FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from July 1, 1997 to December 31, 1997
Commission file number 0-17846
CCAIR, INC.
DELAWARE NO. 56-1428192
State or other jurisdiction of I.R.S. Employer ID
incorporation or organization
P. O. BOX 19929, CHARLOTTE, NC 28219-0929
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 704/359-8990
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all documents and
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 (ss. 229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates (based upon
the closing price for the Common Stock on the small-cap stock market of the
National Association of Securities Dealers Automated Quotation System) on April
3, 1998 was approximately $29,802,788.
As of May 6, 1998, there were 8,365,695 shares of $0.01 par value Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Definitive Proxy Statement, to be filed with the
Commission not later than 120 days after the end of the Registrant's fiscal year
ended December 31, 1997, are incorporated by reference in Part III hereof, as
specified.
<PAGE>
CCAIR, INC.
1997 FORM 10-K TRANSITION PERIOD REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 6
Item 3. Legal Proceedings........................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 8
Item 6. Selected Financial Data..................................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........23
Item 8. Financial Statements and Supplementary Data.................................24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............................24
PART III
Item 10. Directors and Executive Officers of the Registrant.................24
Item 11. Executive Compensation.............................................24
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................................24
Item 13. Certain Relationships and Related Transactions.....................24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................................24
Index to Financial Statements and Schedules........................F-1
Index to Exhibits..................................................E-1
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
CCAIR, Inc. (the "Company") is a Charlotte, North Carolina based
regional air carrier providing regularly scheduled passenger service to 21
cities in Georgia, Kentucky, Ohio, North Carolina, South Carolina, Virginia, and
West Virginia, primarily from a hub at the Charlotte/Douglas International
Airport. The Company currently operates a fleet of 25 turboprop passenger
aircraft with 1,216 weekly departures scheduled over a route system covering
approximately 207,000 miles. The Company was incorporated under Delaware law in
July 1984 under the name Sunbird Airlines 1984, Inc. for the purpose of
purchasing substantially all of the assets of Sunbird Airlines, Inc. The Company
changed its name to CCAIR, Inc. in January 1986.
The Company's business has principally involved providing service for
business travelers from small- and medium-sized communities in its market area
to connecting flights of major carriers, principally US Airways, Inc. ("US
Airways"), at the hub operations of US Airways at the Charlotte/Douglas
International Airport. In addition, the Company operates a small number of
flights into Raleigh, North Carolina. In order to market the Company's services,
the Company has an agreement with US Airways that permits the Company to operate
under the name "US Airways Express" and to charge their joint passengers on a
combined basis with US Airways. (See discussion under "Business Agreement with
US Airways" below). The Company believes that its use of US Airways "US" flight
designator code continues to be the most significant factor contributing to its
ability to compete for passengers and to its historical growth.
In February, 1998 the Company and its Board of Directors adopted a
resolution to change the Company's fiscal year end from June 30 to December 31
of each year. The new fiscal year end more closely coincides with the Company's
annual business cycle. Unless otherwise indicated, references in this Annual
Report to years mean the Company's July 1 to June 30 fiscal years, "fiscal 1997"
means the fiscal year that began on July 1, 1996 and ended on June 30, 1997, and
references to the "1997 transition period" mean the six-month period that began
on July 1, 1997 and ended December 31, 1997. References to "1998" mean the
twelve-month fiscal year ending December 31, 1998.
FLEET COMPOSITION
The Company undertook a fleet restructuring plan during the 1997
transition period (see "Properties - Fleet" and Note 7 of the Company's
Financial Statements). The following table sets forth certain information with
respect to the Company's passenger aircraft:
<TABLE>
<CAPTION>
NUMBER OF
AIRCRAFT 1998 1998 PROJECTED
PASSENGER IN SERVICE SCHEDULED SCHEDULED FLEET
AIRCRAFT CAPACITY 12/31/97 DELIVERIES RETIREMENTS 12/31/98
- -------- -------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Jetstream 31 19 14 0 14 0
Jetstream Super 31 19 2 18 0 20
Dash 8-100 37 4 2 0 6
-- -- -- --
20 20 14 26
</TABLE>
BUSINESS AGREEMENT WITH US AIRWAYS
Approximately 80% of the Company's passenger revenue is generated by
passengers who are connecting with US Airways flights and is determined under an
agreement for the sharing of joint passenger fares and division of revenue with
US Airways (the "Agreement"). The Agreement expires on October 31, 1998. While
renewal of the Agreement is not automatic, the Company is confident that such
renewal will occur. The Company has been advised by representatives of US
Airways that negotiations are scheduled to begin early in the third quarter and
will be complete prior to the expiration of the current agreement. During the
last nine months the Company has consistently exceeded US Airways' operating
performance goals in the areas of on-time arrivals and departures, maintenance
reliability and controllable flight completion percentage, and as such has been
assured by US Airways that the Agreement will be extended.
1
<PAGE>
The Agreement provides that it may be terminated upon 180 days prior
written notice for any reason by either US Airways or the Company or upon ten
(10) days prior written notice by US Airways under certain conditions,
including: (i) the Company's failure to maintain at least a minimum required
operating schedule; (ii) if during any one month the Company's flight completion
percentage is less than 96% due to cancellations attributable to maintenance or
operational deficiencies within the Company's control; (iii) the Company's
failure to comply with the trademark licensing provisions of the Agreement; (iv)
the initiation of a bankruptcy or similar proceeding for the Company or its
assets; or (v) a change of control or ownership of 51% or more of the Company's
common stock without the consent of US Airways.
The Agreement provides for coordinating schedules and reservations,
joint fares and advertising. In addition, the Agreement provides that US Airways
or its affiliates will provide to the Company check-in, ticketing, baggage
handling and security services at eleven (11) airports including
Charlotte/Douglas International Airport in Charlotte, North Carolina. As of
February 1, 1994, the Company assumed total responsibility for ground operations
at Concourse D of the Charlotte/Douglas International Airport from US Airways
pursuant to an agreement that requires US Airways to reimburse the Company
monthly for expenses incurred.
The Agreement also authorizes the Company to operate as "US Airways
Express", to use the US Airways "US" flight designator code to identify its
flights and fares for purposes of computer reservations, printed schedules, and
tickets, and to display the US Airways colors and "US Airways Express" logo on
its fleet of aircraft. The Company does not have the exclusive rights to the "US
Airways Express" name or other attributes described above. US Airways has two
subsidiaries serving the Charlotte/Douglas International Airport, Piedmont
Airlines ("Piedmont") and PSA Airlines, Inc.; additionally, US Airways
affiliate, Mesa Airlines, Inc. serves the Charlotte/Douglas International
Airport. These regional airlines operate to destinations not served by the
Company but also utilize the "US Airways Express" name and other US Airways
attributes. The Company pays US Airways handling fees based on the number of
passengers boarded in cities where US Airways provides the Company flight
service and for reservations services.
The Agreement is a significant factor in the Company's operation and
termination of the Agreement would have a material adverse effect on the
Company's business. Additionally, the Company's business could also be adversely
affected by events that adversely affect US Airways. In 1997 US Airways
announced its plan to discontinue service to certain unprofitable cities and to
retire two aircraft types from its fleet (Fokker F28-4000 and DC-9). US Airways
has also encouraged its affiliates to retire older aircraft fleets and replace
capacity with newer, faster aircraft. Additionally, US Airways plans to close at
least one crew base, along with two reservations centers and three maintenance
centers in 1998. These actions are designed to improve operating efficiency and
profitability for US Airways. In October 1997 US Airways and its pilots ratified
a new five-year labor contract. This contract provides for controlled labor
costs as well as provisions to allow for the entrance of a low cost, low fare
airline. US Airways believes that ratification of the pilot labor contract will
allow it to achieve a competitive cost structure that will strengthen its
position in its current and future markets. Ratification of the labor contract
also opened the door for US Airways to affirm its order for up to 400 Airbus
aircraft, 124 of which are on firm order, with delivery expected in 1998 through
2002.
OPERATING STRATEGY AND SEASONAL NATURE OF BUSINESS
The Company's operating strategy is designed to attract interline
passengers from small- and medium-sized communities in its market area who wish
to connect with flights on major carriers, principally US Airways, at
Charlotte/Douglas International Airport. In addition, the Company seeks to
attract passengers for its local flights between destinations serviced by the
Company. The Company particularly emphasizes providing reliable and conveniently
scheduled service for business travelers.
The Company typically experiences lower passenger load factors in
January and February of each year. This can be attributed to reduced business
travel following the holiday periods, reduced leisure travel during the winter
months and adverse weather conditions in the Company's operating area, which
results in increased flight delays and cancellations. These seasonal factors
have generally resulted in reduced revenues, profitability and cash flow for the
Company during this period.
ROUTES
The Company operates a "hub and spoke" route system with Charlotte as
its hub. The Company's operations are a component of the "hub and spoke" route
system strategy employed by US Airways at Charlotte. The Company's route system
currently includes service between Charlotte/Douglas International Airport and
sixteen (16) other airports as well as service between Raleigh/Durham, North
Carolina and four (4) other airports.
2
<PAGE>
The following table sets forth selected information about the Company's
route system and scheduling as of April 5, 1998.
<TABLE>
<CAPTION>
DATE SERVICE FLIGHTS OPERATED
COMMENCED PER WEEKDAY
--------- -----------
<S> <C> <C>
Georgia:
Athens May 1985 5
Augusta May 1985 6
Columbus November 1994 5
North Carolina:
Asheville1 May 1985 2
Charlotte May 1985 84
Greenville May 1985 9
Hickory May 1985 9
Jacksonville May 1995 8
Kinston July 1985 5
Raleigh/Durham May 1985 9
Rocky Mount/Wilson July 1986 5
Southern Pines/Pinehurst October 1991 5
Winston-Salem May 1985 4
South Carolina:
Charleston1 April 1995 3
Greenville/Spartanburg2 May 1985 6
Kentucky:
Lexington May 1993 5
Ohio:
Cincinnati July 1993 4
Virginia:
Lynchburg May 1995 9
Norfolk1 February 1995 3
West Virginia:
Huntington April 1987 5
Greenbrier/Lewisburg February 1995 1
</TABLE>
1 Serviced through Raleigh-Durham, North Carolina.
2 Serviced through Charlotte and Raleigh-Durham, North Carolina.
In May, 1998 the Company will begin new service between Raleigh-Durham
and Myrtle Beach, South Carolina and between Raleigh-Durham and Roanoke,
Virginia. The Company is also beginning new service in May, 1998, between
Norfolk, Roanoke and Richmond, Virginia. In June, 1998 the Company will begin
new service between Raleigh-Durham and Savannah, Georgia and between
Raleigh-Durham and Washington, D.C. (Dulles International Airport). With these
cities, along with weekend service to Jacksonville and Southern Pines/Pinehurst,
the Company will serve 10 destinations from Raleigh-Durham. The Company
continues to evaluate other new destinations from Raleigh -Durham.
The Company continually reviews and analyzes its route structure for
the purpose of proposing adjustments in flight schedules. These adjustments must
be approved by US Airways prior to implementation.
YIELD MANAGEMENT
The Company closely monitors its inventory and pricing of seats
utilizing a computerized yield management system. In July, 1997 the Company
entered into an agreement to obtain enhanced yield management capabilities. The
Company agreed to pay a software licensing fee plus a nominal amount per
scheduled departure to a firm specializing in yield management. In return, the
yield management firm, through examination of the Company's past traffic,
pricing and booking trends, estimates the optimal allocation of seats by fare
class (the number of seats made available for sale at various fares). The firm's
analysts then monitor each flight, employing sophisticated yield management
software, to adjust seat allocations and overbooking levels, with the objective
of maximizing the total revenue for each flight.
3
<PAGE>
FARES
The Company derives its passenger revenues from joint fares involving
travel on the route system of both the Company and US Airways and from local
fares. Approximately 80% of the Company's passenger revenues are derived from
joint fares, that is, fares which are shared with US Airways. Local fares, which
are fares for flights provided by the Company within its route system, account
for the balance of the Company's passenger revenues.
The Company's revenues from joint fares are dependent on pricing
decisions made by US Airways and the Company has little ability to influence
such pricing decisions. The Company prices its local fares to be comparable with
fares charged by major carriers in similar markets. The Company seeks to
maximize its passenger yields by restricting the number of discount fares on
flights with high passenger demand.
The Company's average fare per passenger remained relatively constant
in the 1997 transition period as compared to the same six-month period in 1996,
decreasing from $81.39 to $81.18. Seasonal fluctuations in the customer base
provide for more discretionary travel in July through December as compared to
January through June of each year; the yield for discretionary travel is
typically lower than that of business travel, resulting in lower average fares.
Revenue per available seat mile increased over the same periods from 20.9(cent)
to 23.9(cent) as a result of the Company's fleet restructuring (see Management's
Discussion and Analysis of Financial Condition and Results of Operations - 1997
Transition Period and Note 7 to the Company's Financial Statements). During
fiscal 1997 the Company realized improved average passenger fares of $84.41,
comparing favorably with fares of $82.25 and $72.01 in fiscal 1996 and 1995,
respectively. The annual average fare increased as a result of a proportional
increase in high-yield business traffic. Fiscal 1995 fares were negatively
impacted by a competing airline's increased operations in the Company's service
area. US Airways reduced fares, including the joint fares shared with the
Company, to avoid losing market share and to stimulate traffic. The competitor
reduced operations in the Company's service area in the third quarter of fiscal
1995, which allowed US Airways to collect fares higher than those charged in the
previous environment. The Company projects fares to remain at levels achieved in
1997 throughout 1998. However, many factors, including, but not limited to,
competition, actions by US Airways, fuel costs, regulation, and general economic
conditions can impact fares charged by the Company.
WORKING CAPITAL
The Company's air traffic receivables are settled through the Airlines
Clearing House and collected monthly, one month in arrears. To reduce the cash
flow issues caused by the collection of receivables one month in arrears, the
Company has obtained a line of credit in the amount of $4.0 million from British
Aerospace Asset Management ("BAAM"), an affiliate of British Aerospace, Inc.
("BAI").
Under the line of credit, the air traffic receivables, after set-off of
amounts due US Airways and other airlines, are transferred from the Airlines
Clearing House to a pledge account with a bank. From that account, in accordance
with irrevocable instructions, funds are transferred to BAAM to pay for any sums
due under the line of credit and then to Jet Acceptance Corporation ("JACO"), an
affiliate of BAI, for payments due under lease obligations. The balance in the
pledge account is then paid to the Company.
MARKETING
The Company's services are promoted primarily through displays in most
airlines' computer reservation systems and the Official Airline Guide and
through direct contact with travel agencies and corporate travel departments.
The Company and US Airways have agreed to coordinate advertising and public
relations for the US Airways Express program.
In addition, the Company's services are advertised on a cooperative
basis with US Airways. The Company, from time to time, has offered promotional
fares to introduce new service and to stimulate traffic on special occasions and
holidays. The Company also has ticket arrangements with major United States and
foreign air carriers that allow these carriers to write interline tickets on the
Company's flights.
4
<PAGE>
COMPETITION
The Company competes primarily with regional and major air carriers and
ground transportation. The Company's competition from other air carriers varies
from location to location and, in certain areas, comes from regional and major
carriers who serve the same destinations as the Company but through different
hub and spoke systems. The principal customers for these services are business
travelers and competition is based upon scheduling and flight connections,
reliability and, to a lesser extent, pricing. The Company continually reviews
its scheduling and the frequency of its flights to reduce the layover time
experienced in connecting with a US Airways flight in order to minimize the
length of the combined trip and to compete effectively with similar service
offered by other airlines. In addition, the Company's competitive position
benefits from the large number of participants in US Airways "Dividend Miles"
frequent flyer program who fly regularly to or from the markets served by the
Company. The Company also competes with various forms of ground transportation,
primarily automobiles, which are used to travel to a hub or other airport
offering direct air service.
EMPLOYEES
On December 31, 1997 the Company had 599 full-time and 46 part-time
employees, classified as follows:
CLASSIFICATION FULL-TIME PART-TIME
-------------- --------- ---------
Pilots 164 --
Flight Attendants 34 --
Maintenance Personnel 66 --
Station Personnel 256 46
Administrative 79 --
---- ----
599 46
During the 1997 transition period, the Company took steps to enhance
its management group. This has been accomplished by the addition of vice
presidents in the areas of Maintenance, Marketing and Employee Resources.
The Company's pilots are represented by the Air Line Pilots Association
(ALPA), its flight attendants by the Association of Flight Attendants (AFA) and
its mechanics by the International Brotherhood of Teamsters (Teamsters).
The ALPA collective bargaining agreement was amendable on May 31, 1997.
Negotiations toward a new contract are ongoing. The Company's contract with the
AFA was renewed on May 16, 1996 and will become amendable on May 16, 2001. The
Company's contract with the Teamsters was ratified on January 1, 1994 and became
amendable on December 31, 1997. The Company believes that the wage rates and
benefits for its employee groups are comparable to similar groups at other
regional airlines and is unaware of other significant organizing activities by
labor unions among its employees at this time. The Company believes that
relations with its employees are favorable, and ongoing negotiations with
various union groups will be resolved satisfactorily.
FUEL
Fuel costs constitute 8% to 11% of the Company's total operating
expenses, net of all restructuring charges. The Company obtains substantially
all of its fuel under a consortium agreement with other airlines. This
arrangement, however, does not assure the Company access to any specified
quantity of fuel and prices thereunder reflect market prices for fuel. To date,
this arrangement has provided adequate supplies of fuel for the Company. The
Company continues to negotiate with other fuel providers in an effort to obtain
more favorable pricing.
GOVERNMENTAL REGULATION
The Company is subject to the Federal Aviation Act of 1958, as amended
(the "Federal Aviation Act"), under which the Department of Transportation (the
"DOT") and the Federal Aviation Administration (the "FAA") exercise regulatory
authority over air carriers. The FAA regulates air safety and flight operations
as well as aircraft noise emissions. The DOT regulates the economic and
consumer-related aspects of the airline industry. The FAA reviews operations of
all carriers, including the Company, on an ongoing basis to determine compliance
with FAA regulations and operating authorizations.
The Company applied for a Certificate of Public Convenience and
Necessity under Section 401(d)(1) of the Federal Aviation Act (the "401
Certificate") in order to facilitate aircraft financing. The 401 Certificate was
granted on September 10, 1992.
5
<PAGE>
Although the Company cannot offer assurances in this regard, it
believes it is in compliance with all requirements necessary to maintain, in
good standing, its operating authorities granted by the DOT and the FAA, and
that its aircraft comply with all applicable Federal and local laws and
regulations pertaining to aircraft noise.
The Company is subject to various Federal and local laws and
regulations pertaining to other issues of environmental protection. The Company
believes it is in compliance with all governmentally imposed environmental
protection standards.
The Federal Communications Commission ("FCC") has jurisdiction over the
use of radio facilities by air carriers. Airlines, and in some cases their
personnel, operating transmitters and receivers must obtain licenses from the
FCC, which may be revoked for cause. The Company believes that it and its
personnel hold all required FCC licenses.
THE ESSENTIAL AIR SERVICE PROGRAM
Pursuant to the Airline Deregulation Act of 1978, certain communities
in the United States are guaranteed specified levels of essential air service
(the "EAS Program"). The EAS Program provides for the payment of compensation to
carriers which volunteer to provide subsidized essential air service and are
selected by the DOT to provide such service. The Company has received subsidy
payments under the EAS Program for Danville and Shenandoah Valley, Virginia. The
Company received no DOT subsidy payments in the 1997 transition period or in
fiscal 1997. In fiscal 1996, subsidy payments comprised 0.5% of the Company's
operating revenues. Under provisions in the EAS Program, the Company ceased
service to Danville in October, 1995 and ceased to receive subsidized
compensation for service to Shenandoah Valley effective July, 1996. The Company
does not anticipate initiating service to cities under the EAS program in 1998.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth W. Gann 59 Director, President and Chief Executive Officer from November, 1990 to present.
Eric W. Montgomery 38 Vice President of Finance from February, 1995 to present; Secretary from February,
1995 to present, Director from November, 1997 to present.
Peter J. Sistare 34 Vice President of Flight Operations from April, 1998 to present; Vice President of
Operations from December, 1993 to April, 1998.
</TABLE>
ITEM 2. PROPERTIES
GROUND FACILITIES
The Company presently occupies approximately 11,018 square feet of
office space in the Charlotte/Douglas International Airport's old terminal
building, in Charlotte, North Carolina and 15,000 square feet of hangar space
and 10,000 square feet of space for operations, also at the Charlotte/Douglas
International Airport. The office space is used for the Company's principal
executive and administrative offices and the hangar facility contains the
Company's maintenance operations for its aircraft, as well as maintenance
support and inventory. The office space and hangar facility are leased under
commercial use permits with the City of Charlotte, North Carolina. The permits
are a month-to-month tenancy with an annual rental of $163,500 and are
cancelable upon thirty (30) days notice by either party.
The Company's counter, baggage, gate and ramp spaces at the airports
served by the Company are provided by US Airways and its affiliates except at
nine (9) airports where the space is leased from the airport authorities. With
respect to the ground operations at Concourse D of the Charlotte/Douglas
International Airport, the Company provides those services under contract with
US Airways. US Airways reimburses the Company for its costs in providing the
services.
6
<PAGE>
FLEET
The Company has established the goal of simplifying its fleet by
eliminating unprofitable aircraft types while retaining the operating
flexibility necessary to respond to changes in market conditions. In September,
1997 the Company tentatively reached agreement with an aircraft lessor whereby
the nine Shorts aircraft leased by the Company would be returned to the lessor
in exchange for certain financial considerations (see Management Discussion and
Analysis - Liquidity and Capital Resources for further discussion). Pursuant to
this agreement, the Shorts aircraft were subsequently retired from service - the
last Shorts aircraft ceased operating scheduled service for the Company on
January 5, 1998.
Under the accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. The
Jetstream Super 31 aircraft are newer and faster than the predecessor
Jetstreams, and can operate with fewer weight restrictions. The final Jetstream
Super 31 aircraft is anticipated to be operational in the Company's system
before the end of April, 1998.
The Company leases four Dash 8-100 aircraft that have leases which
extend to 2007. The Company has signed a Letter of Intent to acquire, via
operating leases, up to six additional Dash 8-100 aircraft in 1998. The
Company's current plans are to take delivery of two of these aircraft, both in
the spring of 1998. These leases expire in 24 to 36 months.
Based upon scheduled aircraft retirements and deliveries, the Company
will operate 20 Jetstream Super 31 and six (6) Dash 8 aircraft in 1998 (see
Business, Fleet Composition).
