMS
As required, a Flight Operations Engineer can assist in evaluating
installed engine performance relative to contractual commitments and
engine improvements which have an impact on engine operations.
PUBLICATION SUPPORT
Flight Operations Engineering is responsible for the issuance of
Propulsion System Operating Instructions and correspondence pertaining
to inflight engine operations. Such material is coordinated with the
airframe manufacturers as required. Special Presentations and Reports
are also issued, as required, to support the activity described above.
REPAIR SERVICES
Repair Service provides the following services to the airline
customers:
- Coordinated Repair Development Activity
- Customer Assistance on Repair Procedures and Techniques
- Qualification of Repair Sources
- Repair Workshops
- Repair Development List
COORDINATION OF REPAIR DEVELOPMENT
The Repair Services Engineer provided direct contact with all sources
that initiate repair schemes. The Engineer coordinates with
representatives of Engineering and Support Services disciplines in
identifying repair needs, evaluating various repair options and
establishing repair development procedures and schedules. The Engineer
participates in setting repair evaluation and approval requirements.
When the repair is approved and substantiating data is documented, the
Repair Services Engineer releases the repair to the Engine Manual.
<PAGE> 29
TECHNICAL ASSISTANCE
The Repair Services Engineer provides daily communications with airline
customers via technical responses to inquiries direct from the airline
or through our Field Service Representative office at the airline
facility. In addition, repair engineer make periodic visits to airline
repair facilities to discuss new repairs under development, answer
specific questions posed by the particular facility and review actual
parts awaiting a repair/scrap decision. Occasionally repair engineers
make special visits to customer facilities to assist in training
customer personnel in accomplishing particularly complex repairs.
QUALIFICATION OF REPAIR SOURCES
The Repair Services Engineer coordinates the qualification of repair
sources for repairs proprietary to IAE or to an outside repair agency.
They also perform a review of the qualifications of repair sources
for critical, nonproprietary repairs for which a source demonstration
is deemed necessary. The group participates in negotiation of the
legal and business agreements associated with these qualification
programs.
FIELD OPERATIONS DATA ANALYSIS
The following information is available to the airline customer from the
Field Operations Data Analysis organization:
- Composite Engine Parts List
- Industry Item Lists
- Service Bulletin Incorporation Lists
- Operating Experience Reports
COMPOSITE ENGINE PARTS LIST
The Composite Engine Parts List, a compilation of all saleable and
nonsaleable engine parts incorporated in production engines, describes
the configuration of each engine and identifies those engine parts for
which engineering changes, service bulletins and service instructions
have been issued.
INDUSTRY ITEM LISTS
An Industry Item List, consisting of a computer retrievable magnetic
tape and a hard copy printout, is provided after delivery of each new
engine to identify specific parts by part number and serial number
which the airline customer may choose to monitor during the engine
operational life. Listed parts represent approximately 80 percent of
engine total value.
SERVICE BULLETIN INCORPORATION LISTS
Lists are provided that identify all Service Bulletins which were not
incorporated and, separately, those which were incorporated during
initial build of each new engine.
OPERATION EXPERIENCE REPORTS
IAE will maintain a V2500 Operational Data base from which selected
engine operations and reliability summary reports will be developed and
made available on a scheduled basis to each airline customer. Data
reported by IAE Field Representatives serve as input to this data base.
This computerized data maintenance and retrieval system will permit:
- A pooling and exchange of service experience for the benefit
of the entire airline industry.
- A common statistical base.
- The selective querying of computer data files for answers to
customer inquiries. In addition to providing operations and
reliability reports, the Operating Experience Data Base serves
in-house programs directed at improving engine design and
enhancing overall customer support, including spare parts
provisioning and warranty administration.
V. SPARE PARTS GROUP
SPARE PARTS SUPPORT
The Spare Parts Group provides the following categories of spare parts
support to airline customers:
- Individual Customer Account Representatives
- Provisioning
- Planning
- Order Administration
- Spare Parts Inventory
- Effective Expedite Service
- Worldwide Distribution
ACCOUNT REPRESENTATIVE
An Account Representative is assigned to each customer using IAE
equipment. This representative provides individualized attention for
effective spare parts order administration, and is the customer's
interface on all matters pertaining to new part planning and
procurement. Each representative is responsible for monitoring each
assigned customer's requirements and providing effective administrative
support. The Account Representatives are thoroughly familiar with each
customer's spare parts ordering policies and procedures and are
responsible for ensuring that all customer new parts orders are
processed in an effective manner.
SPARE PARTS PROVISIONING PLANNING
Prior to delivery of the first new aircraft to an airline customer,
preplanning discussions will be held to determine the aircraft/engine
program, and engine spare parts provisioning and order plans. Mutually
agreed upon provisioning target dates are then established and on-time
completion tracked by the Customer Account Representative with the
assistance of
<PAGE> 30
logistics specialists in Spare Parts Provisioning and Inventory
Management. Meetings are held with airline customers at a mutually
agreeable time to review suggested spare parts provisioning lists
prepared by spare parts Provisioning. These lists are designed to
support each customer's particular fleet size, route structure and
maintenance and overhaul program.
ORDER ADMINISTRATION
IAE subscribes to the general principles of Air Transport Association
of America (ATA) Specification No. 200, Integrated Data Processing -
Supply. The procedures of Air Transport Association of America (ATA)
Specification No. 200 may be used for Initial Provisioning, (Chapter
II) Order Administration (either Chapter III or Chapter VI) Invoicing
(Chapter IV). A spare parts supply objective is to maintain a 90
percent on-time shipment performance record to our published lead
times. The lead time for replenishment spare parts is identified in the
IAE spare Parts Price Catalog. Initial provisioning spare parts orders
should be placed at least six months prior to required delivery, while
conversions and major modifications require full manufacturing lead
times.
The action to be taken on emergency requests will be answered as
follows:
- Aircraft-On-Ground (AOG) within four hours (in these
instances every effort is made to ship immediately).
- Critical (Imminent Aircraft-On-Ground (AOG) or Work
Stoppage) -- Within 24 hours.
- Stock Outage -- Within seven working days (these items are
shipped as per customer request).
SPARE PARTS INVENTORY
To ensure availability of spare parts in accordance with published lead
time, spare parts provisioning maintains a modern, comprehensive
requirements planning and inventory management system which is
responsive to changes in customer demand, special support programs and
engineering design. Organized on an engine model basis, this system is
intended to maintain part availability for delivery to customers
consistent with published lead times.
A majority of parts in the spare parts inventory are continually
controlled by an Automatic Forecasting and Ordering System. Those parts
which do not lend themselves to automatic control due to supercedure,
unusual usage or conversion requirements are under the direct manual
control of Spares Planning personnel. As additional protection against
changes in production lead time or unpredicted demand, certain raw
materials are also inventoried. Successful inventory management is
keyed to accurate requirements planning. In support of the requirements
planning effort, a wide ranging data retrieval and analysis program is
offered. This program concerns itself both with the customer logistics
and technical considerations as follows:
- Forecasts of life limited parts requirements are requested and
received semi-annually from major customers.
- Engine technical conferences are held frequently within IAE to
assess the impact of technical problems on parts.
- For a selected group of parts a provisioning conference system
is offered which considers actual part inventory change,
including usage and receipts, as reported monthly by
participating customers.
INITIAL PROVISIONING PARTS BUY-BACK
IAE offers an initial provisioning parts buy-back service, the details
of which are contained in individual customer spare parts contracts.
PACKAGING
All material is packaged in general compliance with Air Transport
Association of America (ATA) Specification No. 300.
WORLD AIRLINE SUPPLIERS' GUIDE
IAE subscribes to the supply objectives set forth in the World Airlines
Supplier's Guide published by the Air Transport Association of America
(ATA). IAE requires that its proprietary component vendors also perform
in compliance with the precepts of the World Airline Suppliers' Guide.
VI. BUSINESS SUPPORT GROUP
CUSTOMER MAINTENANCE SUPPORT
This Service provides the following services to airline and engine
maintenance shop customers:
- Engine Reliability and Logistics Cost Forecasts
- Logistics Support Studies
ENGINE RELIABILITY AND ECONOMIC FORECASTS
Engine reliability and economic forecasts in the forms of predicted
shop visit rates and maintenance costs can be provided to reflect the
airline customers' operating characteristics. Additionally, various
analyses can be conducted to establish life probability profiles of
critical engine parts, and to determine optimum part configuration and
engine operating procedures.
LOGISTICS SUPPORT STUDIES
As required, logistics studies are conducted to assist in the planning
of engine operational support. Such studies may include spare engine
and spare module requirements forecasts, level of maintenance analyses,
engine type economics evaluations and life cycle cost estimates.
<PAGE> 31
EXHIBIT D-1
IAE
INTERNATIONAL AERO ENGINES AG
V2500 ENGINE AND PARTS SERVICE POLICY
AWA AND IAE ACKNOWLEDGE THAT THIS EXHIBIT D-1 (SECTIONS I THROUGH VII) HAS NOT
BEEN AGREED UPON AS OF DECEMBER 23, 1994. CONTINGENT UPON AWA AND IAE REACHING A
MUTUAL AGREEMENT UPON THIS EXHIBIT D-1 ON OR BEFORE FEBRUARY 15, 1995, AWA AND
IAE HEREBY AGREE THAT IN ALL OTHER RESPECTS, HOWEVER, IAE AND AWA AGREE UPON THE
TERMS AND CONDITIONS OF THE V2500 SUPPORT CONTRACT, DATED DECEMBER 23, 1994.
IAE INTERNATIONAL AERO ENGINES AG AMERICA WEST AIRLINES, INC.
By:________________________________ By:________________________________
Title:_______________________________ Title:_______________________________
Date:_______________________________ Date:_______________________________
<PAGE> 32
IAE
INTERNATIONAL AERO ENGINES AG
V2500 ENGINE AND PARTS SERVICE POLICY
This Engine and Parts Service Policy ("Service Policy") is a statement
of the terms and conditions under which IAE International Aero Engines
AG ("IAE") will grant the Operators of new V2500 Engines certain
Allowances and adjustments in the event that Parts of such Engines
suffer Failure in Commercial Aviation Use, or in the event that a Parts
Life Limit is established or reduced.
This Service Policy becomes effective for the Operator's first new
V2500 Engine. This Service Policy is divided into seven sections:
Section I describes the Credit Allowances which will be granted
should the Engine suffer a Failure.
Section II describes the Credit Allowances which will be
granted should a Primary Part Suffer a Failure.
Section III lists the Class Life for those Primary Parts for
which Credit Allowances will be granted.
Section IV describes the Credit Allowances which will be
granted when the establishment or reduction of a
Parts Life Limit is mandated.
Section V describes the Credit Allowances and adjustments
which will be granted when IAE declares a Campaign
Change.
Section VI contains the definitions of certain words and
terms used throughout this Service Policy. These
words and terms are identified in the text of this
Service Policy by the use of initial capital letters
for such words and terms.
Section VII contains the general conditions governing the
application of this Service Policy.
<PAGE> 33
I. ENGINE FAILURE CREDIT ALLOWANCES
A. First Run Engine, Module and Part
1. A First Run Engine is an Engine with 3,000 hours or
less Engine Time, a First Run Module is a Module with
3,000 hours or less Module Time, and a First Run Part
is a Part with 3,000 hours or less Parts Time
operating in a First Run Engine or a First Run
Module.
2. If a First Run Part suffers Direct Damage or
Resultant Damage, and provided that the Part causing
Resultant Damage is also a First Run Part, IAE will
grant to the Operator:
a. A 100 percent Parts Credit Allowance for
any First Run Part Scrapped, or
b. A 100 percent Labor Credit Allowance for any
First Run Part Repaired.
3. If such Damage of a First Run Part requires the
removal of the Engine or a Module from the Aircraft,
IAE will, in addition to Subparagraph A.2. above,
grant to the Operator:
a. A 100 percent Labor Credit Allowance for
disassembly, reassembly and necessary
testing of the Engine or Module requiring
Reconditioning as a result of such Damage of
the First Run Part, and
b. A 100 percent Parts Credit Allowance for
those Expendable Parts required in the
Reconditioning of the Engine or Module.
4. If such Damage of a First Run Part requires the
removal of the Engine or a Module from the Aircraft,
IAE will arrange, upon request by the Operator, to
Recondition the Engine or Module or accomplish the
Parts Repair at no charge to the Operator rather than
providing the above Credit Allowances. Such work will
be accomplished at a V2500 Maintenance Center
designated by IAE. Transportation charges to and from
the Maintenance Center shall be paid by the Operator.
B. Extended First Run Engine, Module and Part
1. An Extended First Run Engine is an Engine with more
than 3,000 hours Engine Time but not more than 3,500
hours Engine Time, an Extended Run Module is a Module
with more than 3,000 hours Module Time, but not more
than 3,500 hours Module Time, and an Extended First
Run Part is a Part with 3,500 hours or less Parts
Time operating in an Extended First Run Engine or an
extended First Run Module.
2. If an Extended First Run Part suffers Direct Damage
or Resultant Damage, and provided that the Part
causing Resultant Damage is also an Extended First
Run Part, IAE will grant to the Operator:
a. A pro rata Parts Credit Allowance for any
Extended First Run Part Scrapped, or
b. A pro rata Labor Credit Allowance for any
Extended First Run Part Repaired.
If the Extended First Run Part is a Primary Part
(Section III), the pro rata Credit Allowances will be
based on l00 percent at 3,000 hours Engine Time which
then decreases, pro rata, to zero percent at 3,500
hours Engine Time, or, l00 percent to 2,000 hours
Parts Time which then decreases, pro rata, to zero
percent at the end of its Class Life (Section III),
whichever is greater. If the Extended First Run Part
is not a Primary Part, the pro rata Credit Allowances
will be based on l00 percent at 3,000 hours Engine
Time which then decrease, pro rata, to zero percent
at 3,500 hours Engine Time.
3. If such Damage of an Extended First Run Part requires
the removal of the Engine or a Module from the
Aircraft, IAE will, in addition to Subparagraph B.2.
above, grant to the Operator:
a. A pro rata Labor Credit Allowance for
disassembly, reassembly and necessary
testing of the Engine or Module requiring
Reconditioning as a result of such Damage of
the Extended First Run Part, and
b. A pro rata Parts Credit Allowance for those
Expendable Parts required in the
Reconditioning of the Engine or Module.
The pro rata Credit Allowances will be based on l00
percent at 3,000 hours Engine Time, which then
decreases, pro rata, to zero percent at 3,500 hours
Engine Time.
Note: Section VI, Paragraph D. contains the formulas to be used for
computing the Credit Allowances described above.
<PAGE> 34
C. Engine or Module Failure Credit Allowances Illustration
[A GRAPHICAL REPRESENTATION OF SECTION I, PARAGRAPHS A AND B
APPEARS HERE]
Note: The Primary Parts Credit Allowances Illustration (Section II,
Paragraph B) is also applicable to the Credit Allowances which
are based on Parts Time as described in Section I,
Subparagraph B.2.
II. PRIMARY PARTS CREDIT ALLOWANCE
A. Primary Parts Other Than First Run Parts or Extended First Run
Parts
1. Primary Parts are limited to those Parts listed in
Section III while such Parts are within the Class
Life indicated in Section III.
2. The Primary Parts Credit Allowances described in
Subparagraph A.3 below will be based on l00 percent
to 2,000 hours total Parts Time which then decreases,
pro rata, to zero percent at the end of the
applicable hourly Class Life.
3. If a Primary Part suffers Direct Damage or Resultant
Damage, and provided that the Part causing Resultant
Damage is also a Primary Part, IAE will grant to the
Operator:
a. A Parts Credit Allowance for any Primary
Part Scrapped, or
b. A Labor Credit Allowance for any Primary
Part Repaired in accordance with a
Parts Repair designated in writing by IAE as
being eligible for a Credit Allowance under
this Section II, Paragraph A.
Note: Section VI, Paragraph D. contains the formulas to be used
for computing the Credit Allowances described above.
B. Primary Parts Credit Allowances Illustration
[A GRAPHICAL REPRESENTION OF SECTION II, PARAGRAPH A, APPEARS
HERE]
A = CLASS A PRIMARY PARTS (Page 5)
B = CLASS B PRIMARY PARTS (Page 6)
C = CLASS C PRIMARY PARTS (Page 6)
III IDENTIFICATION OF PRIMARY PARTS
The following Parts are defined as Primary Parts while such Parts are
within the Class Life indicated. Class Life is the period, expressed in
either hours or Parts Time or number of Parts Cycles during which IAE
will grant Credit Allowances for Primary Parts which suffer Direct
Damage or Resultant Damage, or for which a Parts Life Limit is
established or reduced.
CLASS A (4,000 HOURS PARTS TIME)
Cold Section Rotating Parts LP Compressor Inlet Cone - Spinner
LP Compressor 1st Stage Blade - Fan
LP Compressor 1st Stage Blade Annulus Fillers
LP Compressor 2nd Stage Blade
Radial Drive Bevel Gear
Tower Shaft
HP Compressor 3 through 12th Stage Blades
HP Compressor Front and Rear Rotating Airseals
LP Turbine Shaft Coupling Nut
Cold Section Static Parts
Fan Splitter Fairing
LP Compressor Stage 2 Inlet and Exhaust Stator Assembly
HP Compressor Stage 3 to Stage 6 Variable Stator Assembly
Fan Aerodynamic OGV's
HP Compressor Stage 6 to ll Stator Assembly
HP Compressor Exit Stator
Hot Section Rotating Parts
HP Turbine Stage 1 and 2 Blade
HP Turbine Gage Spacer
HP Turbine Lock Nut
LP Turbine Stage 3 to 7 Blades
LP Turbine Lock Nut
Hot Section Static Parts
Fuel Injector
Combustion Chamber Assembly
HPT First Stage Cooling Duct Assembly (TOBI Duct)
HPT lst and 2nd Stage Nozzle Guide Vane Assembly
HPT lst and 2nd Stage Outer Airseal Assembly
HP to LP Turbine Transition Duct (Inner & Outer)
LPT Stage 3 to 7 Nozzle Guide Vane Assembly
LPT Stage 3 to 7 Outer Airseal Assembly
Main and Angle Gearbox
Gearshafts and Bearings
Lay Shaft
All Accessory Drive Shafts
Gearbox Oil Pumps (Pressure and Scavenge)
CLASS B (8,000 HOURS PARTS TIME)
Fan Case Assembly (Includes Intermediate Case)
HP Compressor Front Casings (Split Casings)
HP Compressor Rear Casings
Diffuser Case
HP Turbine Case
LP Turbine Case
Turbine Exhaust Case
Main Gearbox Casing
Oil Tank
CLASS C (20,000 HOURS PARTS TIME FOR DAMAGE
15,000 PARTS CYCLES FOR LIFE LIMIT REDUCTION)
Fan Disk
LPC Drum
HPC 1 to 6 Drum
HPC 7 to 10 Drum
HP Turbine Stage 1 and 2 Disks
HP Turbine Spacer Disk
HP Turbine Stage 1 Front Rotating Airseal
HP Turbine 2nd Stage Disk Rear Seal
LP Turbine Stage 3-7 Disks
LP Turbine Stage 3-7 Rotating Airseals
Shafts
<PAGE> 35
IV PARTS LIFE LIMIT ALLOWANCES
A. A Parts Life Limit is the maximum allowable Parts Time or
Parts Cycles for specific Parts as established by IAE and
the United States Federal Aviation Administration.
B. Credit Allowances
1. Class A and Class B Primary Parts
If a Parts Life Limit is established which results in
Part Scrappage at less than 4,000 hours Parts Time
for a Class A Primary Part or less than 8,000 hours
Parts Time for a Class B Primary Part, IAE will grant
for each such Primary Part Scrapped as a result
thereof, a Parts Credit Allowance based on 100
percent to 2,000 hours total Parts Time which then
decreases, pro rata, to zero percent at the end of
4,000 hours total Parts Time for a Class A Primary
Part or 8,000 hours total Parts Time for a Class B
Primary Part.
2. Class C Primary Parts
If a Parts Life Limit is established for a Class C
Primary Part which results in Part Scrappage in less
than l5,000 total Parts Cycles, IAE will grant for
each such Primary Part Scrapped as a result thereof,
a Parts Credit Allowance based on 100 percent to
10,000 total Parts Cycles which then decreases, pro
rata, to zero percent at 15,000 total Parts Cycles.
In addition, IAE will grant a similarly calculated
Labor Credit Allowance and Parts Credit Allowance for
that labor and those Expendable Parts which are
solely related to the removal and replacement of such
Class C Primary Parts and is additional to other
maintenance being performed on the Engine or Module.
Note: Section VI, Paragraph D. contains the formulas to be used for
computing the Credit Allowances described above.
C. Parts Life Limit Credit Allowances Illustrations
[A GRAPHICAL REPRESENTATION OF SECTION IV, PARAGRAPH B-1
APPEARS HERE]
A = CLASS A PRIMARY PARTS (Page 5)
B = CLASS B PRIMARY PARTS (Page 6)
[A GRAPHICAL REPRESENTATION OF SECTION IV, PARAGRAPH B-2
APPEARS HERE]
C = CLASS C PRIMARY PARTS (Page 6)
<PAGE> 36
V CAMPAIGN CHANGE CREDIT ALLOWANCES AND ADJUSTMENTS
A. A Campaign Change is an IAE program, so designated in writing,
for the Reoperation, replacement, addition, or deletion of a
Part(s). IAE will grant the Credit Allowances and Adjustments
specified in this Section V to the Operator when Campaign
Change recommendations are complied with by the Operator.
B. Standard Allowances
1. A 100 percent Parts Credit Allowance for the
replacing Parts specified in the Campaign Change for
installed Parts or serviceable shelf stock Parts
which are Scrapped with 3,000 hours or less total
Parts Time.
2. A pro rata Parts Credit Allowance for the replacing
Parts specified in the Campaign Change for installed
Parts or serviceable shelf stock Parts which are
Scrapped with more than 3,000 hours total Parts Time
but less than 3,500 hours total Parts Time. The pro
rata Parts Credit Allowance will be based on 100
percent at 3,000 hours total Parts Time which then
decreases, pro rata, to 50 percent at 3,500 hours
total Parts Time.
3. A 50 percent Parts Credit Allowance for the replacing
Parts specified in the Campaign Change for installed
Parts or serviceable shelf stock Parts which are
Scrapped with more than 3,500 hours total Parts Time.
4. A 100 percent Labor Credit Allowance for Reoperation
of installed Parts or serviceable shelf stock Parts
with 3,000 hours or less total Parts Time which are
Reoperated in accordance with the Campaign Change.
5. A pro rata Labor Credit Allowance for Reoperation of
installed Parts or serviceable shelf stock Parts with
more than 3,000 hours total Parts Time but less than
3,500 hours total Parts Time which are Reoperated in
accordance with the Campaign Change. The pro rata
Labor Credit Allowance will be based on 100 percent
at 3,000 hours total Parts Time which then decreases,
pro rata, to 50 percent at 3,500 hours total Parts
Time.
6. A 50 percent Labor Credit Allowance for Reoperation
of installed Parts or serviceable shelf stock Parts
with more than 3,500 hours total Parts Time which are
Reoperated in accordance with the Campaign Change.
7. A 100 percent Labor Credit Allowance for disassembly
and reassembly of the Engine or Module, if the
disassembly of the Engine or Module is recommended by
IAE for accomplishment of the Campaign Change and
such disassembly is performed solely for the purpose
of accomplishing the Campaign Change.
Note: Section VI, Paragraph D. contains the formulas to be used for
computing the Credit Allowances described above.
C. Campaign Change Credit Allowances Illustration
[A GRAPHICAL REPRESENTATION OF SECTION V, PARAGRAPH B,
APPEARS HERE]
Note: The Labor Credit Allowance for Engine or Module disassembly and
reassembly remains at a constant 100%.
D. Optional Credit Allowances and Adjustments
1. When IAE declares a Campaign Change, IAE, at its sole
option, may grant to the Operator Credit Allowances
and adjustments, such as, but not necessarily limited
to:
a. No Charge material.
b. Specifically priced material.
c. Single credit settlements for the Operators'
fleet.
d. Fixed Credit Allowance support for each
Engine.
2. These optional Credit Allowances and Adjustments may
be provided: a. Instead of the standard Credit
Allowances of Section V, Paragraph B., b. In addition
to the standard Credit Allowances of Section V,
Paragraph B or c. As a portion of the standard Credit
Allowances of Section V, Paragraph B.
3. In no event shall the worth to the Operator, as
reasonably determined by IAE, be less than the amount
that would have been granted to the Operator as a
standard Campaign Change Credit Allowance, per
Section V, Paragraph B. In considering the use of
these optional Credit Allowances and adjustments, IAE
will attempt to minimize the financial and
administrative impact on the Operator.
<PAGE> 37
VI DEFINITIONS
A. CAMPAIGN CHANGE is an IAE program, so designated in writing,
for the Reoperation, replacement, addition or deletion of
Part(s) and is characterized by the granting of certain Credit
Allowances to the Operator when such program recommendations
are complied with by the Operator.
B. CLASS LIFE is the period, expressed in either hours of Part
Time or number of Parts Cycles, during which IAE will grant
Credit Allowances for Primary Parts which suffer Direct Damage
or Resultant Damage, or for which a Parts Life Limit is
established or reduced.
C. COMMERCIAL AVIATION USE is the operation of Engines in
Aircraft used for commercial, corporate or private transport
purposes. The operation of Engines by government agencies or
services is normally excluded except that IAE will consider
written requests for the inclusion of such Engines under the
provisions of this Service Policy.
D. CREDIT ALLOWANCES
1. PARTS CREDIT ALLOWANCE is an amount determined in
accordance with the following formulas:
a. 100 percent Parts Credit Allowance = P
b. 50 percent Parts Credit Allowance = P/2
c. Pro rata Parts Credit Allowance =
(1) For a Primary Part which suffers
Direct or Resultant Damage, or a
Class A or Class B Primary Part for
which a Parts Life Limit is
established:
Lt - T
________ x P
Lt
(2) For a Class C Primary Part for which
a Parts Life Limit is established,
which is greater than 10,000 total
Parts Cycles but is less than 15,000
total Parts Cycles:
Lc - C
________ x P
Lc
(3) For replacement of a Part because of
a Campaign Change, when such a Part
has more than 3,000 hours Parts Time
but less than 3,500 hours Parts
Time:
4,000 - T
___________ x P
l,000
d. Extended First Run Parts Credit Allowance =
3,500 - E Lt - T
_________ x P or ________ x P
500 Lt
2. LABOR CREDIT ALLOWANCE is an amount determined in
accordance with the following formulas, except that
in no event shall the amount to be granted for repair
of Parts exceed the amount of the Parts Credit
Allowance which would have been granted if the Part
had been Scrapped:
a. 100 percent Labor Credit Allowance = H x R
b. 50 percent Labor Credit Allowance = H x R
c. Pro rata Labor Credit Allowance =
(1) For a Primary Part which suffers
Direct or Resultant Damage, or a
Class A or Class B Primary Part for
which a Parts Life Limit is
established:
Lt - T
________ x H x R
Lt
(2) For a Class C Primary Part for which
a Parts Life Limit is established
which is greater than l0,000 total
Parts Cycles but is less than l5,000
total Parts Cycles:
Lc - C
________ x H x R
Lc
(3) For replacement of a Part because of
a Campaign Change, which such a Part
has more than 3,000 hours Parts Time
but less than 3,500 hours Parts
Time:
4,000 - T
_________ x H x R
1,000
d. Extended First Run Labor Credit Allowance =
3,500 - E Lt - T
_________ x H x R or ______ x H x R
500 Lt
<PAGE> 38
3. The variables used in calculating the above
allowances are defined as:
P = a. For a Part Scrapped because of
Direct Damage, Resultant Damage or a
Parts Life Limit being established,
the IAE commercial price of the Part
Scrapped current at the time of
either the Engine removal or Part
removal, whichever occurs sooner, or
b. For replacement of a Part because of
a Campaign Change, the IAE
commercial price of the replacing
Part specified in the Campaign
Change current at the time of
notification to the Operator of the
Campaign Change.
T = a. For a Primary Part which has
suffered Direct Damage or Resultant
Damage, the actual Parts Time on the
Part minus 2,000 hours, or
b. For a Class A or Class B Primary
Part for which a Parts Life Limit is
established, the actual Parts Time
on the Part minus 2,000 hours, or
the Parts Life Limit minus 2,000
hours, whichever is greater, or
c. For replacement of a Part because of
a Campaign Change, when such a Part
has more than 3,000 hours Parts Time
but less than 3,500 hours Parts
Time, the actual Parts Time on the
Part.