MAINTENANCE OF AIRCRAFT
The engines on all of the Company's aircraft are maintained under a
continuous airworthiness maintenance program. The engines on the Company's
Jetstream aircraft undergo disassembly inspection and repair after every 3,500
hours of operation. This interval is based on the manufacturer's approved
sampling program which allows for escalation at 500-hour intervals after the
completion of a satisfactory engine overhaul. The engines on the Dash 8 aircraft
undergo overhaul after every 12,000 hours of operation. This interval is also
based on the manufacturer's recommendation.
Substantially all of the maintenance, service and inspection of
aircraft, except major engine and component overhaul, is performed by Company
personnel. Major engine repair is performed by the engine manufacturer or its
authorized overhaul agencies. Component overhaul is performed by the applicable
manufacturer or an appropriate contractor.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, none of which is likely to have a material effect on the Company's
financial position. The FAA occasionally advises the Company that it may be
subject to payment of civil penalties for certain violations of Federal Aviation
Regulations. Such notices are commonplace in the industry and are unlikely to
result in actions of material consequence.
The Company has been engaged with representatives of and counsel for
Her Majesty the Queen in Right of Canada as Represented by the Ministry of
Industry, Science and Technology (the "Ministry") in discussions and
negotiations regarding the reimbursement obligation, if any, of the Company to
the Ministry arising from the change in lessor for the four (4) de Havilland DHC
8-102 aircraft (the "Aircraft") leased by the Company. The Ministry has informed
the Company that the new lessor, CIT Group/Capital Equipment Financing, Inc.
("CIT") made a claim under certain economic development insurance provided by
the Ministry to the former lessor, Mellon Financial Services Corporation #3
("Mellon"), when the Company entered into new lease agreements with CIT for the
Aircraft in December of 1994. The Ministry asserts that it has a right to
reimbursement in the amount of $16,996,995 but has proposed that the Company
agree to pay $6,000,000 secured by a pledge of an undetermined number of shares
of the Company's common stock.
7
<PAGE>
The Company does not have an agreement with the Ministry regarding the
economic development insurance and has not acknowledged any obligation to
reimburse the Ministry for claims paid under the original leases at the same
time that the Company entered into new leases with CIT. The Company has made
certain proposals for future consideration to resolve the Ministry's claim and
is continuing negotiations with the Ministry. Company management, a former
member of the Board of Directors and outside counsel have been involved in
discussions of issues with the Ministry. In March, 1998 the Company and the
Ministry discussed utilizing various dispute resolution mechanisms, including
mediation, arbitration or third party review. It is uncertain whether the
Company and the Ministry will reach an agreement. Based on information presently
available to management, the ultimate outcome of this matter will not have a
material impact on the financial condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held in
Charlotte, North Carolina on November 13, 1997. Of the 7,740,695 shares
of common stock outstanding on the record date, 6,023,856 shares were
present by proxy. Those shares were voted on the matters before the
meeting as follows:
A. Election of Directors:
NAME OF DIRECTOR NO. VOTES FOR: NO. VOTES WITHHELD:
---------------- -------------- -------------------
Kenneth W. Gann 5,954,056 69,800
Dean E. Painter, Jr. 5,961,044 62,812
K. Ray Allen 5,958,744 65,112
Gordon Linkon 5,951,644 72,212
George Murnane, III 5,956,556 67,300
Eric W. Montgomery 5,955,444 68,412
B. Proposal to ratify the adoption of the Directors' Compensation Stock
Option Plan:
For: 5,494,952 Against: 482,654 Abstain: 46,250
C. Proposal to ratify the selection of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending
June 30, 1998.
For: 5,974,811 Against: 24,650 Abstain: 24,395
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock was first sold to the public in July of
1989, when the Company completed an initial public offering of 1,904,518 shares
of common stock, of which 1,283,872 shares were sold by the Company and the
balance was sold by existing Company stockholders. The Company's common stock is
traded in the over-the-counter market, called the SmallCap Stock Market of
NASDAQ. The results of operations in the 1997 transition period may affect the
listing of the common stock on the SmallCap Stock market. The common stock is
quoted under the symbol "CCAR". The following table sets forth the high and low
bid quotations for the Company's common stock in the over-the-counter market as
reported by NASDAQ for the quarters of the last two (2) fiscal years and for the
1997 transition period. These over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
1997 TRANSITION PERIOD ENDED
DECEMBER 31, 1997 HIGH LOW
----------------- ---- ---
First Quarter 3 15/32 1 7/8
Second Quarter 4 1/16 2 5/16
8
<PAGE>
FISCAL YEAR ENDED
JUNE 30, 1997 HIGH LOW
------------- ---- ---
First Quarter 2 5/16 1 7/16
Second Quarter 2 1/16 1 7/16
Third Quarter 2 1/32 1 11/16
Fourth Quarter 2 1 13/16
FISCAL YEAR ENDED
JUNE 30, 1996 HIGH LOW
------------- ---- ---
First Quarter 3 15/16 2 1/4
Second Quarter 2 5/8 1 7/8
Third Quarter 2 3/8 1 1/2
Fourth Quarter 2 3/8 1 5/8
At March 27, 1998 there were approximately 381 stockholders of record.
The transfer agent for the Company's common stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.
During its 1996 and 1997 fiscal years and its 1997 transition period,
the Company did not pay cash dividends on its common stock. Based upon its
forecast, the Company does not plan to pay cash dividends in 1998.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT INCOME PER SHARE)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30
-------------------------- ---------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Operating revenues:
Passenger $32,212 $33,480 $67,020 $64,482 $60,804 $60,063 $61,296
Public service --- --- --- 353 695 814 724
Other 624 513 1,467 1,399 1,540 1,215 1,159
------- ------- -------- ------- ------- ------- -------
Total operating revenues 32,836 33,993 68,487 66,234 63,039 62,092 63,179
------- ------- -------- ------- ------- ------- -------
Operating expenses:
Flight operation 10,523 11,673 23,539 23,490 22,416 25,586 24,131
Fuel and oil 2,813 3,805 7,117 6,262 5,406 5,202 5,858
Maintenance materials, repairs
and overhead 7,617 5,806 12,381 12,566 11,619 11,270 11,448
Ground operations 4,463 4,196 8,373 7,839 7,391 9,026 8,100
Advertising, promotion and
commissions 4,847 4,839 9,868 9,104 9,007 8,921 9,745
General and administrative 2,656 1,967 4,115 4,273 4,802 4,369 3,821
Fleet restructuring and other
nonrecurring charges 9,881 --- --- --- --- --- ---
Depreciation and amortization 740 921 1,699 1,814 1,845 1,595 1,446
Loss from write-off of
preoperating costs 684
------- ------- -------- ------- ------- ------- -------
Total operating expenses 43,540 33,207 67,092 65,347 62,486 65,969 65,233
------- ------- -------- ------- ------- ------- -------
Operating income (loss) (10,704) 786 1,395 886 553 (3,877) ( 2,054)
Interest expense ( 641) ( 407) ( 742) ( 761) ( 920) ( 819) ( 789)
Other income (expense), net 27 ( 3) 8 ( 11) 5 ( 60) 60
------- ------- -------- ------- ------- ------- -------
Income (loss) before income taxes (11,318) 376 661 114 ( 362) (4,756) ( 2,783)
Provision for income taxes --- --- ( 141) ( 18) --- --- ---
------- ------- -------- ------- ------- ------- -------
Net income (loss) before
cumulative effect of a change
in accounting principle (11,318) 376 520 96 ( 362) (4,756) ( 2,783)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30
----------------------- ------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative effect on prior years
(to June 30, 1997) of changing
to the accrual method for major
component overhauls (12,982) --- --- --- --- --- ---
--------- -------- -------- --------- -------- ------- -------
Net income (loss) $(24,300) $ 376 $ 520 $ 96 $( 362) $(4,756) $(2,783)
========= ======== ======== ========= ======== ======= =======
Basic income (loss) per share $ (3.10) $ .05 $ .07 $ .01 $( .05) $( .68) $( .43)
========= ======== ======== ========= ======== ======= =======
Weighted average common shares
outstanding 7,842 7,741 7,741 7,565 7,382 7,006 6,547
========= ======== ======== ========= ======== ======= =======
Diluted income (loss) per share $ (3.10) $ .05 $ .07 $ .01 $( .05) $( .68) $( .43)
========= ======== ======== ========= ======== ======= =======
Weighted average common and
common equivalent shares
outstanding 7,842 7,954 7,999 7,969 7,382 7,006 6,547
========= ======== ======== ========= ======== ======= =======
Cash dividends declared
per common share - - - - - - - - - - - - - -
========= ======== ======== ========= ======== ======= =======
Balance sheet data:
Current assets $ 8,751 $ 8,714 $13,458 $14,165 $ 9,713 $11,242 $11,458
Current liabilities 25,651 10,738 16,998 15,525 10,272 11,937 7,850
Net property and
equipment 3,354 12,676 13,683 12,332 12,406 13,337 12,283
Total assets 12,140 22,022 27,971 27,130 22,153 24,629 23,793
Long-term debt, less
current portion (1) 2,642 5,071 3,346 4,010 4,876 5,902 6,866
Shareholders'
equity (deficit) (16,154) 6,213 6,357 5,837 5,032 5,372 7,320
</TABLE>
(1) See Note 9 to financial statements regarding certain capital lease
obligations which are included in long-term debt in this schedule.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected operating data relating to the
Company's passenger service for the transition period ended December 31, 1997
and the comparative six months in 1996, and fiscal years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------------- -----------------------------------------------
1997 1996 1997 1996 1995
--------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenue (000) $32,836 $33,993 $68,487 $66,234 $63,039
Operating expense, net of
restructuring and other
nonrecurring charges (000) 33,659 33,208 67,092 65,347 62,486
Revenue passengers carried 396,799 411,362 794,013 783,997 844,421
Revenue passenger miles (000) (1) 72,417 76,068 146,567 144,695 142,499
Available seat miles (000) (2) 134,831 160,390 305,086 311,967 305,388
Passenger load factor (3) 53.7% 47.4% 48.0% 46.4% 46.7%
Passenger breakeven load factor (4) 56.1% 46.9% 47.6% 46.3% 46.9%
Yield per revenue passenger mile (5) 44.5(cent) 44.0(cent) 45.7(cent) 44.5(cent) 42.7(cent)
Passenger revenue per available seat mile 23.9(cent) 20.9(cent) 22.0(cent) 20.7(cent) 19.9(cent)
Operating cost per available seat mile (6) 25.0(cent) 20.7(cent) 22.0(cent) 20.9(cent) 20.5(cent)
Average passenger trip (miles) 182.5 184.9 184.6 183.9 168.7
Average daily aircraft utilization
per plane (block hours) 7.9 8.2 8.2 8.0 8.2
Average passenger fare $81.18 $81.39 $84.41 $82.25 $72.01
Completion factor 96.4% 96.3% 95.9% 95.1% 95.1%
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) One revenue passenger transported one mile.
(2) The product of the number of aircraft miles and the number of
available seats on each stage, representing the total
passenger capacity offered.
(3) The ratio of revenue passenger miles to available seat miles,
representing the percentage of seats occupied by revenue
passengers.
(4) The percentage of available seat miles which must be flown by
revenue passengers for the airline to breakeven after
operating expenses, excluding restructuring and other
nonrecurring charges, changes in accounting principle and
taxes.
(5) The passenger revenue per revenue passenger mile.
(6) Total operating expenses, excluding restructuring and other
nonrecurring charges, interest expense, changes in accounting
principle and taxes, divided by available seat miles.
The following table sets forth selected operating data relating to the
Company's passenger service for each quarter of the 1997 transition period and
fiscal year 1997 (see Note 16 of the financial statements):
<TABLE>
<CAPTION>
1997 TRANSITION PERIOD 1997 QUARTERLY DATA
---------------------- ----------------------------------------------
FIRST SECOND FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (000) $16,745 $16,091 $17,370 $16,623 $16,484 $18,010
Operating income (loss) (000) 638 (11,956) 511 275 363 246
Net income (loss) (000) (12,589) (11,711) 321 55 126 18
Earnings (loss) per share ( 1.61) ( 1.49) .04 .01 .02 .00
Passengers carried 205,149 191,650 208,580 202,782 172,116 210,535
Revenue passenger miles (000) 37,941 34,476 38,691 37,377 31,870 38,629
Available seat miles (000) 71,318 63,513 82,391 77,999 70,620 74,076
Passenger load factor 53.2% 54.3% 47.0% 47.9% 45.1% 52.1%
Passenger breakeven load factor 51.9% 60.5% 46.1% 47.8% 44.8% 51.7%
Yield per revenue passenger mile 43.4(cent) 45.7(cent) 44.3(cent) 43.7(cent) 49.7(cent) 45.8(cent)
Average passenger trip (miles) 184.9 179.9 185.5 184.3 185.2 183.5
Average passenger fare $ 80.21 $ 82.22 $ 82.13 $ 80.63 $ 92.05 $ 84.06
Operating cost net of
restructuring and other
nonrecurring charges
per available seat mile 22.6(cent) 27.6(cent) 20.5(cent) 21.0(cent) 22.8(cent) 24.0(cent)
</TABLE>
1997 TRANSITION PERIOD
The Company's operating results reflect the implementation of its fleet
restructuring plan in the 1997 transition period. In October, 1997 the Company
began returning its nine Shorts aircraft to the lessor to simplify its fleet
structure and reduce its operating expenses. All Shorts aircraft were out of
scheduled service by January 5, 1998. In addition, the Company contracted, in
November, 1997, to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In conjunction with these transactions, the Company
has recognized restructuring and other nonrecurring charges for the Shorts lease
terminations, write-off and write-down of assets related to the terminated
leases and estimated costs of compliance with return conditions in the
terminated leases. Further discussion of the Company's restructuring is set
forth below under "Liquidity and Capital Resources".
Revenues for the six-month periods ended December 31, 1997 and 1996
were $32,836,000 and $33,993,000, respectively, which represents a 3.4% decline
in the 1997 transition period. Passenger revenues decreased 3.8%, as revenue
passenger miles (RPMs) decreased 4.8% and yield per passenger mile increased
1.1%. The phase-out of the Shorts aircraft resulted in a 15.9% reduction in
available seat miles (ASMs) in the 1997 transition period as compared to the
same period in the previous year. As a result of the reduction in ASMs, the
Company ceased service between Charlotte and Shenandoah Valley, Virginia in
July, 1997, suspended service between Charlotte and Montgomery, Alabama in
September, 1997 and reduced the frequency of service to several other markets.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's revised schedule was effective in reducing low load
factor flights, as the 15.9% reduction in capacity only resulted in a 4.8%
decrease in RPMs and a 3.5% reduction in passengers. The Company's load factor
increased from 47.4% to 53.7%. The average passenger trip decreased from 184.9
miles to 182.5 miles as a result of the cessation of service from Charlotte to
Montgomery, a long-haul market. The average fare remained relatively unchanged
at $81 per passenger for the six months ended December 31, 1997 and 1996. The
Company's revenue per ASM increased from 20.9(cent) in the six-month period
ended December 31, 1996 to 23.9(cent) for the 1997 transition period, a positive
reflection on the Company's efforts at revenue maximization.
As aforementioned, the Company's yield increased 1.1%, from 44.0(cent)
per RPM in the six-month period ended December 31, 1996 to 44.5(cent) for the
comparable period in 1997. However, the yield increase achieved in the 1997
transition period was partially offset by the decrease in the average passenger
trip. Low fare competitors remained absent from the markets served by the
Company. Additionally, the Company constantly monitors fares in the local
markets it serves, and adjusts them as competition, demand and market factors
dictate. Comparative yield calculations are complicated by the expiration and
reimplementation of the federal ticket tax. The tax expired on December 31, 1995
and was reinstated in late August, 1996. The Company believes its passenger
revenues were stimulated during the periods the tax was not in effect, as the
absence of the tax effectively reduced the cost of air travel. The Company is
not able to determine the extent to which operating results were impacted by the
absence of the tax, although it does believe that the six-month period ended
December 31, 1996 was favorably impacted by the absence of the tax for a portion
of the period, whereby the tax was collected for the entirety of the six-month
period ended December 31, 1997, with a resultant negative impact on revenue.
Operating costs increased substantially in the 1997 transition period
over the same period in 1996. The increase is primarily a result of the aircraft
fleet restructuring plan, which accounts for $9,881,000, or 22.7%, of the
reported operating expenses. Operating costs per ASM, net of restructuring
related expenses, were 25.0(cent) in the 1997 transition period as compared to
20.7(cent) in the same period of 1996. Contributing factors include increases in
aircraft maintenance and repair expenses, spare parts rental, customer service
wages, professional fees and property tax expense. These increases were
partially offset by the rent reductions negotiated for the Shorts aircraft,
continued savings realized in the premiums for the Company's aircraft hull
insurance, the decline in aviation fuel prices and the elimination of certain
operational expenses directly related to scheduled passenger service levels and
ASMs.
Flight operations expense decreased by more than $1.1 million, or 9.8%,
in the 1997 transition period, to $10,523,000 from $11,673,000 in the same
period of 1996. The Company continues to benefit from reductions in the insured
value of the aircraft fleet, as well as declining hull insurance rates,
culminating in a $279,000 decrease over premium expense recognized in the same
period in 1996. Pursuant to the aircraft return agreement reached with Shorts
for the nine Shorts aircraft, the Company received aircraft rent abatements,
beginning with payments due in August, 1997, in the amount of $14,000 per
aircraft per month until the aircraft were returned. The lease abatement and
early return of the aircraft resulted in a $835,000 decrease in Shorts aircraft
rental expense in the 1997 transition period versus the comparable period in
1996. Pilot and flight operations payroll-related expenses decreased by 1.5% as
a result of attrition. The Company did not replace terminated pilots in the 1997
transition period due to the reduction in capacity during the period. The
reduction in these expenses was partially offset by annual seniority wage
increases and the enhancement of the training and crew scheduling departments.
Aviation fuel expenditures declined $989,000, or 26%, as compared to
1996 consequent to price per gallon decreases of $0.11 and the 15.9% decrease in
ASMs flown in the 1997 transition period. The Company consumed 3.6 million
gallons of fuel at a cost of $2.8 million in the 1997 transition period, as
opposed to 4.3 million gallons at $3.8 million in the same period of 1996. ASMs
and gallons of fuel used both decreased approximately 16%, while price per
gallon decreased 13%. The average price per gallon of fuel purchased in the 1997
transition period was 77.5(cent), as compared to 88.6(cent) in 1996. Fuel prices
peaked from October 1996 through February 1997, with the most favorable prices
occurring in September and December 1997. In the transition period, fuel expense
was 8.3% of operating costs, net of restructuring charges; as such, the Company
does not believe it is cost effective to attempt to manage fuel price risk.
Thus, no derivatives or other off-balance sheet instruments are used for hedging
purposes.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Maintenance material, repairs and overhead increased $1.8 million, or
31.1% in the 1997 transition period over the six-month period ended December 31,
1996. The increase in expenses reflects the higher costs incurred with operating
the aging Shorts and Jetstream 31 aircraft, increased payroll-related expenses
and higher spare parts rentals. Outside repair and materials expense was up over
$900,000 in the 1997 transition period versus the comparable prior-year period,
as costs of maintaining the fleet escalated. Maintenance salaries expenses
increased $347,000, primarily as a result of overtime hours and temporary labor
necessary to maintain the fleet, and accomplish the aircraft returns. Rental
expenses for spare aircraft parts, primarily engines, increased $386,000 in the
1997 transition period. In the six-month period ended December, 1996 the Company
received $303,000 in rental concessions from a major vendor to compensate for
engine performance issues raised by the Company.
Ground operations expenses increased 6.3%, from $4,196,000 to
$4,463,000 in the 1997 transition period as compared to the same period in 1996.
US Airways' passenger handling fees continued to increase. In markets where US
Airways personnel provide customer service and handling, a fee is charged to the
Company. This fee was $8.10 per passenger during the 1997 transition period as
opposed to $7.75 in 1996. Fees per passenger have increased periodically as
follows: July 1995, $6.50; January 1996, $7.75; February 1997, $8.10. Although
passengers carried decreased 3%, passenger handling fees escalated 3.6%, or
$66,000 in the 1997 transition period. In addition to increased passenger
handling fees, the Company experienced increases in customer service salary- and
payroll-related expenses. In 1997, US Airways increased its commitment to
performance in the areas of on-time arrivals and departures, completed flights
and the reduction of passenger complaints. The Company took steps to remain in
concert with US Airways in these vital performance measures. While the Company
and US Airways were successful, additional staffing levels were necessary to
ensure compliance. The Charlotte (Concourse D) station increased full-time
equivalent employees from 169 at December 31, 1996 to 198 at December 31, 1997.
To retain employees, the Company also implemented an average increase of 5% in
the hourly wage scale, concentrated in the first five years' seniority. Because
of Charlotte's relatively higher employee turnover rate, the effects of this
adjustment were felt most acutely at that station. Customer service payroll
expenses were partially mitigated (approximately $60,000) by the closure of
Company-operated field stations in Shenandoah Valley, Virginia and Montgomery,
Alabama in July, 1997, and September, 1997, respectively.
Ground operations expense is offset through the Company's reimbursement
agreement for operating, on behalf of US Airways, Concourse D at the
Charlotte/Douglas International Airport. Effective January, 1997, monthly
reimbursements received by the Company increased to $372,000. In August, 1996,
the reimbursement rate increased from $354,000 to $359,000 per month.
Advertising, promotion and commissions expense remained stable at
$4,847,000 in the 1997 transition period versus $4,839,000 in the prior
comparative period. While passenger revenue decreased 3.8%, commissions and
reservations expense remained flat due to increased program fees charged by US
Airways.
Total general and administrative expenses were $2,656,000 in the 1997
transition period as compared to $1,968,000 in 1996. Salaries and
payroll-related expenses increased $104,000 as a result of additions to the
executive management group. In December, 1996, the Company received refunds of
property tax payments made in prior years totaling $118,000, reducing the
expense recognized in the six months ended December 31, 1996. Audit, legal,
corporate and other professional fees increased $180,000 and were accrued for in
relation to the Company's decision to change its reporting year-end to December
31 of each year.
Depreciation expense decreased 19.7%, or $181,000 in the 1997
transition period as compared to the same period in 1996, consequent to the
write-off and reclassification of all assets related to the terminated aircraft
leases for the Shorts and Jetstream 31 aircraft, including leasehold
improvements and spare rotable parts. The effect of the write-off and
reclassification of depreciation expense was minimized because depreciation was
taken on all assets through November, 1997, the time at which the Company
determined that all restructuring plans became irrevocable.