C = For a Class C Primary Part for which a
Parts Life Limit is established which is
greater than l0,000 Total Parts Cycles but
less than 15,000 Total Parts Cycles, the
greater of either:
a. The actual Parts Cycles on the Part
minus 10,000 cycles, or
b. The new Parts Life Limit minus
10,000 Cycles.
Lt = Either:
a. For a Primary Part which has
suffered Direct Damage or Resultant
Damage, the hours indicated in
Section III minus 2,000 hours, or
b. For a Class A or Class B Primary
Part for which a Parts Life Limit is
established, the hours indicated in
Section III minus 2,000 hours.
Lc = For a Class C Primary Part for which a
Parts Life Limit is established which is
greater than 10,000 total Parts Cycle, 5,000
Cycles.
H = The man-hours required to accomplish the
work as established in writing by IAE.
R = The labor rate, expressed in U.S. Dollars
per hour, which will be determined
as follows:
a. If the labor is performed at the
Operator's facility, or its
subcontractor's facility, the labor
rate will be the greater of the
Operator's labor rate or the
subcontractor's labor rate, where
the labor rates were determined in
accordance with IAE Form _____ and
provided to the Operator in writing,
or
b. If the labor is performed by IAE,
the labor rate will be the
then-current labor rate of IAE.
E = Actual Engine Time on an Extended First
Run Engine.
E. DIRECT DAMAGE is the damage suffered by a Part itself upon its Failure.
F. ECONOMICALLY REPAIRABLE shall generally mean that the cost of the repair
as determined by IAE, exclusive of modification and transportation costs,
will be equal to or less than 65 percent of the IAE commercial price of
the Part at the time the repair is considered, or, shall be as otherwise
reasonably determined by IAE.
G. ENGINE(S) means those V2500 Engine(s), as described by IAE Specifications
sold by IAE for Commercial Aviation Use, whether installed as new
equipment in aircraft by the manufacturer thereof and delivered to the
Operator or delivered directly to the Operator from IAE for use as a spare
Engine. An Engine which has been converted or upgraded in accordance with
IAE instructions shall continue to qualify for Credit Allowances and
Adjustments under the provisions of this Service Policy.
H. ENGINE OR MODULE TIME is the total number of flight hours of operation of
an Engine or a Module.
I. EXPENDABLE PARTS means those nonreusable Parts, as determined by IAE,
which are required to be replaced during inspection or Reconditioning,
regardless of the condition of the Part.
J. EXTENDED FIRST RUN ENGINE OR MODULE is an Engine or Module with more than
3,000 hours Engine or Module Time but not more than 3,500 hours Engine or
Module Time.
K. EXTENDED FIRST RUN PART means a Part with 3,500 hours or less Parts Time
operating in an Extended First Run Engine.
L. FAILURE (FAILED) is the breakage, injury, or malfunction of a Part
rendering it unserviceable and incapable of continued operation without
corrective action.
M. FIRST RUN ENGINE OR FIRST RUN MODULE is an Engine or Module with 3,000
hours or less Engine or Module Time.
<PAGE> 39
N. FIRST RUN PART is an Engine Part with 3,000 hours or less
Parts Time operating in a First Run Engine.
O. MODULE(S) means any one or more of the following assemblies of
Parts: Fan Assembly and Low Pressure Compressor Assembly High
Pressure Compressor Assembly High Pressure Turbine Assembly
Low Pressure Turbine Assembly Main gearbox Any other Assembly
of Parts so designated by IAE
P. OPERATOR is the owner of one or more Engines operated for
Commercial Aviation Use, the lessee if such Engine(s) is the
subject of a long-term financing lease or as otherwise
reasonably determined by IAE.
Q. PART(S) means Engine parts sold by IAE and delivered to the
Operator as original equipment in an Engine or Engine parts
sold and delivered by IAE to the Operator as new spare parts
in support of an Engine.
R. PARTS CYCLE(S) means the aggregate total number of times a
Part completes an Aircraft takeoff and landing cycle, whether
or not thrust reverser is used on landing. As pilot training
will involve extra throttle transients such as touch and go
landings and takeoffs, IAE shall evaluate such transients for
Parts Cycle determination.
S. PARTS LIFE LIMIT is the maximum allowable total Parts Time or
total Parts Cycles for specific Parts, including Reoperation
if applicable, as established by IAE or by the United States
Federal Aviation Administration. Parts Life Limits are
published in the Time Limits Section (Chapter 05) of the
applicable V2500 Series Engine Manual.
T. PARTS REPAIR means the IAE designated restoration of Failed
Parts to functional serviceable status, excluding repair of
normal wear and tear, as determined by IAE.
U. PARTS TIME is the total number of flight hours of operation of
a Part.
V. PRIMARY PART(S) are limited to those Parts listed in Section
III while such Parts are within the Class Life indicated in
Section III.
W. RECONDITIONING means the restoration of an Engine or Module
allowing substitution of new or serviceable used Parts, to the
extent necessary for continued operation of the Engine or
Module as a serviceable unit. When such Reconditioning is
performed by IAE, the Parts Time or Parts Cycles, as
applicable, of the replaced Part shall, for the purpose of
this Service Policy, be applicable to the substituted new or
serviceable used Part. Said replaced Part shall become the
property of IAE.
X. REOPERATION is the alteration to or modification of a Part.
Y. RESULTANT DAMAGE is the damage suffered by a Part because of
the Failure of another Part within the same Engine.
Z. SCRAPPED PARTS (SCRAP, SCRAPPED, SCRAPPAGE) shall mean those
Parts determined by IAE to be unserviceable and not
Economically Repairable. The Operator shall cause such Parts
to be mutilated or disposed of in such a manner as to preclude
any possible further use as an Engine Part.
VII GENERAL CONDITIONS
The following general conditions govern the application of this Service
Policy:
A. Records and Audit
The Operator shall maintain adequate records for the
administration of this Service Policy and shall permit IAE to
audit such records at reasonable intervals.
B. Scrapping of Parts
1. Scrappage Verification
Any Part for which a Parts Credit Allowance is
requested shall be verified as Scrapped prior to the
issuance of the Parts Credit Allowance. Verification
of Scrappage shall occur as follows:
a. At the Operator's, or its subcontractor's,
facility. Such verification shall be
accomplished by the IAE Field
Representative.
b. At IAE, provided that IAE concurs that the
Part is to be Scrapped. Sufficient
information to identify the Part, the Engine
from which the Part was removed, and the
reason for its return shall be provided.
2. Return of Parts
IAE, at its sole option, may require the Operator to
return to IAE any Part for which a Parts Credit
Allowance is requested. Such return shall be a
condition for the issuance of a Parts Credit
Allowance.
3. Transportation Expenses
Transportation expenses shall be at the expense of
the Operator if such Parts are shipped to and from
IAE for examination and verification; except that IAE
shall pay the expense if such Parts as are shipped at
the request of IAE.
4. Title
Title to such Parts returned to IAE shall vest in
IAE:
a. Upon determination by IAE that the Operator
is eligible for a Parts Credit Allowance. If
it is determined that the Parts are scrapped
Parts but are not eligible for Service
Policy coverage, the Operator will be
notified of the decision and the Parts
returned at the Operator's expense if the
Operator so requests; otherwise, the Parts
will be disposed of by IAE without any type
of adjustment, or
<PAGE> 40
b. Upon shipment, when such Parts are
determined to be Scrap at the Operator's
facility and are shipped to IAE at the
request of IAE.
C. Repairability Requirements
The Operator shall set aside and exclude from the operation of
this Service Policy for a period of six months any Part for
which IAE states it has, or plans to initiate, an active
program to achieve a repair, corrective Reoperation or Parts
Life Limit extension. In the event IAE has not released a
repair procedure, corrective Reoperation, or Parts Life Limit
extension by the expiration of this six month period, such
Part shall be retained by the Operator and excluded from the
operation of this Service Policy for additional periods beyond
the expiration of said six month period only if agreed to by
the Operator.
D. Exclusions from Service Policy
This Service Policy will not apply to any Engine, Module or
Part if it has been determined to the reasonable satisfaction
of IAE that said Engine, Module or Part has Failed because it:
1. Has not been properly installed or maintained in
accordance with IAE recommendations unless such
improper installation or maintenance was performed by
IAE, or
2. Has been used contrary to the operating and
maintenance instructions or recommendations
authorized or issued by IAE and current at the time,
or
3. Has been repaired or altered other than by an IAE
designated V2500 Maintenance Center in such a way as
to impair its safety, operation or efficiency, or
4. Has been subjected to:
a. Misuse, neglect, or accident, or
b. Ingestion of foreign material, or
5. Has been affected in any way by a part not defined as
a Part herein, or
6. Has been affected in any way by occurrences not
associated with ordinary use, such as, but not
limited to, acts of war, rebellion, seizure or other
belligerent acts.
E. Payment Options
IAE at its option may grant any Parts Credit Allowance as
either a credit to the Operator's account with IAE or as a
Part replacement.
F. Presentation of Claims
Any request for a Credit Allowance must be presented to IAE
not later than 180 days after the removal from service of the
Engine or Part for which the Credit Allowance is requested. If
IAE disallows the request, written notification will be
provided to the Operator. The Operator shall have 90 days from
such notification to request a reconsideration of the request
for Credit Allowance. IAE shall have the right to refuse any
request for a Credit Allowance which is not submitted within
the stated time periods.
G. Duration of Service Policy
This Service Policy will normally cease to apply to all Parts
in any Engine that is more than ten years old as measured from
the date of shipment of the Engine from the factory. Unless
advised to the contrary by IAE, this Service Policy shall,
however, continue to be applicable to individual Engines after
the expiration of the ten year period on a year to year basis
so that the Operator may continue to receive the benefits of
the Service Policy on the Parts in these Engines.
H. General Administration
On matters concerning this Service Policy, the Operator is
requested to address all correspondence to:
IAE International Aero Engines AG
Corporate Center II
628 Hebron Avenue
Glastonbury, Connecticut 06033-2595 USA
Attention: Warranty Administration
I. Limitation of Liability
1. The express provisions of this Service Policy set
forth the maximum liability of IAE with respect to
any claims relating to this Service Policy. In the
event of any conflict or inconsistency between the
express provisions of this Service Policy and any
Illustrations contained herein, the express
provisions shall govern.
2. Except to the extent that the Credit Allowances and
adjustments expressly set forth in this Service
Policy may exceed the limitations of the
corresponding portions of any warranties or
representations included in any sales agreements, the
provisions of this Service Policy do not modify,
enlarge or extend in any manner the conditions
governing the sale of its Engines and Parts by IAE.
<PAGE> 41
3. IAE reserves the right to change or retract this
Service Policy at any time at its sole discretion. No
such retraction or change shall diminish the benefits
which the Operator may be entitled to receive with
respect to Engines for which an acceptable order has
been placed with IAE or with respect to aircraft with
installed Engines for which a firm unconditional
order has been placed with the aircraft manufacturer
prior to the announcement of any such retraction or
change.
J. Assignment of Service Policy
This Service Policy shall not be assigned, either in whole or
in part, by either party. IAE will, however, upon the written
request of the Operator consider an extension of Service
Policy Credit Allowances and adjustments to Engines, Modules
and Parts sold or leased by an Operator to another Operator,
to the extent only, however, that such Credit Allowances and
adjustments exist at the time of such sale or lease and
subject to the terms and conditions of the Service Policy. IAE
shall not unreasonably withhold such extension of such Credit
Allowances.
<PAGE> 42
Exhibit D-2
IAE
INTERNATIONAL AERO ENGINES AG
V2500 NACELLE AND PARTS SERVICE POLICY
Issued: November 16, 1988
<PAGE> 43
IAE
INTERNATIONAL AERO ENGINES AG
V2500 NACELLE AND PARTS SERVICE POLICY
This Nacelle and Parts Service Policy (Service Policy) is a statement of the
terms and conditions under which IAE International Aero Engines AG ("IAE") will
grant the Operators of its V2500 Nacelles certain Allowances and adjustments in
the event that Parts of such Nacelles suffer Failure in service.
This Service Policy is divided into four sections:
<TABLE>
<S> <C> <C>
Section I describes the Allowances and adjustments which Page 1
will be granted should the Nacelle or Part(s)
suffer a Failure.
Section II describes the Allowances and adjustments which Page 2
will be granted when IAE declares a Campaign
Change.
Section III contains the definitions of certain words and Page 3
terms used throughout this Service Policy.
These words and terms are identified in the
text of this Service Policy by the use of
initial capital letters for such words and terms.
Section IV contains the general conditions governing the Page 6
application of this Service Policy.
</TABLE>
<PAGE> 44
I ALLOWANCES AND ADJUSTMENTS
A. First Run Nacelle and Part
1. A First Run Nacelle is a Nacelle with 6,000 hours or less
Nacelle Time and a First Run Part is a Part with 6,000
hours or less Parts Time operating in a First Run Nacelle.
2. If a First Run Part suffers Direct Damage or Resultant
Damage, and provided that the Part causing Resultant
Damage is also a First Run Part:
a. IAE will grant to the Operator:
(1) A 100 percent Parts Credit Allowance for any
such First Run Part Scrapped, and
(2) A 100 percent Labor Allowance for Parts
Repair of any First Run Part requiring Parts
Repair.
b. If such Damage of a First Run Part causes the
removal of the Nacelle from the Aircraft, IAE will,
in addition to Subparagraph a. above, grant to the
Operator:
(1) A 100 percent Labor Allowance for
disassembly, reassembly and necessary testing
of the Nacelle requiring Reconditioning as a
result of such Damage of the First Run Part,
and
(2) A 100 percent Parts Credit Allowance for
those Expendable Parts required in the
Reconditioning of the Nacelle.
c. If such Damage of a First Run Part causes the
removal of the Nacelle from the Aircraft, IAE will
arrange, upon request by the Operator, to
Recondition the Nacelle or accomplish the Parts
Repair at no charge to the Operator rather than
providing the above Allowances. Such work will be
accomplished at a V2500 Maintenance Center
designated by IAE. Transportation charges to and
from the Maintenance Center shall be paid by the
operator.
B. Primary Part
1. A Primary Part is a Part other than a First Run Part
but having not more than 6,000 hours Parts Time.
2. Primary Parts not eligible for those Allowances
granted to First Run Parts are eligible for
Allowances under this Section I, Paragraph B.,
provided that the Primary Part suffers Direct Damage
or Resultant Damage and Provided that the Part
causing Resultant Damage is also a Primary Part.
3. IAE will grant to the Operator a Parts Credit
Allowance for such a Primary Part Scrapped or a Labor
Allowance for such a Primary Part for which a Parts
Repair is designated in writing by IAE as being
eligible for adjustment under this Section I,
Paragraph B. Such Allowance will be based on 100
percent to 1,000 hours total Parts Time which then
decreases, pro rata, to zero percent at 6000 hours
Parts time.
II CAMPAIGN CHANGE ALLOWANCES AND ADJUSTMENTS
A. A Campaign Change is an IAE program, so designated in writing, for the
Reoperation, replacement, addition, or deletion of a Part(s). IAE
will grant the Allowances and adjustments specified in this Section II
to the Operator when Campaign Change recommendations are complied with
by the Operator.
B. Standard Allowances
1. A 100 percent Parts Credit Allowance for the replacing Parts
specified in the Campaign Change for installed or serviceable
shelf stock Nacelle Parts which are Scrapped with 6,000 hours
or less total Parts Time.
2. A 50 percent Parts Credit Allowance for the replacing Parts
specified in the Campaign Change for installed or serviceable
shelf stock Nacelle Parts which are Scrapped with more than
6,000 hours total Parts Time.
3. A 100 percent Labor Allowance for Reoperation of installed or
serviceable shelf stock Nacelle Parts with 6,000 hours or less
total Parts Time, which are Reoperated in accordance with the
Campaign Change.
4. A 50 percent Labor Allowance for Reoperation of installed or
serviceable shelf stock Nacelle Parts with more than 6,000
hours total Parts Time, which are Reoperated in accordance
with the Campaign Change.
5. A 100 percent Labor Allowance for disassembly and reassembly
of the Nacelle, if the disassembly is recommended by IAE for
accomplishment of the Campaign Change and such disassembly is
performed solely for the purpose of accomplishing the Campaign
Change.
C. Optional Allowances and Adjustments
1. When IAE declares a Campaign Change, IAE, at its sole option,
may grant to the Operator allowances and adjustments, such as,
but not necessarily limited to:
a. No charge material
b. Specially priced material
c. Single payment settlements for the Operators' fleet
d. Fixed allowance support for each Nacelle.
<PAGE> 45
2. These optional allowances and adjustments will be provided
either:
a. Instead of the standard Allowances of Paragraph B.,
b. In addition to the standard Allowances of Paragraph
B., or
c. As a portion of the standard Allowances of Paragraph
B.
3. In no event shall the worth to the Operator, as reasonably
determined by IAE, be less than the amount that would have
been granted to the Operator as a standard Campaign Change
Allowance, per Paragraph B. In considering the use of these
optional allowances and adjustments, IAE will attempt to
minimize the financial and administrative impact on the
Operator.
III DEFINITIONS
A. ALLOWANCES
1. PARTS CREDIT ALLOWANCE is an amount determined in accordance
with the following formula:
a. 100 percent Parts Credit Allowance = P
b. 50 percent Parts Credit Allowance = P/2
c. Pro rata Parts Credit Allowance = 6,000 - T
_________ x P
5,000
2. LABOR ALLOWANCE is an amount determined in accordance with the
following formulas, except that in no event shall the amount
to be granted for repair of Parts exceed the amount of the
Parts Credit Allowance which would have been granted if the
Part had been Scrapped.
a. 100 percent Labor Allowance = H x R
b. 50 percent Labor Allowance = H x R
2
c. Pro rata Labor Allowance = 6,000 - T
_________ x H x R
5,000
3. The variables used in calculating the above Allowances are
defined as:
P = for a Part Scrapped because of Direct Damage or
Resultant Damage, the IAE commercial price of the Part
Scrapped current at the time of either the Nacelle
removal or Part removal, whichever occurs sooner, or
for replacement of Parts because of a Campaign Change,
the IAE price of the replacing Part specified in the
Campaign Change current at the time of notification to
the Operator of the Campaign Change.
T = actual Parts Time hours on a Part which has suffered
Direct Damage or Resultant Damage or the Parts Life
Limit as established for the Part.
H = the man-hours required to accomplish the work as
established in writing by IAE.
R = the labor rate, expressed in dollars per hour, which
will be determined as follows:
a. If the labor is performed at the Operator's
facility, or its subcontractor's facility,
the labor rate will be the greater of the
Operator's labor rate or the subcontractor's
labor rate, where the labor rates were
determined in accordance with IAE Form and
provided to the Operator in writing, or
b. If the labor is performed at a V2500
Maintenance Center designated by IAE, the
labor rate will be the then current labor
rate at that Center.
B. CAMPAIGN CHANGE is an IAE program, so designated in writing,
for the Reoperation, replacement, addition or deletion of a
Part(s) and is characterized by the granting of certain
Allowances to the Operator when such recommendations are
complied with by the Operator.
C. COMMERCIAL AVIATION USE is the operation of Nacelles in
Aircraft used for commercial, corporate or private transport
purposes. The operation of Nacelles by Government Agencies or
Services is normally excluded except that IAE will consider
written requests for the inclusion of such Nacelles under the
provisions of this Service Policy.
D. DIRECT DAMAGE is the damage suffered by a Part itself upon its
Failure.
E. ECONOMICALLY REPAIRABLE shall generally mean that the cost of
the repair as determined by IAE exclusive of modification and
transportation costs, will be equal to or less than 65 percent
of the IAE commercial price of the Part at the time the repair
is considered, or, shall be as otherwise reasonably determined
by IAE.
F. EXPENDABLE PARTS means those nonreusable Parts, as determined
by IAE, which are required to be replaced during inspection or
Reconditioning, regardless of the condition of the Part.
G. FAILURE (FAILED) is the breakage, injury, or malfunction of a
Part rendering it unserviceable and incapable of continued
operation without corrective action.
H. FIRST RUN NACELLE is a Nacelle with 6,000 hours or less
Nacelle Time.
I. FIRST RUN PART is a Nacelle Part with 6,000 hours or less
Parts Time operating in a First Run Nacelle.
<PAGE> 46
J. NACELLE(S) means V2500 nacelle(s) and thrust reverser, as
described in IAE Specifications referenced below, as such
Specifications may be revised from time to time, sold by IAE
for Commercial Aviation Use, whether installed as new
equipment in aircraft by the manufacturer thereof and
delivered to the Operator or delivered directly to the
Operator from IAE for use as a spare nacelle. A Nacelle which
has been converted or upgraded in accordance with IAE
instructions shall continue to qualify for Allowances and
adjustments under the provisions of this Service Policy.
Model No. Specification No. Specification Date
V2500 -- ____________,198__
K. NACELLE TIME is the total number of flight hours of operation
of a Nacelle.
L. OPERATOR is the owner of one or more Nacelles operated for
Commercial Aviation use, the lessee if such Nacelle(s) is the
subject of a long-term financing lease or as otherwise
reasonably determined by IAE.
M. PART(S) means Nacelle parts sold by IAE and delivered to the
Operator as original equipment in a Nacelle or Nacelle parts
sold and delivered by IAE to the Operator as new spare parts
in support of a Nacelle.
N. PARTS LIFE LIMIT is the maximum allowable Parts Time, for
specific Parts as established by IAE or by the Federal
Aviation Administration in an Airworthiness Directive.
O. PARTS REPAIR means the IAE designated restoration of Failed
Parts to functional serviceable status, excluding repair of
normal wear and tear, as determined by IAE.
P. PARTS TIME is the total number of flight hours of operation of
a Part.
Q. PRIMARY PART means a Part other than a First Run Part but not
having more than 6,000 hours Parts Time.
R. RECONDITIONING means the restoration of a Nacelle allowing
substitution of new or serviceable used Parts, to the extent
necessary for continued operation of the Nacelle as a
serviceable unit. When such Reconditioning is performed by
IAE designated V2500 Maintenance Center, the Parts Time, of
the replaced Part shall, for the purpose of this Service
Policy, be applicable to the substituted new or serviceable
used Part. Said replaced Part shall become the property of
IAE.
S. REOPERATION is the alternation to or modification of a Part.
T. RESULTANT DAMAGE is the damage suffered by a Part because of
the Failure of another Part within the same Nacelle.
U. SCRAPPED PARTS (SCRAP, SCRAPPED, SCRAPPAGE) shall mean those
Parts determined by IAE to be unserviceable and not
Economically Repairable. The Operator shall cause such Parts
to be mutilated or disposed of in such a manner as to preclude
any possible further use as a Nacelle Part.
IV GENERAL CONDITIONS
The following general conditions govern the application of this
Service Policy:
A. Records and Audit
The Operator shall maintain adequate records for the
administration of this Service Policy and shall permit IAE to
audit such records at reasonable intervals.
B. Scrapping of Parts
1. Scrappage Verification
Any Part for which a Parts Credit Allowance is
requested shall be verified as Scrapped prior to the
issuance of the Allowance. Verification of Scrappage
shall occur as Follows:
a. At the Operator's, or its subcontractor's,
facility. Such verification shall be
accomplished by the IAE Field Representative.
b. At a V2500 Maintenance Center designated by
IAE, provided that IAE concurs that the Part
is to be Scrapped. Sufficient information to
identify the Nacelle from which the Part was
removed, and the reason for its return shall
be provided.
2. Return of Parts
IAE, at its sole option, may require the Operator to
return to IAE any Part for which a Parts Credit
Allowance is requested. Such return shall be a
condition for the issuance of a Parts Credit
Allowance.
3. Transportation Expenses
Transportation expenses shall be at the expense of
the Operator if such Parts are shipped to and from a
V2500 Maintenance Center designated by IAE for
examination and verification; except, that IAE shall
pay the expense of transport of such Parts as are
shipped at the request of IAE.
<PAGE> 47
4. Title
Title to such Parts returned to IAE shall vest in IAE.
a. Upon determination by IAE that the Operator
is eligible for a Parts Credit Allowance. If
it is determined that the Parts are scrapped
Parts but are not eligible for Service Policy
coverage, the Operator will be notified of
the decision and the Parts returned at the
Operator's expense if the Operator so
requests; otherwise, the Parts will be
disposed of by IAE without any type of
adjustment, or
b. Upon shipment, when such Parts are determined
to be Scrap at the Operator's facility and
are shipped to IAE at the request of IAE.
C. Repairability Requirements
The Operator shall set aside and exclude from the operation of
this Service Policy for a period of six months any Part for
which IAE states it has, or plans to initiate, an active
program to achieve a repair, corrective Reoperation or Parts
Life Limit extension. In the event IAE has not released a
repair procedure, corrective Reoperation, or Parts Life Limit
extension by the expiration of this six month period, such
Part shall be retained by the Operator and excluded from the
operation of this Service Policy for additional periods beyond
the expiration of said six month period only if agreed to by
the Operator.
D. Exclusions from Service Policy
This Service Policy will not apply to any Nacelle, or Part if
it has been determined to the reasonable satisfaction of IAE
that said Nacelle or Part has Failed because it:
1. Has not been properly installed or maintained in
accordance with IAE recommendations unless such
improper installation or maintenance was performed by
IAE or at any V2500 Maintenance Center designated by
IAE.
2. Has been used contrary to the operating and
maintenance instructions or recommendations
authorized or issued by IAE and current at the time,
or
3. Has been repaired or altered outside any V2500
Maintenance Center in such a way as to impair its
safety, operation or efficiency, or
4. Has been subjected to:
a. Misuse, neglect, or accident, or
b. Ingestion of foreign material, or
5. Has been affected in any way by a part not defined as
a Part herein, or
6. Has been affected in any way by occurrences not
associated with ordinary use, such as, but not
limited to, acts of war, rebellion, seizure or other
belligerent acts.
E. Payment Options
IAE at its option may grant any Parts Credit Allowance as
either a credit to the Operator's account or as a Part
replacement.
F. Presentation of Claims
Any request for an Allowance must be presented to IAE not
later than 180 days after the removal from service of the
Engine or Part for which the Allowance is requested. If IAE
disallows the request, written notification will be provided
to the Operator. The Operator shall have 90 days from such
notification to request a reconsideration of the request for
Allowance. IAE shall have the right to refuse any request for
an Allowance which is not submitted within the stated time
periods.
G. Duration of Service Policy
This Service Policy will normally cease to apply to all Parts
in any Nacelle that is more than ten years old as measured
from the date of shipment of the Nacelle from the factory.
This Service Policy shall, however, continue to be applicable
to individual Nacelles after the expiration of the ten year
period on a year to year basis so that the Operator may
continue to receive the benefits of the Service Policy on the
Parts in these Nacelles.
H. General Administration
On matters concerning this Service Policy, the Operator is
requested to address all correspondence to:
IAE International Aero Engines AG
Corporate Center II
628 Hebron Avenue
Glastonbury, Connecticut 06033-2595 USA
Attention: Warranty Administration
I. Limitation of Liability
1. The express provisions of this Service Policy set
forth the maximum liability of IAE with respect to
any claims relating to this Service Policy.
2. Except to the extent that the Allowances and
adjustments expressly set forth in this Service
Policy may exceed the limitations of the
corresponding portions of any warranties or
representations included in any sales agreements, the
provisions of this Service Policy do not modify,
enlarge or extend in any manner the conditions
governing the sale of its Nacelles and Parts by IAE.
<PAGE> 48
3. IAE reserves the right to change or retract this
Service Policy at any time at its sole discretion.
No such retraction or change shall diminish the
benefits which the Operator may be entitled to
receive with respect to Nacelles for which a
acceptable order has been placed with IAE or with
respect to aircraft with installed Nacelles for which
firm orders have been placed or options obtained with
the aircraft manufacturer prior to the announcement
of any such retraction or change.
J. Assignment of Service Policy
This Service Policy shall not be assigned, either in whole or
in part, by either party. IAE will, however, upon the written
request of the Operator consider an extension of Service
Policy Allowances and adjustments to Nacelles and Parts sold
or leased by an Operator to another Operator, to the extent
only, however, that such Allowances and adjustments exist at
the time of such sale or lease and subject to the terms and
conditions of the Service Policy. IAE shall not unreasonably
withhold such extension of such Allowances.
<PAGE> 49
EXHIBIT D-3
NON-INSTALLATION ITEMS WARRANTY
WARRANTY FOR SPECIAL TOOLS AND GROUND EQUIPMENT
1. If it is shown that a defect in material or workmanship has become
apparent in any item of special tooling and ground equipment within
one year from the date of receipt of such item by the Operator, then
IAE will either as it may in its sole discretion determine repair or
exchange such item free of charge.
2. The obligations of IAE under this Warranty are subject to the
following terms and conditions.
2.1 The defect must not be due to misuse, negligence of anyone
other than IAE, accident or misapplication.
2.2 Such item shall not have been used, maintained, modified,
stored or handled other than in a manner approved by IAE.
2.3 Any claim under this Warranty shall be made in writing to IAE
within 90 days of the discovery of the defect and the
defective item shall be made available or sent to IAE for
inspection as it may require.
3. IAE shall not be liable for any incidental consequential or resultant
loss or damage howsoever occurring nor for labor costs involved in
removal or replacement of parts.
<PAGE> 50
Exhibit D-4
V2500 PARTS COST GUARANTEE
I INTRODUCTION
IAE assures AWA that by the end of the 10 year period commencing with
AWA's first commercial operation of Aircraft powered by V2500 Engines,
the cumulative Eligible Parts Cost will not, subject to escalation,
exceed a Guaranteed Cost Rate of $58.00 per Eligible Engine flight
hour. Under this Guarantee, if the cumulative Eligible Parts Cost per
Eligible Engine flight hour of AWA's Engines over the Period of
Guarantee exceeds the escalated Guaranteed Cost Rate, IAE will credit
AWA's account with IAE an amount of 75% of the excess costs.
II GUARANTEE
A. Period of Guarantee
The Period of Guarantee will start on the date AWA initiates
commercial operation of its first Aircraft powered by Eligible
Engines and will terminate 10 years from that date.
B. Eligible Engines
The Engines that will be Eligible under this Guarantee shall
be new installed and new spare Engines which are owned and
operated by AWA during the Period of Guarantee and which have
been acquired pursuant to the Proposal or Contract to which
this Guarantee is attached and the related proposal or
contract for delivery of Aircraft. The Engines shall remain
Eligible provided that AWA or its authorized maintenance
facility maintains them in accordance with the IAE
instructions and recommendations contained in the applicable
IAE publications including the latest Maintenance Management
Plan as agreed to by AWA.
C. Eligible Parts Costs
Eligible Parts Costs shall comprise the cost of Parts which
are removed from Eligible Engines and actually Scrapped as a
result of:
1. a Failure of a Part in such Eligible Engines;
2. foreign object damage caused by the ingestion of
birds, hail stones or runway gravel;
3. an Airworthiness Directive issued by the applicable
Certification Authority; and
4. maintenance as recommended by IAE;
except for Parts Scrapped as the result of life limitation and
vendor proprietary accessories and parts therein.
D. Adjusted Parts Cost
Within thirty days following each anniversary of the
commencement of the Period of Guarantee, AWA will report to
IAE the Eligible Parts Costs incurred by AWA during the
preceding year together with a statement of any contributions
received from IAE or third parties towards such Eligible Parts
Costs. Within the following sixty days, IAE and AWA will
jointly calculate the Adjusted Parts Costs for that year
making appropriate reductions for contributions received by
AWA from IAE and third parties and for disallowed Parts Costs
incurred by AWA during maintenance undertaken contrary to IAE
recommendations.
E. Guaranteed Parts Cost
Within thirty days following each anniversary of the
commencement of the Period of Guarantee, AWA will report to
IAE the flight hours of Eligible Engines operated by AWA in
the preceding year. Within the following sixty days, IAE and
AWA will jointly calculate the Guaranteed Parts Cost for AWA
for that year using the following formula:
GPC = A x Escalated GCR
where:
A is the flight hours of Eligible Engines operated by AWA
in that year;
Escalated GCR is $58.00/EFH escalated for that year;
and the Escalated Guaranteed Cost for any year is calculated
by determining the arithmetic average of the Guaranteed Cost
Rate calculated for each month of that year using the IAE
Escalation Formula attached to this Proposal or Contract for a
Base Month of January, 1994.
F. Annual Statement
Within one hundred and twenty days following the second and
each subsequent anniversary of the commencement of the Period
of Guarantee, IAE will credit AWA's account with IAE an amount
equal to 75% of the difference between the sum of the Adjusted
Parts Costs for each preceding year and the sum of the
Guaranteed Parts Costs for each preceding year.
III DEFINITIONS AND GENERAL CONDITIONS
All of the definitions and General Conditions of the V2500 Engine and
Parts Service Policy shall apply to this Guarantee. Engines and
Engine maintenance excluded by the General Conditions of the Policy
shall be excluded from this Guarantee except that Parts Costs incurred
during Engine maintenance resulting from ingestion of birds,
hailstones or runway gravel shall be included as Eligible under this
Guarantee.
<PAGE> 51
IV SPECIFIC CONDITIONS
A. The Guaranteed Cost Rate is predicated on the use by AWA of:
1. An average flight cycle of no less than 1.9 hours;
2. Thrust levels which are derated an average of 10
percent for Takeoff and Climb relative to full
Takeoff and Climb ratings;
3. An average Aircraft utilization equal to or less than
3,400 flight hours per year; and
4. An Aircraft and Engine delivery schedule in respect
of 24 firm Aircraft and 6 spare Engines as described
in the Proposal or Contract to which this Guarantee
is attached.
B. IAE reserves the right to make appropriate adjustments to the
Guaranteed Cost Rate if there is, during the Period of
Guarantee, a variation from the conditions upon which the
Guaranteed Cost Rate is predicated or a discontinuation of
ownership by AWA of any Engine or any V2500 powered Aircraft
subsequent to delivery to AWA.
C. In the event credits are issued under Section II, Paragraph F,
such credits will be dedicated to the procurement of Parts
aimed at correction of the situations contributing to excess
Parts Costs. Accordingly, AWA and IAE will establish jointly
the modifications or Parts to be selected, and AWA will
incorporate the changes into Eligible Engines.
V EXCLUSION OF BENEFITS
The intent of this Guarantee is to provide specified benefits to AWA
as a result of the failure of Eligible Engines to achieve the parts
cost level stipulated in the Guarantee. It is not the intent,
however, to duplicate benefits provided to AWA under any other
applicable guarantee, sales warranty, service policy, or any special
benefit of any kind as a result of the same failure. Therefore, the
terms and conditions of this Guarantee notwithstanding, if the terms
of this Guarantee should make duplicate benefits available to AWA from
IAE or any third-party, AWA may elect to receive the benefits under
this Guarantee or under any of the other benefits described above, but
not both.
<PAGE> 52
Exhibit D-5
V2500 RELIABILITY GUARANTEE
I INTRODUCTION
IAE assures AWA that by the end of the 10 year period commencing with
AWA's first commercial operation of Aircraft powered by V2500 Engines,
the cumulative Engine Shop Visit Rate will not exceed a Guaranteed
Rate of 0.170 per 1000 Eligible Engine flight hours. Under this
Guarantee, if the cumulative Engine Shop Visit Rate exceeds the
Guaranteed Rate, IAE will credit AWA's account with IAE an amount of
$25,000 U.S. Dollars for each Eligible Engine Shop Visit determined to
have been in excess of the Guaranteed Rate.
II GUARANTEE
A. Period of Guarantee
The Period of Guarantee will start on the date AWA initiates
commercial operation of its first Aircraft powered by Eligible
Engines and will terminate 10 years from that date.
B. Eligible Engines
The Engines that will be Eligible under this Guarantee shall
be new installed and new spare Engines which are owned or
operated by AWA during the Period of Guarantee and which have
been acquired pursuant to the Proposal or Contract to which
this Guarantee is attached and the related proposal or
contract for delivery of Aircraft. The Engines shall remain
Eligible provided that AWA or its authorized maintenance
facility maintains them in accordance with the IAE
instructions and recommendations contained in the applicable
IAE publications including the latest Maintenance Management
Plan for AWA.
C. Eligible Shop Visits
Eligible Shop Visits shall comprise the shop visits of
Eligible Engines required for the following reasons:
1. a Failure of a Part in such Eligible Engines;
2. foreign object damage caused by the ingestion of
birds, hailstones or runway gravel;
3. an Airworthiness Directive issued by the applicable
Certification Authority;
and
4. maintenance as recommended by IAE.
D. Reporting of Engine Shop Visits and Engine Flight Hours
Eligible Shop Visits shall be reported to IAE by AWA within
thirty days after the date of such Engine Shop Visit using IAE
Form TBD together with such other information as may be needed
to determine the Eligibility of the Engine Shop Visit. Each
such Form shall be verified by an authorized IAE
Representative before submission. Should it be necessary for
him to disqualify a reported Engine Shop Visit, supporting
information will be furnished. Flight hours accumulated by
Eligible Engines during each month during the Period of
Guarantee shall be reported by AWA within thirty days after
each month's end to IAE on IAE Form TBD unless other
procedures are established for the reporting of flight hours.
E. Credit Allowance Calculation
A credit of $25,000 U.S. Dollars will be granted by IAE for
each Eligible Engine Shop Visit determined as calculated below
to be in excess of the Guaranteed Rate during the Period of
Guarantee. An annual calculation will be made no later than
sixty days after each yearly anniversary of the commencement
of the Period of Guarantee provided that the necessary Engine
Shop Visit records and Eligible Engine flight hour information
have been reported to IAE.
Each annual calculation will be made using data that will be
cumulative from the start of the Period of Guarantee. An
interim credit will be granted, if necessary, following the
annual calculations for the second year and each subsequent
year of the Period of Guarantee. If subsequent annual
calculations show that on a cumulative basis, a previous
interim credit (or portion thereof) was excessive, such excess
amount shall be subject to repayment which will be effected by
IAE issuing a debit against AWA's account with IAE. Credits
and debits will be applied to AWA's account with IAE not later
than thirty days following a calculation for the second year
and each subsequent year of the Period of Guarantee, as
applicable.
Credit Allowance = (AR - GR) x $25,000 U.S. Dollars
where:
AR = Total Eligible Engine Shop Visits during the
period of the calculation.
GR = 0.170/1,000 x total Engine flight hours
accumulated on Eligible Engines during the
period of the calculation.
(NOTE: GR will be rounded to the nearest whole number.)
<PAGE> 53
III DEFINITIONS AND GENERAL CONDITIONS
All of the Definitions and General Conditions of the V2500 Engine and
Parts Service Policy shall apply to this Guarantee. Engines and
Engine Shop Visits excluded by the General Conditions of the Policy
shall be excluded from this Guarantee except that Engine Shop Visits
resulting from ingestion of birds, hailstones or runway gravel shall
be included as Eligible under this Guarantee.
IV SPECIFIC CONDITIONS
A. The Guaranteed Rate is predicated on the use by AWA of:
1. An average flight cycle of no less than 1.9 hours;
2. Thrust levels which are derated an average of 10
percent for Takeoff and Climb relative to full
Takeoff and Climb ratings;
3. An average Engine utilization equal to or less than
3,400 flight hours per year; and
4. An Aircraft and Engine delivery schedule in respect
of 24 firm Aircraft and 6 spare Engines as described
in the Proposal or Contract to which this Guarantee
is attached.
B. IAE reserves the right to make appropriate adjustments to the
Guaranteed Rate if there is, during the Period of Guarantee, a
variation from the conditions upon which the Guaranteed Rate
is predicated or a discontinuation of ownership by AWA of any
Engine or any V2500 powered Aircraft subsequent to delivery to
AWA.
C. In the event credits are issued under Section II, such credits
will be dedicated to the procurement of Parts aimed at
correction of the situations contributing to excess Engine
Shop Visits. Accordingly, AWA and IAE will establish jointly
the modifications or Parts to be selected, and AWA will
incorporate the changes into Eligible Engines.
V EXCLUSION OF BENEFITS
The intent of this Guarantee is to provide specified benefits to AWA
as a result of the failure of Eligible Engines to achieve the
reliability level stipulated in the Guarantee. It is not the intent,
however, to duplicate benefits provided to AWA under any other
applicable guarantee, sales warranty, service policy, or any special
benefit of any kind as a result of the same failure. Therefore, the
terms and conditions of this Guarantee notwithstanding, if the terms
of this Guarantee should make duplicate benefits available to AWA from
IAE or any third-party, AWA may elect to receive the benefits under
this Guarantee or under any of the other benefits described above, but
not both.
<PAGE> 54
Exhibit D-6
V2500 INFLIGHT SHUTDOWN GUARANTEE
I INTRODUCTION
IAE assures AWA that by the end of the 10 year period commencing with
AWA`s first commercial operation of Aircraft powered by V2500 Engines,
the cumulative Engine Inflight Shutdown Rate will not exceed a
Guaranteed Rate of .020 per 1000 Eligible Engine flight hours. Under
this Guarantee, if the cumulative Eligible Inflight Shutdown Rate is
determined to have exceeded the Guaranteed Rate over the Period of
Guarantee, IAE will credit AWA`s account with IAE an amount of $10,000
U.S. Dollars for each Eligible Inflight Shutdown determined to have
been in excess of the Guaranteed Rate.
II GUARANTEE
A. Period of Guarantee
The Period of Guarantee will start on the date AWA initiates
commercial operation of its first Aircraft powered by Eligible
Engines and will terminate 10 years from that date.
B. Eligible Engines
The Engines that will be Eligible under this Guarantee shall
be new installed and new spare Engines which are owned and
operated by AWA during the Period of Guarantee and which have
been acquired pursuant to the Proposal or Contract to which
this Guarantee is attached and the related proposal or
contract for delivery of Aircraft. The Engines shall remain
Eligible provided that AWA or its authorized maintenance
facility maintains them in accordance with the IAE
instructions and recommendations contained in the applicable
IAE publications including the latest Maintenance Management
Plan as agreed to by AWA.
C. Eligible Inflight Shutdowns
Eligible Inflight Shutdowns shall comprise the inflight
shutdown of an Eligible Engine during a scheduled revenue
flight which is determined to have been caused by a Failure of
a Part of such Engine. Multiple inflight shutdowns of the
same Engine during the same flight leg for the same problem
will be counted as one Eligible Inflight Shutdown. A
subsequent inflight shutdown on a subsequent flight leg for
the same problem because corrective action has not been taken
will be excluded.
D. Reporting of Eligible Inflight Shutdowns
Eligible Inflight Shutdowns shall be reported to IAE by AWA
within thirty days after the date of such Inflight Shutdown
using IAE Form TBD together with such other information as may
be needed to determine the Eligibility of the Inflight
Shutdown. Each such Form shall be verified by an authorized
IAE Representative before submission. Should it be necessary
for him to disqualify a reported Inflight Shutdown, supporting
information will be furnished.
Flight hours accumulated by Eligible Engines during each month
during the Period of Guarantee shall be reported by AWA within
thirty days after each month's end to IAE on IAE Form TBD
unless other procedures are established for the reporting of
flight hours.
E. Credit Allowance Calculation
A credit of $10,000 U.S. Dollars will be granted by IAE for
each Eligible Inflight Shutdown determined as calculated below
to be in excess of the Guaranteed Rate during the Period of
Guarantee. An annual calculation will be made no later than
sixty days after each yearly anniversary of the commencement
of the Period of Guarantee provided that the necessary
Inflight Shutdown records and Eligible Engine flight hour
information have been reported to IAE.
Each annual calculation will be made using data that will be
cumulative from the start of the Period of Guarantee. An
interim credit will be granted, if necessary, following the
annual calculations for the second year and each subsequent
year of the Period of Guarantee. Credits will be applied to
AWA`s account with IAE not later than thirty days following a
calculation for the second year and each subsequent year of
the Period of Guarantee, as applicable.
The Credit Allowance = (AI - GI) x $10,000 U.S. Dollars
Where:
AI = Total Eligible Inflight Shutdowns during the
period of the calculation;
GI = (.020/1,000) x total Engine flight hours
accumulated on Eligible Engines during the
period of the calculation.
(NOTE: GI will be rounded to the nearest whole
number.)
III DEFINITIONS AND GENERAL CONDITIONS
All of the Definitions and General Conditions of the V2500 Engine and
Parts Service Policy shall apply to this Guarantee. Engines and
Inflight Shutdowns excluded by the General Conditions of the Policy
shall be excluded from this Guarantee.
<PAGE> 55
IV SPECIFIC CONDITIONS
A. The Guaranteed Rate is predicated on the use by AWA of:
1. An average flight cycle of no less than 1.9 hours;
2. Thrust levels which are derated an average of 10
percent for Takeoff and Climb relative to full
Takeoff and Climb ratings;
3. An average Aircraft utilization equal to or less than
3,400 flight hours per year;
4. An Aircraft and Engine delivery schedule in respect
of 24 firm Aircraft and 6 spare Engines as described
in the Proposal or Contract to which this Guarantee
is attached.
B. IAE reserves the right to make appropriate adjustments to the
Guaranteed Rate if there is, during the Period of Guarantee, a
variation from the conditions upon which the Guaranteed Rate
is predicated or a discontinuation of ownership by AWA of any
Engine or any V2500 powered Aircraft subsequent to delivery to
AWA.
C. In the event credits are issued under Section II, such credits
will be dedicated to the procurement of Parts aimed at
correction of the situations contributing to excess Inflight
Shutdowns. Accordingly, AWA and IAE will establish jointly
the modifications or Parts to be selected, and AWA will
incorporate the changes into Eligible Engines.
V EXCLUSION OF BENEFITS
The intent of this Guarantee is to provide specified benefits to AWA
as a result of the failure of Eligible Engines to achieve the
reliability level stipulated in the Guarantee. It is not the intent,
however, to duplicate benefits provided to AWA under any other
applicable guarantee, sales warranty, service policy, or any special
benefit of any kind as a result of the same failure. Therefore, the
terms and conditions of this Guarantee notwithstanding, if the terms
of this Guarantee should make duplicate benefits available to AWA from
IAE or any third-party, AWA may elect to receive the benefits under
this Guarantee or under any of the other benefits described above, but
not both.
<PAGE> 56
Exhibit D-7
V2500 FUEL CONSUMPTION RETENTION GUARANTEE
I INTRODUCTION
IAE assures AWA that at the end of the 10 year period commencing with
AWA's first commercial operation of Aircraft powered by V2500 Engines,
the fleet average cruise fuel consumption for Eligible Engines will
not have increased by more than a Guaranteed Margin of 2.0%. Under
this Guarantee, if the fleet average cruise fuel consumption for
Eligible Engines exceeds the Guaranteed Margin at the end of the
Guarantee Period, IAE will credit AWA's account with IAE an amount in
respect of excess fuel consumed.
II GUARANTEE
A. Period of Guarantee
The Period of Guarantee will start on the date AWA initiates
commercial operation of its first Aircraft powered by Eligible
Engines and will terminate 10 years from that date.
B. Eligible Engines
The Engines that will be Eligible under this Guarantee shall
be new installed and new spare Engines which are owned and
operated by AWA during the Period of Guarantee and which have
been acquired pursuant to the Proposal or Contract to which
this Guarantee is attached and the related proposal or
contract for delivery of Aircraft. The Engines shall remain
Eligible provided that AWA or its authorized maintenance
facility maintains them in accordance with the IAE
instructions and recommendations contained in the applicable
IAE publications including the latest Maintenance Management
Plan as agreed to by AWA.
C. Fuel Consumption Measurement
The inflight data required for administration of this
Guarantee will be obtained by AWA during steady state cruise
conditions using methods which will be mutually agreed between
AWA and IAE. Steady state cruise conditions are defined as a
minimum of five minutes at the same altitude, Mach number and
thrust setting Engine Pressure Ratio in clear, smooth air with
normal bleed and power extraction and autothrottle disengaged
(unless flight evaluation shows this disengagement to be
unnecessary). Data points falling within the following
envelope of altitude, Mach number and Engine Pressure Ratio:
Mach No. -- TBD to TBD, Altitude -- TBD to TBD feet, Engine
Pressure Ratio -- TBD to TBD will be deemed to be Acceptable
Data Points, provided that:
a) the fuel consumption data for any Eligible Engine on
which the engine parameters indicate a possible
malfunction (including associated Aircraft systems),
other than normal gas path deterioration, that is
subsequently confirmed by maintenance action will not
be considered acceptable data, and
b) data which is obviously inaccurate under normal
engine monitoring practices will not be considered
acceptable data; this type of data will be rejected
unless AWA validity checks have established that
Total Air Temperature, Fuel Flow Aircraft and Engine
Bleed Systems and other Aircraft parameters are
within normal operating ranges.
The data to be recorded will be that normally recorded for
Engine Condition Monitoring purposes and will include the
following:
Altitude
Mach Number
Total Air Temperature (TAT)
Indicated Airspeed (IAS)
Engine Pressure Ratio (EPR)
Fuel Flow
Low Compressor Rotor Speed (N1)
High Compressor Rotor Speed (N2)
Exhaust Gas Temperature (EGT)
Bleed Air Configuration
Engine Fuel Flow measurements will be referred to in the
Standard Engine Fuel Flow-Engine Pressure Ratio Relationship
which will be defined for installed Engines by the Aircraft
manufacturer during the Aircraft flight test certification
program.
D. Base Fuel Flow
The Base Fuel Flow shall be the initial fuel flow level of
each Eligible Engine on commencement of its commercial
service. This shall be the average of the cruise fuel flow
values for the first ten Acceptable Data Points recorded for
each Eligible Engine. Base Fuel Flow is represented as a
percentage deviation from the Standard Engine Fuel Flow-Engine
Pressure Ratio Relationship.
E. Cruise Fuel Flow
The Cruise Fuel Flow shall be the average of the cruise fuel
flow values for ten Acceptable Data Points for each installed
Eligible Engine at any time after that Engine's Base Fuel Flow
is established. Cruise Fuel Flow will also be expressed as a
percent deviation from the Standard Engine Fuel Flow-Engine
Pressure Ratio Relationship.
<PAGE> 57
F. Engine Cruise Fuel Flow Deterioration
The Cruise Fuel Flow Deterioration for an Eligible Engine
shall be the difference between its Cruise Fuel Flow and the
Base Fuel Flow expressed in percentage points.
G. Periodic Fleet Average Cruise Fuel Consumption Deterioration
The Periodic Fleet Average Cruise Fuel Consumption
Deterioration shall be the average of the Cruise Fuel Flow
Deterioration for all installed Eligible Engines for a 30 day
reporting period. This is to be reported to IAE every 30
days.
H. Final Fleet Average Cruise Fuel Consumption Deterioration
The Final Fleet Average Cruise Fuel Consumption Deterioration
is the average of the Periodic Fleet Average Cruise Fuel
Consumption Deterioration values for all 30 day periods during
the Period of Guarantee.
I. Operational Data
AWA shall provide the following data to IAE as indicated
during the Period of the Guarantee:
1. Total quantity of fuel consumed by Eligible Engines
during the Period (U.S. Gallons), every thirty days.
2. Average cost of fuel to AWA over the Period of
Guarantee (U.S. Dollars per U.S. Gallon), every
thirty days.
3. Individual Eligible Engine operating hours for each
30 day period during the Period of Guarantee
identified by engine serial number, annually.
4. Engine maintenance action information, as requested.
J. Excess Fuel Consumption Credit Calculation
If at the end of the Period of Guarantee the Final Fleet
Average Fuel Consumption Deterioration exceeds the Guaranteed
Margin, IAE will grant AWA a credit in respect to excess fuel
consumption calculated in accordance with the following
formula:
C = (D-GM)% YHF
where:
C = the amount of the credit in U.S. dollars
D = the Final Fleet Average Fuel Consumption Deterioration
GM = the Guaranteed Margin
Y = average cruise fuel flow of new Eligible Engines
expressed in U.S. gallons per hour
H = the total of all flight hours flown by AWA's Eligible
Engines during the Period of Guarantee
F = The average net cost to AWA in U.S. Dollars per U.S.
Gallon (after deduction of subsidies or government or
other allowances received by AWA), of aviation fuel
consumed by AWA during the Period of Guarantee.
III DEFINITIONS AND GENERAL CONDITIONS
All of the Definitions and General Conditions of the V2500 Engine and
Parts Service Policy shall apply to this Guarantee. Engines excluded
by the General Conditions of the Policy shall be excluded from this
Guarantee.
IV SPECIFIC CONDITIONS
A. The Guaranteed Rate is predicated on the use by AWA of:
1. An average flight cycle of no less than 1.9hours;
2. Thrust levels which are derated an average of 10
percent for Takeoff and Climb relative to full
Takeoff and Climb ratings;
3. An average Aircraft utilization equal to or less than
3,400 flight hours per year;
4. An Aircraft and Engine delivery schedule in respect
of 24 firm Aircraft and 6 spare Engines as described
in the Proposal or Contract to which this Guarantee
is attached.
B. IAE reserves the right to make appropriate adjustments to the
Guaranteed Rate if there is, during the Period of Guarantee, a
variation from the conditions upon which the Guaranteed Rate
is predicated or a discontinuation of ownership by AWA of any
Engine or any V2500 powered Aircraft subsequent to delivery to
AWA.
V EXCLUSION OF BENEFITS
The intent of this Guarantee is to provide specified benefits to AWA
as a result of the failure of Eligible Engines to achieve the
performance level stipulated in the Guarantee. It is not the intent,
however, to duplicate benefits provided to AWA under any other
applicable guarantee, sales warranty, service policy, or any special
benefit of any kind as a result of the same failure. Therefore, the
terms and conditions of this Guarantee notwithstanding, if the terms
of this Guarantee should make duplicate benefits available to AWA from
IAE or any third-party, AWA may elect to receive the benefits under
this Guarantee or under any of the other benefits described above, but
not both.
<PAGE> 58
Exhibit D-8
V2500 EXHAUST GAS TEMPERATURE GUARANTEE
I INTRODUCTION
IAE assures AWA that during the first 6,000 hours of operation of each
V2500 Engine, the maximum stabilized takeoff exhaust gas temperature
will not exceed the Certified Limit. Under this Guarantee if it is
confirmed that the Certified Limit has been exceeded, IAE will provide
technical assistance or perform Engine maintenance or both to correct
the condition. For the purpose of this Guarantee, the Certified Limit
is exceeded if the Engine will not achieve the specified engine
pressure ratio for takeoff thrust without exceeding the Certified
Limit for its Exhaust Gas Temperature.
II GUARANTEE
A. Period of Guarantee
The Period of Guarantee for each Eligible Engine will start on
the date AWA initiates commercial operation of its first
Aircraft powered by such Engine and will terminate 10 years
from that date or upon the expiration of the first 6,000 hours
of operation of such Engine, whichever is the sooner.
B. Eligible Engines
The Engines that will be Eligible under this Guarantee shall
be new installed and new spare Engines which are owned and
operated by AWA during the Period of Guarantee and which have
been acquired pursuant to the Proposal or Contract to which
this Guarantee is attached and the related proposal or
contract for delivery of Aircraft. The Engines shall remain
Eligible provided that AWA or its authorized maintenance
facility maintains them in accordance with the IAE
instructions and recommendations contained in the applicable
IAE publications including the latest Maintenance Management
Plan as agreed to by AWA.
C. Restoration of Installed Engine
If during the Period of Guarantee, the maximum stabilized
takeoff exhaust gas temperature of an Eligible Engine
installed in an Aircraft operated by AWA exceeds the Certified
Limit, AWA shall undertake on-wing Engine maintenance
recommended by IAE, with technical assistance provided by IAE,
to restore the performance of that Engine.
D. Calibration of Removed Engine
If the performance of an installed Eligible Engine cannot be
restored by the maintenance recommended under Section II,
Paragraph C, AWA shall promptly remove such Engine from the
Aircraft and dispatch it at its cost for calibration in an IAE
designated test cell. If such calibration verifies that the
exhaust gas temperature of the Engine is not in excess of the
Certified Limit or it is established that any excess is due to
causes which are excluded by the General Conditions in Section
III, then the cost of such test cell calibration and
associated transportation will be borne by AWA.
E. Restoration of Removed Engine
If (i) calibration under Section II, Paragraph D verifies that
the exhaust gas temperature of the Engine is in excess of the
Certified Limit, and (ii) such excess was the sole reason for
removing such Engine from the Aircraft, IAE shall:
a) bear the cost of such test cell calibration;
b) define the extent of work which will need to be
carried out on the Eligible Engine, its Modules and
its Parts to restore its performance such that its
maximum stabilized exhaust gas temperature should not
again exceed the Certified Limit prior to expiration
of the Period of Guarantee; and,
c) either:
c.1 Issue a credit note to AWA in an amount equal
to one hundred percent (100%) Parts Credit
Allowance and Labor Allowance for work
carried out by AWA calculated in accordance
with the V2500 Engine and Parts Service
Policy; or
c.2 make no charge for such work carried out by
IAE.
III DEFINITIONS AND GENERAL CONDITIONS
All of the Definitions and General Conditions of the V2500 Engine and
Parts Service Policy shall apply to this Guarantee. Engines excluded
by the General Conditions of the Policy shall be excluded from this
Guarantee.
IV SPECIFIC CONDITIONS
A. The Guaranteed Rate is predicated on the use by AWA of:
1. An average flight cycle of no less than 1.9hours;
2. Thrust levels which are derated an average of 10
percent for Takeoff and Climb relative to full
Takeoff and Climb ratings;
3. An average Aircraft utilization equal to or less than
3,400 flight hours per year; and
4. An Aircraft and Engine delivery schedule in respect
of 24 firm Aircraft and 6 spare Engines as described
in the Proposal or Contract to which this Guarantee
is attached.