The Company incurs interest expense principally as a result of its
lines of credit; interest expense is also recorded as it relates to capital
leases, long-term borrowings, and other short-term borrowings. The Company
incurred interest expense of $641,000 in the 1997 transition period, as compared
to $410,000 in the six months ended December 31, 1996. The increase was
primarily due to the higher average borrowings outstanding on the Company's Line
of credit, precipitated by the increase in the Line to $4 million from $3
million in July, 1997.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As a result of the aircraft return plans, the Company has reduced all
related assets and leasehold improvements to net realizable value, or estimated
resale value, as appropriate. Certain spare parts are interchangeable between
the Jetstream 31 and Jetstream Super 31 aircraft; these parts have been excluded
from the net realizable value calculations. Losses due to impairment of assets
aggregate to $3,007,000; $1,491,000 attributable to the Shorts aircraft,
$472,000 to the Jetstream 31 aircraft, $344,000 in unusable interchangeable
parts and supplies and a valuation reserve of $700,000 established in
consideration of the unpredictability of the resale market.
The Company recorded additional restructuring charges of $6,874,000
encompassing all other aspects of the aircraft retirements. These charges
included: lease termination settlement ($6,115,000); return condition
requirements ($1,805,000 to return the Shorts, $750,000 to return the Jetstream
31s and $691,000 to return leased spare engines); early termination of Jetstream
31 engine maintenance contract ($2,483,000); accrual for expenses related to
pilot requalifications and transition rents ($478,000); reclassification of
other costs related to retired aircraft until returned to lessor ($675,000),
consulting fees for the execution of the lease termination transaction
($241,000), write-off of remaining deferred credits on terminated leases
($1,032,000 offset to charges) and the elimination of accrued expenses for
future performance of component overhauls that are no longer required
($5,332,000 offset to charges).
Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the deferral
method to the accrual method. Under the method previously utilized, the Company
capitalized these expenditures and amortized them over the estimated service
life of the overhaul. The change in accounting principle results in accrual for
future expenditures for overhauls based on flight hours incurred each month, at
a rate commensurate with the future expected cost of overhaul. Implementation of
the change in principle necessitated the write-off of previously capitalized
items, along with the related accumulated amortization, as of July 1, 1997. The
aggregate time since last overhaul, as of July 1, 1997 was utilized to determine
the beginning accrued overhaul expense as of the same date. This calculation was
performed for each aircraft type. The aggregate effect of the change in
accounting principle was $12,982,000. The Company believes the newly implemented
accounting principle more closely emulates its lease agreements and contracts
for repair and maintenance of these components.
In the 1997 transition period, the Company reported operating losses
for financial and tax purposes. The losses generated for tax purposes may be
carried forward for use in future years. In the current period, the Company's
effective federal tax rate is 0%, as there were no alternative minimum tax
payments. At December 31, 1997, the Company had approximately $10,034,000 of
United States Federal regular tax operating loss carryforwards available to
offset future taxable income. These carryforwards begin expiring on December 31,
2004. Additionally, the Company had $109,000 in United States Federal
alternative minimum tax credits available to offset future regular tax payments
due; these credits do not expire.
The estimates of future results included above are based upon present
information regarding operations and future trends. While the Company believes
that the estimates constitute its best judgment on future results, the actual
results may differ materially from the estimates.
FISCAL 1997
The Company achieved improved operating results in fiscal 1997,
continuing the trend from fiscal 1996. Operating income and net income in the
current year are $1,395,000 and $520,000, respectively, compared to fiscal 1996
operating income of $886,000 and net income of $96,000. Passenger revenues
increased by 3.9%, with operating expenses were held to a 2.7% increase. Yield
per passenger mile continued to improve in 1997, resulting in 45.7(cent) per
revenue passenger mile ("RPM") as compared to 44.5(cent) per RPM in fiscal 1996.
Annual revenues increased in fiscal 1997 to $68,488,000 over fiscal
1996 revenues of $66,234,000. The 3.3% increase over prior year is attributable
primarily to increased average fares related to continued industrywide fare
growth. Low fare competitors remain absent from the markets served by the
Company. Additionally, the Company maintained local market fares introduced in
February 1996 to stimulate travel, resulting in enhanced revenues throughout
fiscal 1997. Annual and quarterly yield comparisons are complicated by the
expiration and reimplementation of the federal ticket tax in fiscal 1996 and
1997. The tax lapsed on December 31, 1995 and was reinstated in late August,
1996. The tax again expired on December 31, 1996 and was resumed in early March,
1997. The Company believes that its passenger revenues were stimulated during
the periods the tax was not in effect - the absence of the tax effectively
reduced the cost of air travel. The Company is not able to determine the extent
to which operating results in fiscal 1996 and 1997 benefited from the absence of
the tax, although it does believe that it had a positive impact on its operating
results.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Available seat miles ("ASMs") decreased 2.2% from fiscal 1996. The
Company discontinued service between Shenandoah Valley, Virginia and Baltimore,
Maryland in December, 1996. Pursuant to an economic analysis of Shorts aircraft
utilization and profitability, the Company reduced the number of flights using
these aircraft in December, 1996. As such, only seven of the nine Shorts
aircraft were scheduled for the last seven months of fiscal 1997. While ASMs
thus decreased 6.1% for the last seven months of fiscal 1997 when compared to
1996, the load factor increased from 47.8% for the seven months in fiscal 1996
to 49.0% for the comparable period in fiscal 1997.
The Company, while able to implement changes in its flight schedule
after receiving the consent of US Airways, has limited control over the cities
it serves as a US Airways Express carrier. The Company did receive approval to
discontinue service to Shenandoah Valley, Virginia and Montgomery, Alabama
effective July 8, 1997 and September 4, 1997, respectively, based upon
profitability and aircraft utilization studies.
RPMs increased commensurately with revenue passengers, reflecting
growth of 1.3% over fiscal 1996. Elevated RPMs, passengers carried and average
fares are indicative of the overall health of the air transportation industry.
The Company continued to maintain its upward trend in average fares for fiscal
1997. The fiscal 1997 average fare was $84.41, compared to $82.25 in fiscal
1996.
Operating costs per ASM escalated from 20.9(cent) to 22.0(cent) from
fiscal 1996 to fiscal 1997. Contributing factors include increases in
maintenance outside repair expenses, fuel cost, flight operations and customer
service wages and US Airways' fees for ticketing and passenger handling. These
increases were partially mitigated by cost reductions realized in the Company's
aircraft hull insurance, engine overhaul amortization expenses and savings
realized under the first full year of reduced Jetstream 31 lease payments.
Flight operations expense stabilized in fiscal 1997 at $23,539,000, as
compared to $23,490,000 in fiscal 1996. Although the Company experienced
significant increases in pilot and flight management salaries, the additional
expenses were offset by reductions in hull insurance rates and aircraft lease
payments. The Company continued to benefit from reductions in the insured value
of the aircraft fleet and more favorable hull insurance rates resulting in
annual savings of $393,000 in 1997. Additionally, renegotiated lease payments
for the Jetstream 31 fleet finalized in 1996 resulted in further reductions to
lease expenses as compared to fiscal 1996. Pilot salaries escalated 4.9%, or
$336,000 over fiscal 1996 to $7,135,000 in fiscal 1997. Under the plan
negotiated with the Air Line Pilots Association ("ALPA"), pilot salaries were
initially reduced by 16% in October 1994, with 4% of the original concession
being reinstated after each subsequent four-month period. The final increase
scheduled under this plan occurred in February, 1996. Accordingly, fiscal 1997
was the first complete year under the fully reinstated salary levels.
Furthermore, annual seniority wage increases contributed to the increases in
pilot salary expense. Flight operations management and support salary expenses
also grew by $100,000 as compared to 1996; enhancement of the training and crew
scheduling departments are the primary factors.
Crew travel expenses, comprised of meal allowances and accommodations
declined significantly, from $1,280,000 in fiscal 1996 to $1,078,000 in fiscal
1997. In April, 1996, 14 crews were placed in four newly established crew bases
in Lynchburg, Virginia; Cincinnati, Ohio; Lexington, Kentucky and Kinston, North
Carolina. Establishment and maintenance of these new crew bases resulted in
savings of $202,000 in fiscal 1997.
The Company is obligated pursuant to its contract with its pilots to
match pilot contributions to the Company's 401(k) plan based upon an agreed-upon
earnings formula. The Company recorded $138,000 of compensation expense related
to its contractual obligation as flight operations expense in fiscal 1997. The
Company had insufficient earnings to trigger the matching provision in fiscal
1996.
Market fluctuations in price variances in and ASMs flown cause annual
fuel and oil expenses to be volatile. Despite a 2.2% decline in ASMs flown, the
Company experienced a 14% increase in fuel and oil expense, with expenditures of
$7,117,000 in fiscal 1997 versus $6,262,000 in fiscal 1996. Fuel consumption was
8.2 million gallons at an average price per gallon of 87.4(cent) in fiscal 1997,
as compared to 8.3 million gallons at 75.8(cent) per gallon in fiscal 1996. Fuel
prices peaked from October, 1996 through February, 1997, averaging 93.8(cent)
per gallon during this period.
Maintenance materials, repairs and overhead decreased 1.5% from fiscal
1996, as expense was $12,381,000 in fiscal 1997 versus $12,566,000 in fiscal
1996. Maintenance expenses typically fluctuate based upon flight hours and
takeoffs and landings. Maintenance expense per ASM remained relatively constant;
4.1(cent) in 1997 and 4.0(cent) in 1996.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ground operations expenses increased 6.8% over prior year, resulting in
fiscal 1997 expenditures of $8,373,000 versus $7,839,000 in fiscal 1996. US
Airways passenger handling fees continued to increase. In markets where US
Airways personnel provide customer service and handling, a fee is charged to the
Company; this fee increased 35(cent) per passenger in February, 1997. While
passengers carried increased by only 10,000, or 1.3%, passenger handling fees
escalated 18%, or $555,000 in fiscal 1997.
Ground operations expense is offset in Charlotte, North Carolina
through the Company's reimbursement rate for operating Concourse D at the
Charlotte/Douglas International Airport. The Company's reimbursement increased
from $354,000 to $359,000 in August, 1996 and $372,000 in January, 1997.
Customer Service salaries at Company- operated stations increased $149,000 due
to the combination of general wage increases, service schedule alterations, and
additional overtime.
Advertising, promotion and commissions expense increased from 14.1% of
passenger revenue in fiscal 1996 to 14.7% in fiscal 1997. On January 1, 1996, US
Airways implemented a new reservations fee structure which resulted in an
additional $.90 per passenger charge. Fiscal 1997 thus received an entire year,
or an additional $370,000 of this expense as compared to 1996. CRS fees also
increased on a per-passenger basis in fiscal 1997.
Total general and administrative expenses in fiscal 1997 were
$4,116,000 as compared to $4,273,000 in fiscal 1996, for a decrease of 3.7%.
While salaries increased by $166,000, property taxes declined $303,000. The
property tax decrease was due to refunds of $118,000 resulting from personal
property reclassifications for tax purposes for the years allowed under local
statute (1991-1995). Other general and administrative decreases resulted from
$75,000 in refunded sales and use taxes related to off-road fuel taxes
originally remitted in 1994 through 1996.
Depreciation and amortization expense declined slightly from $1,814,000
in fiscal 1996 to $1,699,000 in fiscal 1997, as asset additions for rotable
flight equipment, ground equipment and leasehold improvements were minimal in
the current year, and thus little depreciation was generated on current-year
property additions.
In fiscal 1997, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate; however, the Company's effective
federal income tax rate was 21.3% which reflects the impact of the alternative
minimum tax on operations. Income tax expense was $141,000 in fiscal 1997, as
compared to $18,100 for fiscal 1996. At June 30, 1997 the Company had
approximately $5,860,000 of United States Federal regular tax operating loss
carryforwards available to offset future taxable income. These carryforwards
begin expiring on June 30, 2005.
FISCAL 1996
The operating results for fiscal 1996 continued the positive trend from
fiscal 1995. Passenger revenues increased 6.0%, attributable to the improved
yield per revenue passenger mile of 44.5(cent) in fiscal 1996 from 42.7(cent) in
fiscal 1995. The result of these overall improvements was operating income of
$886,000 and a net income of $96,000 versus operating income of $553,000 and a
net loss of $362,000 in fiscal 1995. Operating expense increases of 4.6%
partially offset the revenue improvement.
Annual revenues for the 1996 and 1995 fiscal years were $66,234,000 and
$63,039,000, respectively. The 5.1% increase over the prior year was due to the
absence of low-fare competitors in the Company's markets and to continued
industrywide fare growth. Additionally, in February, 1996 the Company
implemented local market fares for travel between Company-controlled
destinations, thus stimulating travel and increasing revenues. Revenues were
significantly hampered, however, by inclement weather in the Company's operating
area during the third quarter of 1996. Severe winter storms caused the
cancellation of approximately 1,200 flights during this quarter. As a result,
the Company estimates that operating revenues were adversely impacted by
approximately $1,100,000. Harsh weather in the northeast section of the United
States caused further revenue losses as connecting passengers with reservations
on the Company's flights were unable to initiate their trips.
The Company experienced yield erosion in the months of May and June,
1996. The yield declined from 44.4(cent) in April to 42.5(cent) in May and
41.7(cent) in June. While some slippage in yield is normal, the presence of
low-cost/low fare competitors in the Company's service area exacerbated the
negative effects.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Available seat miles increased 2.2% over fiscal 1995. The growth was
primarily due to increased daily service to longer-haul markets, including
Columbus, Georgia, Lexington, Kentucky and Lynchburg, Virginia, increasing total
weekday departures to 216 from 213 in fiscal 1995.
While the number of revenue passengers carried decreased by 7.2%,
revenue passenger miles increased 1.6% as compared to fiscal 1995 as a result of
changes to the Company's service schedule. Passengers carried continued to
decline due to the absence of low-fare, traffic-stimulating competition which
existed in the Company's market until March, 1995. Additionally, the Company
continued to recognize the effects of discontinued service to several markets in
fiscal 1995. Because the low-fare competition in 1995 was not present in 1996 to
depress fares, the Company was able to maintain higher average ticket prices of
$82.25 in fiscal 1996 versus $72.01 in fiscal 1995, thus increasing yield per
revenue passenger mile to 44.5(cent), an increase of 4.2% over 1995.
Operating costs per available seat mile increased from 20.5(cent) to
20.9(cent) for fiscal 1995 to 1996. Contributing factors include increases in
fuel costs, pilot training expenses, US Airways fees and engine overhaul
expenses. A portion of these increases were offset by cost reductions recognized
in the Company's aircraft hull insurance, professional fees and property tax
expenses.
Flight operations expense increased 4.8% to $23,490,000 in 1996,
compared to $22,416,000 in fiscal 1995. In fiscal 1995 reductions in aircraft
lease rates were achieved through negotiations with lessors, which the Company
continued receiving the benefit of in fiscal 1996. Additionally, more favorable
hull insurance rates and reductions in the insured value of the Company's
aircraft yielded a decrease in hull insurance expense of 12.9% or $228,000 as
compared to 1995. Several factors impacted the pilot salaries, resulting in
escalations from $7,428,000 in fiscal 1995 to $8,512,000 in 1996, a 14.6%
increase. Pilot turnover in the fourth quarter was exceptionally high due to
recruiting and hiring by the major airlines. Because the internal pilot reserve
was depleted, the Company incurred significant training costs in order to
maintain necessary crew levels. Additionally, during the period of crew
shortages, flight lines were being covered by existing pilot crews at the higher
pay rates due to overtime. The effect of these factors in the fourth quarter of
1996 as compared to the same period of 1995 is an increase in salaries and
training costs of $480,000, or 30.2%. Furthermore, the final two increases under
the pilot salary reduction plan were phased in during October, 1995 and
February, 1996. Under the plan negotiated with the Air Line Pilots Association
("ALPA"), pilot salaries were initially reduced by 16% in October, 1994, with 4%
of the original concession being reinstated after each subsequent four-month
period. Flight attendant salaries increased 6.3% or $62,000 over the previous
fiscal year due to scheduled service increases.
Crew travel expenses, encompassing meal allowances and accommodations,
remained relatively unchanged at $1,280,000 and $1,366,000 from fiscal year end
1995 to 1996, respectively. In April, 1996 four new crew bases were established
in Lynchburg, Virginia, Cincinnati, Ohio, Lexington, Kentucky and Kinston, North
Carolina, placing a total of 14 crews at these locations. While crew bases are
designed to reduce crew travel expenses, the savings were not evident for the
fiscal year ended June 30, 1996 because of expenses associated with moving the
crews.
The escalation of market prices of fuel significantly affected fiscal
1996's fuel expense. Fuel expenditures totaled $5,406,000 in fiscal 1995, and
increased 15.8% to $6,262,000 in 1996, when the average price per gallon of fuel
increased from 67.1(cent) to 75.8(cent). Total fuel consumption was 8.3 million
gallons versus 8.1 million gallons in fiscal years 1996 and 1995, respectively.
The increase between years was directly related to the increased service
schedule. Fuel expense for 1996 includes the 4.3(cent) per gallon federal excise
tax on transportation fuels which the Company became obligated to pay on October
1, 1995.
Maintenance materials, repairs and overhead experienced an 8.2%
increase over the previous year, from $11,619,000 to $12,566,000 in fiscal 1996.
The escalation was due exclusively to the increase in annual amortization of
engine and gear overhauls from $3,496,000 in 1995 to $4,393,000 in 1996. From
March, 1995 through the end of fiscal 1996, expenditures related to overhauls of
Dash 8 airframe and engine components were $1,509,000, with amortization lives
ranging from 11 to 48 months. Amortization of these overhaul additions was the
principal factor in the increase in overhaul expense for the fiscal year ended
1996.
Ground operations expense increased 6.1% over 1995, as expenses went
from $7,386,000 to $7,839,000. The principal factor in the higher expenses is
the increase in US Airways handling fees that the Company pays as a result of US
Airways handling the Company's passengers in certain markets. Inclement weather
in the winter months caused an additional $200,000 in aircraft servicing charges
in fiscal 1996 as compared to 1995, as deicing fluid purchases drastically
increased.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Advertising, promotion and commissions expense decreased from 14.8% of
passenger revenue in fiscal 1995 to 14.1% of passenger revenue in 1996. The
reason for this decrease was the revised rate structure for commissions paid to
travel agencies, which went into effect during March, 1995. Commissions paid on
travel agency-generated tickets decreased from an average of 10.0% in 1995 to
8.9% in 1996. As approximately 80% of tickets collected by the Company are
written by travel agencies, the 1996 savings from this structure change was
approximately $575,000. Partially offsetting this reduction was an increase in
reservations fees charged by US Airways. On January 1, 1996, the reservations
fee charged changed to a new fee structure resulting in an additional $360,000
in expense ($.90 per passenger) during the last two quarters of the 1996 fiscal
year over fees which would have been paid under the old structure.
Total general and administrative expenses decreased 11.0% or $529,000
from 1995 to 1996. Contributing to this decrease were reductions in professional
fees incurred and property tax assessment adjustments. Professional fees were
lower due to the absence of extensive lease and union negotiations that were
present during prior years. Property tax assessments have been reduced as of the
tax year beginning January 1, 1996, going forward through the revaluation of the
aircraft fleet to market value as of the date of filing (January 1, 1996) in the
Company's most significant ad valorem taxing district, North Carolina. This
revaluation and other property tax adjustments resulted in savings in calendar
1996 of $200,000.
Depreciation and amortization decreased slightly from $1,845,000 in
fiscal 1995 to $1,814,000 in 1996, as asset additions for rotable flight
equipment, ground equipment and leasehold improvements were minimal in fiscal
1996, and thus little depreciation was generated on 1996 property additions.
In fiscal 1996, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate, but the Company's effective federal
income tax rate was 15.9%, which reflects the impact of the alternative minimum
tax on operations. Income tax expense was thus $18,100 versus $0 in 1995. At
June 30, 1996 the Company had approximately $7,777,000 of United States Federal
regular tax operating loss carryforwards available to offset future taxable
income. These carryforwards begin expiring on June 30, 2005.
FISCAL 1995
The operating results for fiscal 1995 reflect significant improvement
over fiscal year 1994. The cost reduction plan initiated by the Company was the
principal reason for the improvement. This plan reduced operating costs by 5.3%,
even though capacity, as measured by available seat miles, increased 5.5%. The
operating expense reductions, while encompassing all functional areas within the
Company, were focused on the following areas: aircraft leases, pilot pay and
passenger handling. Operating results also benefitted from the improved yield
per revenue passenger mile, which increased from 40.3(cent) in fiscal 1994 to
42.7(cent) in fiscal 1995. The result of these improvements was operating income
of $553,000 and a net loss of $362,000, as compared to an operating loss of
$3,877,000 and net loss of $4,756,000 in fiscal 1994.
Revenues for the years ended June 30, 1995 and 1994 were $63,039,000
and $62,092,000, respectively. The 6.0% increase in yield in fiscal 1995 was the
result of industrywide fare increases implemented in the third quarter of fiscal
1995 and the elimination of the low-fare division of Continental, Continental
Lite, in the same period. Continental Lite was a direct competitor of US Airways
and the Company in its service area, and US Airways reduced fares, including the
joint fares shared with the Company, to avoid losing market share and to
stimulate traffic in the winter of 1993. The Continental Lite pricing and
service strategy was eliminated by Continental Airlines in the third quarter of
fiscal 1995, which allowed US Airways to alter its pricing strategy and thus
resulted in increased yields for the Company based upon higher joint fares.
The number of available seat miles (ASMs) increased 5.5% in fiscal 1995
over fiscal 1994, primarily as a result of changes in the Company's service
schedule. In conjunction with US Airways's strategy of eliminating jet service
to short haul markets and turning this flying over to US Airways Express
commuter operators, the Company initiated all turbo prop service to Augusta,
Georgia in February, 1995 and Jacksonville, North Carolina and Lynchburg,
Virginia in May 1995. Also during 1995, the Company ceased service to several
cities it had previously served on a shared basis with US Airways from
Charlotte, North Carolina. These cities were Wilmington, North Carolina,
Asheville, North Carolina, Tri- Cities, Tennessee, Columbia, South Carolina,
Huntsville, Alabama and Knoxville, Tennessee. The net effect of this schedule
change was an increase in ASMs, as fourth quarter capacity increased by 5.5%
over the third quarter and 6.9% over the same quarter in fiscal 1994.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The number of revenue passengers carried decreased by 2.9% and revenue
passenger miles (RPMs) decreased by 4.3% in fiscal 1995 as compared to fiscal
1994. The primary reason for the reduced passengers and RPMs is the elimination
of the low-fare, traffic stimulation environment which existed in the Company's
service area until the cessation of Continental Lite as previously addressed.