B. IAE reserves the right to make appropriate adjustments to the
Guaranteed Rate if there is, during the Period of
Guarantee, a variation from the conditions upon which
<PAGE> 59
the Guaranteed Rate is predicated or a discontinuation of
ownership by AWA of any Engine or any V2500 powered
Aircraft subsequent to delivery to AWA.
V EXCLUSION OF BENEFITS
The intent of this Guarantee is to provide specified benefits to AWA
as a result of the failure of Eligible Engines to achieve the
performance level stipulated in the Guarantee. It is not the intent,
however, to duplicate benefits provided to AWA under any other
applicable guarantee, sales warranty, service policy, or any special
benefit of any kind as a result of the same failure. Therefore, the
terms and conditions of this Guarantee notwithstanding, if the terms
of this Guarantee should make duplicate benefits available to AWA from
IAE or any third-party, AWA may elect to receive the benefits under
this Guarantee or under any of the other benefits described above, but
not both.
<PAGE> 1
EXHIBIT 10.42
AMERICA WEST AIRLINES, INC.
1994 INCENTIVE EQUITY PLAN
EFFECTIVE AS OF DECEMBER 1, 1994
<PAGE> 2
AMERICA WEST AIRLINES, INC.
1994 INCENTIVE EQUITY PLAN
America West Airlines, Inc., a Delaware corporation (the "Company"), hereby
establishes this America West Airlines, Inc., 1994 Incentive Equity Plan (this
"Plan"), effective as of December 1, 1994, subject to stockholder approval.
1. Purpose. The purpose of the Plan is to promote the interests of the
Company by encouraging employees of the Company and its Subsidiaries and the
Nonemployee Directors of the Company to acquire or increase their equity
interests in the Company and to provide a means whereby employees may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. The Plan is also contemplated to
enhance the ability of the Company and its Subsidiaries to attract and retain
the services of individuals who are essential for the growth and profitability
of the Company.
2. Definitions. As used in this Plan:
(a) "Appreciation Right" means a right granted pursuant to Paragraph
5.
(b) "Award" means an Appreciation Right, an Option Right, a Director
Option, Phantom Shares, a Performance Unit, Bonus Stock, Restricted Stock
or a Cash Tax Right.
(c) "Board" means the Board of Directors of the Company.
(d) "Bonus Stock" means unrestricted shares of Common Stock granted
pursuant to Paragraph 9.
(e) "Cash Tax Right" means a right granted pursuant to Paragraph 10.
(f) "Change in Control" shall occur if:
(i) the individuals who, as of December 1, 1994, constitute the
Board (the "Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to December 1, 1994 whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least two-thirds of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; or
(ii) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended), but not including David Bonderman or James G. Coulter or any
individual, entity or group which is controlled (whether directly or
indirectly and whether through ownership of voting securities, contract
or otherwise) by David Bonderman and/or James G. Coulter, acquires
(directly or indirectly) the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under such Act) of more than 50% of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors ("Voting
Power"); or
(iii) any shares of Common Stock or any other voting securities of
the Company shall be purchased pursuant to a tender or exchange offer
(other than a tender or exchange offer made by the Company); or
(iv) the Company's stockholders shall approve a merger or
consolidation, sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company,
other than (A) a merger or consolidation in which the voting securities
of the Company outstanding immediately prior thereto will become (by
operation of law), or are to be converted into, voting securities of the
surviving corporation or its parent corporation immediately after such
merger or consolidation that are owned by the same person or entity or
persons or entities as immediately prior thereto and possess at least
75% of the Voting Power held by the voting securities of the surviving
corporation or its parent corporation, (B) a merger or consolidation
effected to implement a
<PAGE> 3
recapitalization of the Company (or similar transaction) in which no
person acquires more than 50% of the Voting Power or (C) a merger or
consolidation in which the Company is the surviving corporation and such
transaction was determined not to be a Change in Control, which
transaction and determination was approved by a majority of the Board in
actions taken prior to, and with respect to, such transaction.
(g) "Code" means the Internal Revenue Code of 1986, as in effect from
time to time.
(h) "Committee" means the Compensation/Human Resources Committee of
the Board.
(i) "Common Stock" means the Class B Common Stock, $0.01 par value, of
the Company or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph 13.
(j) "Date of Grant" means (i) with respect to an Award other than a
Director Option, the date specified by the Committee on which such Award
will become effective (which date will not be earlier than the date on
which the Committee takes action with respect thereto) and (ii) with
respect to a Director Option, the automatic date of grant as provided in
Paragraph 11.
(k) "Director Option" means the right to purchase a share of Common
Stock upon exercise of an option granted pursuant to Paragraph 11.
(l) "Dividend Equivalent" means, with respect to a Phantom Share, an
amount equal to the amount of any dividends that are declared and become
payable after the Date of Grant for such Award and on or before the date
such Award is paid or forfeited, as the case may be.
(m) "Grant Price" means the price per share of Common Stock at which
an Appreciation Right not granted in tandem with an Option Right is
granted.
(n) "Management Objectives" means the objectives, if any, established
by the Committee that are to be achieved with respect to an Award granted
under this Plan, which may be described in terms of Company-wide
objectives, in terms of objectives that are related to performance of the
division, Subsidiary, department or function within the Company or a
Subsidiary in which the Participant receiving the Award is employed or in
individual or other terms, and which will relate to the period of time
(Performance Cycle) determined by the Committee. The Management Objectives
intended to qualify under Section 162(m) of the Code shall be with respect
to one or more of the following: (i) earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"); (ii) earnings before
interest and taxes ("EBIT"); (iii) EBITDA, EBIT or earnings before taxes
and unusual or nonrecurring items as measured either against the annual
budget or as a ratio to revenue; return on total capital; (iv) total
stockholder return; (v) stock price performance; (vi) revenue per average
seat mile; (vii) costs per average seat mile; and (viii) customer
satisfaction rating using the PLOG survey. Which objectives to use with
respect to an Award, the weighting of the objectives if more than one is
used, and whether the objective is to be measured against a
Company-established budget or target, an index or a peer group of airlines,
shall be determined by the Committee in its discretion at the time of grant
of the Award. A Management Objective need not be based on an increase or a
positive result and may include, for example, maintaining the status quo or
limiting economic losses. The Committee, in its sole discretion and without
the consent of the Participant, may amend an Award to reflect (1) a change
in corporate capitalization, such as a stock split or dividend, (2) a
corporate transaction, such as a corporate merger, a corporate
consolidation, any corporate separation (including a spinoff or other
distribution of stock or property by a corporation), any corporate
reorganization (whether or not such reorganization comes within the
definition of such term in section 368 of the Code), or (3) any partial or
complete corporate liquidation. With respect to an Award that is subject to
Management Objectives, the Committee must first certify that the Management
Objectives have been achieved before the Award may be paid.
(o) "Market Value per Share" means, at any date, the closing sale
price per share of the Common Stock on that date (or, if there are no sales
on that date, the last preceding date on which there was a sale) in the
principal market in which the Common Stock is traded.
<PAGE> 4
(p) "Nonemployee Director" means a director of the Company who is not
also an employee of the Company or a Subsidiary.
(q) "Option Price" means the purchase price per share payable on
exercise of an Option Right or Director Option.
(r) "Option Right" means the right to purchase a share of Common Stock
upon exercise of an option granted pursuant to Paragraph 4.
(s) "Participant" means an employee of the Company or any of its
Subsidiaries who is selected by the Committee to receive an Award under any
of Paragraphs 4 through 10 and shall also include a Nonemployee Director
who has received an automatic grant of Director Options pursuant to
Paragraph 11.
(t) "Performance Unit" means a unit equivalent to $100 (or such other
value as the Committee determines) awarded pursuant to Paragraph 8.
(u) "Phantom Shares" means notional shares of Common Stock awarded
pursuant to Paragraph 7.
(v) "Restricted Stock" means shares of Common Stock granted or sold
pursuant to Paragraph 6 as to which neither the ownership restrictions nor
the restriction on transfers referred to therein has expired.
(w) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission (or any successor rule to the same effect) as in effect from
time to time.
(x) "Spread" means the amount determined by multiplying (a) the excess
of the Market Value per Share on the date when an Appreciation Right is
exercised over the Option Price provided for in the related Option Right
or, if there is no tandem Option Right, the Grant Price provided for in the
Appreciation Right by (b) the number of shares of Common Stock in respect
of which the Appreciation Right is exercised.
(y) "Subsidiary" means, at any time, any corporation in which at the
time the Company then owns or controls, directly or indirectly, not less
than 50% of the total combined voting power represented by all classes of
stock issued by such corporation.
3. Shares Available Under Plan. Subject to adjustments as provided in
Paragraph 13, (i) 3,500,000 is the maximum number of shares of Common Stock
which may be issued or transferred and covered by all outstanding Awards under
this Plan, of which number no more than 1,500,000 shares will be issued or
transferred as Restricted Stock or Bonus Stock, and (ii) 350,000 is the maximum
number of shares of Common Stock which may be issued pursuant to or covered by
Option Rights and Appreciation Rights granted under this Plan to any one
Participant during any calendar year. Such shares may be shares of original
issuance or treasury shares or a combination of the foregoing. Upon exercise of
any Appreciation Rights or the payment of any Phantom Shares, there will be
deemed to have been delivered under this Plan for purposes of this Paragraph 3
the number of shares of Common Stock covered by the Appreciation Rights or equal
to the Phantom Shares, as applicable, regardless of whether such Appreciation
Rights or Phantom Shares were paid in cash or shares of Common Stock. Subject to
the provisions of the preceding sentence, any shares of Common Stock which are
subject to Option Rights, Appreciation Rights, or Phantom Shares awarded or sold
as Restricted Stock that are terminated, unexercised, forfeited or surrendered
or which expire for any reason will again be available for issuance under this
Plan, unless, with respect to Restricted Stock, the Participant has received
benefits of ownership with respect to such shares, such as dividends, but not
including voting rights.
<PAGE> 5
4. Option Rights. The Committee may from time to time authorize grants to
any Participant of options to purchase shares of Common Stock upon such terms
and conditions as it may determine in accordance with the following provisions:
(a) Each grant will specify the number of shares of Common Stock to
which it pertains.
(b) Each grant will specify its Option Price, which may not be less
than 100% of the Market Value per Share on the Date of Grant.
(c) Each grant will specify that the Option Price will be payable (i)
in cash by check acceptable to the Company, (ii) by the transfer to the
Company of shares of Common Stock already-owned by the optionee having an
aggregate Market Value per Share at the date of exercise equal to the
aggregate Option Price, (iii) from the proceeds of a sale through a broker
of some or all of the shares to which such exercise relates, or (iv) by a
combination of such methods of payment.
(d) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.
(e) Each grant will specify the required period or periods of
continuous service by the Participant with the Company and/or any
Subsidiary and/or the Management Objectives (if any) to be achieved before
the Option Rights or installments thereof will become exercisable, and any
grant may provide for the earlier exercise of the Option Rights in the
event of a Change in Control or other corporate transaction or event or
upon termination of the Participant's employment due to death, disability,
retirement or otherwise.
(f) Each grant the exercise of which, or the timing of the exercise of
which, is dependent, in whole or in part, on the achievement of Management
Objectives may specify a minimum level of achievement in respect of the
specified Management Objectives below which no Options Rights will be
exercisable and may set forth a formula or other method for determining the
number of Option Rights that will be exercisable if performance is at or
above such minimum but short of full achievement of the Management
Objectives.
(g) Option Rights granted under this Plan may be (i) options which are
intended to qualify as incentive stock options under Section 422 of the
Code, (ii) options which are not intended to so qualify or (iii)
combinations of the foregoing.
(h) Each grant shall specify the period during which the Option Right
may be exercised, but no Option Right will be exercisable more than ten
years from the Date of Grant.
(i) Each grant of Option Rights will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to the
Participant and containing such terms and provisions, consistent with this
Plan, as the Committee may approve.
5. Appreciation Rights. The Committee may also from time to time authorize
grants to any Participant of Appreciation Rights upon such terms and conditions
as it may determine in accordance with this Paragraph. Appreciation Rights may
be granted in tandem with Option Rights or separate and apart from a grant of
Option Rights. An Appreciation Right will be a right of the Participant granted
such Award to receive from the Company, upon exercise, an amount which will be
determined by the Committee at the Date of Grant and will be expressed as a
percentage of the Spread (not exceeding 100%) at the time of exercise. An
Appreciation Right granted in tandem with an Option Right may be exercised only
by surrender of the related Option Right. Each grant of an Appreciation Right
may utilize any or all of the authorizations, and will be subject to all of the
limitations, contained in the following provisions:
(a) Each grant will state whether it is made in tandem with Option
Rights and, if not made in tandem with any Option Rights, will specify the
number of shares of Common Stock in respect of which it is made.
<PAGE> 6
(b) Each grant made in tandem with Option Rights will specify the
Option Price and each grant not made in tandem with Option Rights will
specify the Grant Price, which in either case will not be less than 100% of
the Market Value per Share on the Date of Grant.
(c) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in (i) cash, (ii) shares of
Common Stock having an aggregate Market Value per Share equal to the Spread
or (iii) any combination thereof, as determined by the Committee in its
sole discretion.
(d) Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the Committee at
the Date of Grant (valuing shares of Common Stock for this purpose at their
Market Value per Share at the date of exercise).
(e) Each grant will specify the required period or periods of
continuous service by the Participant with the Company and/or any
Subsidiary and/or Management Objectives to be achieved before the
Appreciation Rights or installments thereof will become exercisable, and
will provide that no Appreciation Right may be exercised except at a time
when the Spread is positive and, with respect to any grant made in tandem
with Option Rights, when the related Option Right is also exercisable. Any
grant may provide for the earlier exercise of the Appreciation Rights in
the event of a Change in Control or other corporate transaction or event or
upon the Participant's termination due to death, disability or retirement.
(f) Each grant the exercise of which, or the timing of the exercise of
which, is dependent, in whole or in part, on the achievement of Management
Objectives may specify a minimum level of achievement in respect of the
specified Management Objectives below which no Appreciation Rights will be
exercisable and may set forth a formula or other method for determining the
number of Appreciation Rights that will be exercisable if performance is at
or above such minimum but short of full achievement of the Management
Objectives.
(g) Each grant of an Appreciation Right will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant receiving the grant, which agreement will
describe such Appreciation Right, identify any Option Right granted in
tandem with such Appreciation Right, state that such Appreciation Right is
subject to all the terms and conditions of this Plan and contain such other
terms and provisions, consistent with this Plan, as the Committee may
approve.
6. Restricted Stock. The Committee may also from time to time authorize
grants or sales to any Participant of Restricted Stock upon such terms and
conditions as it may determine in accordance with the following provisions:
(a) Each grant or sale will constitute an immediate transfer of the
ownership of shares of Common Stock to the Participant in consideration of
the performance of services, entitling such Participant to voting and other
ownership rights, but subject to the restrictions hereinafter referred to.
Each grant or sale may limit the Participant's dividend rights during the
period in which the shares of Restricted Stock are subject to any such
restrictions.
(b) Each grant or sale will specify the Management Objectives, if any,
that are to be achieved in order for the ownership restrictions to lapse.
Each grant or sale that is subject to the achievement of Management
Objectives will specify a minimum acceptable level of achievement in
respect of the specified Management Objectives below which the shares of
Restricted Stock will be forfeited and may set forth a formula or other
method for determining the number of shares of Restricted Stock with
respect to which restrictions will lapse if performance is at or above such
minimum but short of full achievement of the Management Objectives.
(c) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.
(d) Each such grant or sale will provide that the shares of Restricted
Stock covered by such grant or sale will be subject, for a period to be
determined by the Committee at the Date of Grant, to one or more
<PAGE> 7
restrictions, including, without limitation, a restriction that constitutes
a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code and the regulations thereunder, and any grant or sale may provide for
the earlier termination of such period in the event of a Change in Control
or other corporate transaction or event or upon termination of the
Participant's employment due to death, disability, retirement or otherwise.
(e) Each such grant or sale will provide that during the period for
which such restriction or restrictions are to continue, the transferability
of the Restricted Stock will be prohibited or restricted in a manner and to
the extent prescribed by the Committee at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Stock to
continuing restrictions in the hands of any transferee).
(f) Each grant or sale of Restricted Stock will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve.
(g) Unless otherwise approved by the Committee, certificates
representing shares of Common Stock transferred pursuant to a grant of
Restricted Stock will be held in escrow pursuant to an agreement
satisfactory to the Committee until such time as the restrictions on
transfer have expired or the shares have been forfeited.
(h) The maximum number of shares of Restricted Stock that may be
granted or sold to any one Participant in any calendar year is 150,000
shares.
7. Phantom Shares. The Committee may also from time to time authorize
grants to any Participant of Phantom Shares upon such terms and conditions as it
may determine in accordance with the following provisions:
(a) Each grant will specify the number of Phantom Shares to which it
pertains and the payment or crediting of any Dividend Equivalents with
respect to such Phantom Shares.
(b) Each grant will specify the Management Objectives, if any, that
are to be achieved in order for the Phantom Shares to be earned. Each grant
that is subject to the achievement of Management Objectives will specify a
minimum acceptable level of achievement in respect of the specified
Management Objectives below which the Phantom Shares will be forfeited and
may set forth a formula or other method for determining the number of
Phantom Shares to be earned if performance is at or above such minimum but
short of full achievement of the Management Objectives.
(c) Each grant will specify the time and manner of payment of Phantom
Shares which have been earned, which payment may be made in (i) cash, (ii)
shares of Common Stock or (iii) any combination thereof, as determined by
the Committee in its sole discretion.
(d) Each grant of Phantom Shares will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve, including
provisions relating to a Change in Control or other corporate transaction
or event or upon the Participant's termination due to death, disability or
retirement.
(e) The maximum number of Phantom Shares that may be granted to any
one Participant in any calendar year is 150,000 shares.
8. Performance Units. The Committee may also from time to time authorize
grants to any Participant of Performance Units upon such terms and conditions as
it may determine in accordance with the following provisions:
(a) Each grant will specify the number of Performance Units to which
it pertains.
(b) Each grant will specify the Management Objectives that are to be
achieved in order for the Performance Units to be earned. Each grant will
specify a minimum acceptable level of achievement in
<PAGE> 8
respect of the specified Management Objectives below which no payment will
be made and may set forth a formula or other method for determining the
amount of payment to be made if performance is at or above such minimum but
short of full achievement of the Management Objectives.
(c) Each grant will specify the time and manner of payment of
Performance Units which have become payable, which payment may be made in
(i) cash, (ii) shares of Common Stock having an aggregate Market Value per
Share equal to the aggregate value of the Performance Units which have
become payable or (iii) any combination thereof, as determined by the
Committee in its sole discretion at the time of payment.
(d) Each grant of a Performance Unit will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve, including
provisions relating to a Change in Control or other corporate transaction
or event or upon the Participant's termination of employment due to death,
disability, retirement or otherwise.
(e) The maximum amount of compensation that may be made subject to any
Performance Unit grant made to any one Participant in any calendar year is
$1.5 million.
9. Bonus Stock. The Committee may also from time to time authorize grants
to any Participant of Bonus Stock, which shall constitute a transfer of shares
of Common Stock, without other payment therefor, as additional compensation for
the Participant's services to the Company or its Subsidiaries.
10. Cash Tax Rights. (a) The Committee may also from time to time
authorize grants to any Participant of Cash Tax Rights upon such terms and
conditions as it may determine in accordance with this Paragraph. Cash Tax
Rights may be granted in tandem with any Award that is payable in shares of
Common Stock. A Cash Tax Right will be the right of the Participant granted such
Award to receive from the Company, upon receipt of shares of Common Stock
pursuant to the tandem Award, an amount of cash, which will be determined by the
Committee at the Date of Grant and will be expressed as a percentage of the
Market Value per Share (not exceeding 100%) of each share of Common Stock
received upon payment of the tandem Award.
(b) Each grant of a Cash Tax Right will (i) state the Award it is made in
tandem with and will specify the percentage of the Market Value per Share that
shall be payable in cash and (ii) be evidenced by an agreement extended on
behalf of the Company by any officer and delivered to and accepted, by the
Participant and containing such terms and provisions, consistent with this Plan,
as the Committee may approve, including provisions relating to a Change in
Control or other corporate transaction or event or upon the Participant's
termination of employment due to death, disability, retirement or otherwise.
11. Director Options. (a) Each Nonemployee Director who serves in such
capacity on December 31, 1994 shall automatically receive, on such date, a
Director Option for 3,000 shares of Common Stock. Each Nonemployee Director who
is elected or appointed to the Board for the first time after the effective date
of this Plan shall automatically receive, on the date of his or her election or
appointment, a Director Option for 3,000 shares of Common Stock.
(b) On the day following the regular annual meeting of the stockholders of
the Company in each year that this Plan is in effect (commencing with the 1995
annual meeting of stockholders), each Nonemployee Director who is in office on
that day and who was not elected for the first time at such annual meeting shall
automatically receive a Director Option for 3,000 shares of Common Stock.
(c) Each Director Option will be subject to all of the limitations
contained in the following provisions:
(i) Each Director Option shall become exercisable (vested) on the
first day that is more than six months following its Date of Grant;
provided that in no event shall any Director Option be exercisable prior to
the approval of this Plan by the Company's stockholders.
(ii) The Option Price of each Director Option shall be the Market
Value per Share on its Date of Grant.
<PAGE> 9
(iii) Each Director Option that is vested may be exercised in full at
one time or in part from time to time by giving written notice to the
Company, stating the number of shares of Common Stock with respect to which
the Director Option is being exercised, accompanied by payment in full of
the Option Price for such shares, which payment may be (i) in cash by check
acceptable to the Company, (ii) by the transfer to the Company of shares of
Common Stock already-owned by the optionee having an aggregate Market Value
per Share at the date of exercise equal to the aggregate Option Price,
(iii) from the proceeds of a sale through a broker of some or all of the
shares to which such exercise relates, or (iv) by a combination of such
methods of payment.
(iv) Each Director Option shall expire 10 years from the Date of Grant
thereof, but shall be subject to earlier termination as follows: Director
Options, to the extent exercisable as of the date a Nonemployee Director
ceases to serve as a director of the Company, must be exercised within
three months of such date unless such termination from the Board results
from the Nonemployee Director's death, disability or retirement, in which
case the Director Options may be exercised by the optionee or the
optionee's legal representative or the person to whom the Nonemployee
Director's rights shall pass by will or the laws of descent and
distribution, as the case may be, within three years from the date of
termination; provided however, that no such event shall extend the normal
expiration date of such Director Options.
(v) In the event that the number of shares of Common Stock available
for grants under this Plan is insufficient to make all automatic grants
provided for in this Paragraph 11 on the applicable date, then all
Nonemployee Directors who are entitled to a grant on such date shall share
ratably in the number of shares then available for grant under this Plan,
and shall have no right to receive a grant with respect to the deficiencies
in the number of available shares and all future grants under this
Paragraph 11 shall terminate.
(vi) Grants made pursuant to this Paragraph 11 shall be subject to all
of the terms and conditions of this Plan; however, if there is a conflict
between the terms and conditions of this Paragraph 11 and the terms and
conditions of any other Paragraph, then the terms and conditions of this
Paragraph 11 shall control. The Committee may not exercise any discretion
with respect to this Paragraph 11 which would be inconsistent with the
intent that this Plan meet the requirements of Rule 16b-3.
12. Transferability. No Award that has not become payable or earned will
be transferable by a Participant other than by will or the laws of descent and
distribution. Director Options, Option Rights or Appreciation Rights will be
exercisable during the Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative.
13. Adjustments. The Board may make or provide for such adjustments in the
maximum number of shares specified in Paragraph 3, in the numbers of shares of
Common Stock covered by outstanding Director Options, Option Rights,
Appreciation Rights and Phantom Shares granted hereunder, in the Option Price or
Grant Price applicable to any such Director Options, Option Rights and
Appreciation Rights, and/or in the kind of shares covered thereby (including
shares of another issuer), as the Board, in its sole discretion exercised in
good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants that otherwise would result from any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, merger, consolidation,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities or any other corporation transaction or event having an
effect similar to any of the foregoing.
14. Fractional Shares. The Company will not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of fractions for the settlement of fractions in
cash.
15. Withholding of Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any grant or
payment made to a Participant or any other person under this Plan, or is
requested by a Participant to withhold additional amounts with respect to such
taxes, and the amounts available to the Company for such withholding are
insufficient, it will be a condition to the receipt of such grant or payment
that the Participant or such other person make arrangements satisfactory to the
<PAGE> 10
Company for the payment of balance of the such taxes required or requested to be
withheld, which arrangements in the discretion the Committee may include
relinquishment of a portion of such Award or payment. With respect to any
Participant who is subject to Rule 16b-3 at the time withholding is required
with respect to an Award payable in Common Stock, the Company shall
automatically withhold from such Award, to the extent such withholding is not
satisfied by a tandem Cash Tax Right, if any, a number of shares of Common Stock
having an aggregate Market Value per Share equal to the amount of taxes required
to be withheld.
16. Parachute Tax Gross-Up. To the extent that the acceleration of vesting
or any payment, distribution or issuance made to a Participant under the Plan (a
"Benefit") is subject to a golden parachute excise tax under Section 4999(a) of
the Code (a "Parachute Tax"), the Company shall pay such Participant an amount
of cash (the "Gross-up Amount") such that the "net" Benefit received by the
Participant under this Plan, after paying all applicable Parachute Taxes
(including those on the Gross-up Amount) and any federal or state income taxes
on the Gross-up Amount, shall be equal to the Benefit that such Participant
would have received if such Parachute Tax had not been applicable.
17. Administration of the Plan. (a) This Plan will be administered by the
Committee, which at all times will consist entirely of not less than three
directors appointed by the Board, each of whom will be a "disinterested person"
within the meaning Rule 16b-3 and an "outside director" within the meaning of
Section 162(m) of the Code. A majority of the Committee will constitute a
quorum, and the action of the members the Committee present at any meeting at
which a quorum is present, or acts unanimously approved writing, will be the
acts of the Committee.
(b) The interpretation and construction by the Committee of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of an Award and any determination by the Committee pursuant to any provision of
this Plan or of any such agreement, notification or documentation will be final
and conclusive. No member of the Committee will be liable for any such action or
determination made in good faith or in the absence of gross negligence or
willful misconduct on the part of such member.
18. Amendments, Etc. (a) This Plan may be amended from time to time by the
Board but may not be amended by the Board without further approval by the
stockholders of the Company if such amendment would result in this Plan no
longer satisfying the requirements of Rule 16b-3; provided, however, that the
provisions of Paragraph 11 may not be amended more than once every six months
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
(b) The Committee may, in its sole discretion, take any action it deems to
be equitable under the circumstances or in the best interests of the Company
with respect to any Award (other than a Director Option), unless such Award is
intended to qualify as "performance based" compensation under Section 162(m) of
the Code and such action would cause the Award to fail to so qualify.
(c) This Plan will not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any
Subsidiary, nor will it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.
19. Term. This Plan shall be effective as of December 1, 1994, subject to
approval by the Company's stockholders; provided, however, no Award shall be
exercisable or payable prior to the date of such stockholders' approval. In the
event that this Plan is not approved by the stockholders of the Company within
twelve months after the date of its adoption by the Board, this Plan and all
Awards made under this Plan shall be automatically null and void. Unless sooner
terminated, this Plan shall terminate on November 30, 2004, and no further
Awards shall be made, but all outstanding Awards on such date shall remain
effective in accordance with their terms and the terms of this Plan.
<PAGE> 1
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective
as of December 1, 1994 by and between America West Airlines, Inc., a Delaware
corporation ("Company"), and William A. Franke ("Franke").
WHEREAS, Franke currently serves as the Chairman of the Board and
Chief Executive Officer of the Company;
WHEREAS, the Company desires for Franke to continue serving as
the Chairman of the Board and Chief Executive Officer of the Company and Franke
is willing to continue serving in such capacities, in each case on the terms
and conditions herein set forth; and
WHEREAS, the Compensation/Human Resources Committee of the
Company's Board of Directors, the committee which administers the Incentive
Plan (defined below), has authorized the granting of the Stock Grants described
in Section 3.2 and the Stock Options described in Section 3.3.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:
"AmWest Registration Agreement" shall have the meaning specified
in Section 5.1.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as from time to time amended, and any successor
statute thereto.
"Board" shall mean the Board of Directors of the Company.
"Cash Base Salary" shall have the meaning specified in Section
3.1. "Change in Control" shall occur if:
(i) the individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least
two-thirds of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board; or
(ii) any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended), but not including David Bonderman or James G.