Operating costs per available seat mile in fiscal 1995 declined 10.1%
from 22.8(cent) to 20.5(cent), as compared to the previous fiscal year. The
increases in fuel, maintenance, advertising, general and administrative and
depreciation were more than offset by decreases in flight operations and ground
operations.
Flight operations expense decreased by 12.4% in fiscal 1995 to
$22,416,000 compared to $25,586,000 in fiscal 1994. The principal reason for
this reduction was a 19.1% decrease in aircraft lease expense. See discussion
below under Liquidity and Capital Resources. In addition, pilots' salaries and
related costs decreased 4.7% in fiscal 1995 as a result of the implementation of
a salary reduction plan negotiated with the Air Line Pilots Association (ALPA).
The reduced pay levels began in October 1994 and will be phased back in over
sixteen months. The plan entailed an initial 16% pay reduction in October 1994.
After each subsequent four-month period, an additional 4% of the initial
reduction was reinstated until February 1996, at which time the salaries
reverted to the levels prior to October 1, 1994. The Company has previously
estimated that the ALPA agreement would result in savings of approximately
$850,000 from October 1, 1994 through January 31, 1996 at present staffing
levels, of which $638,000 would be realized in fiscal 1995. The actual savings
were $318,000, which differed from the projection due to the increased block
hours flown due to the service schedule increase in the fiscal 1995 fourth
quarter.
Crew travel expenses were reduced by 9.7%, or $137,000, in fiscal 1995
as a crew base was established in Augusta, Georgia, to decrease crew per diem
and lodging expenses. A Jacksonville, North Carolina crew base was established
in August, 1995. Efficient utilization of pilots allowed the Company to operate
the increased capacity without adding new pilots, thus pilot training costs
consisted only of recurrent training. This efficiency enabled the Company to
reduce crew training costs by $160,000, or 34.0%. Flight attendant salaries and
related costs increased $77,000 or 7.3%, due to scheduled service increases, and
hull insurance expense increased 11.4%, or $182,000, due to rate increases.
Fuel and oil expense increased to $5,406,000 in fiscal 1995 from
$5,202,000 in fiscal 1994. The average cost per gallon of fuel into plane
decreased to 67.1(cent) in 1995 from 68.3(cent) in 1994, reflecting the
continued savings to the Company from the purchase of fuel through a US Airways
subsidiary. Total fuel consumption was 8.1 million gallons in fiscal 1995 versus
7.7 million gallons in fiscal 1994. The increase from year to year was a direct
result of increased levels of operations.
Maintenance materials, repairs and overhead increased from $11,270,000
in fiscal 1994 to $11,619,000 in fiscal 1995. The higher costs were attributable
to an increase in the number of flight hours flown, however, the cost of
maintenance repairs and materials per ASM in fiscal 1995 was 3.8(cent) compared
to 3.9(cent) per ASM in fiscal 1994.
Ground operations expense decreased from $9,026,000 in fiscal 1994 to
$7,391,000 in fiscal 1995. In July of 1993, US Airways increased handling fees
that the Company pays for its passengers. At this time the Company was paying
$8.24 per passenger handled by US Airways. In March of 1994, the Company assumed
responsibility for ground operations at Concourse D at the Charlotte/Douglas
International Airport in conjunction with the implementation of cost cutting
measures by US Airways. The Company assumed the responsibility for the salaries
and benefits of the Concourse D employees, and in return received $296,900 per
month from US Airways and a reduction in passenger handling fees to $5.70 per
passenger.
In January of 1995, the Company's reimbursement rate for operating
Concourse D increased to $340,000 per month. In March, 1995, the per-passenger
handling fee charged by US Airways increased to $6.20 and increased to $6.50 in
July, 1995. The reduction in ground operations expenses, while primarily due to
the Concourse D realignment, was also due to operational efficiencies
experienced at other stations operated by the Company.
Advertising, promotion and commissions expense increased from
$8,921,000 in fiscal 1994 to $9,007,000 in fiscal 1995, a 1.0% increase. This
increase is directly related to the passenger revenue increase, as these
expenses as a percentage of passenger revenue remained constant, 14.8% of
revenue in fiscal 1995 and 14.9% of revenue in fiscal 1994.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General and administrative expense increased to $4,802,000 in fiscal
1995 as compared to $4,369,000 in fiscal 1994. This increase was primarily
attributable to passenger liability and property insurance increases of
$230,000, or 19%. Passenger liability rate increases more than offset the
reduction in passengers and the resultant decrease in RPMs.
Depreciation and amortization increased from $1,595,000 in fiscal 1994
to $1,845,000 in 1995, primarily as a result of increased depreciation on
rotable flight equipment reclassified from inventory in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs result from continuing operations including
capital expenditures necessary to the operation of its aircraft, and the
continuing payment of creditors in accordance with its Plan of Reorganization.
The Plan of Reorganization was consummated in September, 1991 pursuant to
bankruptcy proceedings initiated by the Company. During the 1997 transition
period the Company satisfied its cash requirements through internally generated
funds and borrowings under a revolving line of credit agreement with an
affiliate of an aircraft manufacturer, secured by all of the Company's accounts
receivable. The Company also utilized short-term loans from certain directors
and officers and a line of credit with Centura Bank, both secured by owned
flight and ground equipment. In December, 1997, the Company issued 545,000
shares of its authorized and available common stock in a private placement
transaction. The shares were purchased by an investor group at a price that
approximated market on the date of the transaction. The Company received
proceeds, net of all fees, of $1,489,000.
During the 1997 transition period, management implemented its strategy
to restructure the aircraft fleet, address short-term and long-term liquidity
needs and improve the overall financial condition of the Company. The key
components of the plan are as follows:
1. Elimination of the Shorts aircraft from the fleet.
2. Elimination of the Jetstream 31 aircraft from the fleet.
3. Introduction of newer, more efficient Jetstream Super 31 to the
fleet.
4. Negotiate transaction for up to six additional Dash 8-100
aircraft, deliveries to take place in 1998.
5. Issuance of 545,000 shares of the Company's common stock to
improve short-term liquidity.
6. Strengthened management through promotions and recruitment.
7. Change year-end to December 31, beginning in 1997, which more
closely corresponds with the Company's business cycle.
8. Discontinued unprofitable flying.
9. Strengthened the critical yield management area by licensing
state-of-the-art technology and hiring experience yield management
consultants to assist in the day-to-day management of seat
inventory.
RESTRUCTURING
On September 11, 1997 the Company entered into a transaction with
Lynrise Air Lease, Inc. ("Lynrise") to return the Company's nine leased Shorts
aircraft to Lynrise as lessor. The aircraft leases were scheduled to continue
through September, 2004, at a monthly rate of $34,000 per aircraft. These
aircraft did not meet US Airways criteria of cabin class service, as they are
unpressurized and slow. In addition, the lease expense per block hour was high,
and the operating expenses continued to escalate. The aircraft were returned
between November, 1997 and January, 1998. In return for this early termination
of the aircraft leases, the Company issued a promissory note in the amount of
$9,725,000. The promissory note was issued in contemplation of the Company's
obligations to lessor: lease termination and aircraft remarketing provisions -
$6.1 million, previously recorded liabilities in the form of accrued rent and
notes payable - $1.8 million and return condition obligations - $1.8 million.
This note is due on August 31, 1998.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Before August 31, 1998, the Company may exercise its option issued in
conjunction with the note, whereby it would pay Lynrise $1,675,000 in cash or
stock and $130,000 in aircraft parts. Upon the option's exercise, the remainder
of the note, $7,920,000, would be converted to a subordinated note, which is
convertible to common stock at $7.50 per share. This subordinated note would be
due in 2004, with interest and principal payments to begin in 1999.
Principal payments may be paid in cash or stock, at the Company's option.
Under an accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. The
final Jetstream Super 31 aircraft is anticipated to be operational in the
Company's system before the end of April, 1998. The Jetstream Super 31 aircraft
are newer and faster than the predecessor Jetstreams, and can operate with fewer
weight restrictions. The Jetstream 31 aircraft are expected to be returned to
the lessor in the second quarter of 1998. The Company estimates that the return
condition specifications on these aircraft will cost approximately $50,000 per
aircraft. These costs have been provided for as restructuring charges in the
1997 transition period.
As a result of the retirement of two aircraft types, the Company wrote
down its spare parts inventory to net realizable value at December 31, 1997. The
writedowns consisted of $1.2 million in Shorts parts; $100,000 in Jetstream
parts; $100,000 in ancillary parts required to maintain both fleets; and a
valuation reserve increase of $700,000 in contemplation of uncertainties in the
resale market. The Company anticipates to aggressively market its excess spares
in 1998. The net book value of parts held for resale was $1,200,000 on December
31, 1997. Additionally, the Company wrote off $680,000 in unamortized leasehold
improvements related to these two aircraft types.
As a result of the restructuring plans undertaken to accomplish fleet
simplification and cost reductions, the Company estimates total annual expense
reductions in excess of $4 million per year, commencing in 1998. These savings
will result principally from the reduction in aircraft rentals, maintenance
expense, flight crew and other labor costs, landing fees and spare parts
inventory levels. In addition, the fleet simplification should improve the
Company's ability to achieve higher levels of reliability, resulting in fewer
flight cancellations and delays and increased revenues. The Company does not
anticipate any additional restructuring charges at this time.
The Company's balance sheet reflects a deficit in working capital,
defined as current assets less current liabilities, of approximately $16,705,000
on December 31, 1997 as compared to $3,540,000 on June 30, 1997. Working capital
is affected by the short-term note issued to Lynrise leasing as already
discussed, as well as seasonality of operations and the timing of receipts from
the ACH. The Company intends to exercise its purchase option on the promissory
note, thereby converting the note to a long-term obligation. Funds necessary to
exercise the option will be generated through internal operations or by the
issuance of stock, or a combination of these methods. In addition, March through
October of each year are peak travel and thus are higher revenue months. The
Company's accounts receivable for passenger service provided in December, 1997
are thus less than amounts recorded in the peak months. The ACH mechanism of
collecting passenger revenue receivables has provided a predictable cash inflow
stream; 99% of the Company's revenues are collected through the Clearing House.
As such, the Company has traditionally been able to match payments to creditors
to its cash receipts from the ACH, which are received at the end of each month,
and to thus defer payments when necessary, or arrange for alternate financing.
After recognition of the restructuring charges and the change in
accounting principle, the Company has a shareholders' deficit of $16,154,000. As
previously mentioned, the results of the restructuring are expected to provide
over $4 million in net cost savings beginning in 1998. In addition, many of the
obligations arising from the restructuring can be satisfied by the issuance of
stock, which will conserve cash and improve the Company's deficit position. The
Company's management and Board of Directors has had preliminary discussions
related to a secondary public offering of common stock, although no definitive
actions have been taken as yet and more common shares will have to be approved
by shareholders before any offering can be undertaken. The Company also has a
solid infrastructure, and has been able to exceed US Airways operating
performance goals consistently during the 1997 transition period.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCING
During the 1997 transition period the Company had available a line of
credit (the "Line") in an amount not to exceed $4,000,000 from British Aerospace
Asset Management ("BAAM"). BAAM is an affiliate of JACO and British Aerospace
Holdings, Inc., the company that had previously collateralized the Company's
bank line through a loan purchase agreement. The Line permits the Company to
borrow up to 70% of a borrowing base, which consists of the Company's
transportation and nontransportation charges to Airlines Clearing House, Inc.
("ACH") or such greater amount as BAAM shall determine, but in no event more
than $4,000,000. The Line is secured by all of the Company's accounts
receivable, bears interest at prime + 2% and is scheduled to terminate on July
31, 1998, but must be extended by BAAM for successive one-year periods until
December 31, 2001.
In November, 1996 the Company secured a supplemental line of credit
(the "Centura Line") with its primary banking facility, Centura Bank. This is a
revolving line of credit not to exceed $400,000. The outstanding balance on the
Centura Line accrues interest at an annual rate of prime plus 2%, and terminates
June 30, 1998. The outstanding balance was $400,000 at December 31, 1997.
During the 1997 transition period, the Company obtained several
short-term loans from certain directors, officers and other related parties.
Individual amounts borrowed under these loans ranged from $45,000 to $350,000,
and earned interest at the rate of ten percent. The aggregate maximum and
average amounts outstanding under these loans were $500,000 and $129,000,
respectively. In connection with these loans, the Company issued to the lending
parties noncompensatory options or warrants to purchase 23,550 shares of the
Company's common stock at the fair market value on the date of grant.
CAPITAL EXPENDITURES
Capital expenditures consist of fixed asset replacement. Capital
expenditures in the 1997 transition period were $382,000. These expenditures
were principally for rotable parts and aircraft leasehold improvements. The
Company projects 1998 capital expenditures to be approximately $1,000,000 for
rotable parts, leasehold improvements and other capital items. Effective July 1,
1997, the Company began accounting for major component overhauls using the
accrual method, as opposed to the deferral method practiced in prior years.
Accordingly, expenditures for overhauls in the upcoming year are not included in
the capital budget.
OPERATING CASH FLOW
The Company receives payments for airline tickets under interline
agreements through the Airlines Clearing House one month in arrears.
Historically, this payment in arrears has caused significant cash flow problems
in the last half of each month. The Company has a line of credit with BAAM to
provide a steady cash flow between ACH settlements. The Company believes that
the restructuring discussed above and improved revenue environment will provide
sufficient cash flows to provide for continuing operations, capital expenditures
and scheduled debt and bankruptcy payments absent adverse changes in current
market conditions. If operating cash flows and the Line are insufficient to meet
obligations, the Company may issue stock, secure short-term loans from officers
and directors, or extend terms with trade creditors.
The Company received the December Airlines Clearing House ("ACH")
payment on the scheduled settlement date of December 30, 1997, and obligations
with British Aerospace Asset Management ("BAAM") and Jet Acceptance Corporation
("JACO") for the Line and aircraft lease payments were satisfied on December 31,
1997. In contrast to events as of June 30, 1997, the Company received its ACH
payment on June 30, 1997. However, because the first business day subsequent to
receipt of funds was July 1, 1997, the Company maintained possession of the full
settlement amount as of June 30, 1997. Ordinarily, BAAM receives payments from
the settlement on the first business day subsequent to the transfer to satisfy
the Line balance and accrued aircraft lease payments due to JACO. These
obligations were settled on July 1, 1997 for June, 1997.
Accounts receivable decreased to $5,048,000 as of December 31, 1997
from $5,629,000 as of June 30, 1997. The decrease is due to lower passenger
revenue in December, 1997 versus June, 1997 attributable primarily to a seasonal
decrease in business traffic.
22
<PAGE>
Other noncurrent assets decreased from $829,000 as of June 30, 1997 to
$36,000 as of December 31, 1997 as a result of the change in the Company's
method of accounting for major component overhauls and the related escrow
funding with one of its aircraft lessors.
Accounts payable increased to $8,129,000 in the 1997 transition period
as compared to $5,521,000 in fiscal 1997 due to liabilities resulting from
restructuring activities and seasonal fluctuations in revenue used to settle
obligations. Notes payable, including current maturities, increased from
$1,885,000 in fiscal 1997 to $10,783,000 in the 1997 transition period as a
result of the note payable issued in conjunction with the settlement reached
with the lessor of the returned Shorts.
The Company is required to make payments of $166,000 to unsecured
creditors in annual installments in the third quarter of each calendar year
through 1999. The Company intends to make these payments when due.
OTHER
On January 16, 1998 US Airways notified the Company of amendments to
the Service Fees agreement, effective March 1, 1998. The per-passenger handling
fee of $8.10 remains unchanged; however, ticketing fees and frequent traveler
charges will increase due to changes in the calculation methodology. The Company
believes these fee structure alterations will negatively impact operating
expenses by approximately $700,000 in 1998.
The Financial Accounting Standards Board (FASB) has issued several
statements that became effective for fiscal years beginning after December 15,
1997. These statements are SFAS No. 130, Comprehensive Income; SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information; and SFAS
No. 132, Employers Disclosures about Pensions and Other Post Retirement
Benefits. The Company will not be impacted by requirements or changes in
reporting requirements prescribed by SFAS No. 130 or 131. The Company does
anticipate broadened disclosures under SFAS No. 132 regarding the 401(k) plan it
sponsors. The Company does not provide for any other post-retirement benefits.
YEAR 2000 COMPLIANCE
The Company has evaluated its information infrastructure for Year 2000
compliance. The Company's financial and statistical reporting and its crew
scheduling systems are in the process of being updated, with completion of the
process expected in early 1999. Any costs associated with these modifications
will be expensed as incurred. The Company depends upon passenger reservations
and operational control systems maintained by other companies, vendors and
government entities. In the event that any of these systems are not Year 2000
compliant, the Company's operations could be adversely affected.
FORWARD-LOOKING STATEMENTS
Statements contained in this document and the notes to the financial
statements which are not historical in nature are forward-looking statements,
and are subject to risks and uncertainties that may cause future results to
differ materially from those set forth in such statements. The Company is not
obligated to update forward-looking statements to reflect events or
circumstances after the date of this report.
INFLATION
Inflation has not had a material impact on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The Company has no information to report under this Item.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted beginning on Page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Items 10 through 13 are incorporated by reference to the Company's
definitive proxy statement as filed with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1. & 2. The financial statements and schedule required by
this Item can be found as indexed on Page F-1.
3. Exhibits shown by index beginning on page E-1.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CCAIR, INC.
DATE: May 7, 1998 BY: /s/ Kenneth W. Gann
---------------------
Kenneth W. Gann, President and
Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Kenneth W. Gann Chairman of the Board of Directors, May 7, 1998
- ---------------------------- Chief Executive Officer, President
Kenneth W. Gann (Principal Executive Officer)
/s/ Eric W. Montgomery Vice President of Finance; May 7, 1998
- ---------------------------- (Principal Financial Officer,
Eric W. Montgomery Principal Accounting Officer)
/s/ K. Ray Allen Director May 7, 1998
- --------------------------------
K. Ray Allen
/s/ Gordon Linkon Director May 7, 1998
- ------------------------------
Gordon Linkon
/s/ George Murnane, III Director May 7, 1998
- -----------------------------
George Murnane, III
/s/ Dean E. Painter, Jr. Director May 7, 1998
- ------------------------------
Dean E. Painter, Jr.
25
<PAGE>
CCAIR, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE NO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1997,
June 30, 1997 and 1996 F-3
Statements of Operations for the Six-Month Periods
ended December 31, 1997 and 1996 (unaudited); and
for the Years ended June 30, 1997, 1996 and 1995 F-4
Statements of Changes in Shareholders' Equity (Deficit)
for the Six-Month Period ended December 31, 1997
and the Years ended June 30, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Six-Month Periods
ended December 31, 1997 and 1996 (unaudited); and for
the Years ended June 30, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE:
II Valuation and Qualifying Accounts for the Six Months ended
December 31, 1997 and 1996; and
for the Years ended June 30, 1997, 1996 and 1995 S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not applicable, not required or the information
presented has been furnished elsewhere.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CCAIR, INC.:
We have audited the accompanying balance sheets of CCAIR, Inc. (a
Delaware corporation) as of December 31, 1997, June 30, 1997 and 1996, and the
related statements of operations and changes in shareholders' equity (deficit)
and cash flows for the six-month period ended December 31, 1997 and for each of
the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CCAIR, Inc. as of
December 31, 1997, June 30, 1997 and June 30, 1996, and the results of its
operations and its cash flows for the six-month period ended December 31, 1997
and for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.
As explained in Note 10 to the financial statements, effective July 1,
1997, the Company changed its method of accounting for engine, propeller and
landing gear overhauls.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Charlotte, North Carolina, ARTHUR ANDERSEN LLP
April 17, 1998.
F-2
<PAGE>
CCAIR, INC.