Coulter or any individual, entity or group which is controlled
(whether directly or indirectly and whether through the ownership
of voting securities, by contract or otherwise) by David
Bonderman and/or James G. Coulter, acquires (directly or
indirectly) the beneficial ownership (within the meaning of Rule
13d-3 promulgated under such Act) of more than 50% of the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors ("Voting Power"); or
(iii) any Shares or other voting securities of the
Company shall be purchased pursuant to a tender or exchange offer
(other than a tender or exchange offer made by the Company); or
(iv) the Company's stockholders shall approve a merger
or consolidation involving the Company other than (A) a merger or
consolidation in which the voting securities of the Company
outstanding immediately prior thereto will become (by operation
of law), or are to be converted into, voting securities of the
surviving corporation or its parent corporation immediately after
such merger or consolidation that are owned by the same person or
entity or persons or entities as immediately prior thereto and
possess at least 75% of the Voting Power held by the voting
securities of the surviving corporation or its parent
corporation, (B) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in
which no person acquires more than 50% of the Voting Power or (C)
a merger or consolidation in which the Company is the surviving
corporation and such transaction was determined not to be a
Change in Control, which transaction and determination was
approved by a majority of the Board in actions taken prior to,
and with respect to, such transaction; or
(v) the Company's stockholders shall approve a merger,
consolidation, reorganization, disposition of assets, liquidation
or other transaction (or series of related transactions) in which
the Company will not survive as a publicly-owned corporation.
"Code" shall mean the Internal Revenue Code of 1986, as in effect
from time to time.
"Disability" shall mean a physical or mental condition of Franke
that, in the good faith judgment of not less than a majority of the
entire membership of the Board, based upon certification by a licensed
physician reasonably acceptable to Franke and the Board, (i) prevents
Franke from being able to perform the services required under this
Agreement, (ii) has continued for a period of at least six months during
any period of twelve consecutive months and (iii) is expected to
continue.
"Dispute" shall have the meaning specified in Article VI.
<PAGE> 2
"Good Reason" shall mean any of the following:
(1) without Franke's express written consent, a
material alteration in the nature or status of Franke's position,
functions, duties or responsibilities with the Company,
including any change which would (i) alter Franke's reporting
responsibilities, (ii) cause Franke's position with the Company
to become of less dignity or importance than the positions and
attributes of Chairman of the Board and Chief Executive Officer
and/or (iii) cause Franke not to have all of the powers,
functions, duties and responsibilities described in the first
sentence of Section 2.2(a);
(2) without Franke's express written consent, the
failure of the Company to perform any of its obligations under
this Agreement in any material regard, but only if such failure
shall continue unremedied for more than 15 days after written
notice thereof is given by Franke to the Company;
(3) without Franke's express written consent, the
relocation of the principal executive offices of the Company
outside the greater Phoenix, Arizona area or the Company's
requiring Franke to be based other than at such principal
executive offices;
(4) a Change in Control, provided that if Franke
terminates his employment on account of a Change in Control, such
termination shall not be deemed to be for Good Reason unless
Franke gives the required Notice of Termination upon, or within
180 days following, such Change in Control;
(5) the failure the Company at any time during the Term
to elect or re-elect, or to appoint or re-appoint, Franke to the
offices of Chairman of the Board and Chief Executive Officer;
(6) any purported termination by the Company of
Franke's employment not in accordance with the provisions of this
Agreement;
(7) the failure of the Company to obtain any assumption
agreement required by Section 8.5(a);
(8) the failure of Franke to be elected or or
appointed, or to be re-elected or re-appointed, as a director of
the Company at any time during the Term;
(9) the Company shall make an assignment for the
benefit of creditors or is adjudicated insolvent or bankrupt
under Title 11 of the Bankruptcy Code;
(10) the Company voluntarily commences any proceeding
under the Bankruptcy Code or files any petition under the
Bankruptcy Code seeking the appointment of a receiver, trustee,
custodian or liquidator for the Company or a substantial portion
of its property;
(11) involuntary proceedings are commenced against the
Company under the Bankruptcy Code seeking reorganization or a
creditors' arrangement with respect to the Company or the
appointment of a receiver, trustee, custodian or liquidator for
the Company or a substantial portion of its property and such
proceedings are not dismissed within 60 days after commencement;
(12) any order, judgment or decree is entered against
the Company appointing any receiver or trustee for the Company or
for all or a substantial portion of its property; or
(13) the failure of the Company's stockholders to
approve the Incentive Plan prior to June 1, 1995;
provided, HOWEVER, rejection by the Company pursuant to Section 2.3 of a
request by Franke made thereunder to extend the term of his employment shall
not, by itself, constitute a Good Reason.
"Holders" shall have the meaning specified in Section 5.1.
"Incentive Plan" shall mean the Company's 1994 Incentive Equity
Plan effective as of December 1, 1994.
"Market Value per Share" means, at any date, the closing price per
Share on that date (or, if there are no sales on that date, the last
preceding date on which there was sale) in the principal market in which the
Shares are traded.
"Misconduct" shall mean one or more of the following:
(i) the willful and continued failure by Franke to
perform his duties described in Section 2.2 (other than any such
failure resulting from Franke's incapacity due to physical or
mental illness) after written notice of such failure has been
given to Franke by the Company and Franke has had a reasonable
period to correct such failure;
(ii) the willful commission by Franke of acts that are
dishonest and demonstrably injurious to the Company (monetarily
or otherwise) in any material respect, provided no act taken by
Franke shall be deemed to constitute Misconduct if such act was
taken by Franke in good faith and in the reasonable belief that
such act was in the best interest of the Company or in
furtherance of Franke's duties and responsibilities described in
Section 2.2;(iii) the conviction of Franke for a felony involving
moral turpitude; or
(iv) a material breach by Franke of any of the covenants
set forth in this Agreement, but only if such breach shall
continue unremedied for more than 15 days after written notice
thereof is given to Franke by the Company.
"Notice of Termination" shall mean a notice purporting to
terminate Franke's employment in accordance with Section 4.1 or 4.2, which
notice shall set forth in reasonable detail the reason for such termination
and the facts and circumstances claimed to provide a basis for such termination.
<PAGE> 3
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust and an unincorporated organization.
"Piggyback Registration Notice" shall have the meaning specified
in Section 5.2(a).
"Registrable Securities" shall have the meaning specified in
Section 5.1.
"Restricted Shares" shall have the meaning specified in Section
3.2(b).
"SEC" shall mean the Securities and Exchange Commission.
"Share" shall mean a share of the Class B common stock, $.01 par
value, of the Company.
"Stock Grants" shall have the meaning specified in Section 3.2(a).
"Stock Option" shall have the meaning specified in Section 3.3(d).
"Term" shall have the meaning specified in Section 2.3.
"Termination Date" shall mean the termination date specified in a
Notice of Termination delivered in accordance with Article IV, provided
that in no event shall such termination date be less than 30 nor more
than 60 days after the date such Notice of Termination is given.
1.2. Interpretations
(a) In this Agreement, unless a clear contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) reference to any Article or
Section, means such Article or Section hereof, (iii) the words "including" (and
with correlative meaning "include") means including, without limiting the
generality of any description preceding such term, and (iv) where any
provision of this Agreement refers to action to be taken by either party, or
which such party is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such party.
(b) The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or
construed against either party solely because that party or its legal
representative drafted such provision.
ARTICLE II
Employment; Positions and Duties; Term
2.1. Employment
The Company hereby employs Franke as its Chairman of the Board
and Chief Executive Officer and Franke hereby accepts such employment, in each
case during the Term (as defined in Section 2.3) and on the terms and
conditions set forth in this Agreement.
2.2. Positions and Duties
(a) During the Term, Franke shall serve as the Chairman of the
Board and Chief Executive Officer of the Company and shall have and may
exercise all of the powers, functions, duties and responsibilities normally
attributable to the positions of Chairman of the Board and Chief Executive
Officer, including (without limitation) such duties and responsibilities as are
set forth with respect to such offices in the Company's certificate of
incorporation and bylaws (as from time to time in effect). Franke shall have
such additional duties and responsibilities commensurate with such offices as
from time to time may be reasonably assigned to him by the Board. At all times
during the Term, Franke shall report directly to the Board and shall observe
and comply with all lawful policies, directions and instructions of the Board
which are consistent with the foregoing provisions of this paragraph (a).
(b) The Company agrees to use its reasonable best efforts to
cause Franke to be elected or appointed, or re-elected or re-appointed, as
director of the Company at all times during the Term.
(c) During the Term, Franke agrees to devote a substantial
portion of his business time, attention, skill and efforts to the faithful and
efficient performance of his duties hereunder. During the Term, Franke shall
not enter into any business or accept employment with or for any Person other
than with the Company; provided, however, that Franke may engage in the
following activities so long as they do not interfere in any material respect
with the performance of Franke's duties and responsibilities hereunder: (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach on a part-time basis at
educational institutions, (iii) manage his personal investments and (iv) render
consultation and financial advisory services to third parties. The Company
acknowledges that Franke is the principal owner of Franke & Company, Inc.
through which Franke owns and oversees equity interests in several enterprises
and provides consultation and financial advisory services to third parties.
(d) Franke shall at all times conduct himself in such a manner
as not to knowingly prejudice, in any material respect, the reputation of the
Company in the fields of business in which it is engaged or with the investment
community or the public at large.
2.3. Term of Employment
Subject to the provisions for earlier termination provided in the
Agreement, the term of this Agreement shall commence on the date hereof and
shall continue through December 31, 1995; provided, however, that Franke shall
be entitled to extend the term of this Agreement to December 31, 1996 by giving
written notice of such extension to the Company prior to November 1, 1995 and,
provided, further, that the Company (acting
<PAGE> 4
pursuant to instructions set forth in a resolution duly adopted by the
affirmative vote of at least a majority of the entire membership of the Board)
may, at any time within 15 day of receipt of such written notice of extension,
give Franke written notice that it has rejected such extension, in which event
Franke's employment hereunder shall terminate on December 31, 1995. As used in
this Agreement, "Term" shall mean the original term of Franke's employment
hereunder and any extension thereof in accordance with this Section 2.3.
2.4 Place of Employment
Franke's place of employment during the term of his employment
hereunder shall be the greater Phoenix, Arizona area.
ARTICLE III
Compensation and Benefits
3.1. Cash Base Salary
For services rendered by Franke under this Agreement, the Company
shall pay to Franke, during the Term, an annual cash base salary ("Cash Base
Salary") of $300,000, payable in equal monthly amounts as earned. The amount
of the Cash Base Salary may be increased at any time as the Board may deem
appropriate. If the Cash Base Salary is increased as aforesaid, it may not
thereafter be decreased unless a proportionally similar decrease is made to the
base compensation of all other senior executives of the Company; provided that
in no event may the Cash Base Salary be decreased below $300,000 per year.
3.2. Stock Grants
(a) During the Term (but not thereafter) and as additional
base compensation, the Company shall make grants of Shares to Franke (the
"Stock Grants") as follows:
(1) 11,000 Shares shall be issued and delivered to
Franke as soon as practicable after the date hereof (the "1994 Shares");
(2) 30,334 Shares shall be issued and delivered to
Franke as soon as practicable after January 1, 1995 (the "1995 Shares");
and
(3) 25,000 Shares shall be issued and delivered to
Franke as soon as practicable after January 1, 1996 (the "1996 Shares").
(b) Except as expressly set forth in this Section 3.2, (i) all
Stock Grants shall be irrevocable and unconditional and (ii) none of the Shares
included in the Stock Grants (the "Restricted Shares") shall be subject to
forfeiture or surrender for any reason.
(c) Franke will not sell, transfer or otherwise dispose of any
of the Restricted Shares other than by will or by laws of descent and
distribution; provided, however, that the foregoing restriction shall lapse
with respect to any Restricted Shares which are no longer subject to forfeiture
by Franke pursuant to paragraph (d) below and, provided further, that the
foregoing restriction shall automatically lapse in full (i) upon the occurrence
of a Change in Control, (ii) in the event of Franke's death or (iii) in the
event Franke's employment is terminated by Franke for Good Reason or on account
of Disability or by the Company for any reason other than Misconduct.
(d) In the event Franke's employment is terminated by Franke
pursuant to Section 4.1 other than for Good Reason or on account of Disability
or by the Company pursuant to Section 4.2 for Misconduct, then:
(1) if the Termination Date is prior to January 1,
1995, Franke shall forfeit and be obligated, for no consideration, to
surrender to the Company that number of 1994 Shares determined by
multiplying the 1994 Shares by a fraction the numerator of which shall
be the number of whole calendar months within the period beginning on
the Termination Date and ending on December 31, 1994 and the denominator
of which shall be four;
(2) if the Termination Date is after December 31, 1994
and prior to January 1, 1996, Franke shall forfeit and be obligated, for
no consideration, to surrender to the Company that number of 1995 Shares
determined by multiplying the 1995 Shares by a fraction the numerator of
which shall be the number of whole calendar months within the period
beginning on the Termination Date and ending on December 31, 1995 and
the denominator of which shall be twelve; and
(3) if the term of Franke's employment has been
extended to December 31, 1996 in accordance with Section 2.3 and if the
Termination Date is after December 31, 1995 and prior to January 1,
1997, Franke shall forfeit and be obligated, for no consideration, to
surrender to the Company that number of 1996 Shares determined by
multiplying the 1996 Shares by a fraction the numerator of which shall
be the number of whole calendar months within the period beginning on
the Termination Date and ending on December 31, 1996 and the denominator
of which shall be twelve.
(e) The Stock Grants shall be made pursuant to the Incentive
Plan and, notwithstanding anything herein to the contrary, shall be subject to
forfeiture in the event the Incentive Plan is not approved by the Company's
stockholders. Accordingly, Franke will not sell, transfer or otherwise dispose
of any of the Restricted Shares (other than by will or by laws of descent and
distribution) until after the Incentive Plan has been approved by the Company's
stockholders.
(f) The Restricted Shares shall become vested when the
restrictions set forth in paragraphs (c), (d) and (e) above (the "Vesting
Restrictions") have lapsed with respect thereto.
(g) Certificates evidencing the Restricted Shares will be
issued by the Company in Franke's name. Such certificates may bear a legend
setting forth or incorporating the Vesting Restrictions, and the Company may
cause such certificates to be delivered upon issuance to the Secretary of the
Company (or such other depositary as may be designated by the committee which
administers the Incentive Plan) as a depositary for
<PAGE> 5
safe-keeping until the Vesting Restrictions lapse with respect thereto or until
forfeiture occurs with respect thereto pursuant to paragraph (d) or (e) above.
The Company may require Franke to execute and deliver stock powers in the event
of forfeiture. Upon the lapse of the Vesting Restrictions without forfeiture,
the Company will cause a new certificate or certificates to be issued in the
name of Franke without legend.
(h) Franke shall be entitled to receive all dividends and
distributions in respect of the Restricted Shares (subject to applicable tax
withholding), to vote the Restricted Shares and to give consents, waivers and
ratifications with respect to the Restricted Shares; provided, however, that
distributions applicable to any Restricted Shares shall be held by the Company
until (i) the Vesting Restrictions lapse with respect to such Shares, at which
time such distributions shall be paid to Franke or his designee without
interest or (ii) forfeiture occurs with respect to such Shares pursuant to
paragraph (d) or (e) above, at which time such distributions shall be forfeited.
(i) If requested by Franke at any time, the Company shall
promptly request, and diligently seek in good faith to obtain, a no action
letter from the SEC to the effect that the dates of purchase, within the
meaning and for the purposes of the short-swing profit provisions of Section
16(b) of the Securities Exchange Act of 1934 (as amended), of the Restricted
Shares are the respective grant dates thereof.
3.3 Stock Options
(a) Franke is hereby granted an option to purchase 255,000
Shares, with an exercise price per Share equal to $8.75, being the Market Value
per Share on the date hereof. Subject to paragraph (e) below, such option
shall be immediately exercisable.
(b) Franke is hereby granted (i) an option to purchase 50,000
Shares and (ii) an option to purchase 50,000 Shares, each with an exercise
price per Share equal to $8.75, being the Market Value per Share on the date
hereof. Subject to paragraph (e) below, (A) the option referred to in clause
(i) above shall become exercisable in equal monthly installments, beginning
January 1, 1996, so that such option is exercised in full during the calendar
year 1996 and (B) the option referred to in clause (ii) above shall become
exercisable in equal monthly installments, beginning January 1, 1997, so that
such option is exercised in full during the calendar year 1997.
(c) On August 25, 1995 and, if Franke's employment is extended
to December 31, 1996 in accordance with Section 2.3, on August 25, 1996, Franke
shall be granted (i) an option to purchase 50,000 Shares and (ii) an option to
purchase 100,000 Shares, each with an exercise price per Share equal to the
Market Value per Share on the date of grant; provided, however, that no such
option shall be granted to Franke after the termination of his employment
hereunder. Subject to paragraph (e) below, (A) each option referred to in
clause (i) of the preceding sentence shall become exercisable in equal monthly
installments, beginning one month after the date of grant, so that such option
is exercisable in full one year after the date of grant and (B) each option
referred to in clause (ii) of the preceding sentence shall become exercisable
as to one-third of the Shares covered thereby on each anniversary of the date
of grant, so that such option is exercisable in full three years after the date
of grant.
(d) Upon the exercise of any stock option granted to Franke
under this Section 3.3 (a "Stock Option"), Franke shall pay to the Company an
amount equal to the relevant exercise price, such amount to be paid (i) in
cash, (ii) by delivering to the Company Shares already owned by Franke which
have an aggregate Market Value per Share at the date of exercise equal to the
relevant exercise price, (iii) by directing the Company to sell a sufficient
number of Shares to be acquired on exercise of a Stock Option through a broker
approved by the Company, in which event the proceeds of such sale shall be
applied by the Company to the payment of the relevant exercise price, with any
surplus then remaining to be paid to Franke or his designee, or (iv) by any
combination of the foregoing.
(e) The Stock Options are being, and in the case of the Stock
Options referred to in paragraph (c) above shall be, granted pursuant to the
Incentive Plan. Notwithstanding anything in this Agreement to the contrary, in
no event shall any Stock Option be exercised (i) prior to the approval of the
Incentive Plan by the stockholders of the Company or (ii) after the tenth
anniversary of its date of grant.
(f) Upon the occurrence of a Change in Control, each
outstanding Stock Option shall become automatically vested in full and may be
exercised at any time thereafter; provided, however, in no event shall such
Stock Option be exercisable after the tenth anniversary of its date of grant.
(g) In the event Franke's employment is terminated by Franke
pursuant to Section 4.1 other than for Good Reason or on account of Disability
or by the Company pursuant to Section 4.2 for Misconduct, each Stock Option
outstanding on the Termination Date, to the extent then vested, may be
exercised by Franke at any time within six months following the Termination
Date, but not thereafter; provided, however, in no event shall such Stock
Option be exercisable after the tenth anniversary of its date of grant. To the
extent such Stock Option is not vested on such Termination Date, such Stock
Option (or the portion thereof that is not vested on such Termination Date)
shall automatically lapse and be cancelled unexercised as of such Termination
Date.
(h) In the event Franke's employment is terminated by reason
of death, each outstanding Stock Option shall become automatically vested in
full on the date of his death and may be exercised by the person to whom
Franke's rights shall pass by will or by the laws of descent and distribution
at any time within the one-year period beginning on the date of Franke's death,
but not thereafter, and in no event shall such Stock Option be exercisable
after the tenth anniversary of its date of grant.
(i) In the event Franke's employment is terminated by reason
of Disability, each outstanding Stock Option shall become automatically vested
in full on the date of such Disability and may be exercised at any time within
the 36-month period beginning on the date of such Disability, but not
thereafter, and in no event shall such Stock Option be exercisable after the
tenth anniversary of its date of grant.
(j) Except as otherwise provided herein, each Stock Option may
be exercised in whole or in part or in two or more successive parts.
(k) No Stock Option shall be transferrable by Franke,
otherwise than by will or by laws of descent and distribution. During the
lifetime of Franke, no Stock Option may be exercised by anyone other than
Franke.
<PAGE> 6
(l) Each Stock Option may be exercised from time to time by a
notice in writing which identifies such Stock Option and specifies the number
of Shares in respect of which it is being exercised. Such notice shall be
delivered to the Secretary of the Company or addressed to the Secretary of the
Company at its principal corporate offices. The date of exercise of any Stock
Option shall be the date the exercise notice is hand delivered or mailed to the
Secretary of the Company, whichever is applicable. An election to exercise a
Stock Option shall be irrevocable.
(m) None of the Stock Options is intended to qualify as an
incentive stock option under Section 422 of the Code.
3.4. Life Insurance
During the Term, the Company agrees to maintain, at all times and
without cost to Franke, a term life insurance policy on the life of Franke in
the amount of $2 million, the proceeds of which, in the event of Franke's
death, shall be payable to one or more beneficiaries designated by Franke or,
in the absence of any such designation, to his estate. Such policy shall be
issued by a solvent insurance company reasonably acceptable to Franke.
3.5. Annual Administrative Expense Allowance
During the Term, the Company shall continue to pay to Franke or
his designee, in accordance with past practices, an annual allowance of $50,000
(payable in equal monthly installments) for administrative expenses incurred by
Franke in connection with the performance of his duties and responsibilities
and the exercise of his powers and authority under this Agreement. So long as
the Company is not in default under this Section 3.5, Franke shall be
responsible for providing, in accordance with past practices, at least one
administrative assistant/secretary.
3.6. Business Expenses
The Company shall, in accordance with the rules and policies that
it may establish from time to time for senior executives, reimburse Franke for
business expenses reasonably incurred in the performance of Franke's duties.
It is understood that Franke is authorized to incur reasonable business
expenses for promoting the business and reputation of the Company, including
reasonable expenditures for travel, lodging, meals and client and/or business
associate entertainment. Requests for reimbursement for such expenses must be
accompanied by appropriate documentation.
3.7. Other Benefits
Franke shall be entitled to receive all fringe benefits and other
perquisites that may be offered by the Company to its senior executives as a
group or to any of its senior executives individually or to the members of the
Board, including, without limitation, (i) participation in the various employee
benefit plans or programs provided to senior executives of the Company in
general, subject to meeting the eligibility requirements with respect to each
of such benefit plans or programs, (ii) tax planning assistance, (iii)
automobile allowances, (iv) club memberships and (v) on-line and interline,
positive space travel privileges. However, nothing in this Section 3.7 shall
be deemed to prohibit the Company from making any changes in any of the plans,
programs or benefits described herein, provided the change similarly affects
all senior executives of the Company or members of the Board, as the case may
be, similarly situated. Notwithstanding the foregoing, Franke shall not be
entitled to participate in the Incentive Plan or any other incentive plans
offered to key employees of the Company, except as expressly provided herein.
ARTICLE IV
Termination of Employment
4.1. Termination by Franke
Franke may, at any time prior to the end of the Term, terminate
his employment hereunder for any reason by delivering a Notice of Termination
to the Board.
4.2. Termination by the Company
The Company may, at any time prior to the end of the Term,
terminate Franke's employment hereunder for any reason by delivering a Notice
of Termination to Franke; provided, however, that in no event shall the Company
be entitled to terminate Franke's employment prior to the end of the Term
unless the Board shall duly adopt, by the affirmative vote of at least a
majority of the entire membership of the Board, a resolution authorizing such
termination and stating that, in the opinion of the Board, sufficient reason
exists therefor.
4.3. Accrued Cash Base Salary, Vacation Pay, etc.
(a) Promptly upon the termination of Franke's employment for
any reason, the Company shall pay to Franke a lump sum amount for (i) any
unpaid Cash Base Salary earned hereunder prior to the termination date, (ii)
all unused vacation time accrued by Franke as of the termination date in
accordance with the Company's vacation policy for senior executives, (iii) all
unpaid benefits earned by Franke as of the termination date under any and all
incentive compensation plans or programs of the Company, (iv) any expenses in
respect of which Franke has requested, and is entitled to, reimbursement in
accordance with Section 3.6 and (v) any additional amounts or benefits which
may be required to be paid in a lump sum by applicable law.
(b) A termination of Franke's employment in accordance with
this Agreement shall not alter or impair (i) any of Franke's rights or benefits
under any issued and outstanding Stock Options except as provided in Section
3.3 or (ii) any of Franke's rights or benefits, if any, under employee benefit
plans or programs maintained by the Company.
<PAGE> 7
4.4. Other Benefits and Privileges
The following provisions shall apply if Franke terminates his
employment for Good Reason or if the Company terminates Franke's employment for
any reason other than Misconduct or Disability:
(i) Severance Payment. The Company shall promptly pay to
Franke a severance payment (in cash or other immediately available
funds) in the amount of (A) $1.5 million, if the Termination Date is
prior to August 25, 1996, and (B) $1 million, if the Termination Date
occurs on or after August 25, 1996; provided, however, that such
severance payment shall be reduced to the extent necessary so that no
portion of such payment (or of any other payment or benefit which
constitutes a "parachute payment" within the meaning of Section 289G of
the Code and which Franke has received or entitled to receive from the
Company during the relevant calendar year) shall be subject to the
excise tax imposed by Section 4999 of the Code, but only if, by reason
of such reduction, Franke's net after tax benefit shall exceed the net
after tax benefit if such reduction were not made.
(ii) Medical Insurance. During the 24-month period following
the Termination Date, the Company, at its cost, shall maintain in full
force and effect for the continued benefit of Franke and Franke's
dependents all benefits available to Franke and Franke's dependents
under all medical plans and programs of the Company, provided that (a)
Franke's continued participation is possible under the terms and
provisions of such plans and programs and (b) Franke pays the regular
employee premium, if any, required by such plans and programs. In the
event that participation by Franke (or his dependents) in any such plan
or program after the Termination Date is barred pursuant to the terms
thereof, or in the event the Company shall terminate any such plan or
program, the Company shall obtain for Franke (and/or his dependents)
comparable coverage under individual policies.
(iii) Life Insurance. During the 12-month period following the
of Termination Date, the Company, at its cost, shall continue to provide
Franke all life insurance coverages (and in the same amounts) provided
to him by the Company immediately prior to the date on which the
relevant Notice of Termination is given in accordance with this Article
IV.
(iv) Travel Privileges. The Company shall provide Franke (and
wife and his dependents) lifetime on-line and interline, positive space
travel privileges subject to the terms of the Company's non-revenue
travel policy as from time to time in effect.
4.5. Company to Pay Benefits During Pendency of Dispute
Either party may, within 10 days after its receipt of a Notice of
Termination given by the other party, provide notice to the other party that a
dispute exists concerning the termination, in which event such dispute shall be
resolved in accordance with Article VI. Notwithstanding the pendency of any
such dispute and notwithstanding any provision herein to the contrary, the
Company will (i) continue to pay Franke the Cash Base Salary in effect when the
notice giving rise to the dispute was given, (ii) continue to make the Stock
Grants in accordance with Section 3.2, (iii) continue to grant the Stock
Options in accordance with Section 3.3 and (iv) continue Franke as a
participant in all compensation and benefit plans in which Franke was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved or, with respect to a Notice of Termination given
by Franke, the date of termination specified in such notice, if earlier, but,
in each case, not past the end of the Term.
ARTICLE V
Piggyback Registration Rights
5.1. Definitions
Capitalized terms used herein and in Exhibit A hereto that are
not otherwise defined herein shall have the meanings ascribed to them in that
certain Registration Rights Agreement dated August 25, 1994 among the Company,
AmWest Partners, L.P., and others therein named ("AmWest Registration Rights
Agreement"), to which agreement reference is made for such definitions and for
all purposes. In addition, the following terms, as used in this Article V,
have the following meanings:
"Holders" shall mean (i) Franke, his heirs and personal
representatives and (ii) any direct or indirect transferee of
Registrable Securities.
"Registrable Securities" means (1) the 125,000 Shares heretofore
granted to Franke as a bonus for his efforts relating to the successful
reorganization of the Company under the Bankruptcy Code and (2) all of
the equity securities of the Company acquired by Franke pursuant to this
Agreement, including, without limitation, (a) the Stock Grants, (b) the
Stock Options, (c) any Shares issued on exercise of the Stock Options
and (d) any securities issued or issuable with respect to any such
securities by way of stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or
other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with the plan
of distribution set forth in such registration statement, (ii) such
securities shall have been distributed in accordance with Rule 144,
(iii) the Company has caused to be delivered an opinion of counsel in
accordance with Section 5.2(c) that such securities are distributable in
accordance with Rule 144 or (iv) such securities shall have been
otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered in exchange
therefor by the Company and subsequent disposition of such securities
shall not require registration or qualification under the Securities Act
or any similar state law then in force.
5.2. Piggyback Registration
(a) Right to Include Registrable Securities. If the Company
at any time proposes to register any of its equity securities under the
Securities Act (other than by a registration (i) on Form S-4 or Form S-8, or
any successor or similar form then in effect or (ii) pursuant to Section 2.1 of
the AmWest Registration Rights Agreement) in a form and in a manner that would
permit registration of the Registrable Securities, whether or not for sale for
its own account, it will give prompt (but in no event less than 30 days prior
to the proposed date of filing the registration statement relating to such
registration) notice to all Holders of Registrable Securities
<PAGE> 8
of the Company's intention to do so and of such Holders' rights under this
Section 5.2. Upon the request of any such Holder made within 20 days after the
receipt by such Holder of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended method or methods of disposition thereof) (the "Piggyback Registration
Notice"), the Company will use Commercially Reasonable Efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Holders thereof, to the extent
required to permit the disposition (in accordance with the intended method or
methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that if, at any time after giving notice of its intention
to register any equity securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
equity securities, the Company may, at its election, give notice of such
determination to each such Holder and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay all Registration Expenses in connection therewith) and
(ii) in the case of a determination to delay registering, shall be permitted to
delay registering any Registrable Securities for the same period as the delay
in registering such other equity securities.
(b) Priority in Piggyback Registration. If (i) a registration
pursuant to this Section 5.2 involves an underwritten offering of the
securities being registered, whether or not for sale for the account of the
Company, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms appropriate
for such a transaction and (ii) the managing underwriter of such underwritten
offering shall inform the Company and the Holders requesting such registration
by letter of its belief that the amount of securities requested to be included
in such registration exceeds the amount which can be sold in (or during the
time of) such offering within a price range acceptable to the Company, then the
Company will include in such registration such amount of securities which the
Company is so advised can be sold in (or during the time of) such offering as
follows: first, all securities proposed by the Company to be sold for its own
account; second, such securities of the Company requested to be included in
such registration pursuant to the terms of the AmWest Registration Rights
Agreement and the GPA Registration Rights Agreement; third, such Registrable
Securities requested to be included in such registration by all Holders pro
rata on the basis of the amount of such securities so proposed to be sold and
so requested to be included by such Holders; and fourth, all other securities
of the Company requested to be included in such registration pro rata on the
basis of the amount of such securities so proposed to be sold and so requested
to be included.
(c) The Holders shall be entitled to exercise their
registration rights pursuant to this Section 5.2 at any time or times until all
of the Registrable Securities have been sold pursuant to an effective
registration statement under the Securities Act, or until the Company shall
have obtained an opinion of counsel reasonably acceptable to the Company and
Holders that such Registrable Securities may be sold without registration
pursuant to available exemptions under Rule 144 without limitation on amount.
5.3. Registration Procedures
Each registration pursuant to Section 5.2 shall be effected in
accordance with the procedures, and subject to the indemnification and other
provisions, set forth in Exhibit A hereto.
ARTICLE VI
Dispute Resolution
(a) In the event a dispute shall arise between the parties as
to whether the provisions of this Agreement have been complied with (a
"Dispute"), the parties agree to resolve such Dispute in accordance with the
following procedure:
(1) A meeting shall be held promptly between the parties,
attended by (in the case of the Company) by one or more individuals with
decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
(2) If, within 10 days after such meeting, the parties have
not succeeded in negotiating a resolution of the Dispute, the parties
agree to submit the Dispute to mediation in accordance with the
Commercial Mediation Rules of the American Arbitration Association.
(3) The parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
clause (2) above.
(4) Upon appointment of the mediator, the parties agree to
participate in good faith in the mediation and negotiations relating
thereto for 15 days.
(5) If the parties are not successful in resolving the Dispute
through mediation within such 15-day period, the parties agree that the
Dispute shall be settled by arbitration in accordance with the Expedited
Procedures of the Commercial Arbitration Rules of the American
Arbitration Association.
(6) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
(7) If any dispute shall arise under this Agreement involving
termination of Franke's employment with the Company or involving the
failure or refusal of the Company to fully perform in accordance with
the terms hereof, the Company shall reimburse Franke, on a current
basis, for all legal fees and expenses, if any, incurred by Franke in
connection with such dispute, together with interest thereon at the rate
of 8% per annum, such interest to accrue from the date the Company
receives Franke's statement for such fees and expenses through the date
of payment thereof; provided, however, that in the event the resolution
of such dispute in accordance with this Article VI includes a finding
denying, in all material respects, Franke's claims in such dispute,
Franke shall be required to reimburse the Company, over a period not to
exceed 12 months from the date of such resolution, for all sums advanced
to Franke with respect to such dispute pursuant to this paragraph (7).
<PAGE> 9
(8) Except as provided above, each party shall pay its own
costs and expenses (including, without limitation, attorneys' fees)
relating to any mediation/arbitration proceeding conducted under this
Article VI.
(9) All mediation/arbitration conferences and hearings will be
held in Phoenix, Arizona.
(b) In the event there is any disputed question of law
involved in any arbitration proceeding, such as the proper legal interpretation
of any provision of this Agreement, the arbitrators shall make separate and
distinct findings of all facts material to the disputed question of law to be
decided and, on the basis of the facts so found, express their conclusion of
the question of law. The facts so found shall be conclusive and binding on the
parties, but any legal conclusion reached by the arbitrators from such facts
may be submitted by either party to a court of law for final determination by
initiation of a civil action in the manner provided by law. Such action, to be
valid, must be commenced within 20 days after receipt of the arbitrators'
decision. If no such civil action is commenced within such 20-day period, the
legal conclusion reached by the arbitrators shall be conclusive and binding on
the parties. Any such civil action shall be submitted, heard and determined
solely on the basis of the facts found by the arbitrators. Neither of the
parties shall, or shall be entitled to, submit any additional or different
facts for consideration by the court. In the event any civil action is
commenced under this paragraph (b), the party who prevails or substantially
prevails (as determined by the court) in such civil action shall be entitled to
recover from the other party all costs, expenses and reasonable attorneys' fees
incurred in connection with such action and on appeal.
(c) Except as limited by paragraph (b) above, the parties
agree that judgment upon the award rendered by the arbitrators may be entered
in any court of competent jurisdiction. In the event legal proceedings are
commenced to enforce the rights awarded in an arbitration proceeding, the party
who prevails or substantially prevails in such legal proceeding shall be
entitled to recover from the other party all costs, expenses and reasonable
attorneys' fees incurred in connection with such legal proceeding and on
appeal.
(d) Except as provided above, (i) no legal action may be
brought by either party with respect to any Dispute and (ii) all Disputes shall
be determined only in accordance with the procedures set forth above.
ARTICLE VII
Antidilution Provisions and Reservation of Shares
7.1. Antidilution
(a) In the event of any change after the date hereof in the
number of issued shares of common stock (or any class thereof) of the Company
by reason of any stock dividend, split-up, recapitalization, merger,
combination, conversion, exchange of shares or other change in the corporate or
capital structure of the Company, then there shall be appropriate and equitable
adjustments made (with adjustments being cumulative if more than one of such
events shall have occurred) in the number and kind of shares of stock or other
securities of the Company (i) thereafter issued to Franke pursuant to Section
3.2(a), (ii) covered by Stock Options thereafter granted to Franke pursuant to
Section 3.3(c) and (iii) thereafter issued upon exercise of the Stock Options
then outstanding. Whenever an adjustment is made as required or permitted by
the provisions of this paragraph (a), the Company shall promptly deliver to
Franke written notice thereof setting forth a brief statement of the facts
requiring such adjustment and the computation thereof.
(b) In case of any liquidation, dissolution or winding up of
the affairs of the Company, the Company shall make prompt, proportionate,
equitable, lawful and adequate provision as part of the terms of such
dissolution, liquidation or winding up such that Franke may thereafter receive,
in lieu of each Share which Franke would have been entitled to receive under
Section 3.2(a) or upon exercise of the outstanding Stock Options, the same kind
and amount of any stock, securities or assets as may be issuable, distributable
or payable on any such dissolution, liquidation or winding up with respect to
each outstanding Share.
7.2. Covenant to Reserve Shares for Issuance
The Company covenants that it will at all times reserve and keep
available (free of preemptive rights) out of its authorized and unissued
Shares, solely for the purpose of issuance pursuant to Section 3.2 or upon
exercise of the Stock Options, the full number of Shares, if any, then issuable
under Section 3.2 or upon exercise of all outstanding Stock Options. The
Company further covenants that all Shares which shall be so issuable shall be
duly and validly issued and fully paid and non-assessable.
ARTICLE VIII
Miscellaneous
8.1. No Mitigation
The provisions of this Agreement are not intended to, nor shall
they be construed to, require that Franke mitigate the amount of any payment
provided for in this Agreement by seeking or accepting other employment, nor
shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by Franke as the result of employment by another
employer or otherwise. Without limitation of the foregoing, the Company's
obligations to make the payments to Franke required under this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any set
off, counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Franke.
8.2. Assignability
The obligations of Franke hereunder are personal and may not be
assigned or delegated by Franke or transferred in any manner whatsoever, nor
are such obligations subject to involuntary alienation, assignment or transfer.
The Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder as provided in Section 8.5.
<PAGE> 10
8.3. Notices
All notices and all other communications provided for in the
Agreement shall be in writing and addressed (i) if to the Company, at its
principal office address or such other address as it may have designated by
written notice to Franke for purposes hereof, directed to the attention of the
Board with a copy to the Secretary of the Company and (ii) if to Franke, at his
residence address on the records of the Company or to such other address as he
may have designated to the Company in writing for purposes hereof. Each such
notice or other communication shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, except that any notice of change of address shall be effective
only upon receipt.
8.4. Severability
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8.5. Successors; Binding Agreement
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonable acceptable to Franke, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement. As
used herein, the term "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the Agreement provided
for in this Section 8.5 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Franke hereunder shall
inure to the benefit of and be enforceable by Franke's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Franke should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Franke's devisee, legatee, or other designee or, if there be no
such designee, to Franke's estate.
8.6. Tax Withholdings
The Company shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom unless Franke has otherwise paid to the Company the amount of such
taxes.
8.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Franke and such member of the Board as may be
specifically authorized by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or in compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
8.8. Entire Agreement; Termination of Prior Agreement
(a) The Company and Franke have heretofore entered into a Key
Employee Protection Agreement dated as of June 27, 1994. Such Key Employee
Protection Agreement shall automatically terminate in its entirety upon the
execution and delivery of this Agreement by the Company and Franke.
(b) This Agreement is an integration of the parties agreement;
no agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
8.9. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA WITHOUT
REGARD TO ITS CONFLICT OF LAWS PROVISION.
8.10. Counterparts
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
8.11. Payment of Certain Taxes
The Company will from time to time promptly pay all transfer,
stamp or similar taxes that may be imposed in respect of the initial issuance
of any Shares hereunder, but the Company shall not be obligated to pay any such
taxes in respect of any transfer of Shares effected by Franke.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
AMERICA WEST AIRLINES, INC.
By:
Chairman of Compensation/Human
Resources Committee
William A. Franke
<PAGE> 11
PIGGYBACK REGISTRATION RIGHTS EXHIBIT A
PROCEDURES AND INDEMNIFICATIONS
1. Defined Terms
Capitalized terms used in this Exhibit A without definition shall
have the meanings described or referred to in Sections 1.1 and 5.1 of the
Employment Agreement of which this Exhibit A is a part (the "Employment
Agreement").
2. Registration Terms and Procedures
(a) Registration Statement Form. Registrations under Section 5.2 of
the Employment Agreement shall be on such appropriate registration forms of the
SEC as shall permit the disposition of such Registrable Securities in accordance
with the intended method or methods of disposition. The Company agrees to
include in any such registration statement all information that any
Participating Holder shall reasonably request (to the extent such information
relates to such Participating Holder).
(b) Registration Expenses. The Company will pay all Registration
Expenses incurred in connection with a registration to be effected pursuant to
Section 5.2 of the Employment Agreement.
(c) Registration of Securities. Participating Holders may seek to
register different types of Registrable Securities and/or different classes of
the same type of Registrable Securities simultaneously and the Company shall use
its, and in the case of an underwritten offering, shall cause the managing
underwriter or underwriters to use Commercially Reasonable Efforts to effect
such registration and sale in accordance with the intended method or methods of
disposition specified by such Holders.
(d) Withdrawal. Any Holder participating in a registration pursuant
to Section 5.2 of the Employment Agreement shall be permitted to withdraw all or
part of its Registrable Securities from such registration at any time prior to
the effective date of the registration statement covering such securities.
(e) Registration Procedures. In connection with the Company's
obligations to register Registrable Securities pursuant to the Employment
Agreement, the Company will use Commercially Reasonable Efforts to effect such
registration so as to permit the sale of any Registrable Securities included in
such registration in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and (as soon thereafter as practicable) file with the SEC
the requisite registration statement containing all information required
thereby to effect such registration and thereafter use Commercially
Reasonable Efforts to cause such registration statement to become and remain
effective in accordance with the terms of the Employment Agreement, provided
that as far in advance as practicable before filing such registration
statement or any amendment, supplement or exhibit thereto (but, with respect
to the filing of such registration statement, in no event later than seven
days prior to such filing), the Company will furnish to the Participating
Holders or their counsel copies of reasonably complete drafts of all such
documents proposed to be filed (excluding exhibits, which shall be made
available upon request by any Participating Holder), and any such Holder
shall have the opportunity to object to any information contained therein
and the Company will make the corrections reasonably requested by such
Holder with respect to information relating to such Holder or the plan of
distribution of the Registrable Securities prior to filing any such
registration statement, amendment, supplement or exhibit;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
(A) as reasonably requested by any Participating Holder to which such
registration statement relates (but only to the extent such request relates
to information with respect to such Holder) and (B) as may be necessary to
keep such registration statement effective for six months (or such shorter
period as shall be necessary to complete the distribution of the securities
covered thereby, but not before the expiration of the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder),
and comply with the provisions of the Securities Act with respect to the
sale or other disposition of all securities covered by such registration
statement during such period in accordance with the intended method or
methods of disposition by the seller or sellers thereof set forth in such
registration statement;
(iii) furnish to each Holder covered by, and each underwriter or
agent participating in the disposition of securities under, such
registration statement such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
excluding all exhibits and documents incorporated by reference, which
exhibits and documents shall be furnished to any such Person upon request),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary prospectus)
and any other prospectus filed under Rule 424 under the Securities Act
relating to such Holder's Registrable Securities, in conformity with the
requirements of the Securities Act, and such other documents as such Holder,
underwriter or agent may reasonably request to facilitate the disposition of
such Registrable Securities;
(iv) use Commercially Reasonable Efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under all applicable blue sky and other securities laws, and to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such Holder to consummate
the disposition of the securities owned by such Holder, except that the
Company shall not for any such purpose be required to (a) qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this clause (iv) be obligated to be so
qualified, (b) subject itself to taxation in any such jurisdiction or (c)
consent to general service of process in any jurisdiction;
<PAGE> 12
(v) use Commercially Reasonable Efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities applicable to
the Company as may be reasonably necessary to enable the seller or sellers
thereof (or underwriter or agent, if any) to consummate the disposition of
such Registrable Securities in accordance with the plan of distribution set
forth in such registration statement;
(vi) furnish to each Holder of Registrable Securities covered by such
registration statement a signed counterpart, addressed to such Holder (and
underwriter or agent, if any) of:
(A) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), and
(B) unless otherwise precluded under applicable accounting
rules, a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in
such registration statement,
in each case, reasonably satisfactory in form and substance to such Holder
(and underwriter or agent and their respective counsel) and covering
substantially the same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel and
in accountants' letters delivered to the underwriter or agent in
underwritten public offerings of securities;
(vii) promptly notify each Holder and any underwriter or agent
participating in the disposition of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event known to the Company as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, and promptly prepare and furnish to such Holder (or
underwriter or agent, if any) a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made;
(viii) otherwise use Commercially Reasonable Efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable (but not more than
fifteen months) after the effective date of the registration statement, an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and furnish to each
Holder covered by such registration statement or any participating
underwriter or agent at least five (business days prior to the filing a copy
of any amendment or supplement to such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(x) use Commercially Reasonable Efforts to (A) list, on or prior to
the effective date of such registration statement, all Registrable
Securities covered by such registration statement on any securities exchange
on which any of the Registrable Securities is then listed, if any, or (B)
have authorized for quotation and/or listing, as applicable, on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") of
the National Market System of NASDAQ if the Registrable Securities so
qualify;
(xi) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the National Association of Securities Dealers;
(xii) use Commercially Reasonable Efforts to prevent the issuance by
the SEC or any other governmental agency or court of a stop order,
injunction or other order suspending the effectiveness of such registration
statement and, if such an order is issued, use Commercially Reasonable
Efforts to cause such order to be lifted as promptly as practicable;
(xiii) take such other actions as the Requisite Holders of such
Registrable Securities shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(xiv) promptly notify each seller and the underwriter or agent,
if any:
(A) when such registration statement or any prospectus used
in connection therewith, or any amendment or supplement thereto, has
been filed and, with respect to such registration statement or any
post-effective amendment thereto, when the same has become effective;
(B) of any written comments from the SEC with respect to any
filing referred to in clause (A) above and of any written request by
the SEC for amendments or supplements to such registration statement
or prospectus;
<PAGE> 13
(C) of the notification to the Company by the SEC of its
initiation of any proceeding with respect to, or of the issuance by
the SEC of, any stop order suspending the effectiveness of such
registration statement; and
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws
of any jurisdiction;
(xv) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the distribution of such Registrable
Securities to facilitate the timely preparation and delivery of certificates
(which shall not bear any restrictive legends, other than as required by
applicable law) representing securities sold under a registration statement
hereunder, and enable such securities to be in such denominations and
registered in such names as such seller, underwriter or agent may request
and keep available and make available to the Company's transfer agent, prior
to the effectiveness of such registration statement, an adequate supply of
such certificates;
(xvi) not later than the effective date of such registration
statement, provide a CUSIP number for all Registrable Securities covered by
a registration statement hereunder;
(xvii) incorporate in the registration statement or any amendment,
supplement or post-effective amendment thereto such information as each
Holder, the underwriter or agent (if any) or their respective counsel may
reasonably request to be included therein with respect to any Registrable
Securities being sold by such Holder to such underwriter or agent, the
purchase price being paid therefor by such underwriter or agent and any
other terms of the offering of such Registrable Securities;
(xviii) during any period when a prospectus is required to be
delivered under the Securities Act, make periodic filings with the SEC
pursuant to and containing the information required by the Exchange Act
(whether or not the Company is required to make such filings pursuant to
such Act); and
(xix) in connection with an underwritten offering, participate, to
the extent reasonably requested by the Requisite Holders or the managing
underwriter for the offering, in customary efforts to sell the securities
under the offering, including, without limitation, participating in "road
shows."
(f) Agreements of Holders. (i) Each Holder of Registrable Securities
as to which any registration is being effected shall furnish to the Company such
information regarding such Holder, the Registrable Securities held by such
Holder and the intended plan of distribution of such securities as the Company
may from time to time reasonably request in writing in connection with such
registration.
(ii) Each Holder of Registrable Securities as to which any
registration is being effected agrees, by acquisition of such Registrable
Securities, that upon receipt of any notice (a "Suspension Notice") from the
Company of the happening of any event of the kind described in clause (vii) of
paragraph 1(e) above, such Holder will forthwith discontinue such Holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by clause (vii) of
paragraph 1(e) above, (the period from the date on which such Holder receives a
Suspension Notice to the date on which such Holder receives copies of the
supplemented or amended prospectus being herein called the "Suspension Period").
The Company shall take such actions as are necessary to end the Suspension
Period as promptly as practicable. In the event the Company shall give any such
notice, the period referred to in clause (ii) of paragraph 1(e) above, shall be
extended by a number of days equal to the number of days of the Suspension
Period.
3. Underwritten Offerings
If the Company at any time proposes to register any of its equity
securities under the Securities Act as contemplated by Section 5.2 of the
Employment Agreement and such securities are to be distributed by or through one
or more underwriters, the Company will, if requested by any Participating Holder
and subject to Section 5.2(b) of the Employment Agreement, arrange for such
underwriters to include all of the Registrable Securities to be offered and sold
by such Holder or Holders among the securities to be distributed by such
underwriters. The Holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters, provided that such agreement is reasonably satisfactory
in substance and form to the Company and the Requisite Holders.
4. Preparation; Reasonable Investigation
In connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement, the Company will
give the Holders of Registrable Securities to be registered under such
registration statement, their underwriters or agents, if any, and their
respective counsel and accountants reasonable access to its books and records
and such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Holders' and such
underwriters' or agents' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
5. Indemnification
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each Holder
participating in an offering provided for as described herein, and each other
Person, if any, who controls such Holder within the meaning of the Securities
Act (each such Person, an "Indemnified Party"), from and against any losses,
claims, damages, liabilities or expenses, joint or several (each a "Loss" and
collectively, "Losses"), to which such Indemnified Party may become subject
under the Securities Act or otherwise, to the extent that such Losses (or
actions or proceedings, whether
<PAGE> 14
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act (including all documents incorporated therein by reference), any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or 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, and the Company will
reimburse such Indemnified Party for any legal or any other expenses reasonably
incurred by it in connection with investigating or defending against any such
Loss, action or proceeding; provided that in any such case the Company shall not
be liable to any particular Indemnified Party to the extent that such Loss (or
action or proceeding in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Party specifically for inclusion therein; and provided further that the Company
shall not be liable in any such case to the extent it is finally determined by a
court of competent jurisdiction that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made
(i) in any such preliminary prospectus, if (A) it was the
responsibility of such Indemnified Party to provide the Person asserting
such Loss with a current copy of the prospectus and such Indemnified Party
failed to deliver or cause to be delivered a copy of the prospectus to such
Person after the Company had furnished such Indemnified Party with a
sufficient number of copies of the same prior to the sale of Registrable
Securities to the Person asserting such Loss and (B) the prospectus
corrected such untrue statement or omission; or
(ii) in such prospectus, if such untrue statement or omission is
corrected in an amendment or supplement to such prospectus and such
amendment or supplement has been delivered to the Indemnified Party prior to
the sale of Registrable Securities to the Person asserting such Loss and the
Indemnified Party thereafter fails to deliver the prospectus as so amended
or supplemented prior to or concurrently with such sale after the Company
had furnished such Indemnified Party with a sufficient number of copies of
the same for delivery to purchasers of securities.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of such securities by such Indemnified Party. The Company shall
also indemnifiy each other Person who participates (including as an underwriter)
in the offering or sale of Registrable Securities hereunder, their officers and
directors and each other Person, if any, who controls any such participating
Person within the meaning of the Securities Act to the same extent as provided
above with respect to Indemnified Parties.
(b) Indemnification by the Holders. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Sections 5.2 of the Employment Agreement and as a condition to
indemnifying such sellers pursuant to this paragraph 5, that the Company shall
have received an undertaking reasonably satisfactory to it from each prospective
seller of such securities, to indemnify and hold harmless and reimburse (in the
same manner and to the same extent as set forth in such subparagraph (a) of this
paragraph 5) the Company, each director, officer, employee and agent of the
Company, and each other Person, if any, who controls the Company within the
meaning of the Securities Act, from and against any Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any registration statement under which such securities were
registered under the Securities Act (including all documents incorporated
therein by reference), any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission from such registration statement, preliminary
prospectus, final prospectus or summary prospectus, or any amendment or
supplement thereto required to be stated therein or necessary to make the
statements therein not misleading, if (but only if) such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
prospective seller specifically for inclusion therein; provided, however, that
such prospective seller shall not be obligated to provide such indemnity to the
extent that such Losses result, directly or indirectly, from the failure of the
Company to promptly amend or take action to correct or supplement any such
registration statement, prospectus, amendment or supplement based on corrected
or supplemental information provided in writing by such prospective seller to
the Company expressly for such purpose; and provided further, that the
obligation to provide indemnification pursuant to this subparagraph (b) shall be
several, and not joint and several, among such indemnifying parties.
Notwithstanding anything in this paragraph 5 to the contrary, in no event shall
the liability of any prospective seller under such indemnity be greater in
amount than the amount of the proceeds received by such seller upon the sale of
its Registrable Securities in the offering to which the Losses relate. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer, employee,
agent or participating or controlling Person and shall survive the transfer of
such securities by such prospective seller.
(c) Notices of Claims, etc. Promptly alter receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in subparagraph (a) or (b) of this paragraph 5, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give prompt written notice to the latter of the commencement
of such action, provided that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under this paragraph 5, except to the extent that the indemnifying
party is actually and materially prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and to assume the defense thereof
(such assumption to constitute its acknowledgement of its agreement to indemnify
the indemnified party with respect to such matters), jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified
<PAGE> 15
party for any legal fees or other expenses subsequently incurred by the latter
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in such indemnified party's
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, such indemnified party
shall be entitled to separate counsel at the expense of the indemnifying party;
and provided, further, that, unless there exists a conflict of interest among
indemnified parties, all indemnified parties in respect of such claim shall be
entitled to only one counsel or firm of counsel for all such indemnified
parties. In the event an indemnifying party shall not be entitled, or elects
not, to assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm of
counsel for all parties indemnified by such indemnifying party in respect of
such claim, unless in the reasonable judgment of any such indemnified party a
conflict of interest exists between such indemnified party and any other of such
indemnified parties in respect of such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of one additional counsel
or firm of counsel for such indemnified parties. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement that (i) does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all Losses in respect of such claim or litigation or (ii) would
impose injunctive relief on such indemnified party. No indemnifying party shall
be subject to any Losses for any settlement made without its consent, which
consent shall not be unreasonably withheld.
(d) Other Indemnification. The provisions of this paragraph 5
shall be in addition to any other rights to indemnification or contribution
which an indemnified party may have pursuant to law, equity, contract or
otherwise.
(e) Indemnification Payments. The indemnification required by this
paragraph 5 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, promptly as and when bills are received
or Losses are incurred.
(f) Contribution. If for any reason the foregoing indemnity and
reimbursement is unavailable or is insufficient to hold harmless an indemnified
party under subparagraph (a) or (b) of this paragraph 5, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any Loss (or actions or proceedings, whether commenced or
threatened, in respect thereof), including, without limitation, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such Loss, action or proceeding, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. Notwithstanding anything in this subparagraph (f) to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
subparagraph (f) to contribute any amount in excess of the amount by which the
net proceeds received such indemnifying party from the sale of Registrable
Securities in the offering to which the Losses of the indemnified parties relate
exceeds the amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue statement or omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective
as of January 1, 1994 by and between America West Airlines, Inc., a Delaware
corporation ("Company"), and A. Maurice Myers ("Myers").
WHEREAS, Myers is willing to serve as the President and Chief
Operating Officer of the Company and the Company desires to retain Myers in
such capacity on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:
"Aloha" shall mean Aloha Airlines, Inc., a Hawaii corporation.
"Applicable Federal Rate" shall mean, in the case of either the
House Note or the Stock Note, the applicable federal rate determined
with respect to such Note in accordance with section 1274(d) of the
Internal Revenue Code of 1986, as amended.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as from time to time amended, and any successor
statute thereto.
"Bankruptcy Court" shall mean the United States Bankruptcy Court
for the District of Arizona.
"Base Salary shall have the meaning specified in Section 3.1.
"Board" shall mean the Board of Directors of the Company.
"CEO" shall mean the Chief Executive Officer of the Company.
"Chairman of the Board" shall mean the Company's Chairman of the
Board.
"Change in Control" shall occur if either:
(i) the individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board; or
(ii) any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended ) acquires the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under such Act) of 51% or more
of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors.
"Company Affiliate" shall mean any Person (other than an
individual) directly or indirectly controlling, controlled by or under
common control with, the Company. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Confidential Information" shall have the meaning specified in
Section 5.1(a).
"Confirmation Bonus" shall have the meaning specified in Section
3.3.
"Deed of Trust" shall have the meaning specified in Section
3.5(a).
"Disability" shall mean a physical or mental condition of Myers
that, in the judgment of the Board, based upon certification by a
licensed physician reasonably acceptable to Myers and the Board, (i)
prevents Myers from being able to perform the services required under
this Agreement, (ii) has continued for a period of at least six months
during any period of twelve consecutive months and (iii) is expected to
continue.
"Dispute" shall have the meaning specified in Section 6.1.
"Good Reason" shall mean, without Myers' express written consent,
any of the following:
(i) a substantial alteration in the nature or status of
Myers' responsibilities;
(ii) the failure of the Company to perform any of its
obligations under this Agreement, but only if such failure shall
continue unremedied for more than 15 days after written notice
thereof is given by Myers to the Company;
<PAGE> 2
(iii) the relocation of the office of the Company where
Myers is employed at the date hereof (the "Employment Location")
to a location more than 50 miles away from the Employment
Location or the Company's requiring Myers to be permanently based
more than 50 miles away from the Employment Location; or
(iv) the failure of Myers to be elected to the Board on
or before April 1, 1994.