BALANCE SHEETS
DECEMBER 31, 1997, JUNE 30, 1997 AND 1996
-------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
ASSETS 1997 1997 1996
------------ ----------- -----------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 11,647 $ 4,904,778 $ 5,059,665
Receivables, principally traffic, less allowance
for doubtful receivables of $113,700 at December
31 and June 30, 1997 and $50,000 at June 30, 1996 5,047,701 5,628,959 5,937,222
Inventories, less allowance for obsolescence of $466,000
at December 31, 1997 and at June 30, 1997 and 1996 509,586 1,571,378 1,243,577
Parts held for resale, net of valuation reserves of
$700,000 at December 31, 1997 and $0 at June 30,
1997 and 1996 1,205,277 510,998 514,876
Prepaid expenses 1,976,896 842,320 1,410,113
----------- ----------- -----------
Total current assets 8,751,107 13,458,433 14,165,453
----------- ----------- -----------
Property and equipment, at cost:
Flight equipment and leasehold improvements 5,525,291 24,417,631 20,700,870
Ground and other property and equipment 4,380,712 4,269,938 4,135,574
----------- ----------- -----------
9,906,003 28,687,569 24,836,444
Less accumulated depreciation and amortization (6,552,430) (15,004,807) (12,504,463)
----------- ----------- -----------
3,353,573 13,682,762 12,331,981
----------- ----------- -----------
Other noncurrent assets 35,522 829,464 632,244
----------- ----------- -----------
Total assets $12,140,202 $27,970,659 $27,129,678
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities
of long-term debt $ 2,490,334 $ 962,748 $ 854,438
Note payable expected to be refinanced 7,920,000 --- ---
Short-term borrowings 900,000 3,951,000 3,310,000
Current obligations under capital leases 229,194 328,465 373,266
Accounts payable 8,129,043 5,520,553 5,546,146
Accrued expenses 5,982,891 6,316,240 5,441,201
----------- ----------- -----------
Total current liabilities 25,651,462 17,079,006 15,525,051
Long-term debt, less current maturities 373,147 922,345 1,371,328
Capital lease obligations, less current obligations 2,269,230 2,342,517 2,638,967
Deferred credits, net of amortization of $2,293,263
at June 30, 1997 and $1,805,462 at June 30, 1996 --- 1,269,635 1,757,436
----------- ----------- -----------
Total liabilities 28,293,839 21,613,503 21,292,782
----------- ----------- -----------
Commitments and contingencies (Notes 8, 9, 14 and 18)
Shareholders' equity (deficit):
Common stock, $.01 par value, 10,000,000 shares
authorized, 8,335,695 issued and outstanding at
December 31, 1997 and 7,740,695 at June 30, 1997
and 1996 83,357 77,407 77,407
Additional paid-in capital 19,508,276 17,725,184 17,725,184
Accumulated deficit (35,745,270) (11,445,435) (11,965,695)
----------- ----------- -----------
Total shareholders' equity (deficit) (16,153,637) 6,357,156 5,836,896
----------- ----------- -----------
Total liabilities and
shareholders' equity (deficit) $12,140,202 $27,970,659 $27,129,678
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
CCAIR, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED);
AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
------------------------
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED THE YEARS ENDED
---------------------------- ----------------------------------------------
DECEMBER DECEMBER JUNE JUNE JUNE
1997 1996 1997 1996 1995
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Passenger $ 32,211,552 $33,479,757 $67,020,162 $64,482,156 $60,804,001
Public service --- --- --- 352,888 695,047
Other, principally
freight and charter 624,003 513,418 1,467,460 1,398,657 1,539,652
------------ ----------- ----------- ----------- -----------
32,835,555 33,993,175 68,487,622 66,233,701 63,038,700
------------ ----------- ----------- ----------- -----------
Operating expenses:
Flight operations 10,522,782 11,672,573 23,539,207 23,490,322 22,415,288
Fuel and oil 2,813,162 3,805,346 7,117,089 6,261,716 5,406,055
Maintenance materials
and repairs 7,616,664 5,805,596 12,380,857 12,565,634 11,619,432
Ground operations 4,463,474 4,195,739 8,372,738 7,838,926 7,390,643
Advertising, promotion
and commissions 4,846,996 4,839,498 9,867,686 9,104,225 9,006,992
Fleet restructuring and other
nonrecurring charges (Note 7) 9,880,520 --- --- --- ---
General and administrative 2,656,042 1,967,529 4,115,530 4,273,030 4,802,454
Depreciation and
amortization 739,831 921,269 1,699,181 1,813,533 1,844,683
------------ ----------- ----------- ----------- -----------
43,539,471 33,207,550 67,092,288 65,347,386 62,485,547
------------ ----------- ----------- ----------- -----------
Operating income (loss) (10,703,916) 785,625 1,395,334 886,315 553,153
Interest expense ( 641,394) ( 406,576) ( 742,437) ( 761,433) ( 920,528)
Other income (expense), net 27,291 ( 3,237) 8,291 ( 11,027) 5,252
------------ ----------- ----------- ----------- -----------
Income (loss) before income taxes
and cumulative effect of a change
in accounting principle (11,318,019) 375,812 661,188 113,855 ( 362,123)
Provision for income taxes --- --- ( 140,928) ( 18,100) ---
------------ ----------- ----------- ----------- -------
Income (loss) before cumulative
effect of a change in accounting
principle (11,318,019) 375,812 520,260 95,755 ( 362,123)
Cumulative effect on prior years
(to June 30, 1997) of changing
to the accrual method of
accounting for major component
overhauls (Note 10) (12,981,816) --- --- --- ---
------------ ----------- ----------- ----------- ------------
Net income (loss) $(24,299,835) $ 375,812 $ 520,260 $ 95,755 $( 362,123)
============ =========== =========== =========== ===========
Basic income (loss) per
common share (Note 4) $ ( 3.10) $ .05 $ .07 $ .01 $( .05)
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding 7,842,380 7,740,613 7,740,654 7,565,421 7,381,783
=========== =========== =========== =========== ===========
Diluted income (loss)
per share $ ( 3.10) $ .05 $ .07 $ .01 $( .05)
=========== =========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 7,842,380 7,953,685 7,999,174 7,969,314 7,381,783
=========== =========== =========== =========== ===========
Proforma amounts assuming the
new method of accounting is
applied retroactively
Net Income (loss) $ 188,885 $ 350,240 $ 1,132,441 $( 514,364)
----------- ----------- ----------- -----------
Basic income (loss)
per common share $ .02 $ .05 $ .15 $( .07)
=========== =========== =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-4
<PAGE>
CCAIR, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1997
AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
-------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1994 7,381,195 $73,812 $16,997,186 $(11,699,327) $ 5,371,671
Net loss ---- --- ---- ( 362,123) ( 362,123)
Exercise of options 19,500 195 22,962 ---- 23,157
--------- ------- ----------- ------------ ------------
Balances, June 30, 1995 7,400,695 $74,007 $17,020,148 $(12,061,450) $ 5,032,705
Net income ---- --- ---- 95,755 95,755
Issuance of stock to lessor 325,000 3,250 687,375 ---- 690,625
Exercise of options 15,000 150 17,661 ---- 17,811
--------- ------- ----------- ------------ ------------
Balances, June 30, 1996 7,740,695 $77,407 $17,725,184 $(11,965,695) $ 5,836,896
Net income ---- --- ---- 520,260 520,260
--------- ------- ----------- ------------- ------------
Balances, June 30, 1997 7,740,695 $77,407 $17,725,184 $(11,445,435) $ 6,357,156
Net loss ---- --- ---- (24,299,835) (24,299,835)
Exercise of options 50,000 500 $ 58,875 --- 59,375
Grant of compensatory
warrants (Note 11) ---- --- 240,417 --- 240,417
Issuance of stock in
private transaction 545,000 5,450 1,483,800 --- 1,489,250
--------- ------- ----------- ------------- ------------
Balances, December 31, 1997 8,335,695 $83,357 $19,508,276 $(35,745,270) $(16,153,637)
========= ======= =========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-5
<PAGE>
CCAIR, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED);
AND THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
------------------------
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED THE YEARS ENDED
----------------------------- ----------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1995
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(24,299,835) $ 375,812 $ 520,260 $ 95,755 $( 362,123)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Note discount amortization 31,197 53,129 76,561 201,503 328,238
Depreciation and amortization (1) 739,831 2,766,472 5,595,917 6,206,823 5,388,356
Lease expense in excess of
(less than) payments ( 237,957) ( 232,095) ( 487,801) 20,496 696,788
Loss (gain) on disposal of assets ( 19,332) 3,237 4,864 31,855 36,902
Lease termination charge 9,144,281 ---- ---- ---- ----
Write-off leasehold improvements 680,012 ---- ---- ---- ----
Write-off deferred credits (1,031,677) ---- ---- ---- ----
Adjust property, plant and
equipment to be disposed of
to net realizable value 1,882,913 ---- ---- ---- ----
Change in accounting principle 7,407,549 ---- ---- ---- ----
Compensatory warrants 240,417 ---- ---- ---- ----
Changes in certain assets
and liabilities:
Receivables, net 581,258 879,287 308,263 579,850 ( 272,290)
Inventories, net 367,513 ( 190,798) ( 323,923) 26,432 407,334
Accounts payable 2,608,485 ( 476,282) ( 25,593) 1,488,049 1,046,894
Accrued expenses ( 363,851) (1,052,007) 875,039 1,152,881 ( 562,790)
Other note payable ---- ---- ---- ---- ( 801,000)
Other changes, net ( 333,522) ( 308,361) 370,573 ( 889,841) 1,594,916
------------ ----------- ----------- ----------- -----------
Net cash provided (used)
by operating activities (2,602,718) 1,818,394 6,914,160 8,913,803 7,501,225
------------ ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ( 382,135) (3,105,913) (6,954,961) (6,169,304) (5,437,286)
Proceeds from sale of assets 20,351 2,400 3,400 4,250 44,539
------------ ----------- ----------- ----------- -----------
Net cash used in
investing activities ( 361,784) (3,103,513) (6,951,561) (6,165,054) (5,392,747)
------------ ----------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 1,548,625 ---- ---- 17,811 23,157
Issuance of notes and
long-term debt 361,645 110,000 573,434 530,281 620,211
Short-term borrowings, net (3,051,000) (3,023,000) 641,000 3,210,000 100,000
Reductions of notes and long-term
debt, including payments under
capital lease obligations ( 787,899) ( 851,556) (1,331,920) (1,504,171) (3,445,871)
------------ ----------- ----------- ----------- -----------
Net cash provided (used)
by financing activities (1,928,629) (3,764,556) ( 117,486) 2,253,921 (2,702,503)
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (4,893,131) (5,049,675) ( 154,887) 5,002,670 ( 594,025)
Cash and cash equivalents,
beginning of period 4,904,778 5,059,665 5,059,665 56,995 651,020
------------ ----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period $ 11,647 $ 9,990 $ 4,904,778 $ 5,059,665 $ 56,995
============ =========== =========== =========== ===========
</TABLE>
(1) Amortization of capitalized overhauls is included in Maintenance, Materials
and Repairs expense in the accompanying statements of operations for fiscal
years 1997, 1996 and 1995, and the six-months ended December 31, 1996.
The accompanying notes to financial statements are an integral part of
these financial statements.
F-6
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of these financial statements follows:
NATURE OF OPERATIONS AND BASIS OF PRESENTATION - CCAIR, Inc. is an
independent regional airline providing scheduled passenger service as
US Airways Express in the southeast United States. CCAIR, Inc. operates
within one industry (air transportation) and, accordingly, no segment
information is provided.
REVENUE RECOGNITION - Passenger revenue is recognized when service is
rendered. Public service revenue represents Federal subsidies received
for providing Essential Air Service to certain communities which
produce insufficient air traffic to profitably support such service.
Rates for such transportation services are determined under the Federal
Aviation Act by the Department of Transportation. Revenue is recognized
when service is rendered.
FREQUENT TRAVELER AWARDS - The Company does not sponsor its own
frequent traveler program. It does honor the US Airways program but
limits the available program seats. The Company's share of future
travel awards to be incurred, if any, is not determinable but usage of
such awards are believed by management to be immaterial.
CASH AND CASH EQUIVALENTS - Cash equivalents include all investments
with an original maturity of three months or less. Cash and cash
equivalents are principally held by one bank.
RECEIVABLES - The Company's air traffic receivables are settled through
the Airlines Clearing House and collected monthly, one month in
arrears.
INVENTORIES - Inventories consist principally of expendable spare parts
and parts held for resale, and are valued at the lower of cost or
market, determined on an average cost basis. Expendable parts are
recorded as inventory when purchased and charged to operations as used.
PREPAID EXPENSES - Prepaid expenses include prepaid insurance and
prepaid maintenance (see "Maintenance" section of Note 1 for additional
discussion).
DEPRECIATION AND AMORTIZATION - Property and equipment are depreciated
to estimated residual values on the straight-line method over their
economic useful service lives, ranging as follows:
Flight equipment 10 years
Ground and other property and equipment 3-10 years
Leasehold improvements and flight equipment held under capital leases
are amortized using the straight-line method over the estimated useful
service lives of the related assets, not exceeding the lease term. Cost
and accumulated depreciation of property retired or otherwise disposed
of are removed from the accounts, and the related gain or loss is
included in other income.
MAINTENANCE - With the exception of overhauls of engines, landing gears
and propellers, the Company expenses maintenance events when incurred.
The Company adopted the accrual method of accounting for major
overhauls effective July 1, 1997 (see Note 10). Under this method, the
Company accrues for current and future maintenance events on an ongoing
basis in amounts estimated as sufficient to cover the cost of the
overhaul when incurred. These accruals are estimated on a cost per
flight hour basis for all aircraft.
INCOME TAXES - Deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse (see Note 12).
F-7
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of the
Company's financial instruments approximates fair value at December 31,
1997, June 30, 1997 and 1996.
INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is
calculated according to the requirements of SFAS No. 128 and is based
on the weighted average number of common shares outstanding. Prior
years' earnings per share have been restated to conform with current
year presentation (see Note 4).
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain amounts included in prior years' financial
statements have been reclassified to conform with the December 31, 1997
presentation.
UNAUDITED STATEMENTS - The Statement of Operations and the Statement of
Cash Flows for the six-month period ended December 31, 1996 have been
included for comparative purposes. These statements are unaudited and
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of results under generally accepted
accounting principles.
2. PETITION FOR RELIEF UNDER CHAPTER 11
THE FILING - As a result of cash flow difficulties and the need for
protection based upon its defaults under certain leasing and financing
arrangements, the Company filed for Chapter 11 bankruptcy on July 5,
1990.
THE PLAN OF REORGANIZATION (THE "PLAN")
Under Chapter 11, certain claims against the Debtor in existence prior
to the filing of the petition for relief under the Federal Bankruptcy
laws are stayed while the Debtor continues business operations as
Debtor-in-Possession. Additional claims arose subsequent to the filing
date through September 3, 1991, the Plan's effective date. Such claims
resulted from rejection of executory contracts, including leases, and
from the determination by the Bankruptcy Court (or agreed to by the
parties-in-interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against the Debtor's assets ("Secured
Claims") also are stayed, although holders of such claims have the
right to seek relief from the stay. Secured claims are collateralized
primarily by liens on the Company's property and equipment.
The Company received approval from the Bankruptcy Court (the "Court")
to pay or otherwise honor certain of its prepetition obligations,
including employee wages, insurance, and payables to US Airways in the
normal course of business. The Company determined that there was
insufficient collateral to cover the interest portion of scheduled
payments on its prepetition debt obligations and discontinued accruing
interest on these obligations. Contractual interest on those
prepetition obligations was approximately $847,000, which was $739,000
in excess of reported interest expense in 1991. Chapter 11 provides for
reorganization of the Company's debt and equity structure and allows
the business to continue operations. Subsequent to filing Chapter 11,
the Company engaged in negotiations with its creditors and other
parties-in-interest toward achieving a plan of reorganization and a
settlement of outstanding claims against the Company. As a result of
these negotiations, the Company filed a Plan of Reorganization on April
10, 1991, a Revised Plan of Reorganization on May 3, 1991 and a Revised
and Amended Plan of Reorganization on June 12, 1991 (the "Plan") with
the Court. On July 19, 1991, the creditors and the Court confirmed the
Plan effective September 3, 1991.
F-8
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
In the process of developing the Plan intended to return the Company to
profitable operations, management evaluated its aircraft fleet, route
system, and relationship with US Airways, Inc. Under the Bankruptcy
Code, the Company elected to assume or reject certain aircraft leases,
real and personal property leases, service contracts and other
executory prepetition contracts subject to the Court's review. During
1991, the Company returned three (3) owned aircraft and twelve (12)
leased aircraft, although subsequently the Company accepted and took
back four (4) of the leased aircraft.
DISTRIBUTION TO CREDITORS UNDER THE PLAN - The provisions of the Plan
divide claims and interests into fourteen (14) classes and contain
various repayment provisions and compromises of allowed claims. The
principal Plan provisions vary depending on the class of claims and are
as follows:
1. Payment of ten (10) to twenty (20) percent of allowed claims
at the time of the Plan's effective date, with the remainder
of such claims paid in equal annual installments over up to
eight (8) years;
2. Return of aircraft, parts or equipment in satisfaction of
allowed claims or in accordance with settlement agreements;
3. Release of certain liens on aircraft parts and equipment;
4. Issuance of common shares in payment of allowed claims;
5. Compromise of claims for prepetition and postpetition accrued
aircraft lease payments; assumption of certain aircraft
leases, payment of accrued prepetition and postpetition lease
payments on rejected aircraft leases and settlement payments
at the effective date as well as in future equal annual
installments over up to eight (8) years (see Note 8).
All remaining Chapter 11 obligations are unsecured and are due in
annual installments of $166,001. These obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
31, 1997 30, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
Notes payable, noninterest-bearing,
to unsecured vendors in annual
installments through 1999 $296,393 $426,394 $533,170
Discount at 15% 35,608 71,608 130,833
-------- -------- --------
Payments due 332,001 498,002 664,003
Less current portion 166,001 166,001 166,001
-------- -------- --------
Long-term portion of payments due $166,000 $332,001 $498,002
-------- -------- --------
</TABLE>
3. US AIRWAYS AGREEMENT
The Company and US Airways Group, Inc. ("US Airways"), an unaffiliated
company, have entered into an agreement (the "Agreement") expiring on
October 31, 1998, whereby the Company provides regional air service on
air routes of US Airways. While renewal of the Agreement is not
automatic, the Company is confident that such renewal will occur.
During the last nine months the Company has consistently exceeded US
Airways' operating performance goals in the areas of on-time arrivals
and departures, maintenance reliability and controllable flight
completion percentage, and as such has been assured by US Airways that
the Agreement will be extended. The majority of passenger revenue is
generated from the Agreement through joint passenger fares and division
of revenue with US Airways. The Company receives use of various US
Airways service marks including use of the designator code and US
Airways logo and color patterns. Under the contract, the Company is
obligated to pay US Airways for reservation services and various ground
support services (exclusive of aircraft fueling).
F-9
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The Company is required to maintain certain flight completion factors
and to meet other conditions as specified in the Agreement. As of
December 31, 1997, the Company is in compliance with all requirements.
Should an event of default occur, the Agreement provides that US
Airways has the right to terminate the Agreement upon ten (10) days'
written notice. The Agreement also provides that it may be terminated
by either party upon 180 days' notice.
The Company is responsible for all ground operations at Concourse D of
the Charlotte/Douglas International Airport. Pursuant to an agreement
with US Airways, the Company receives reimbursement for these services
on a monthly basis. The reimbursement is currently $389,000 per month.
This amount offsets expenses related to the operation of Concourse D
and is recorded as a reduction of ground operations expense for
financial reporting purposes. The Company recorded total reimbursements
of $2,223,000 for the 1997 transition period and $2,122,000 in the
comparative period in 1996.
A summary of other transactions and year-end account balances with US
Airways and subsidiaries is as follows:
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE JUNE
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service fees included in ground
operations and advertising,
promotions and commissions expense $3,340,619 $6,516,445 $5,550,962 $ 4,839,916
Passenger revenue
receivable 4,076,448 4,897,651 4,992,157 4,878,676
Amounts payable 1,084,119 1,174,114 1,351,120 1,660,404
</TABLE>
4. EARNINGS PER SHARE UNDER SFAS NO. 128
In February, 1997 the FASB issued SFAS No. 128, Earnings Per Share.
This statement establishes standards for computing and presenting EPS.
It requires presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires reconciliation of the computation of basic EPS to diluted EPS.
Basic EPS is computed by dividing income available to shareholders by
the weighted average number of shares outstanding for the period.
Diluted EPS gives effect to all dilutive potential common shares that
were outstanding during the period. Prior period EPS has been restated
to conform to the new statement. This statement was adopted by the
Company beginning October 1, 1997.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED FISCAL YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
--------------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income (loss) from operations $(11,318,019) 7,842,380 $(1.44) $520,260 7,740,654 $ 0.07
Cumulative effect of
accounting change (12,981,816) 7,842,380 (1.66) --- 7,740,654 --
------------- --------- ------- -------- --------- ----
Net income (loss) $(24,299,835) 7,842,380 $(3.10) $520,260 7,740,654 $ 0.07
Effect of dilutive securities
(options and warrants) 1 --- 258,520
--------- --------
Diluted earnings per share
Income (loss) from operations $(11,318,019) 7,842,380 $(1.44) $520,260 7,999,174 $ 0.07
Cumulative effect of
accounting change (12,981,816) 7,842,380 (1.66) --- 7,999,174 --
------------- --------- ------- -------- --------- ----
Net income (loss) $(24,299,835) 7,842,380 $(3.10) $520,260 7,999,174 $ 0.07
========= =========
</TABLE>
F-10
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
--------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Net income (loss) $ 95,755 7,565,421 $ 0.01 $(362,123) 7,381,783 $(0.05)
Effect of dilutive securities
(options and warrants) 1 403,893 ---
--------- ----------
Diluted earnings per share
Net income (loss) $ 95,755 7,969,314 $ 0.01 $(362,123) 7,381,783 $(0.05)
========= =========
</TABLE>
1 The effect of including stock options and warrants in the 1997 transition
period and 1995 would be antidilutive and therefore is excluded from the diluted
earnings per share calculation.
5. ACCRUED EXPENSES
Accrued expenses by major classification are as follows:
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
1997 1997 1996
---------- ---------- -------
<S> <C> <C> <C>
Salaries and wages, vacation pay
and related payroll taxes $2,226,404 $2,457,895 $2,505,445
Accrued ground and passenger charges 1,428,812 1,617,409 1,677,384
Accrued property and excise taxes 683,627 310,124 330,423
Accrued leases 520,621 1,816,233 898,233
Accrued repair expense 883,639 --- ---
Other accrued expenses 239,788 114,579 29,716
---------- ---------- ----------
$5,982,891 $6,316,240 $5,441,201
========== ========== ==========
</TABLE>
6. SHORT-TERM BORROWINGS
In February, 1995, the Company obtained a line of credit (the "Line of
Credit") in an amount not to exceed $2,500,000 from British Aerospace
Asset Management ("BAAM"), formerly JSX Capital Corporation, with
increases to $3,000,000 in July, 1996 and to $4,000,000 in July, 1997.
BAAM is an affiliate of Jet Acceptance Corporation, the leasing company
for the Company's fleet of Jetstream aircraft, and British Aerospace
Holdings, Inc., the company that had previously collateralized the
Company's line of credit from NationsBank, N.A. through a loan purchase
agreement.
The Line of Credit permits the Company to borrow up to 70% of a
borrowing base, consisting of the Company's transportation and
nontransportation charges to Airlines Clearing House, Inc. or such
greater amount as BAAM shall determine, but in no event more than $4.0
million. The Line of Credit is secured by all of the Company's accounts
receivable, bears interest at prime + 2% and is scheduled to terminate
on July 31, 1998. BAAM has pledged to renew the Line for successive
one-year periods through December 31, 2001. Under the provisions of the
Line of Credit, the Company must comply with certain restrictive
operational covenants. As of December 31, 1997, the Company is in
compliance with all covenants. Average amounts outstanding under the
credit line were approximately $3,259,000, $2,307,000 and $1,825,000
during the 1997 transition period and the 1997 and 1996 fiscal years,
respectively. There was $3,000,000 and $2,500,000 outstanding under the
Line of Credit at June 30, 1997 and 1996, respectively. There was not
an outstanding balance as of December 31, 1997.
In November, 1996 the Company secured a line of credit with its primary
banking facility, Centura Bank. This was a $400,000 revolving line of
credit, with seasonal increases to $800,000 (not to exceed a total
advance of all credit facilities on Airlines Clearing House net
receivables). This line is secured by the titles to certain ground
equipment and vehicles, bears interest at prime plus 2%, and expires on
June 30, 1998. There was $400,000 and $751,000 outstanding under this
line as of December 31, 1997 and June 30, 1997, respectively, with an
average amount outstanding of $305,473 and $275,000, respectively.
F-11
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
During the 1997 transition period and during the 1997 and 1996 fiscal
years, the Company obtained short-term loans bearing interest at 10%
annually from certain directors, officers and related parties.
Individual amounts borrowed under these loans ranged from $45,000 to
$350,000 during the 1997 transition period; from $44,000 to $400,000
during fiscal 1997; and $50,000 to $400,000 during fiscal 1996. The
aggregate maximum and average amounts outstanding under these loans
were $500,000 and $129,000 during the 1997 transition period; $810,000
and $79,000 during fiscal 1997; and $810,000 and $119,000 during fiscal
1996. Amounts outstanding under these loans as of December 31 and June
30, 1997 and June 30, 1996 were $500,000, $200,000 and $810,000,
respectively. In connection with these loans, the Company issued to the
lending parties options and warrants to purchase 23,550, 55,225 and
59,625 shares of the Company's common stock during the respective
reporting periods (see Note 13).