"House Note" shall have the meaning specified in Section 3.5(a).
"Incentive Bonus" shall mean any bonus or other payment payable
to Myers pursuant to any incentive plan adopted by the Board for the
benefit of the Company's key employees.
"Line of Credit" shall have the meaning specified in Section
3.6(a).
"Misconduct" shall mean one or more of the following:
(i) the willful and continued failure by Myers to
perform his duties hereunder (other than any such failure
resulting from Myers' incapacity due to physical or mental
illness) after written notice of such failure has been given to
Myers and Myers has had a reasonable period to correct such
failure;
(ii) the willful commission by Myers of acts that are
dishonest and demonstrably or materially injurious to the
Company, monetarily or otherwise;
(iii) the conviction of Myers for a felony; or
(iv) a material breach by Myers of any of the covenants
set forth in this Agreement.
"Notice of Termination" shall mean a notice purporting to
terminate Myers' employment in accordance with Section 4.2 or 4.3, which
notice shall (i) indicate the specific provision in such Section being
relied upon and (ii) set forth in reasonable detail the reason for such
termination and the facts and circumstances claimed to provide a basis
for such termination.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust and an unincorporated
organization.
"Plan of Reorganization" shall mean any plan of reorganization
which (i) is filed with the Bankruptcy Court under Chapter 11 of the
Bankruptcy Code and (ii) contemplates and, if confirmed and consummated,
would result in the emergence of the Company from its Chapter 11
bankruptcy proceedings.
"Pledge Agreement" shall have the meaning specified in Section
3.6(a).
"Pledged Stock" shall have the meaning specified in Section
3.6(a).
"Residence" shall have the meaning specified in Section 3.5(a).
"Restricted Period" shall have the meaning specified in Section
5.2(a).
"Stock Note" shall have the meaning specified in Section 3.6(a).
"Term" shall have the meaning specified in Section 2.3.
"Termination Date" shall mean the termination date specified in a
Notice of Termination delivered in accordance with Article IV, provided
that in no event shall such termination date be less than 30 nor more
than 60 days after the date such Notice is given.
1.2. Interpretations
(a) In this Agreement, unless a clear contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) reference to any Article or
Section, means such Article or Section hereof or such Schedule or Exhibit
hereto, (iii) the words "including" (and with correlative meaning "include")
means including, without limiting the generality of any description preceding
such term, and (iv) where any provision of this Agreement refers to action to
be taken by either party, or which such party is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such party.
(b) The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or
construed against either party solely because that party or its legal
representative drafted such provision.
ARTICLE II
Employment; Positions and Duties; Term
2.1. Employment
The Company hereby employs Myers as its President and Chief
Operating Officer and Myers hereby accepts such employment, in each case during
the Term and on the other terms and conditions set forth in this Agreement.
<PAGE> 3
2.2. Positions and Duties
(a) During the Term, Myers shall serve as the President and
Chief Operating Officer of the Company, and shall have such duties and
responsibilities as are set forth with respect to such offices in the Company's
certificate of incorporation and bylaws (as from time to time in effect) and
such additional duties and responsibilities as are commensurate with such
offices or as may from time to time be reasonably assigned to him by the Board,
the Chairman of the Board or the CEO. Myers shall at all times observe and
comply with all lawful policies, directions and instructions of the Board.
(b) The Company agrees to use its reasonable best efforts to
cause Myers to be elected as a director of the Company as soon as practicable
after the date hereof. Myers agrees to serve as a director of the Company at
all times during the Term. If requested to do so by the Board, Myers agrees to
serve as a director and/or officer of any Company Affiliate during the Term.
Upon the termination of his employment with the Company, Myers agrees to resign
as a director of the Company.
(c) Myers agrees to devote substantially all his business time,
attention, skill and efforts to the faithful and efficient performance of his
duties hereunder and shall not enter into any business or accept employment
with or for any Person other than with the Company during the Term; provided,
however, that Myers may (i) with prior approval of the Board, serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage his personal investments, in each case so long as such activities do not
materially interfere with the performance Myers' duties and responsibilities
hereunder. Myers shall at all times conduct himself in such a manner as not to
prejudice the reputation of the Company in the fields of business in which it
is engaged or with the public at large.
2.3. Term of Employment
Subject to the provisions for earlier termination provided in the
Agreement, the term of this Agreement shall commence on January 1, 1994 and
shall continue through December 31, 1996; provided, however, that, commencing
on March 1, 1996 and on each March 1 thereafter, the term of this Agreement
shall automatically be extended one additional year unless, prior to such March
1, either party shall give written notice to the other that no further such
automatic extensions shall occur, in which event Myers' employment shall
terminate on the December 31 next following the March 1 in respect of which
such notice is given. As used in this Agreement, "Term" shall mean the
original term of this Agreement as automatically extended in accordance with
this Section 2.3; provided, however, that in no event shall the Term continue
beyond the termination of Myers' employment hereunder.
ARTICLE III
Compensation and Benefits
3.1. Base Compensation
For services rendered by Myers under this Agreement, the Company
shall pay to Myers, during the Term, a base salary ("Base Salary") of $375,000
per year, payable biweekly as earned in accordance with the Company's customary
payroll practice for its senior executives and prorated for employment for less
than a full calendar year. The amount of the Base Salary shall be reviewed by
the Board on an annual basis and may be increased as the Board may deem
appropriate. If the Base Salary is increased as aforesaid, it may not
thereafter be decreased unless a similar decrease is made to the base
compensation of all other senior executives of the Company; provided that in no
event may the Base Salary be decreased below $375,000 per year.
3.2. Transition Allowance
Prior to February 1, 1994, the Company shall pay Myers a lump-sum
transition allowance of $100,000.
3.3. Confirmation Bonus
If, during the Term, a Plan of Reorganization is filed with the
Bankruptcy Court, the Company shall seek Bankruptcy Court approval to pay Myers
a "reorganization success bonus" of not less than $400,000 (the "Confirmation
Bonus") in the event such Plan of Reorganization is confirmed and consummated
during the Term.
3.4. Relocation Expenses
(a) The Company shall pay the reasonable expenses incurred by
Myers and his wife during the Relocation Period for (i) interim lodging in the
Phoenix, Arizona area and (ii) traveling between Phoenix, Arizona and Honolulu,
Hawaii. As used herein, "Relocation Period" means the period from the date of
this Agreement to the earlier of (i) the date on which Myers relocates his
principal residence in the Phoenix, Arizona area and (ii) July 1, 1994;
provided that in no event shall the Company's obligation under this paragraph
(a) exceed $15,000.
(b) The Company agrees to reimburse Myers promptly for all
reasonable moving expenses (including packing, storage and cartage) incurred by
Myers during the Term in relocating his principal residence to the Phoenix,
Arizona area.
3.5. House Loan
(a) Upon the purchase by Myers during the Term of his initial
principal residence in the Phoenix, Arizona area (the "Residence"), the Company
will lend to Myers up to $200,000 solely for the purpose of enabling Myers to
pay all or a portion of the purchase price of the Residence. Such loan shall
be evidenced by, and subject to the terms and conditions of, a promissory note
duly executed by Myers and his wife and payable to the order of the Company
(the "House Note"). The House Note shall be in form and substance reasonably
acceptable to the Company and shall be effectively secured by a valid second
lien deed of trust on the Residence (the "Deed of Trust"). The Deed of Trust
shall be duly executed by Myers and his wife and shall be in form and substance
reasonably acceptable to the Company.
<PAGE> 4
(b) The stated maturity date of the House Note shall be
December 31, 2003. On the stated maturity date of the House Note, the entire
unpaid amount (principal and accrued interest) of the House Note shall be and
become immediately due and payable.
(c) The House Note shall bear interest, compounded monthly, at
the Applicable Federal Rate. Accrued interest on the House Note shall be
payable quarterly on each January 1, April 1, July 1 and October 1.
(d) Anything herein or elsewhere to the contrary
notwithstanding, (i) in the event the Confirmation Bonus becomes payable to
Myers as contemplated by Section 3.3, the Company shall be entitled to apply
the Confirmation Bonus (to the extent thereof) to payment of the House Note, in
which event only the balance (if any) of the Confirmation Bonus shall be
payable to Myers, (ii) in the event any severance payment becomes payable to
Myers pursuant to Section 4.2 or 4.3, the Company shall be entitled to apply
such severance payment (to the extent thereof) to payment of the House Note, in
which event only the balance (if any) of such severance payment shall be
payable to Myers and (iii) in the event Myers sells or otherwise disposes of
the Residence, Myers shall immediately remit the proceeds thereof to the
Company for application (to the extent thereof) to the payment of the House
Note. All such payments on the House Note shall be applied first to accrued
and unpaid interest and then to principal.
(e) Anything herein or elsewhere to the contrary
notwithstanding, the House Note (principal and accrued interest) shall be and
become immediately due and payable 180 days after the earlier to occur of (i)
the termination of Myers' employment hereunder pursuant to Article IV and (ii)
Myers' death.
(f) Anything herein or elsewhere to the contrary
notwithstanding, the House Note (principal and accrued interest) shall be and
become immediately due and payable if one or more of the following events shall
occur:
(i) Myers makes an assignment for the benefit of
creditors or is adjudicated insolvent or bankrupt under Title 11
of the Bankruptcy Code;
(ii) Myers voluntarily commences any proceeding under
the Bankruptcy Code or files any petition under the Bankruptcy
Code seeking the appointment of a receiver, trustee, custodian or
liquidator for Myers or a substantial portion of his property;
(iii) involuntary proceedings are commenced against Myers
under the Bankruptcy Code seeking reorganization or a creditors'
arrangement with respect to Myers or the appointment of a
receiver, trustee, custodian or liquidator for Myers or a
substantial portion of his property and such proceedings are not
dismissed within 60 days after commencement;
(iv) any order, judgment or decree is entered against
Myers appointing any receiver or trustee for Myers or for all or
a substantial portion of his property; or
(v) Myers sells or otherwise disposes of the Residence.
(g) Anything herein or elsewhere to the contrary
notwithstanding, neither Myers nor his wife shall be personally liable (whether
by operation of law or otherwise) for payments due under the House Note. The
sole recourse of the Company for satisfaction of the House Note shall be
against (i) the collateral covered by the Deed of Trust (including any proceeds
from the sale or other disposition of the Residence), (ii) the Confirmation
Bonus as contemplated by paragraph (d) above and (iii) any severance payment
due to Myers pursuant to Section 4.2 or 4.3; provided, however, that nothing in
this paragraph (g) is intended to or shall limit or otherwise adversely affect
in any way (i) any right of the Company to proceed against the collateral
covered by, or otherwise to exercise or enforce any of the remedies set forth
in, the Deed of Trust, (ii) any right of the Company to name Myers and his wife
as parties defendant in any action or suit for a judicial foreclosure of the
Deed of Trust or in the exercise of any other right or remedy under the Deed of
Trust or (iii) the right of the Company to apply the Confirmation Bonus and any
severance payment (to the extent thereof) to the payment of the House Note as
contemplated by paragraph (d) above. Except as otherwise specifically
contemplated by the foregoing proviso, in no event will the Company (i) seek to
hold Myers or his wife personally liable for the House Note or (ii) assert any
claim against Myers or his wife for the payment of the House Note.
3.6. Stock Loan
(a) If, during the Term, Myers exercises the stock option
currently held by Myers with respect to shares of common stock of Aloha, the
Company will lend to Myers up to $500,000 solely for the purpose of enabling
Myers to pay the related exercise price and any related income taxes. Such
loan shall be evidenced by, and subject to the terms and conditions of, a
promissory note duly executed by Myers and payable to the order of the Company
(the "Stock Note"). The Stock Note shall be in form and substance reasonably
satisfactory to the Company and shall be effectively secured by a security
agreement (the "Pledge Agreement") duly executed by Myers and creating a valid
first priority security interest in the Aloha stock acquired by Myers upon
exercise of such option (the "Pledged Stock"). The Pledge Agreement shall be
in form and substance reasonably satisfactory to the Company and shall be
accompanied by appropriate stock powers.
(b) The Stock Note shall mature and automatically become
immediately due and payable 90 days after the end of the Term unless (i) Myers'
employment hereunder is terminated pursuant to Section 4.3 for Misconduct, in
which event the Stock Note shall be due and payable 30 days after the end of
the Term or (ii) Myers' employment hereunder is terminated pursuant to Section
2.3 as a result of a notice given by the Company thereunder, in which event the
Stock Note shall be payable in three equal annual installments commencing on
the first anniversary of the end of the Term.
(c) The Stock Note shall bear interest, compounded monthly, at
the Applicable Federal Rate. Prior to the maturity date of the Stock Note,
accrued interest thereon shall be payable only to the extent of (i) any
Incentive Bonus earned by Myers as contemplated by Section 3.12 and (ii) the
proceeds from any sale or other disposition of the Pledged Stock. Anything
herein or elsewhere to the contrary
<PAGE> 5
notwithstanding, (i) in the event any Incentive Bonus becomes payable to Myers
as contemplated by Section 3.12, the Company shall be entitled to apply such
Incentive Bonus (to the extent thereof) to payment of all accrued and unpaid
interest on the Stock Note, in which event only the balance (if any) of such
Incentive Bonus shall be payable to Myers and (ii) in the event Myers sells or
otherwise disposes of any shares of the Pledged Stock, Myers shall immediately
remit the proceeds thereof to the Company for application (to the extent
thereof) to the payment of the principal of and accrued interest on the Stock
Note.
(d) Anything herein or elsewhere to the contrary
notwithstanding, the Stock Note (principal and accrued interest) shall be and
become immediately due and payable 180 days after the first date on which the
Pledged Shares may be sold by Myers in one or more transactions on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ in compliance with
the registration requirements of applicable securities laws.
(e) Anything herein or elsewhere to the contrary
notwithstanding, the Stock Note (principal and accrued interest) shall be and
become immediately due and payable if one or more of the following events shall
occur:
(i) Myers makes an assignment for the benefit of
creditors or is adjudicated insolvent or bankrupt under Title 11
of the Bankruptcy Code;
(ii) Myers voluntarily commences any proceeding under
the Bankruptcy Code or files any petition under the Bankruptcy
Code seeking the appointment of a receiver, trustee, custodian or
liquidator for Myers or a substantial portion of his property;
(iii) involuntary proceedings are commenced against Myers
under the Bankruptcy Code seeking reorganization or a creditors'
arrangement with respect to Myers or the appointment of a
receiver, trustee, custodian or liquidator for Myers or a
substantial portion of his property and such proceedings are not
dismissed within 60 days after commencement; or
(iv) any order, judgment or decree is entered against
Myers appointing any receiver or trustee for Myers or for all or
a substantial portion of his property.
(f) Anything herein or elsewhere to the contrary
notwithstanding, Myers shall not be personally liable (whether by operation of
law or otherwise) for payments due under the Stock Note. The sole recourse of
the Company for satisfaction of the Stock Note shall be against (i) the Pledged
Stock and the proceeds thereof and (ii) Incentive Bonuses as contemplated by
paragraph (c) above; provided, however, that nothing in this paragraph (f) is
intended to or shall limit or otherwise adversely affect in any way (i) any
right of the Company to proceed against the collateral covered by, or otherwise
to exercise or enforce any of the remedies set forth in, the Pledge Agreement,
(ii) any right of the Company to name Myers as a party defendant in any action
or suit for a judicial foreclosure of the Pledge Agreement or in the exercise
of any other right or remedy under the Pledge Agreement or (iii) the right of
the Company to apply any Incentive Bonus (to the extent thereof) to the payment
of the Stock Note as contemplated by paragraph (c) above. Except as otherwise
specifically contemplated by the foregoing proviso, in no event will the
Company (i) seek to hold Myers personally liable for the Stock Note or (ii)
assert any claim against Myers for the payment of the Stock Note.
(g) In no event shall the Company be required to make any loan
under this Section 3.6 if the making of such loan would violate any law or
regulation relating to the extension of credit for the purpose of purchasing or
carrying any "margin stock".
3.7. Life Insurance Premiums
During the Term, the Company agrees to pay on behalf of Myers the
monthly premiums (but not more than $2,141.50 per month) accruing on Policy No.
939-350-991A issued by Metropolitan Life Insurance Company.
3.8. Stock Options
In the event a Plan of Reorganization is filed with the
Bankruptcy Court during the Term, the Company agrees to use its reasonable best
efforts to cause such Plan of Reorganization to provide for the grant by the
reorganized Company to Myers of options to purchase shares of common stock of
the reorganized Company, which options shall be commensurate with Myers' duties
and responsibilities to the reorganized Company except that in no event shall
such options have an aggregate exercise price (at the stock's fair market value
per share at the time of grant) of less than $750,000.
3.9. Reimbursement of Legal Fees
In the event it becomes necessary for Myers to obtain legal
assistance regarding the termination of his employment with Aloha, the Company
agrees to reimburse Myers for all reasonable legal fees that Myers may incur in
that regard.
3.10. Forfeited Aloha Pension Benefits
Upon his termination of employment with the Company, Myers shall
be entitled to receive from the Company an annual retirement benefit
("Retirement Benefit"), in the form of a straight life annuity beginning at age
65 ("Normal Retirement Annuity"), in an amount equal to X - (Y + Z), where (i)
"X" is the amount of the Vested Acc'd BFT for the Term Date that precedes the
date of Myers' termination of employment with the Company as reflected in
Exhibit A hereto, (ii) "Y" is $49,866 and (iii) "Z" is the vested annual
retirement benefit payable to Myers under the Company's qualified and
nonqualified employee pension benefit plans (other than under this Section
3.10) in the form of a Normal Retirement Annuity, whether or not such benefit
is received on such date or in another form. With respect to any such Company
plan that is an individual account balance plan, the conversion of Myers'
account balance under such plan into a Normal Retirement Annuity shall be
calculated by independent actuaries selected by the Company (the "Actuaries"),
disregarding any employee (including 401(k))
<PAGE> 6
contributions to such plan, using the applicable factors and interest rate
established by Pension Benefit Guaranty Corporation for a plan termination on
such date. In the event that Myers elects to retire prior to age 65 and
receive the Retirement Benefit on such earlier date, the amount of the
Retirement Benefit shall be reduced in the same proportion as the Vested Acc'd
BFT in Exhibit A hereto is reduced with respect to a benefit commencement on
such termination date. One-twelfth of the Retirement Benefit (reduced as
aforesaid) shall be payable to Myers each month, following his retirement,
through the month of his death. Notwithstanding the foregoing, in lieu of
receiving a straight life annuity, Myers may elect, prior to his benefit
commencement date hereunder, to receive the Retirement Benefit in the form of a
joint survivor annuity, with his spouse (determined as of his benefit
commencement date) as his contingent annuitant. Such joint survivor annuity
shall be actuarially equivalent in value to the straight life annuity otherwise
payable to Myers with such actuarial equivalence being determined by the
Actuaries.
3.11. Business Expenses
The Company shall, in accordance with the rules and policies that
it may establish from time to time for senior executives, reimburse Myers for
business expenses reasonably incurred in the performance of Myers' duties. It
is understood that Myers is authorized to incur reasonable business expenses
for promoting the business of the Company, including reasonable expenditures
for travel, lodging, meals and client or business associate entertainment.
Requests for reimbursement for such expenses must be accompanied by appropriate
documentation.
3.12. Other Benefits
Myers shall be entitled to receive all fringe benefits and other
perquisites that may be offered by the Company to its senior executives as a
group, including (i) participation in any incentive plans offered to key
employees, (ii) participation in the various employee benefit plans or programs
provided to the employees of the Company in general, subject to meeting the
eligibility requirements with respect to each of such benefit plans or
programs, (iii) tax planning assistance, (iv) a car allowance and (v) such
other benefits or perquisites as may be approved by the Board during the Term.
However, nothing in this Section 3.12 shall be deemed to prohibit the Company
from making any changes in any of the plans, programs or benefits described
herein, provided the change similarly affects all senior executives of the
Company similarly situated.
ARTICLE IV
Termination of Employment
4.1. General
(a) If Myers' employment is terminated due to Myers' death,
this Agreement shall automatically terminate and thereafter the Company shall
have no obligations to Myers or Myers' legal representatives or estate with
respect to this Agreement other than the payment of any unpaid Base Salary
earned hereunder at the date of Myers' death.
(b) Myers' employment with the Company shall automatically
terminate upon expiration of the Term in accordance with Section 2.3, in which
event Myers shall not be entitled to further compensation or benefits hereunder
other than (i) any unpaid Base Salary earned hereunder prior to the end of the
Term, (ii) any amounts or benefits which may be required by applicable law and
(iii) in the event such termination shall have occurred on account of a notice
given by the Company pursuant to Section 2.3, a severance payment equal to 150%
of the Base Salary in effect on the date of such notice, such severance to be
paid within 30 days after the end of the Term.
(c) Myers' employment with the Company may be terminated prior
to the end of its Term as set forth in the following provisions of this Article
IV.
4.2. Termination by Myers
(a) Myers may, at any time prior to the end of the Term,
terminate his employment hereunder for any reason by delivering a Notice of
Termination to the Company. If Myers terminates his employment pursuant to
this Section 4.2, he shall not be entitled to further compensation or benefits
hereunder other than (i) any unpaid Base Salary earned hereunder prior to the
Termination Date, (ii) any amounts or benefits which may be required by
applicable law, (iii) if such termination is for Good Reason, a severance
payment equal to 150% of the Base Salary in effect on the Termination Date and
(iv) if such termination is due to a Change in Control, a severance payment
equal to 200% of the Base Salary in effect on the Termination Date. In no
event shall Myers be entitled to both of the severance payments described
above. In the event Myers becomes entitled to a severance payment under this
Section 4.2, the Company agrees to pay the same within 30 days after the
Termination Date except as provided in paragraph (b) below.
(b) If a Change in Control occurs on account of the consummation
of a Plan of Reorganization and if Myers is offered a position with similar
titles, duties and compensation with the reorganized Company following such
Change in Control, for purposes of this Section 4.2, a termination by Myers
will not be due to a Change in Control unless Myers has rejected such offer
within 30 days.
(c) If (i) a Change in Control occurs on account of the
consummation of a Plan of Reorganization, (ii) Myers terminates his employment
pursuant to this Section 4.2 on account of such Change in Control and (iii)
Myers thereafter accepts a new offer of employment with the reorganized Company
or a Company Affiliate within six months after the Termination Date, Myers
shall promptly refund to the Company any severance payment paid or credited to
Myers as a result of such termination.
4.3. Termination by the Company
The Company may, at any time prior to the end of the Term,
terminate Myers' employment hereunder for any reason deemed sufficient by the
Board by delivering a Notice of Termination to Myers. If the Company
terminates Myers' employment pursuant to this Section 4.3 for any reason other
than Misconduct or Disability, Myers shall not be entitled to further
compensation or benefits hereunder other
<PAGE> 7
than (i) any unpaid Base Salary earned hereunder prior to the Termination Date,
(ii) any amounts or benefits which may be required by applicable law and (iii)
a severance payment equal to 150% of the Base Salary in effect on the
Termination Date, such severance to be paid within 30 days after the
Termination Date. If the Company terminates Myers' employment pursuant to this
Section 4.3 for Misconduct or Disability, Myers shall not be entitled to
further compensation or benefits hereunder other than (i) any unpaid Base
Salary earned hereunder prior to the Termination Date and (ii) any amounts or
benefits which may be required by applicable law.
4.4. Benefits and Privileges
The following provisions shall apply if Myers terminates his
employment pursuant to Section 4.2(a) for Good Reason or due to a Change in
Control or if the Company terminates Myers' employment pursuant to Section 4.3
for any reason other than Misconduct or Disability:
(i) Medical Insurance. During the 12-month period following
the of Termination Date, the Company, at its cost, shall maintain in
full force and effect for the continued benefit of Myers and Myers'
dependents all benefits available to Myers and Myers' dependents under
all medical plans and programs of the Company, provided that (a) Myers'
continued participation is possible under the terms and provisions of
such plans and programs and (b) Myers pays the regular employee
contribution, if any, required by such plans and programs. In the event
that participation by Myers (or his dependents) in any such plan or
program after the Termination Date is barred pursuant to the terms
thereof, or in the event the Company shall terminate any such plan or
program, the Company shall obtain for Myers (and/or his dependents)
comparable coverage under individual policies.
(ii) Life Insurance. During the 12-month period following the
of Termination Date, the Company, at its cost, shall continue to provide
Myers all life insurance coverages (and in the same amounts) provided to
him by the Company immediately prior to the Termination Date.
(iii) Travel Privileges. The Company shall provide Myers (and
wife and his dependents) such lifetime on-line and interline, positive
space travel privileges subject to the terms of the Company's
non-revenue travel policy for retired executives as from time to time in
effect.
(iv) Accrued Vacation Pay, etc. Promptly after the Termination
Date, the Company shall pay to Myers a lump sum amount for (i) all
unused vacation time accrued by Myers as of the Termination Date and
(ii) all unpaid benefits earned by Myers as of the Termination Date
under any and all incentive compensation plans or programs of the
Company.
4.5. Disputes
Either party may, within 10 days after its receipt of a Notice of
Termination given by the other party, provide notice to the other party that a
dispute exists concerning the termination, in which event such dispute shall be
resolved in accordance with Article VI. Notwithstanding the pendency of any
such dispute and notwithstanding any provision of Section 4.2 or 4.3 to the
contrary, the Company will continue to pay Myers the Base Salary in effect when
the notice giving rise to the dispute was given and continue Myers as a
participant in all compensation and benefit plans in which Myers was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved, but in no event past the end of the Term.
ARTICLE V
Confidential Information and Non-Competition
5.1. Confidential Information
(a) Myers recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment with the Company, he may acquire Confidential Information and trade
secrets concerning the operation of the Company or a Company Affiliate, the use
or disclosure of which would cause the Company or a Company Affiliate
substantial loss and damages which could not be readily calculated and for
which no remedy at law would be adequate. Accordingly, Myers agrees with the
Company that he will not at any time (whether during or after the Term), except
in the performance of his obligations to the Company hereunder or with the
prior written consent of the Board, directly or indirectly, disclose any secret
or Confidential Information that he may learn or has learned by reason of his
association with the Company, or any predecessors to its business or use any
such information to the detriment of the Company. As used herein,
"Confidential Information" includes information with respect to the Company's
products, facilities and methods, research and development, trade secrets and
other intellectual property, systems, patents and patent applications,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information, business plans, prospects or opportunities.
(b) Myers confirms that all Confidential Information is the
exclusive property of the Company. All business records, papers and documents
kept or made by Myers relating to the business of the Company or any Company
Affiliate shall be and remain the property of the Company or such Company
Affiliate, respectively, during the Term and all times thereafter. Upon the
termination of his employment with the Company or upon the request of the
Company at any time, Myers shall promptly deliver to the Company, and shall
retain no copies of, any written materials, records and documents made by Myers
or coming into his possession concerning the business or affairs of the Company
or a Company Affiliate other than personal notes or correspondence of Myers not
containing proprietary information relating to such business or affairs.
(c) Myers agrees not to disclose to the Company, or to use on
behalf of the Company, any confidential information or trade secrets of any of
Myers' prior employers.
5.2. Non-Competition
(a) While employed by the Company and for a period of 18
months thereafter (the "Restricted Period"), Myers shall not, unless he
receives the prior written consent of the Board or the Chairman of the Board,
own an interest in, manage, operate, join, control, lend money or render
financial
<PAGE> 8
or other assistance to or participate in or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise, any Person or other
business organizations competing with the Company.
(b) Myers has carefully read and considered the provisions of
this Section 5.2 and, having done so, agrees that the restrictions set forth in
this Section 5.2 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of the Company, its
officers, directors, employees, creditors and shareholders. Myers understands
that the restrictions contained in this Section 5.2 may limit his ability to
engage in a business similar to the Company's business, but acknowledges that
he will receive sufficiently high remuneration and other benefits from the
Company hereunder to justify such restrictions.
(c) During the Restricted Period, Myers shall not, whether for
his own account or for the account of any other Person, intentionally (i)
solicit, endeavor to entice or induce any employee of the Company or any
Company Affiliate to terminate his employment with the Company or such Company
Affiliate, accept employment with anyone else, or (ii) interfere in a similar
manner with the business of the Company or any Company Affiliate.
(d) In the event that any provision of this Section 5.2
relating to the Restricted Period and/or the areas of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum time period
or areas such court deems reasonable and enforceable, the Restricted Period
and/or areas of restriction deemed reasonable and enforceable by the court
shall become and thereafter be the maximum time period and/or areas.
5.3. Stock Ownership
Nothing in this Agreement shall prohibit Myers from acquiring or
holding any issue of stock or securities of any Person that has any securities
listed on a national securities exchange or quoted on the automated quotation
system of the national Association of Securities Dealers, Inc., provided that
at any time during the Restricted Period, Myers and members of his immediate
family do not own or hold more than 5% of any voting securities of any such
Person engaged in any business similar to or competitive with that conducted by
the Company or any Company Affiliate.
5.4. Injunctive Relief
Myers acknowledges that a breach of any of the covenants
contained in this Article V may result in material irreparable injury to the
Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach, any payments remaining under the terms of this Agreement
shall cease and the Company shall be entitled to obtain a temporary restraining
order and/or a preliminary or permanent injunction restraining Myers from
engaging in activities prohibited by this Article V or such other relief as may
required to specifically enforce any of the covenants contained in this Article
V. Myers agrees to and hereby does submit to in personam jurisdiction before
each and every such court for that purpose.
ARTICLE VI
Dispute Resolution
(a) In the event a dispute shall arise between the parties as
to whether the provisions of this Agreement have been complied with (a
"Dispute"), the parties agree to resolve such Dispute in accordance with the
following procedure:
(i) A meeting shall be held promptly between the parties,
attended by (in the case of the Company) by one or more individuals with
decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
(ii) If, within 10 days after such meeting, the parties have
not succeeded in negotiating a resolution of the Dispute, the parties
agree to submit the Dispute to mediation in accordance with the
Commercial Mediation Rules of the American Arbitration Association.
(iii) The parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
clause (ii) above.
(iv) Upon appointment of the mediator, the parties agree to
participate in good faith in the mediation and negotiations relating
thereto for 15 days.
(v) If the parties are not successful in resolving the Dispute
through mediation within such 15-day period, the parties agree that the
Dispute shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
(vi) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
Except as provided in the preceding sentence, each party shall pay its
own costs and expenses (including, without limitation, attorneys' fees)
relating to any mediation/arbitration proceeding conducted under this
Article VI.
(vii) All mediation/arbitration conferences and hearings will be
held in Phoenix, Arizona.
(b) In the event there is any disputed question of law
involved in any arbitration proceeding, such as the proper legal interpretation
of any provision of this Agreement, the arbitrators shall make separate and
distinct findings of all facts material to the disputed question of law to be
decided and, on the basis of the facts so found, express their conclusion of
the question of law. The facts so found shall be conclusive and binding on the
parties, but any legal conclusion reached by the arbitrators from such facts
may be submitted by either party to a court of law for final determination by
initiation of a civil action in the manner provided by law. Such action, to be
valid, must be commenced
<PAGE> 9
within 20 days after receipt of the arbitrators' decision. If no such civil
action is commenced within such 20-day period, the legal conclusion reached by
the arbitrators shall be conclusive and binding on the parties. Any such civil
action shall be submitted, heard and determined solely on the basis of the
facts found by the arbitrators. Neither of the parties shall, or shall be
entitled to, submit any additional or different facts for consideration by the
court. In the event any civil action is commenced under this paragraph (b),
the party who prevails or substantially prevails (as determined by the court)
in such civil action shall be entitled to recover from the other party all
costs, expenses and reasonable attorneys' fees incurred in connection with such
action and on appeal.
(c) Except as limited by paragraph (b) above, the parties
agree that judgment upon the award rendered by the arbitrators may be entered
in any court of competent jurisdiction. In the event legal proceedings are
commenced to enforce the rights awarded in an arbitration proceeding, the party
who prevails or substantially prevails in such legal proceeding shall be
entitled to recover from the other party all costs, expenses and reasonable
attorneys' fees incurred in connection with such legal proceeding and on
appeal.
(d) Nothing in Article VI is intended or shall be construed to
prohibit either party from seeking and obtaining injunctive relief as
contemplated by Section 5.4.
(e) Except as provided above, (i) no legal action may be
brought by either party with respect to any Dispute and (ii) all Disputes shall
be determined only in accordance with the procedures set forth above.
ARTICLE VII
Miscellaneous
7.1. No Mitigation
The provisions of this Agreement are not intended to, nor shall
they be construed to, require that Myers seek or accept other employment
following a termination of employment. Except as provided in Sections 3.5 and
3.6, the Company's obligations to make the payments to Myers required under
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Myers.
7.2. Assignability
The obligations of Myers hereunder are personal and may not be
assigned or delegated by Myers or transferred in any manner whatsoever, nor are
such obligations subject to involuntary alienation, assignment or transfer.
The Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder, either in whole or in part, to any
Company Affiliate, provided that no such assignment or delegation shall relieve
the Company of its obligations under this Agreement.
7.3. Notices
All notices and all other communications provided for in the
Agreement shall be in writing and addressed (i) if to the Company, at its
principal office address or such other address as it may have designated by
written notice to Myers for purposes hereof, directed to the attention of the
Board with a copy to the Secretary of the Company and (ii) if to Myers, at his
residence address on the records of the Company or to such other address as he
may have designated to the Company in writing for purposes hereof. Each such
notice or other communication shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, except that any notice of change of address shall be effective
only upon receipt.
7.4. Severability
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
7.5. Successors; Binding Agreement
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement. As
used herein, the term "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the Agreement provided
for in this Section 7.5 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Myers hereunder shall
inure to the benefit of and be enforceable by Myers' personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Myers should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Myers' devisee, legatee, or other designee or, if there be no such
designee, to Myers' estate.
7.6. Tax Withholdings
The Company shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom.
<PAGE> 10
7.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Myers and such officer as may be specifically authorized
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of, or in compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.8. Entire Agreement
This Agreement is an integration of the parties agreement; no
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
7.9. Governing Law
The validity, interpretation, construction and performance of
this Agreement, the House Note, the Deed of Trust, the Stock Note and the
Pledge Agreement shall be governed by the laws of the State of Arizona.
7.10. Counterparts
This Agreement may be executed in one or more 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 parties have executed this Agreement as
of the date first above written.
AMERICA WEST AIRLINES, INC.
By:
Chairman of the Board
A. Maurice Myers
<PAGE> 11
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement, dated as of
September 20, 1994 (this "Amendment"), is entered into by and between America
West Airlines, Inc., a Delaware corporation (the "Company"), and A. Maurice
Myers ("Myers"). Capitalized terms used in this Amendment without definition
shall have the meanings assigned to them in the Existing Agreement referred to
below except as herein otherwise expressly provided or unless the context
otherwise requires.
WHEREAS, the Company and Myers have entered into that certain
Employment Agreement, dated effective as of January 1, 1994 (the "Existing
Agreement"); and
WHEREAS, the Company and Myers desire to modify and amend
Sections 3.8 and 4.2 of the Existing Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Modification of Section 3.8
Section 3.8 of the Existing Agreement is hereby amended to read
in its entirety as follows:
(a) The Company acknowledges and confirms its intention to
established a stock incentive plan for its executive officers (the
"Plan") and to cause the Plan to the approved by the Board and by the
Company's stockholders, all prior to June 1, 1995. In the event that (i)
the Company establishes the Plan, (ii) the Plan is approved by the Board
and (iii) the Plan is approved by the shareholders of the Company as
contemplated by Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, the Company shall grant to Myers under the Plan an irrevocable
and nonforfeitable option (the "Option") to purchase 75,000 shares of
the Class B Common Stock of the Company ("Stock"). The Option shall not
be immediately exercisable but, instead, shall become exercisable in
accordance with the vesting schedule specified by the Board in
connection with its approval of the grant of the Option, which vesting
schedule shall be consistent with the vesting schedule applicable to
options grants under the Plan to other senior executive officers of the
Company. The term of the Option shall equal the maximum term of an
option permitted under the Plan, but in no event shall the term of the
Option be for less than seven years from the date of the grant of the
Option. The exercise price per share of Stock under the Option shall be
(i) $8.89 per share with respect to 37,500 shares and (B) with respect
to the remainder of the shares, the average closing price per share of
Stock as quoted in the Wall Street Journal for the 20 trading days
immediately preceding the date of the grant of the Option. Except as
otherwise provided in this Section 3.8, the terms and conditions of the
Option shall be as provided in the Plan.
(b) The Option shall be evidenced by a written option agreement
between Myers and the Company, which shall contain customary terms and
provisions for stock options (to the extent not contrary to those
provided herein).
(c) The aggregate number of shares of Stock and the exercise
prices under the Option may be proportionately adjusted in an equitable
manner determined by the Company, in its sole discretion, and without
liability to Myers, for any increase or decrease in the number of
issued shares of Stock resulting from the payment of any stock
dividend, any stock split or any transaction which is a "corporation
transaction" (as defined in the Treasury Regulations promulgated under
Section 424 (formerly Section 425) of the Internal Revenue Code of 1986,
as amended).
(d) All shares of Stock issuable to Myers upon exercise of the
Option shall, when issued to Myers as contemplated hereby and under
the Plan, constitute validly issued, fully-paid and nonassessable shares
of capital stock of the Company.
(e) The Company covenants that, at all times after the grant of
the Option, to reserve and keep available (free of preemptive rights)
out of its authorized and unissued shares of Stock, solely for the
purpose of issuance upon exercise of the Option, the full number of
shares of Stock then issuable upon exercise of the Option.
ARTICLE II
Modification of Section 4.2
Section 4.2(b) of the Existing Agreement is hereby amended by
replacing the number "30" with the number "180".
ARTICLE III
Miscellaneous
Section 3.01. Successors; Binding Agreement. This Amendment shall
be binding upon and
<PAGE> 12
inure to the benefit of and be enforceable by the Company and its successors and
assignees and by Myers and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
Section 3.02. Governing Law. THE VALIDITY, INTERPRETATION,
CONSTRUCTION, AND PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF ARIZONA.
Section 3.03. Counterparts. This Amendment may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.
Section 3.04. Captions. Article and Section headings used in
this Amendment are provided for convenience of reference only and shall
not affect the construction of this Amendment.
Section 3.05. Effect of Amendment. Upon execution of this
Amendment by the parties, the Existing Agreement shall be deemed amended and
modified as herein provided, but, except as so amended and modified, the
Existing Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
By:
Chairman of the Board and Chief
Executive Officer
A. Maurice Myers
<PAGE> 13
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement, dated as of October 1,
1994 (this "Amendment"), is entered into by and between America West Airlines,
Inc., a Delaware corporation (the "Company"), and A. Maurice Myers ("Myers").
Capitalized terms used in this Amendment without definition shall have the
meanings assigned to them in the Existing Agreement referred to below except as
herein otherwise expressly provided or unless the context otherwise requires.
WHEREAS, the Company and Myers have entered into that certain
Employment Agreement, dated effective as of January 1, 1994 (the "Original
Agreement");
WHEREAS, the Original Agreement has heretofore been amended by that
certain First Amendment to Employment Agreement dated as of September 20, 1994
(the Original Agreement, as so amended, being herein called the "Existing
Agreement"); and
WHEREAS, the Company and Myers desire to modify and amend Section
3.5 of the Existing Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Modification of Section 3.5
Section 1.01. Modification of Paragraph (d). Paragraph (d) of Section
3.5 of the Existing Agreement is hereby amended by changing clause (i) of the
first sentence thereof to read in its entirety as follows:
(i) in the event any Incentive Bonus becomes payable to Myers
as contemplated by Section 3.12, the Company shall be
entitled to apply such Incentive Bonus (to the extent
thereof) to the payment of the House Note, in which event
only the balance (if any) of such Incentive Bonus shall be
payable to Myers,
Section 1.02. Modification of Paragraph (g). The second sentence of
paragraph (g) of Section 3.5 of the Existing Agreement is hereby amended by:
(a) replacing the phrase "the Confirmation Bonus", appearing in
clause (ii) of such second sentence, with the phrase "Incentive
Bonuses"; and
(b) replacing the phrase "the Confirmation Bonus", appearing in clause
(iii) of the proviso contained in such second sentence, with the
phrase "any Incentive Bonus".
ARTICLE II
Miscellaneous
Section 2.01. Successors; Binding Agreement. This Amendment shall be
binding upon and inure to the benefit of and be enforceable by the Company and
its successors and assignees and by Myers and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
Section 2.02. Governing Law. THE VALIDITY, INTERPRETATION,
CONSTRUCTION, AND PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF ARIZONA.
Section 2.03. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
Section 2.04. Captions. Article and Section headings used in this
Amendment are provided for convenience of reference only and shall not affect
the construction of this Amendment.
Section 2.05. Effect of Amendment. Upon execution of this Amendment
by the parties, the Existing Agreement shall be deemed amended and modified as
herein provided, but, except as so amended and modified, the Existing Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
By: Chairman of the Board and Chief
Executive Officer
A. Maurice Myers
<PAGE> 14
THIRD AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Third Amendment to Employment Agreement, dated as of January
1, 1995 (this "Amendment"), is entered into by and between America West
Airlines, Inc., a Delaware corporation (the "Company"), and A. Maurice Myers
("Myers"). Capitalized terms used in this Amendment without definition shall
have the meanings assigned to them in the Existing Agreement referred to below
except as herein otherwise expressly provided or unless the context otherwise
requires.
WHEREAS, the Company and Myers have entered into that certain
Employment Agreement, dated effective as of January 1, 1994 (the "Original
Agreement");
WHEREAS, the Original Agreement has heretofore been amended by (i)
that certain First Amendment to Employment Agreement dated as of September 20,
1994 and (ii) that certain Second Amendment to Employment Agreement dated as of
October 1, 1994 (the Original Agreement, as so amended, being herein called the
"Existing Agreement"); and
WHEREAS, the Company and Myers desire to modify and amend the
Existing Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
1. The definition of "Change in Control" appearing in Section 1.1
of the Existing Agreement is hereby amended by replacing the phrase " `Change in
Control' shall occur if either" with the phrase " `Change in Control' shall
occur if, after December 1, 1994, either".
2. The definition of "Notice of Termination" appearing in Section
1.1 of the Existing Agreement is hereby amended by replacing the word "and" at
the end of clause (ii) with a comma and by adding the following at the end of
clause (ii):
"and (iii) specify the applicable Termination Date (as defined
below)."
3. The definition of "Termination Date" appearing in Section 1.1 of
the Existing Agreement is hereby amended by changing the proviso therein to read
in its entirety as follows:
"provided that in no event shall such termination date be (i) in
the case of a termination pursuant to the first sentence of Section
4.2(a), less than 90 nor more than 120 days after the date such
Notice is given and (ii) in the case of any other termination, less
than 30 nor more than 60 days after the date such Notice is given".
4. Section 3.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
For services rendered by Myers under this Agreement,
the Company shall pay to Myers, during the Term, an annual base
salary (the "Base Salary"), payable biweekly as earned in
accordance with the Company's customary payroll practice for its
senior executives and prorated for employment for less than a full
calendar year. The annual amount of the Base Salary shall be (i)
$375,000 for the period ending December 31, 1994 and (ii) $400,000
for the period beginning January 1, 1995; provided, however, that
the amount of the Base Salary shall be reviewed by the Board on an
annual basis and may be increased as the Board may deem appropriate
in its sole discretion. If the Base Salary is increased as
aforesaid, it may not thereafter be decreased unless a similar
decrease is made to the base compensation of all other senior
executives of the Company; provided, however, that in no event may
the Base Salary be decreased below $375,000 at any time prior to
January 1, 1995 or below $400,000 at any time after December 31,
1994.
5. Section 3.5(b) of the Existing Agreement is hereby
amended by adding the following at the end of the first sentence:
"except that such stated maturity date shall be automatically
extended by two years if Myers terminates his employment pursuant
to the first sentence of Section 4.2(a)".
6. Section 3.5(e) of the Existing Agreement is hereby
amended by changing clause (i) thereof to read in its entirety as follows:
"(i) the termination of Myers' employment hereunder pursuant to
Article IV (other than the first sentence of Section 4.2(a)) and".
7. Section 3.8 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"[This Section intentionally left blank.]"
8. Section 4.2(a) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(a) If any person (other than William A. Franke or
Myers) shall be elected CEO without Myers' written consent, Myers
may terminate his employment hereunder prior to the end of the Term
by delivering a Notice of Termination to the Company not more than
30 days after the date of such election and at least 90 days prior
to the effective date of such termination. Myers may terminate his
employment hereunder prior to the end of the Term for any other
reason by delivering a Notice of
<PAGE> 15
Termination to the Company at least 30 days prior to the effective
date of such termination. If Myers terminates his employment
pursuant to this Section 4.2, he shall not be entitled to further
compensation or benefits hereunder other than (i) any unpaid Base
Salary earned hereunder prior to the Termination Date, (ii) any
amounts or benefits which may be required by applicable law, (iii)
if such termination is for Good Reason or due to a Change in
Control, a severance payment equal to 150% of the Base Salary in
effect on the Termination Date and (iv) if such termination is
pursuant to the first sentence of this paragraph (a), a severance
payment equal to 100% of the Base Salary in effect on the
Termination Date. In no event shall Myers be entitled to more than
one severance payment under this Section 4.2. In the event Myers
becomes entitled to a severance payment under this Section 4.2,
the Company agrees to pay the same within 30 days after the
Termination Date."
9. Section 4.4 of the Existing Agreement is hereby amended by
changing the portion thereof which precedes paragraph (i) to read in its
entirety as follows:
"The following provisions shall apply if (i) Myers
terminates his employment pursuant to the first sentence of Section
4.2(a), (ii) Myers terminates his employment pursuant to the second
sentence of Section 4.2(a) for Good Reason or due to a Change in
Control or (iii) the Company terminates Myers' employment pursuant
to Section 4.3 for any reason other than Misconduct or
Disability:".
10. This Amendment shall be binding upon and inure to the benefit
of and be enforceable by the Company and its successors and assignees and by
Myers and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
11. THE VALIDITY, INTERPRETATION, CONSTRUCTION, AND
PERFORMANCE OF THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
ARIZONA.
12. This Amendment may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
13. Upon execution of this Amendment by the parties, the Existing
Agreement shall be deemed amended and modified as herein provided, but, except
as so amended and modified, the Existing Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
By:
Chairman of the Board and Chief
Executive Officer
A. Maurice Myers
<PAGE> 16
ANNUAL LIFE ONLY BENEFIT
(WITH 5% PAY INCREASES AFTER 1993)
<TABLE>
<CAPTION>
RETIREMENT AGES
VESTED
TERM DATE ACC'D BFT 55 56 57 58 59 60
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1993 49,866 20,001 21,717 23,612 25,721 28,070 30,702
12/31/1994 57,693 23,141 25,125 27,318 29,758 32,475 35,522
12/31/1995 65,926 41,204 42,852 44,500 46,148 47,796
12/31/1996 74,295 48,292 50,149 52,007 53,864
12/31/1997 77,462 52,287 54,223 56,160
12/31/1998 86,977 60,884 63,058
12/31/1999 97,250 70,506
12/31/2000 108,332
12/31/2001 120,280
12/31/2002 133,152
12/31/2002 147,010
12/31/2003 161,921
</TABLE>
ANNUAL LIFE ONLY BENEFIT
(WITH 5% PAY INCREASES AFTER 1993)
<TABLE>
<CAPTION>
RETIREMENT AGES
VESTED
TERM DATE ACC'D BFT 61 62 63 64 65
<S> <C> <C> <C> <C> <C> <C>
12/31/1993 49,866 33,655 49,866 49,866 49,866 49,866
12/31/1994 57,693 38,937 57,693 57,693 57,693 57,693
12/31/1995 65,926 49,445 65,926 65,926 65,926 65,926
12/31/1996 74,295 55,721 74,295 74,295 74,295 74,295
12/31/1997 77,462 58,097 77,462 77,462 77,462 77,462
12/31/1998 86,977 65,233 86,977 86,977 86,977 86,977
12/31/1999 97,250 72,938 97,250 97,250 97,250 97,250
12/31/2000 108,332 81,249 108,332 108,332 108,332 108,332
12/31/2001 120,280 120,280 120,280 120,280 120,280
12/31/2002 133,152 133,152 133,152 133,152
12/31/2002 147,010 147,010 147,010
12/31/2003 161,921 161,921
</TABLE>
<PAGE> 1
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY -------------------------------------------------------------------
------------
PERIOD FROM
PERIOD FROM JANUARY 1
AUGUST 26 TO TO YEARS ENDED DECEMBER 31,
DECEMBER 31 AUGUST 25 -----------------------------------------------------
1994 1994 1993 1992 1991 1990
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Primary Earnings Per Share
Computation for Statements of
Operations:
Income (loss) before extraordinary
item............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695)
Adjustment for interest on debt
reduction.......................... -- 2,584 4,210 -- -- --
Preferred stock dividend
requirement........................ -- -- -- (1,672) (1,673) (1,673)
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to common
stock before extraordinary item.... 7,864 (200,684 ) 41,375 (133,433) (223,689) (78,368)
Extraordinary item, tax benefit...... -- -- -- -- -- --
Extraordinary item, net.............. -- 257,660 -- -- -- 2,024
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to common
stock.............................. $ 7,846 $ 56,976 $ 41,375 $ (133,433) $ (223,689) $ (76,344)
=========== =========== ========== ========== ========== ==========
Weighted average number of common
shares outstanding................... 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970
Assumed exercise of stock options and
warrants(a).......................... -- 3,079,258 3,044,504 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted....... 45,126,899 28,549,929 27,524,991 23,914,298 21,533,992 18,395,970
=========== =========== ========== ========== ========== ==========
Primary earnings per common share:
Income (loss) before extraordinary
item................................. $ 0.17 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26)
Extraordinary item..................... -- 9.02 -- -- -- 0.11
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)...................... $ 0.17 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15)
=========== =========== ========== ========== ========== ==========
Income (loss) before extraordinary
item................................. $ 7,846 $ (131,761) $ (222,016) $ (76,695)
Preferred stock dividend requirement... -- (1,672) (1,673) (1,673)
Interest adjustment net of taxes....... 870 4,964 4,408 2,818
------------ ----------- ----------- -----------
Income (loss) applicable to common
stock before extraordinary item...... 8,716 (128,469) (219,281) (75,550)
Extraordinary item, tax benefit........ -- 2,756 2,448 1,490
Extraordinary item, net................ -- -- -- 2,024
------------ ----------- ----------- -----------
Income (loss) applicable to common
stock................................ $ 8,716 $ (125,713) $ (216,833) $ (72,036)
=========== ========== ========== ==========
Weighted average number of common shares
outstanding............................ 45,126,899 23,914,298 21,533,992 18,395,970
Assumes exercise of stock options and
warrants............................. 2,011,352 7,383,922 6,704,746 4,922,120
------------ ----------- ----------- -----------
Weighted average number of common
shares as adjusted................... 47,138,251 31,298,220 28,238,738 23,318,090
=========== ========== ========== ==========
Primary earnings per common share:
Income (loss) before extraordinary
item................................. $ 0.18 $ (4.10) $ (7.77) $ (3.24)
Extraordinary item..................... -- 0.09 0.09 0.15
------------ ----------- ----------- -----------
Net income (loss)(c)................... $ 0.18 $ (4.01) $ (7.68) $ (3.09)
=========== ========== ========== ==========
</TABLE>
1
<PAGE> 2
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY -------------------------------------------------------------------
------------
PERIOD FROM
PERIOD FROM JANUARY 1
AUGUST 26 TO TO YEARS ENDED DECEMBER 31,
DECEMBER 31 AUGUST 25 -----------------------------------------------------
1994 1994 1993 1992 1991 1990
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fully Diluted Earnings Per Share
Computation for Statements of
Operations:
Income (loss) before extraordinary
items............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695)
Adjustment for interest on debt
reduction........................... 870 2,520 5,812 -- -- --
Preferred stock dividend
requirement......................... -- -- -- (1,672) (1,673) (1,673)
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) applicable to common
stock before extraordinary items.... 8,716 (200,748 ) 42,977 (133,433) (223,689) (78,368)
Extraordinary items, tax benefit...... -- -- -- -- -- 2,024
Extraordinary items................... -- 257,660 -- -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (133,433) $ (223,689) $ (76,344)
=========== =========== ========== ========== ========== ==========
Weighted average number of common
shares outstanding.................. 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970
Assumed exercise of stock options and
warrants(a)......................... 2,011,352 3,079,258 4,240,761 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted...... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970
=========== =========== ========== ========== ========== ==========
Fully diluted income (loss) per common
share:
Income (loss) before extraordinary
items............................... $ 0.18 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26)
Extraordinary items................... -- 9.02 -- -- -- 0.11
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)(b).................. $ 0.18 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15)
=========== =========== ========== ========== ========== ==========
Additional Fully Diluted Computation:
Additional adjustment to net income
(loss) as adjusted per fully diluted
computation above
Income (loss) before extraordinary
items as adjusted per fully diluted
computation above................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695)
Add -- Interest on 7.75% subordinated
debenture, net of taxes............. -- -- -- -- 869 1,829
Add -- Interest on 7.5% subordinated
debenture, net of taxes............. -- -- -- -- 806 1,712
Add -- Interest on 11.5% subordinated
debentures, net of taxes............ -- -- -- -- 3,506 7,629
Add interest on debt reduction, net of
taxes............................... 870 2,520 5,812 4,964 4,352 2,777
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
items as adjusted................... 8,716 (200,748 ) 42,977 (126,797) (212,483) (62,748)
Extraordinary items................... -- 257,660 -- 2,756 5,293 9,399
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (124,041) $ (207,190) $ (53,349)
=========== =========== ========== ========== ========== ==========
Additional adjustment to weighted average
number of shares outstanding Weighted
average number of shares outstanding as
adjusted per fully diluted computation
above................................... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970
</TABLE>
2
<PAGE> 3
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY -------------------------------------------------------------------
------------
PERIOD FROM
PERIOD FROM JANUARY 1
AUGUST 26 TO TO YEARS ENDED DECEMBER 31,
DECEMBER 31 AUGUST 25 -----------------------------------------------------
1994 1994 1993 1992 1991 1990
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additional dilutive effect of
outstanding options and warrants...... -- -- -- 7,383,922 6,704,746 5,266,266
Additional dilutive effect of assumed
conversion of preferred stock:
Series A 9.75%........................ -- -- -- -- -- --
Series B 10.5%........................ -- -- 851,294 1,164,596 1,164,596 1,164,596
Series C 9.75%........................ -- 73,099 73,099 73,099 73,099 73,099
Additional dilutive effect of assumed
conversion of 7.75% subordinated
debenture............................. -- 2,257,558 2,263,007 2,278,151 2,483,528 2,735,200
Additional dilutive effect of assumed
conversion of 7.5% subordinated
debenture............................. -- 2,264,932.. 2,272,548 2,291,607 2,347,604 2,551,060
Additional dilutive effect of assumed
conversion of 11.5% subordinated
debenture............................. -- 7,306,865 7,328,201 7,486,391 9,081,162 9,866,509
------------ ----------- ----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding as adjusted............... 47,138,251 40,452,383 41,509,397 44,592,064 43,388,727 40,052,700
=========== =========== ========== ========== ========== ==========
Fully diluted income (loss) per common
share:
Income (loss) before extraordinary
items................................. $ 0.18 $ (4.96 ) $ 1.04 $ (2.84) $ (4.90) $ (1.57)
Extraordinary items..................... -- 6.37 -- 0.06 0.12 0.23
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss)(c).................... $ 0.18 $ 1.41 $ 1.04 $ (2.78) $ (4.78) $ (1.34)
=========== =========== ========== ========== ========== ==========
</TABLE>
---------------
(a) The stock options and warrants are included only in the periods in which
they are dilutive.
(b) The calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(c) The calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an antidilutive result.
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> AUG-26-1994<F1>
<PERIOD-END> DEC-31-1994
<CASH> 182581
<SECURITIES> 0
<RECEIVABLES> 61005
<ALLOWANCES> 3531
<INVENTORY> 24179
<CURRENT-ASSETS> 293518
<PP&E> 544346
<DEPRECIATION> 15882
<TOTAL-ASSETS> 1545092
<CURRENT-LIABILITIES> 341445
<BONDS> 465598
<COMMON> 451
0
0
<OTHER-SE> 594995
<TOTAL-LIABILITY-AND-EQUITY> 1545092
<SALES> 0
<TOTAL-REVENUES> 469766
<CGS> 0
<TOTAL-COSTS> 430845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1074
<INTEREST-EXPENSE> 22636
<INCOME-PRETAX> 19736
<INCOME-TAX> 11890
<INCOME-CONTINUING> 7846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7846
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<FN>
<F1>America West Airlines, Inc. emerged from Chapter 11 on August 15, 1994
and adopted fresh starting reporting in accordance with Statement of Position
90-7. Accordingly, the Company's post-reorganization financial
statements have not been prepared on a consistent basis with such
pre-reorganization financial statements and are not comparable in all respects
to financial statements prior to reorganization.
</FN>
</TABLE>