7. FLEET RESTRUCTURING AND OTHER NONRECURRING CHARGES
As part of the Company's restructuring plans, the Company entered into
a transaction with Lynrise Air Lease, Inc. ("Lynrise") to return the
Company's nine leased Shorts aircraft to Lynrise as lessor. Pursuant to
this agreement, the aircraft were returned between October, 1997 and
January, 1998. In return for the early termination of the aircraft
leases, the Company issued a promissory note in the amount of
$9,725,000. The promissory note was issued in contemplation of the
Company's obligations to lessor, which consisted of: lease termination
and aircraft remarketing provisions - $6.1 million, previously recorded
liabilities in the form of accrued rent and notes payable - $1.8
million and return condition obligations - $1.8 million. This note is
due on August 31, 1998 and bears interest at 7% annually. Before August
31, 1998 the Company may exercise its option issued in conjunction with
the note, whereby it must pay $1,675,000 in cash or stock and $130,000
in aircraft parts to Lynrise. Upon the option's exercise, the remainder
of the note, $7,920,000, would be converted to a subordinated note. See
footnote 7 for further description of the subordinated note.
Under an accord reached with BAAM in November, 1997 the Company agreed
to replace its fourteen Jetstream 31 aircraft with twenty Jetstream
Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven
years, and the additional six Jetstream Super 31 aircraft until
December 31, 1998. The last Jetstream Super 31 aircraft is anticipated
to be operational in the Company's system by the end of April, 1998.
The Jetstream 31 aircraft are expected to be returned to the lessor in
the second quarter of 1998. The Company estimates that return
conditions on these aircraft will approximate $50,000 per aircraft.
These costs have been provided for as restructuring charges in the 1997
transition period.
As a result of the retirement of the Shorts and Jetstream 31 aircraft,
the Company recorded charges to reduce unusable spare parts inventory
to resale value, write off leasehold improvements and accrue for
aircraft return conditions, transition rents and pilot
requalifications. In addition, the Company reclassified retired
aircraft carrying charges to fleet restructuring expense. The following
table summarizes the restructuring charges:
<TABLE>
<CAPTION>
<S> <C>
Revaluation and writedown of spare parts and other
inventory to net resale value $ 2,327,000
Leasehold improvements written off 680,000
Aircraft lease termination settlement 6,115,000
Return condition requirements 3,246,000
Maintenance contract termination 2,483,000
Pilot qualifications 198,000
Transition rents 280,000
Retired aircraft carrying charges 675,000
Consulting fees 241,000
Writeoff of deferred credits associated with aircraft leases (1,032,000)
Aircraft component overhaul accrual write-off (5,332,000)
-----------
$ 9,881,000
===========
</TABLE>
F-12
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
8. LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<CAPTION>
Long-term debt and notes payable are as follows:
DECEMBER 31 JUNE 30 JUNE 30
1997 1997 1996
---------- ---------- -------
<S> <C> <C> <C>
Note payable to aircraft manufacturer due in monthly
installments of $22,625 through September 1, 1999,
including interest at 10% before refinancing at
December 31, 1997 $ ---- $ 598,370 $ 750,700
Note payable to former aircraft lessor issued in
conjunction with lease termination - due August
31, 1998, at which time $7,920,000 is expected
to be refinanced $9,725,012 ---- ----
Note payable to aircraft manufacturer due in monthly
installments of $17,727 through December 31, 1999,
including interest at 10%, less $46,844 discount at
15% at December 31, 1997, $56,530 at June 30, 1997
and $73,866 at June 30, 1996 337,319 426,008 564,570
Notes payable, noninterest bearing, to unsecured
vendors in annual installments through 1999, less $35,608
discount at 15% at December 31, 1997 and $71,608 and
$130,833 at June 30, 1997 and 1996, respectively (Note 2) 296,393 426,394 533,170
Other notes payable 424,757 434,321 377,326
---------- ---------- ----------
10,783,481 1,885,093 2,225,766
Less current maturities 2,490,334 962,748 854,438
Less amounts expected to be refinanced 7,920,000 ---- ----
---------- ---------- -------
$ 373,147 $ 922,345 $1,371,328
========== ========== ==========
</TABLE>
Principal maturities of long-term debt and notes payable are
$10,410,334 in 1998; $369,134 in 1999, and $4,013 in 2000.
In September, 1997 management approved the restructuring plan related
to the disposition of the Shorts aircraft. In connection with this
restructuring, the Company entered into a lease termination agreement
with the lessor of its Shorts aircraft (see Note 7). To consummate the
agreement, the Company issued a promissory note in the amount of
$9,725,000, due August 31, 1998. If the Company exercises its option
issued in conjunction with the promissory note by paying $1,805,000 in
cash, stock and aircraft parts, the remainder of the promissory note
will convert to a subordinated note. This note (the Convertible
Subordinated Note) is convertible to common stock at $7.50 per share,
bears interest at 7% annually and requires principal payments of 5% of
the original note amount each June and December, plus accrued interest,
beginning in 1999. The final payment under the Convertible Subordinated
Note is due in December, 2004. Principal payments may be paid in cash
or stock, at the Company's option. The Company intends to exercise the
option issued in conjunction with the promissory note in 1998. Until
this exercise takes place, the portion of the promissory note expected
to be converted to long-term in 1998 is classified on the balance sheet
as a current liability - "Note payable expected to be refinanced".
If the Convertible Subordinated Note is issued, the principal
maturities of long-term debt and notes payable are: $2,295,000 in 1998,
$1,381,000 in 1999, $796,000 in 2000, $792,000 in 2001, $792,000 in
2002 and $4,727,000 thereafter.
A portion of the promissory note issued represents the refinancing of a
previous note payable to Shorts. In September, 1995 the Company reached
an agreement with Shorts to restructure the payment of the entire
remaining amount due to Shorts under the bankruptcy plan (approximately
$466,000, net of $43,000 discount at 15%) as well as the balance of a
note issued on March 21, 1995 ($378,500). This note was payable in
forty-eight equal monthly installments of $22,625, consisting of
principal and interest, beginning on October 1, 1995. Before
refinancing in the 1997 transition period, $580,731 was outstanding
under this note.
F-13
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
In September, 1995, the Company reached an agreement with JACO to
restructure the payment of the entire remaining amount due to JACO
under the bankruptcy plan (approximately $1,232,000, net of $402,000
discount at 15% as of June 30, 1995). Under this agreement, the Company
issued a promissory note to JACO in the principal amount of $676,000,
payable in forty-eight equal monthly installments of $17,727,
consisting of principal and interest, beginning on January 30, 1996.
Interest at 10% per annum accrued beginning on September 1, 1995.
Additionally, the remaining balance due under the bankruptcy plan,
subsequent to the issuance of the above promissory note, was satisfied
with the issuance of 325,000 shares of the Company's common stock. At
December 31, 1997, $337,319 was outstanding on this note.
9. LEASE TRANSACTIONS
The Company operates using significant amounts of leased property,
including aircraft, equipment and facilities. Leases generally are on a
long-term, net rent basis whereby taxes, insurance and maintenance are
paid by the Company. Rental expenses incurred under all operating
leases totaled approximately $4,846,000, $11,051,000, $11,200,000, and
$10,934,000 for the six months ended December 31, 1997, and the years
ended June 30, 1997, 1996 and 1995, respectively. Monthly rentals under
one operating lease are required to be paid in full each month at the
time receivables are collected from the Airlines Clearing House. Flight
and ground equipment with a capitalized cost of approximately
$3,287,000 and $4,498,000 is included in property and equipment at
December 31, 1997 and both June 30, 1997 and 1996, respectively, less
accumulated amortization at December 31, 1997, June 30, 1997 and 1996
of approximately $1,516,000, $2,831,000 and $2,485,000, respectively.
As part of the lease termination agreement with Shorts, lease payments
were reduced by $14,000 per aircraft per month on the Shorts aircraft
from August, 1997 until the return of the aircraft. The lease payments
were recorded as rent expense until the aircraft was removed from
scheduled service, and recorded as restructuring and other nonrecurring
charges after the aircraft was removed from service until the aircraft
met return conditions and was accepted by Shorts. Lease payments on the
shorts aircraft had previously been renegotiated, effective October 1,
1994. This revised agreement provided for reductions in lease payments
aggregating approximately $94,000 per month for the remainder of the
lease term.
Under an accord reached with BAAM in November, 1997 the Company agreed
to replace its fourteen Jetstream 31 aircraft with twenty Jetstream
Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven
years, and the additional six Jetstream Super 31 aircraft until
December 31, 1998. The terminated leases on the Jetstream 31 aircraft
would have expired on December 31, 2001. This new agreement with BAAM
provides for reductions in lease payments of approximately $140,000 per
month on the fourteen long-term Jetstream Super 31 leases as compared
to the predecessor Jetstream 31 aircraft leases, as previously revised.
The last Jetstream Super 31 aircraft is anticipated to be operational
in the Company's system by the end of April, 1998; the first went into
service on December 29, 1997.
Previously, the Company entered into a revised agreement with Jet
Acceptance Corporation ("JACO"), an affiliate of BAAM, effective
September 1, 1994, for the Company's twelve Jetstream 31 aircraft. This
revised agreement provided for reductions in lease payments aggregating
approximately $98,000 per month through December 31, 1995. In
September, 1995, JACO agreed to extend the lease reductions for the
remainder of the lease term, in return for the Company's entering into
leases on two additional Jetstream 31 aircraft. The Company accounted
for the modifications to the JACO lease agreements as they occurred. As
a result, the Company recorded a deferred credit of approximately
$906,000, representing the excess of rent expense recorded on a
straight line basis over actual payments made from September, 1994
through September, 1995. This amount reduced lease expense over the
remaining term of the leases. Upon the termination of the Jetstream
leases in the 1997 transition period, the remaining unamortized
deferred credit amount of $351,000 was eliminated.
F-14
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The Company leases four Dash 8 aircraft from CIT Leasing Corporation
("CIT"). In November, 1994, CIT acquired these aircraft from Mellon
Financial Services Corporation ("Mellon") after the Company failed to
meet certain payment obligations totaling approximately $585,000 under
aircraft lease agreements with Mellon, resulting in cancellation of the
related agreements. The Company subsequently signed new lease
agreements with CIT, which expire in June, 2007, resulting in an annual
reduction of approximately $516,000 in aircraft rental payments. As a
result, during the second quarter of fiscal 1995, the Company reversed
the $585,000 of accrued rental payments previously due to Mellon as a
reduction of flight operations expense.
Future minimum lease payments required under capital and noncancelable
operating leases with terms of greater than one year, under these new
lease agreements, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
Years Ended December 31: LEASES LEASES
---------- ---------
<S> <C> <C> <C>
1998 392,992 6,510,000
1999 368,811 5,520,000
2000 365,470 5,520,000
2001 374,579 5,520,000
2002 335,875 5,520,000
Thereafter 1,533,601 18,403,636
---------- ------------
Total lease payments 3,371,328 $ 46,993,636
============
Less amounts representing interest 872,904
----------
2,498,424
Less current obligations 229,194
$2,269,230
</TABLE>
10. CHANGE IN ACCOUNTING PRINCIPLE
Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the
deferral method to the accrual method. Under the method previously
utilized, the Company capitalized these expenditures and amortized them
over the estimated service life of the overhaul. The change in
accounting principle results in accrual for future expenditures for
overhauls based on flight hours incurred each month, at a rate
commensurate with the future expected cost of overhaul. Implementation
of the change in principle necessitated the write-off of previously
capitalized items, along with the related accumulated amortization, as
of July 1, 1997. The aggregate time since last overhaul was utilized to
determine the beginning accrued overhaul expense at July 1, 1997. This
calculation was performed for each aircraft type. The cumulative effect
of these transactions was a decrease in income of $12,982,000. The
Company believes the newly implemented accounting principle more
closely emulates its lease agreements and contracts for repair and
maintenance of these components.
11. RELATED-PARTY TRANSACTIONS
On June 30, 1995, the Company entered into a sale and leaseback
transaction with Adallipa Partners ("the Partnership"), a North
Carolina partnership acting through its agent, CLG, Inc., whereby the
Company sold and simultaneously leased back certain Shorts and
Jetstream 31 aircraft engines. The Partnership was formed June 30,
1995, by certain members of the Company's Board of Directors, for the
purpose of entering into the sale and leaseback transaction. During
fiscal 1997 CLG, Inc. was purchased by Centura Bank (the Company's
primary banking facility) from a member of the Company's Board of
Directors. The Company received $1,000,000 in consideration for the
engines in July, 1995. Initially, the Company recorded a deferred gain
of $70,000, in connection with the sale and leaseback transaction. The
unamortized deferred gain was approximately $17,600 as of December 31,
1997; this balance was eliminated as part of the aircraft fleet
restructuring charges. To induce the Partnership to enter into this
transaction, the Company issued to the Partnership a warrant to
purchase 250,000 shares of the Company's common stock (see Note 13).
F-15
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The Company paid fees of $6,000, $58,000, $27,000 and $62,000 in the
1997 transition period and in fiscal years 1997, 1996 and 1995,
respectively, to a consulting firm which is fifty-percent owned by a
member of the Board of Directors. Additionally, the Company has pledged
to issue 150,000 warrants to purchase shares of the Company's common
stock in return for fleet restructuring consulting services to a firm
for which a member of the Board of Directors is the General Partner.
The Company recorded an expense in the transition period of $241,000
related to the compensatory value of these warrants.
12. INCOME TAXES
The Company's effective tax rate on income before income taxes differs
from the U.S. statutory federal tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
DECEMBER ---------------------------------
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income tax expense (benefit) at statutory rate (35.0)% 35.0 % 35.0 % (35.0)%
NOL carryforwards recognized/not
currently recognizable 35.0 (35.0) (35.0) 35.0
Impact of alternative minimum tax -0- 21.3 15.9 -0-
-------- ------- ------- ------
Effective income tax rate -0- % 21.3 % 15.9 % -0-%
======== ======= ======= =======
</TABLE>
The provision (benefit) for income taxes for the six-month period ended
December 31, 1997 and the years ended June 30, 1997, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
DECEMBER ---------------------------------------------
Provision for income taxes: 1997 1997 1996 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Current
Federal $ --- $ 140,928 $ 18,100 $ ---
State --- --- --- ---
------------ ------------- ------------ -------------
--- 140,928 18,100 ---
------------ ------------- ------------ -------------
Deferred
Federal $ --- $ --- $ --- $ ---
State --- --- --- ---
------------ ------------- ------------ -------------
--- --- --- ---
------------ ------------- ------------ -------------
Total provision for income taxes $ --- $ 140,928 $ 18,100 $ ---
============ ============= ============ =============
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1997, June 30, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
JUNE 30
DECEMBER ---------------------------
Deferred tax assets: 1997 1997 1996
------------- -------------- ------------
<S> <C> <C> <C>
Receivables $ 39,800 $ 45,500 $ 20,000
Inventories 163,100 186,400 186,000
Accrued expenses 629,200 336,300 319,000
Rent obligations ( 270,800) ( 100,500) 32,000
Loss on impairment of assets 2,901,500 -0- -0-
Restructuring fees 2,473,000 -0- -0-
Net operating loss carryforwards 2,708,000 2,343,800 3,111,000
Alternative minimum tax carryforward 157,000 108,800 18,100
Investment tax credit carryforwards 25,500 60,000 60,000
Valuation allowance ( 7,289,000) ( 481,100) (2,362,100)
------------- -------------- ------------
Total deferred tax asset 1,537,300 2,499,200 1,384,000
Deferred tax liabilities:
Property and equipment ( 1,537,300) (2,499,200) (1,384,000)
------------- -------------- ------------
Net deferred tax $ -0- $ -0- $ -0-
============= ============== ============
</TABLE>
F-16
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The net current and noncurrent components of deferred income taxes
reflected in the accompanying balance sheets as of December 31, 1997,
June 30, 1997 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER JUNE JUNE
1997 1997 1996
-------------- -------------- -----------
<S> <C> <C> <C>
Net current deferred
tax asset $ 1,246,478 $ 467,700 $ 557,000
Net noncurrent deferred
tax liability ( 1,246,478) ( 467,700) ( 557,000)
----------- -----------
Net deferred
tax liability $ --- $ --- $ ---
============ =========== ===========
</TABLE>
At December 31, 1997, the Company had approximately $10,034,000 of U.
S. Federal regular tax operating loss carryforwards available to offset
future U. S. Federal taxable income, which begin expiring on June 30,
2005. A valuation allowance has been recognized to offset the related
deferred tax assets due to the uncertainty of realizing the benefit of
the loss carryforwards. The Company has $25,500 of investment tax
credit carryforwards that expire beginning December 31, 1999 and
$157,000 of alternative minimum tax credit carryforwards which are
available to reduce future federal regular income taxes over an
indefinite period.
13. STOCK OPTIONS
The Company has adopted two stock option plans for incentive
compensation of officers and directors. The Fifth Amended and Restated
Stock Option Plan (the "Stock Option Plan") provides for the grant of
incentive or nonqualified stock options for officers, key employees and
directors. The Directors' Compensation Stock Option Plan (the
"Directors' Plan") provides for the annual grant of stock options in
lieu of fees for the Company's directors. The exercise price for
options under either plan is the fair market value on the date of
grant. Options granted under either plan may be exercisable over a
period not to exceed ten years. As of December 31, 1997 65,000 shares
are reserved for future option grants under the Directors' Plan; 24,925
are shares available under the Stock Option Plan.
Warrants to purchase shares of common stock have been issued to
directors from time to time as additional consideration in certain
lending transactions. As discussed in Note 5, warrants to purchase
250,000 shares of common stock were issued in connection with a
sale-and-leaseback transaction with four directors in June, 1995. Since
that time, directors have provided certain short-term loans as needed
by the Company to meet cash flow deficits under resolution adopted by
the Board of Directors, warrants to purchase 2,500 shares of common
stock were granted for each $100,000 in loan amount. One director has
elected to receive options under the Stock Option Plan instead of
warrants for loans made by that director to the Company. The exercise
price for all warrants has been the fair market value on the date of
issuance of the warrant. The outstanding warrants have either a
five-year or ten-year exercise period. Upon consummation of the
transaction concerning the Shorts aircraft discussed in Note 11, the
Company will issue Barlow Partners, L.P. a warrant to purchase 150,000
shares of the Company's common stock.
As of December 31, 1997, 1,427,743 shares of common stock may be issued
upon the exercise of currently outstanding stock options and warrants.
The Company applies Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for its stock
option plans. Accordingly, no compensation expense has been recognized
for these plans. Had compensation expense for the Company's stock
option plans been determined based on the fair value at the grant dates
for awards under these plans consistent with SFAS No. 123, Accounting
for Stock- Based Compensation, the Company's net earnings would have
decreased by approximately $94,426 ($0.01 per share), $65,444 ($0.01
per share) and $36,890 (less than $0.01 per share) in the 1997
transition period and fiscal years 1997 and 1996, respectively.
F-17
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The fair value of each option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 6.2% in the
1997 transition period and in fiscal 1997 and 6.1% in fiscal 1996, no
dividends paid, expected life of seven years for 1997 and 1996, and
volatility of 62% for 1997 and 70% for 1996. The weighted-average fair
value of an option granted during 1997 and 1996 was $1.05 and $1.43,
respectively.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1997 and June 30, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
==========================================================================================
OPTION PRICE WEIGHTED AVERAGE
# OF SHARES RANGE PER SHARE EXERCISE PRICE
==========================================================================================
<S> <C> <C>
June 30, 1994 666,668 $ .50 - $4.50 N/A
- ------------------------------------------------------------------------------------------
Granted 943,425 1.00 - 3.25
- -----------------------------------------------------------------
Exercised (19,500) 1.19 - 4.50
- -----------------------------------------------------------------
Cancelled (625,000) 1.81 - 4.50
==========================================================================================
June 30, 1995 965,593 $ .50 - $3.25 N/A
- ------------------------------------------------------------------------------------------
Granted 179,375 1.81 - 2.38
- -----------------------------------------------------------------
Exercised (15,000) 1.19
- -----------------------------------------------------------------
Cancelled (5,000) 1.81
==========================================================================================
June 30, 1996 1,124,968 $ .50 - $3.25 $1.78
- ------------------------------------------------------------------------------------------
Granted 185,225 1.44 - 2.06 1.57
- ------------------------------------------------------------------------------------------
Cancelled (6,000) 1.44 - 2.00 1.19
==========================================================================================
June 30, 1997 1,304,193 $ .50 - $3.25 $1.75
==========================================================================================
Granted 173,550 2.67 - 3.50 3.01
==========================================================================================
Exercised (50,000) 1.19 1.19
==========================================================================================
December 31, 1997 1,427,743 $ .50 - $3.50 $1.92
==========================================================================================
</TABLE>
Stock options and warrants exercisable were 1,274,000, 1,291,000, 1,120,000 and
929,000 at December 31, 1997 and June 30, 1997, 1996 and 1995, respectively.
F-18
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
Summary information regarding options and warrants for the Company's stock as of
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
========================================================================================================================
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE PRICE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding $ .50 41,668 2.91 $ .50
1.00 - 1.75 746,000 7.34 1.28
1.81 - 2.38 209,025 8.03 1.96
2.66 - 3.50 431,050 4.41 3.09
- ------------------------------------------------------------------------------------------------------------------------
Total options $ .50 - 3.50 1,427,743 6.44 1.92
outstanding
- ------------------------------------------------------------------------------------------------------------------------
Options exercisable $ .50 41,668 2.91 $ .50
1.00 - 1.75 746,000 7.34 1.28
1.81 - 2.38 209,025 8.03 1.96
2.66 - 3.50 277,500 1.44 3.15
- ------------------------------------------------------------------------------------------------------------------------
Total options $ .50 - 3.50 1,274,193 6.02 1.79
exercisable
========================================================================================================================
</TABLE>
During fiscal 1995, the Company cancelled 533,000 outstanding options
to purchase shares of the Company's common stock, which options had
been previously granted under the Stock Option Plan. Simultaneously,
the Company granted 533,000 additional options at an exercise price
equal to the market price on the date of grant, subject to terms as
defined in the Stock Option Plan.
During the 1997 transition period and fiscal years 1997, 1996 and 1995,
in connection with the short-term loans from officers and directors
discussed in Note 6, the Company issued to certain officers options to
purchase 3,550, 12,725, 17,125 and 22,125 shares, respectively, of the
Company's common stock, at an exercise price equal to the market price
on the date of grant. The Company also issued to certain directors
warrants to purchase 20,000, 42,500, 52,500 and 56,250 shares of the
Company's common stock, at an exercise price equal to market price on
the date of grant during the 1997 transition period and fiscal 1997,
1996 and 1995, respectively.
On June 30, 1995, in connection with the sale and leaseback transaction
discussed in Note 11, the Company issued to the Partnership a warrant
to purchase 250,000 shares of the Company's common stock, at an issue
price equal to the fair market value of the Company's common stock on
June 30, 1995. The warrant carries a three-year term for exercise.
14. COMMITMENTS AND CONTINGENCIES
The Company has been engaged with representatives of and counsel for
Her Majesty the Queen in Right of Canada as Represented by the Ministry
of Industry, Science and Technology (the "Ministry") in discussions and
negotiations regarding the reimbursement obligation, if any, of the
Company to the Ministry arising from the change in lessor for the four
(4) de Havilland DHC-8-102 aircraft (the "Aircraft") leased by the
Company. The Ministry has informed the Company that the new lessor, CIT
Group/Capital Equipment Financing, Inc. ("CIT") made a claim under
certain economic development insurance provided by the Ministry to the
former lessor, Mellon Financial Services Corporation #3 ("Mellon"),
when the Company entered into new lease agreements with CIT for the
Aircraft in December of 1994. The Ministry asserts that it has a right
to reimbursement in the amount of $16,996,995 but has proposed that the
Company agree to pay $6,000,000 secured by a pledge of an undetermined
number of shares of the Company's common stock.
F-19
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The Company does not have an agreement with the Ministry regarding the
economic development insurance and has not acknowledged any obligation
to reimburse the Ministry for claims paid under the original leases at
the same time that the Company entered into new leases with CIT. The
Company has made certain proposals for future consideration to resolve
the Ministry's claim. The Company has continued its negotiations with
the Ministry. These negotiations have involved the following
representatives of the Company discussing the issues with the Ministry:
management, a former member of the Board of Directors and outside
counsel. As late as March, 1998 the Company and the Ministry have
discussed utilizing various dispute resolution mechanisms mediation,
arbitration or third party review. It is uncertain whether the Company
and the Ministry will reach an agreement on future considerations.
Based on information presently available to CCAIR, management believes
that the ultimate outcome of this matter will not have a material
impact on the financial condition, results of operations or cash flows
of the Company.
The Company is subject to the regulatory authority of the Federal
Aviation Administration and the Department of Transportation. These
agencies require compliance with their standards and conduct safety and
compliance audits. Violations, if any, of these regulations subject the
Company to fines or sanctions. As of December 31, 1997 the FAA has
proposed fines of $94,500 related to alleged violations of certain
regulations. The Company intends to contest these fines. The Company is
also subject to other claims arising in the ordinary course of
business. In the opinion of management, the outcome of these matters
will not have a material adverse impact on the Company's financial
condition, results of operations or cash flows.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows include interest paid of approximately $451,000, $723,000,
$804,000 and $627,000 in the 1997 transition period and in the years
ended June 30, 1997, 1996 and 1995, respectively. Income taxes paid,
net of refunds, totaled $97,000 in the year ended June 30, 1997.
Noncash transactions include:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED YEAR ENDED JUNE 30
DECEMBER 31, ----------------------------------
1997 1997 1996 1995
----------------- -------- ---------- -------
<S> <C> <C> <C> <C>
Sale and leaseback of engines, for
which consideration is recorded
as other receivable ---- ---- ---- $1,000,000
Issuance of promissory note for
previously due lease payments
and bankruptcy plan installments ---- ---- ---- 573,200
Issuance of 325,000 shares and
650,000 shares of Common Stock
during fiscal 1996 with proceeds
applied to annual bankruptcy payments ---- ---- $ 690,625 ----
</TABLE>
16. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents selected quarterly unaudited financial
data for the six months ended December 31, 1997 and the years ended
June 30, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 TRANSITION PERIOD
- ----------------------
<S> <C> <C> <C> <C>
Operating revenue $16,745 $16,091 N/A N/A
Operating income (loss) 638 (11,956) N/A N/A
Net income (loss) (12,589) (11,711) N/A N/A
Income (loss) per share ( 1.61) ( 1.49) N/A N/A
</TABLE>
F-20
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1997
Operating revenue $17,370 $16,623 $16,484 $18,010
Operating income 511 275 363 246
Net income 321 55 126 18
Income per share .04 .01 .02 .00
FISCAL 1996
Operating revenue $16,230 $16,045 $15,790 $18,169
Operating income (loss) 539 228 310 ( 191)
Net income (loss) 379 39 70 ( 392)
Income (loss) per share .05 .01 .01 ( .05)
FISCAL 1995
Operating revenue $15,909 $15,096 $14,960 $17,074
Operating income (loss) ( 353) 636 ( 26) 296
Net income (loss) ( 570) 437 ( 274) 45
Income (loss) per share ( .08) .06 ( .04) .01
</TABLE>
17. EMPLOYEE SAVINGS PLAN
The Company sponsors an employee savings plan (the "Plan") which
permits participants to make contributions by tax deferred salary
reductions pursuant to Section 401(k) of the Internal Revenue Code. In
accordance with the Plan document and the Company's contract with its
pilots, prescribed earnings levels were attained in the 1997 fiscal
year which require the matching of 25% of contributions made by the
pilots for the Plan year ended December 31, 1997. The Company recorded
the matching contribution as a component of flight operations expense
in fiscal 1997 and reflected the related liability in accrued expenses
at December 31, 1997. Pending Board of Directors approval, the Company
has accrued a matching contribution of 25% of contributions made during
the Plan year ended December 31, 1997 for certain employees not subject
to the employment contract described above. The Company has recorded
the matching contributions, awaiting Board approval, as a component of
general and administrative expenses in the 1997 transition period and
is reflected as an accrued expense at December 31, 1997.
18. SUBSEQUENT EVENTS
Certain elements of the Company's restructuring were not completed
until subsequent to December 31, 1997. The final Shorts aircraft was
removed from scheduled service on January 7, 1998. Although the Company
had reached an agreement in principal to return the Shorts aircraft in
the 1997 transition period, the final Return Agreement and the related
promissory note described in Notes 7 and 8 were not signed until April
17, 1998. Also, the Company plans to accept the last of twenty
Jetstream Super 31 aircraft in April, 1998, and return all Jetstream 31
aircraft before June 30, 1998. Expenditures necessary to bring the
Jetstream 31 aircraft to conditions required by the lease have been
accrued at December 31, 1997 as restructuring and other nonrecurring
charges.
F-21
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
--------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------- --------------- -------------------------------------------------- -------------
ADDITIONS
BALANCE AT ------------------------------------ BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO END
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
----------- --------- ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997 TRANSITION PERIOD
Reserve for doubtful
receivables and pricing
adjustments $ 113,700 $ 113,700
Reserve for inventory obsolescence 466,000 466,000
Reserve for resale inventory
valuation ---- $ 700,000 700,000
Reserve for medical claims
incurred but not reported 165,000 45,000 210,000
1997
Reserve for doubtful
receivables and pricing
adjustments $ 50,000 $ 68,400 $ 4,700 $ 113,700
Reserve for inventory obsolescence 466,000 466,000
Reserve for medical claims
incurred but not reported 219,000 $ 54,000 165,000
1996
Reserve for doubtful
receivables and pricing
adjustments $ 86,800 $ 13,200 $ 50,000 $ 50,000
Reserve for inventory obsolescence 466,000 466,000
Reserve for medical claims
incurred but not reported 239,000 20,000 219,000
1995
Reserve for doubtful
receivables and pricing
adjustments $ 186,800 $ 100,000 $ 86,800
Reserve for inventory obsolescence 466,000 466,000
Reserve for medical claims
incurred but not reported 226,000 $ 13,000 239,000
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C>
ITEM 16. EXHIBITS.
2. Plan of Reorganization of CCAIR, Inc., effective September 3, 1991. (5)
3.2 Amended and Restated Bylaws of CCAIR, Inc. (18)
4. Specimen Common Stock Certificate. (1)
10.1 (a) The Company's Stock Option Plan dated May 18, 1989 with forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement attached. (1)
(b) Amendment to the Amended and Restated Stock Option Plan, dated February 6, 1992. (6)
(c) Second Amended and Restate Stock Option Plan, dated February 6, 1993. (13)
(d) Third Amended and Restated Stock Option Plan of the Company, dated February 23, 1994. (10)
(e) Fourth Amended and Restated Stock Option Plan of the Company, dated November 15, 1994. (14)
10.2 (a) Agreement dated October 16, 1991 between CCAIR, Inc. and The Air Line Pilots in the service
of CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
(b) Letter of Agreement amendment dated December 14, 1991 between CCAIR, Inc. and The Air Line
Pilots in the service of CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
(c) Letter of Agreement amendment dated February 28, 1992 between
CCAIR, Inc. and The Air Line Pilots in the service of CCAIR,
Inc. as represented by the Air Line Pilots Association
International. (6)
(d) Letter of Agreement amendment dated February 28, 1992 between
CCAIR, Inc. and The Air Line Pilots in the service of CCAIR,
Inc. as represented by The Air Line Pilots Association
International. (6)
10.3 (a) Service Agreement between USAir, Inc. and CCAIR, Inc. dated November 1, 1988. (1)
(b) First Amendment to Service Agreement between USAir, Inc., and CCAIR, Inc., dated July 1, 1990. (3)
(c) Supplemental Agreement between USAir, Inc., and CCAIR, Inc., dated July 30, 1990. (4)
(d) Second Amendment to Service Agreement between USAir, Inc., and CCAIR, Inc., dated January 23,
1991. (4)
(e) Third Amendment to Service Agreement between USAir, Inc., and
CCAIR, Inc., dated August 1, 1991. (8)
(f) Ground Handling Agreement, dated February 1, 1994, between CCAIR. Inc., and USAir, Inc. (10)
10.4 (a) Loan Agreement dated as of September 4, 1991, between CCAIR, Inc., and NCNB National Bank of North Carolina. (4)
(b) Revolving Credit Promissory Note by CCAIR, Inc. in favor of NCNB National Bank of North Carolina,
dated September 4, 1991. (4)
(c) Security Agreement dated as of September 4, 1991, between
CCAIR, Inc., and NCNB National Bank of North Carolina. (4)
(d) Loan Purchase Agreement dated as of September 4, 1991, by and
among NCNB National Bank of North Carolina, British Aerospace,
Inc., and CCAIR, Inc. (4)
(e) Security Agreement dated as of September 4, 1991, between
CCAIR, Inc. and British Aerospace, Inc. An identical agreement
was executed with Jet Acceptance Corporation as of September
4, 1991, and is not filed herewith. (4)
(f) Pledge of Cash Collateral Account dated as of September 4,
1991, by and among CCAIR, Inc., NCNB National Bank of North
Carolina, British Aerospace, Inc., and Jet Acceptance
Corporation. (4)
(g) Loan Agreement dated as of August 14, 1992 between CCAIR, Inc.
and NationsBank of North Carolina, N.A. (6)
(h) Agreement dated as of January 17, 1994 among CCAIR, Inc., NationsBank of North Carolina, N.A.,
British Aerospace, Inc. and Jet Acceptance Corporation. (10)
(h)(i) Assignment and Bill of Sale dated as of January 10, 1995 by and among CCAIR, Inc., NationsBank of
North Carolina, N.A., British Aerospace, Inc. and Jet Acceptance Corporation. (16)
10.5 Common Stock Purchase Agreement dated as of December 4, 1997 by and among CCAIR, Inc., and
Robert Priddy, Bonderman Family Limited Partnership, Hakatak Enterprises, Inc., Nominee, Par
Investment Partners, L.P. and Jonathan G. Ornstein.1
10.6 Form of Operating Lease between Jet Acceptance Corporation and CCAIR, Inc., dated as of November
24, 1997, for 20 aircraft with Serial Numbers N941AE, N962AE, N928AE, N943AE, N964AE,
N942AE, N957AE, N963AE, N920AE, N961AE, N966AE, N959AE, N965AE, N952AE, N919AE,
N958AE, N913AE, N927AE, N914AE, N930AE.
10.7 (a) Settlement Agreement by and bewteen CCAIR, Inc., and Lynrise Air Lease, Inc. dated as of March 31,
1998. (18)
(b) Registration Rights Agreement by and among CCAIR, Inc., and Lynrise Air Lease, Inc.
(c) Form of 7% Convertible Subordinated Note Due 2004.
10.10 (a)(i) Lease Agreement effective as of April 19, 1991 between the Asheville Regional Airport Authority and
CCAIR, Inc. (4)
(a)(ii) Letter dated August 28, 1991 by Asheville Regional Airport Authority amending Lease. (4)
</TABLE>
Note: For footnote references see page E-4
E-1
<PAGE>
<TABLE>
<S> <C>
(b) Lease Agreement dated July 5, 1989 between Clarke County Airport Authority and CCAIR, Inc. (4)
(c) Agreement dated October 10, 1987 between the Central West Virginia Regional Airport Authority and
CCAIR, Inc. (1)
(d) Commuter Airline Agreement and Lease dated May 20, 1988 between the City of Charlotte and
CCAIR, Inc. (1)
(e) Agreement dated July 16, 1991 between the Chattanooga
Metropolitan Airport Authority and CCAIR, Inc. (4)
(f) Airport Use and Lease Agreement entered into as of January 1,
1989 between the Richland-Lexington Airport District and
CCAIR, Inc. (4)
(g) Agreement dated July 1, 1988 between the City of Danville, Virginia and CCAIR, Inc. (1) (h)
Airport Use and Lease Agreement dated November 1, 1982 between Greenville-Spartanburg Airport
District and Sunbird, Inc. (1)
(i)(i) Letter Agreement dated July 13, 1988 from CCAIR, Inc. to Tri-State Airport Authority. (1)
(i)(ii) Letter dated February 25, 1991 by Tri-State Airport Authority amending Lease. (4)
(j)(i) Airport Use Agreement dated March 1, 1988 between the Board of Commissioners of Onslow County
and CCAIR, Inc. (1)
(j)(ii) Amendment to Lease dated July 15, 1988 between the same parties. (1)
(k) Operating Agreement dated April 15, 1987 between Metropolitan Knoxville Airport Authority and
CCAIR, Inc. (1)
(l) Lease Agreement dated March 1, 1988 between the City of Macon and CCAIR, Inc. (1)
(m) Letter Agreement dated September 5, 1990 between New Hanover County and CCAIR, Inc. (4)
(n) Lease Agreement dated May 1, 1989 between Tri-City Airport Commission and CCAIR, Inc. (4)
(o) Use Agreement dated May 1, 1991 between Airport Commission of Forsyth County and CCAIR, Inc. (4)
(p) Letter from Pitt County - City of Greenville Airport Authority dated May 31, 1990 announcing fee
structure. (4)
(q) Airport Use Agreement dated May 1, 1991 between Raleigh County Airport Authority and CCAIR, Inc.
(4)
(r) Letter Agreement dated July 7, 1990 between Mercer County Airport Authority and CCAIR, Inc. (4)
(s) Contract for Conduct of Commercial Flight Operations dated September 1, 1991 between
Maryland Aviation Administration and CCAIR, Inc. (6)
10.29 (a) Commercial Use Permit between CCAIR, Inc., and City of Charlotte, North Carolina dated April 1,
1991, relating to Old Terminal Building at Charlotte/Douglas International Airport. (4)
(b) Commercial Use Permit dated April 15, 1992 between the City of Charlotte and CCAIR, Inc. (6)
10.30 (a) Flight Attendant Agreement between CCAIR, Inc., and the Flight Attendants in the service of CCAIR,
Inc., as represented by the Association of Flight Attendants, effective May 22, 1991. (4)
(b) Letter of Agreement amendment dated May 6, 1992 between CCAIR, Inc. and the Flight Attendants
in service of CCAIR, Ins. as represented by the Association of Flight Attendants. (6)
10.31 Letter Agreement dated February 27, 1991 between Pennsylvania Airlines and CCAIR, Inc. (4)
10.32 (a) Purchase Agreement No. 8-0237, dated as of February 23, 1992 between CCAIR, Inc. and de
Havilland Inc. (successor to Boeing of Canada, Ltd., a Delaware corporation, through its de Havilland
Division) as amended by letter agreements attached thereto for two de Havilland DHC-8-102 Aircraft
(N880CC) and (N881CC). (6)
(b) Purchase Agreement Assignment between CCAIR, Inc. and Mellon
Financial Services Corporation #3 dated as of May 15, 1992
(N880CC). This Purchase Agreement Assignment is substantially
identical to Purchase Agreement Assignment (N881CC), dated as
of May 15, 1992, not filed herewith. (6)
(c) Lease Agreement between CCAIR, Inc. and Mellon Financial
Services Corporation #3 dated as of May 15, 1992 (N880CC).
This Lease Agreement is substantially identical to Lease
Agreements (N881CC), (N882CC) and N883CC) dated as of May 15,
1992, not filed herewith. (6)
(d) Lease Supplement #1 between CCAIR, Inc. and Mellon Financial
Services Corporation #3 dated as of May 22, 1992 (N880CC).
This Lease Supplement #1 is substantially identical to Lease
Supplements (N881CC), (N882CC) and (N883CC) dated as of May
22, June 1 and June 12, 1992, respectively, not filed
herewith. (6)
(e) Tax Indemnity Agreement between CCAIR, Inc. and Mellon
Financial Services Corporation #3 dated as of May 15, 1992
(N880CC). This Tax Indemnity Agreement is substantially
identical to Tax Indemnity Agreements (N881CC), (N882CC) and
(N883CC) dated as of May 15, 1992, not filed herewith. (6)
(f) Assignment and Assumption Agreement dated as of November __,
1995 between C.I.T. Leasing Corporation and Mellon Financial
Services Corporation #3. (16)
(g) Aircraft Lease Termination dated as of November ___, 1995
between Mellon Financial Services Corporation #3 and CCAIR,
Inc. (16)
</TABLE>
Note: For footnote references see page E-4
E-2
<PAGE>
<TABLE>
<S> <C>
10.33 (a) Lease Agreement (Spares) between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
as of August 14, 1992. (6)
(b) Lease Supplement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated as of
August 28, 1992. (6)
(c) Tax Indemnity Agreement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
as of August 14, 1992. (6)
10.34 Agreement dated January 1, 1994 between CCAIR, Inc. and the Mechanics and related employees in
the service of CCAIR as represented by the International Brotherhood of Teamsters. (13)
10.35 Employment Agreement between Kenneth W. Gann and CCAIR, Inc. dated February 8, 1994. (13)
10.36 (a) Agreement dated November 14, 1994, by and among CCAIR, Inc., British Aerospace Holdings, Inc.,
formerly British Aerospace, Inc., and Jet Acceptance Corporation. (16)
(b) Acceptance Supplement No. 2(N158PC) dated as of November 14, 1994 between Jet Acceptance
Corporation and CCAIR, Inc. This Acceptance Supplement No. 2 is substantially identical to
Acceptance Supplements No. 2 between Jet Acceptance Corporation and CCAIR, Inc. (N164PC,
N162PC, N159PC, N157PC, N156PC, N190PC, N170PC, N169PC, N168PC, N163PC and N161PC),
notified herewith. (16)
10.37 (a) Lease Agreement dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc.
for DHC-8-102 Aircraft (Reg. No. 880CC). This Lease Agreement is substantially identical to Lease
Agreements dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc. for
DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No. 883CC), not filed herewith. (16)
(b) Lease Agreement (Spares) dated as of November 15, 1994 between C.I.T. Leasing Corporation and
CCAIR, Inc. (16)
(c) Lease Supplement No. 1 is substantially identical to Lease Supplements No. 1 between C.I.T. Leasing
Corporation and CCAIR, Inc. for DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No.
883CC) and Lease Supplement No. 1 (Spares), not filed herewith. (16)
10.38 (a) Amended and Restated Loan Agreement dated as of February 10, 1995, between JSX Capital
Corporation and CCAIR, Inc. (16)
(b) Revolving Note dated February 10, 1995 in the principal amount of $2,500,000 by CCAIR, Inc. to the
order of British Aerospace Holdings, Inc. (16)
(c) Amended and Restated Security Agreement dated as of February
10, 1995 between JSX Capital Corporation and CCAIR, Inc. (16)
(d) Amended and Restated Special Account and Disbursement
Authorization Agreement dated as of February 10, 1995 among
Wachovia Bank of North Carolina, N.A., CCAIR, Inc., British
Aerospace Holdings, Inc., Jet Acceptance Corporation and JSX
Capital Corporation. (16)
10.39 Letter Agreement dated September 28, 1995 between JSX Capital Corporation and CCAIR, Inc. (17)
10.40 September 1995 Master Agreement among CCAIR, Inc., British Aerospace Holdings, Inc., Jet
Acceptance Corporation and JSX Capital Corporation. (17)
10.41 Second Amendment to Amended and Restated Loan Agreement, Related Loan Documents and Master
Agreement as of July 9, 1997 between CCAIR, Inc., British Aerospace Holdings, Inc., Jet Acceptance
Corporation and British Aerospace Asset Management, Inc. (18)
10.42 CCAIR, Inc. Directors' Compensation Stock Option Plan as of November 14, 1996. (18)
10.43 Line of Credit Commitment as of October 8, 1996 between Centura Bank and CCAIR, Inc. (18)
11 Computation of earnings per share. (17)
16 Letter regarding change in Company's certifying accountant. (9)
18 Letter regarding change in accounting principles. (18)
23.1 Consent of Arthur Andersen, LLP. (18)
</TABLE>
Note: For footnote references see page E-4
E-3
<PAGE>
<TABLE>
<S> <C>
Footnotes:
(1) Incorporated by reference to Registration Statement on Form S-1, File No. 33-28967.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1989, File No. 0-
17846.
(3) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 0-
17846.
(4) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 0-
17846.
(5) Incorporated by reference to Current Report on Form 8-K, filed August 1,
1991.
(6) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1992, File No. 0-
17846.
(7) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-
17846.
(8) Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
33-65878.
(9) Incorporated by reference to Current Report on Form 8-K/A, dated November 30, 1993, File No. 0-17846
(10) Incorporated by reference to Registration Statement on Form S-2, File No. 33-77574.
(11) Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-2, File No. 33-77574.
(12) Incorporated by reference to Amendment No. 2 to Registration Statement on Form S-2, File No. 33-77574.
(13) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 0-
17846.
(14) Incorporated by reference to Registration Statement on Form S-8 and Form S-3, File No. 33-89832.
(15) Incorporated by reference to Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995,
File No. 0-17846.
(16) Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
33-77574.
(17) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-
17846.
(18) Filed herewith.
</TABLE>
E-4
AMENDED AND RESTATED BYLAWS
OF
CCAIR, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. OFFICES
Section 1.1 Registered Office.........................................................1
Section 1.2 Other Offices.............................................................1
ARTICLE II. MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings.........................................................1
Section 2.2 Annual Meetings ..........................................................1
Section 2.3 Special Meetings .........................................................3
Section 2.4 Notice of Meetings .......................................................3
Section 2.5 List of Shareholders .....................................................4
Section 2.6 Quorum ...................................................................4
Section 2.7 Adjournment and Notice of Adjourned Meetings .............................4
Section 2.8 Voting Rights ............................................................5
Section 2.9 Joint Owners of Stock ....................................................5
Section 2.10 Action Without Meeting ...................................................5
Section 2.11 Procedures for Meetings ..................................................5
ARTICLE III. DIRECTORS
Section 3.1 Number and Term of Office ................................................6
Section 3.2 Vacancies ................................................................6
Section 3.3 Powers ...................................................................7
Section 3.4 Resignation ..............................................................7
Section 3.5 Meetings .................................................................7
Section 3.6 Quorum ...................................................................8
Section 3.7 Action Without Meeting ...................................................8
Section 3.8 Committees ...............................................................8
Section 3.9 Compensation of Directors= ...............................................9
Section 3.10 Removal of Directors .....................................................9
ARTICLE IV. OFFICERS
Section 4.1 Officers Designated .....................................................10
<PAGE>
<CAPTION>
<S> <C>
Section 4.2 Tenure in Office ........................................................10
Section 4.3 Duties of Officers ......................................................10
Section 4.4 Resignations ............................................................12
Section 4.5 Removal .................................................................12
ARTICLE V. CERTIFICATES OF STOCK
Section 5.1 Form and Execution of Certificates ......................................12
Section 5.2 Lost Certificates .......................................................12
Section 5.3 Transfer of Stock .......................................................13
Section 5.4 Fixing Record Date ......................................................13
Section 5.5 Registered Stockholders .................................................13
ARTICLE VI. INDEMNIFICATION
Section 6.1 Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.....................................13
Section 6.2 Non-Exclusivity of Rights ...............................................15
Section 6.3 Survival of Rights ......................................................15
Section 6.4 Insurance ...............................................................15
Section 6.5 Amendments ..............................................................15
Section 6.6 Saving Clause ...........................................................15
Section 6.7 Certain Definitions .....................................................16
ARTICLE VII. GENERAL PROVISIONS
Section 7.1 Dividends ...............................................................16
Section 7.2 Annual Statement ........................................................17
Section 7.3 Checks ..................................................................17
Section 7.4 Fiscal Year .............................................................17
Section 7.5 Seal ....................................................................17
ARTICLE VIII.AMENDMENTS
Section 8.1 ..........................................................................17
</TABLE>
2
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CCAIR, INC.
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meetings. All meetings of the stockholders for
the election of directors shall be held in the City of Charlotte, State of North
Carolina, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2.2. Annual Meetings.
(a) Annual meetings of stockholders shall be held on such date and time
as shall be designated from time to time by the Board of Directors for the
purposes of election of directors and for such other business as may lawfully
come before it.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the
1
<PAGE>
meeting by a stockholder. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not later than the close of business on the one
hundred and twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual meeting
or, in the event public announcement of the date of such annual meeting is first
made by the corporation fewer than seventy (70) days prior to the date of such
annual meeting, the close of business on the tenth (10th) day following the day
on which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual 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 of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare a the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address
2
<PAGE>
of such person, (B) the principal occupation or employment of such person, (C)
the class and number of shares of the corporation, which are beneficially owned
by such person, (D) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being named
in the proxy statement, if any, as a nominee and to serving as a director if
elected); and (ii) as to such stockholder giving notice, the information
required to be provided pursuant to paragraph (b) of this Section 2.2. At the
request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
Section 2.3. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President, (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), or (iv) by the holders of shares entitled to cast not less than fifty
percent (50%) of the votes at such meeting, and shall be held at such place, on
such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the President, or the
Secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The Board of Director shall
determine the time and place of such special meeting, which shall be held not
less than thirty-five (35) nor more than one hundred twenty (120) days after the
date of the receipt of the request. Upon determination of the time and
3
<PAGE>
place of the meeting, the officer receiving the request shall cause notice to be
given to the stockholders entitled to vote, in accordance with the provisions of
Section 2.4 of these Bylaws. If the notice is not given (60) days after the
receipt of the request, the person or persons requesting the meeting may set the
time and place of the meeting and give the notice. Nothing contained in this
paragraph (b) shall be construed as limiting, fixing, or affecting the time when
a meeting of stockholders called by action of the Board of Directors may be
held.
Section 2.4. Notice of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 2.5. List of Shareholders. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, 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 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 so specified, at the place where 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.
4
<PAGE>
Section 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute, or by the
Certificate of Incorporation or these Bylaws. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
Section 2.7. Adjournment and Notice of Adjourned Meetings. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting will be given to each
stockholder of record entitled to vote at the meeting.
5
<PAGE>
Section 2.8. Voting Rights. Unless otherwise provided in the
Certificate of Incorporation, each stockholder in whose name shares stand on the
stock records of the corporation on the record date, as provided in Section 2.5
of these Bylaws, shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 2.9. Joint Owners of Stock. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of clause (c) above shall be a majority or even-split in interest.
Section 2.10 Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
6
<PAGE>
If the action which is consented to is such as would have required the filing of
a certificate under any section of the General Corporation Law of the State of
Delaware if such action had been voted on by stockholders at a meeting thereof,
then the certificate filed under such section shall state, in lieu of any
statement required by such section concerning any vote of stockholders, that
written notice and written consent have been given as provided in Section 228 of
the General Corporation Law of Delaware.
Section 2.11. Procedures for Meetings.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, one of the vice presidents of the corporation,
in sequence by seniority, present in person, shall act as chairman. The
Secretary, or, in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE III
DIRECTORS
Section 3.1. Number and Term of Office. The number of directors which
shall constitute the whole board shall be fixed by resolution of the Board of
Directors from time to time. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3.2 of these
Bylawsthis Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
7
<PAGE>
Section 3.2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3.3. Powers. The business of the corporation shall be managed
by or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 3.4. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall be effective,
and each director so chosen shall hold office for the unexpired portion of the
term of the director whose place shall be vacated and until his successor shall
have been duly elected and qualified.
Section 3.5. Meetings.
(a) The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
(b) The annual meeting of the Board of Directors shall be held
immediately before or after the annual meeting of stockholders and at the place
where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(c) Regular meetings of the Board of Directors may be held
without notice at such time and such place as shall from time to time be
determined by the Board.
(d) Special meetings of the Board of Directors may be held at any time
or place within or without the State of Delaware whenever called by the Chairman
of the board, the President or any two of the directors.
(e) Members of the Board of Directors, or of any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment such that all person participating in the meeting can
hear each other, and such participation in a meeting shall constitute presence
in person at the meeting.
(f) Notice of the time and place of all special meetings of the Board
of Directors shall be given orally or in writing, by telephone, facsimile,
telegraph or telex, during normal business hours, at least twenty-four (24)
hours before the date and time of the meeting, or sent in writing to each
director by first class mail, charges prepaid, at least five (5) business days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(g) The transaction of all business at any meeting of the Board of
Directors, or any committee thereof, however called or noticed, or wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present shall sign a written waiver of notice. All
such waivers shall be filed with the corporate records or made a part of the
minutes of the meeting.
9
<PAGE>
Section 3.6. Quorum.
(a) At all meetings of the board a majority of the directors then in
office shall constitute a quorum for the transaction of business and the act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 3.7. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the board or 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 or committee.
Section 3.8. Committees.
(a) The Board of Directors may, by resolution passed by a majority of
the whole board, designate one or more committees, each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
(b) Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or
10
<PAGE>
exchange of all or substantially all of the corporation=s property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
(c) Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
(d) Each member of a committee of the Board of Directors shall serve a
term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of paragraphs (a)
or (b) above may at any time increase or decrease the number of members of a
committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 3.9. Compensation of Directors=. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefore. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 3.10 Removal of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any director or the entire Board
of Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
11
<PAGE>
ARTICLE IV
OFFICERS
Section 4.1. Officers Designated. The officers of the corporation shall
include, if and whenbe chosen by the Board of Directors, and shall be a Chairman
of the Board, pPresident and Chief Executive Officer, a vice-president, a
secretary and a treasurer. The Board of Directors may also choose additional
vice-presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
The Board of Directors at its first meeting after each annual meeting
of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
The Board of Directors may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
The salaries of all officers and agents of the corporation shall be
fixed by the Board of Directors.
Section 4.2. Tenure in Office. The officers of the corporation shall
hold office at the pleasure of the Board of Directors and until their successors
are chosen and qualify, unless sooner removed. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
12
<PAGE>
Section 4.3. Duties of Officers.
(a) Duties of Chairman of the Board of Directors. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the chief executive officer of the
corporation and shall have the powers and duties prescribed in paragraph (b) of
this Section 4.3.
(b) Duties of President. The president shall be the chief executive
officer of the corporation, shall preside at all meetings of the stockholders
and the Board of Directors, unless the Chairman of the Board has been appointed
and is present, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
He shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
(c) Duties of the Vice-Presidents. In the absence of the
president or in the event of his inability or refusal to act, the vice-president
(or in the event there be more than one vice-president, the vice-presidents in
the order designated by the directors, or in the absence of any designation,
then in the order of their election) shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform such other
duties and have such other powers as the Board of Directors or the president may
from time to time prescribe.
(d) Duties of the Secretary. The secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any
13
<PAGE>
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the corporation and
to attest the affixing by his signature.
(e) Duties of the Assistant Secretary. The assistant secretary, or if
there be more than. one, the assistant secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(f) Duties of the Treasurer. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all 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 shall disburse the funds of the corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the president and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation.
If required by the Board of Directors, he shall give the corporation a
bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
(g) Duties of the Assistant Treasurer. The assistant treasurer, or if
there shall be more than one, the assistant treasurers in the order determined
by the Board of Directors (of if there be no such determination, then in the
order of their election) shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 4.4. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any,
14
<PAGE>
of the corporation under any contract with the resigning officer.
Section 4.5. Removal. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
The rights of an officer so removed shall be specified in a contract between the
corporation and the officer.
ARTICLE VI
CERTIFICATES OF STOCK
Section 5.1. Form and Execution of Certificates. Every holder of stock
in the corporation shall be entitled to have a certificate, signed by, or in the
name of the corporation by, the chairman or vice-chairman of the Board of
Directors, or the president or a vice-president, and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Section 2. Any of or all of the signatures on the certificate may be 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 he were such
officer, transfer agent or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences or rights. Within a reasonable
time after the issuance or transfer of uncertificated stock, the corporation
shall send to the registered owner thereof a written notice containing the
information required to be set forth or stated on respect to this section a
statement that the corporation will furnish without preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
Section 5.2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
15
<PAGE>
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5.3. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more classes
of stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
Section 5.4. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
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 Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. 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, however, that the Board of Directors fix a new record date
for the adjourned meeting.
Section 5.5. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
16
<PAGE>
INDEMNIFICATION
Section 6.1. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.
(a) Directors And Executive Officers. The corporation shall indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act)] to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law or (iv) such indemnification is required to be made under subsection (d).
(b) Other Officers, Employees And Other Agents. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such
17
<PAGE>
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses, under this Article XI or otherwise shall be on
the corporation.
Section 6.2. Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
Section 6.3. Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall
18
<PAGE>
inure to the benefit of the heirs, executors and administrator of such a person.
Section 6.4. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 6.5. Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
Section 6.6. Saving Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
Section 6.7. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall include,
without limitation, the investigation, preparation, prosecution, defense,
settlement, arbitration and appeal of, and the giving of testimony in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines, amounts
paid in settlement or judgment and any other costs and expenses of any nature or
kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(d) References to a "director," "officer," "employee," or "agent" of
the corporation shall include, without limitation, situations where such person
is serving at the request of the corporation as, respectively, a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
19
<PAGE>
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE VIII
GENERAL PROVISIONS
Section 7.1. Dividends.
(a) Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
(b) Before payment of any dividend, there may be set aside out of any
20
<PAGE>
funds of the corporation available for dividends for such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
the repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 7.2. Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 7.3. Checks. All checks or demand for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 7.4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 7.5. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 8.1. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon by the Board of Directors by the Certificate of
Incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
21
EXHIBIT 10.6
OPERATING LEASE [920]
Dated as of November 24, 1997
between
Jet Acceptance Corporation,
as the Lessor,
and
CCAIR, Inc.,
as the Lessee,
-------------------------------
Covering One British Aerospace Jetstream Super 31
The Aircraft covered by this Operating Lease is owned by, and title thereto is
held by, First Security Bank, National Association, as trustee (the
"Owner-Trustee"), under the Trust Agreement (32-91-4) dated as of June 15, 1991,
with AT&T Capital Holdings International, Inc.. and has been leased to Jet
Acceptance Corporation pursuant to the Lease Agreement, dated as of June 15,
1991, between the Owner-Trustee and by Jet Acceptance Corporation as Sublessor
to, and is subject to a security interest in favor of, the Owner-Trustee under
the Assignment of Sublease and Security Agreement, dated as of June 15, 1991 (as
such Assignment of Sublease and Security Agreement may be amended or
supplemented as permitted thereby). The Owner-Trustee has further assigned this
Operating Lease to and has granted a security interest in favor of, State Street
Bank and Trust Company of Connecticut, N.A., as Security Trustee under the
Security Agreement-Trust Deed, dated as of June 15, 1991 (as such Security
Agreement-Trust Deed may be amended or supplemented as permitted thereby), for
the benefit of the holders of Secured Notes referred to in such Security
Agreement-Trust Deed. This Operating Lease has been executed in several
counterparts. To the extent, if any, that this Operating Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Operating
Lease may be created through the transfer or possession of any counterpart other
than the original counterpart that contains the receipt therefor executed by
State Street Bank and Trust Company of Connecticut, N.A., as Security Trustee,
on the signature page thereof.
<PAGE>
TABLE OF CONTENTS
Section Page
SECTION 1. DEFINITIONS AND INTERPRETATION .....................................
(a) Definitions ...........................................................
(b) Terms Defined in the Commercial Supplement ............................
(c) Interpretation ........................................................
(d) Inconsistency .........................................................
(e) Effectiveness .........................................................
SECTION 2. CONDITIONS PRECEDENT ...............................................
(a) Acceptance of Aircraft ................................................
(b) Insurance .............................................................
(c) Opinion of Counsel ....................................................
(d) No Defaults............................................................
(e) Conditions Set Forth in the Commercial Supplement .....................
SECTION 3. REPRESENTATIONS AND WARRANTIES .....................................
(a) Mutual Representations and Warranties .................................
(b) Further Representation and Warranty ...................................
SECTION 4. TERM; DELIVERY; ACCEPTANCE .........................................
(a) Term ..............................................................
(b) Delivery ..............................................................
(c) Delay in Delivery - Force Majeure .....................................
(d) Inspection ............................................................
(e) Inspection Indemnity ..................................................
(f) Deficiencies and delays ...............................................
(g) Acceptance Supplement .................................................
SECTION 5. RENT
(a) Basic Rent ............................................................
(b) Manner of Payment .....................................................
SECTION 6. NET LEASE ..........................................................
SECTION 7. DISCLAIMER OF WARRANTIES AND QUIET ENJOYMENT .......................
(a) Disclaimer of Warranties...............................................
(b) Quiet Enjoyment........................................................
<PAGE>
SECTION 8. POSSESSION .........................................................
(a) Possession ............................................................
(b) Engines and Propellers ................................................
SECTION 9. REGISTRATION, INSIGNIA, USE AND OPERATION ..........................
(a) Registration ..........................................................
(b) Insignia ..............................................................
(c) Basing and Geographical Use ...........................................
(d) Limitations on Use ....................................................
SECTION 10. MAINTENANCE AND REPAIR ............................................
(a) General Maintenance Obligations .......................................
(b) Modifications/Structural Repairs.......................................
(c) Maintenance of Records.................................................
SECTION 11. EVENT OF LOSS .....................................................
(a) Risk of Loss ..........................................................
(b) Event of Loss of Aircraft .............................................
(c) Event of Loss of an Engine, Propeller or Part .........................
(d) Evidence of Conveyance ................................................
SECTION 12. INSURANCE .........................................................
(a) Required Insurance ....................................................
(b) Insurance Requirements for All Policies ...............................
(c) Deductibles ...........................................................
(d) Application of Hull Insurance Proceeds ................................
(e) Insurance for Own Account .............................................
(f) Certificates ..........................................................
(g) Reports, Etc ..........................................................
SECTION 13. LIENS .............................................................
SECTION 14. RETURN OF AIRCRAFT ................................................
(a) Return of Aircraft ....................................................
(b) Fuel ..............................................................
(c) Records
(d) Final Inspection ......................................................
(e) Storage
(f) Return Certificate ....................................................
<PAGE>
SECTION 15. LESSEE GENERAL COVENANTS ..........................................
(a) Aircraft Information and Inspection ...................................
(b) Financial and Other Information to be Supplied ........................
(c) Corporate Existence ...................................................
(d) Merger, Consolidation .................................................
(e) General Indemnity .....................................................
(f) Taxes against Lessor or the Aircraft ..................................
(g) Further Assurances ....................................................
SECTION 16. EVENTS OF DEFAULT .................................................
SECTION 17. REMEDIES ..........................................................
SECTION 18. MISCELLANEOUS .....................................................
(a) Applicable Law ........................................................
(b) Notices
(c) Judicial Proceedings ..................................................
(d) Unenforceability ......................................................
(e) Assignment ............................................................
(f) Lessor's Rights to Perform for the Lessee..............................
(g) Survival ..............................................................
(h) Integrated Agreement ..................................................
(i) Waivers, headings .....................................................
(j) Time ..............................................................
(k) Counterparts ..........................................................
Exhibit A Form of Acceptance Supplement.....................................
Schedule I Aircraft Description..........................................
Schedule II Time and Cycles...............................................
Schedule III Aircraft Documentation........................................
Schedule IV Loose Equipment...............................................
Schedule V Work Package..................................................
Exhibit B Form of Return Certificate....................................
Schedule I Aircraft Description..........................................
Schedule II Time and Cycles...............................................
Schedule III Aircraft Documentation........................................
Schedule IV Return Condition Discrepancies................................
OPERATING LEASE [920], dated as of November 24, 1997 between Jet Acceptance
Corporation, a Delaware corporation, as lessor (the "Lessor"), and CCAIR, Inc.,
a
<PAGE>
Delaware corporation, as lessee (the "Lessee").
The Lessee and the Lessor agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION.
(a) Definitions.
The following terms have the respective meanings set forth below for all
purposes of the Lease:
"Acceptance Supplement" means the Acceptance Supplement in
substantially the form of Exhibit A hereto.
"Address for Payments" means the address for payments to the Lessor set
forth on the signature page under the Lessor's signature or such other address
as the Lessor may from time to time specify.
"Air Carrier Operating Certificate" means an air carrier operating
certificate issued to the Lessee by the FAA pursuant to Section 44705 of the
Federal Aviation Act authorizing, among other things, the commercial passenger
operation of aircraft of the same type as the Aircraft under the Applicable FAR.
"Aircraft" means the Airframe leased pursuant to the Lease together
with the Engines, the Propellers and the Loose Equipment.
"Airframe" means the airframe specified by manufacturer's model and
serial number and U.S. registration number in the Acceptance Supplement.
"Applicable FAR" means Federal Aviation Regulations Part 121.
"Applicable Law" means, with respect to any Person or thing, any
constitution, treaty, statue, law decree, regulation, order, rule or directive
of any applicable governmental or judicial entity applicable to such Person or
thing.
"Certificate of Airworthiness" means a standard certificate of
airworthiness, transport category, issued by the FAA and of the type required
for commercial passenger aircraft operation under the Applicable FAR.
"Certificated Air Carrier" means an air carrier (as such term is
defined in the Federal Aviation Act) holding a certificate of convenience and
necessity issued pursuant to Section 41102(a)(1) of the Federal Aviation Act or
operating as an air taxi pursuant to an exemption issued under Section 40190(f)
of the Federal Aviation Act.
"Claim" has the meaning specified in Section 15(e).
<PAGE>
"Commercial Supplement" means the Commercial Supplement to this
Operating Lease.
"Default" means any Event of Default or any event or condition which
with the passage of time and/or the giving of notice would constitute an Event
of Default.
"Delivery Date" means the date the Aircraft is delivered to and
accepted by the Lessee under the Lease, as evidenced by the Acceptance
Supplement.
"Engine" means each engine specified in the Acceptance Supplement until
replaced pursuant to Section 11(c) and any engine which may from time to time
replace such Engine pursuant to Section 11(c).
"Event of Default" means each of the events specified in Section 16.
"Event of Loss" with respect to the Aircraft or any Engine, Propeller
or Part means:
(i) the actual or constructive total loss thereof;
(ii) the loss or theft, hijacking or disappearance thereof for
a period of greater than 45 days or any damage or destruction thereto beyond
repair or rendition thereof permanently unfit for normal use for any reason
whatsoever;
(iii) the condemnation, confiscation, or seizure of, or
requisition or taking of title thereto;
(iv) the requisition or taking of the use thereof by any
governmental entity for a period beyond the Basic Term or Renewal Term of the
Head Lease, as those terms are defined in the Head Lease;
(v) any damage thereof which results in an insurance
settlement with respect thereof on the basis of a total loss;
(vi) as a result of any rule, regulation, order or other
action by the FAA (or any other governmental authority), the use thereof in the
normal course of business of passenger air transportation shall have been
prohibited or (in the case of the Aircraft) the type certification of British
Aerospace Jetstream Series 3200 Model 3201 Turboprop aircraft shall have been
terminated, in each case for a period of six consecutive months unless Lessee,
prior to the expiration of such six-month period, shall have undertaken or shall
cause to be diligently carried forward all steps which are necessary or
desirable to permit the normal use thereof by Lessee or, in any event, if such
use shall have been prohibited for a period of eighteen consecutive months or is
continuing at the end of the Term;
(vii) with respect to the Aircraft, the operation or location
of the
<PAGE>
Aircraft, while under requisition for use by the Government, in
any area excluded from coverage by any insurance policy in effect with respect
to the Aircraft required by Section 12 hereof, if Lessee shall be unable to
obtain indemnity in lieu thereof from the Government in such form as shall be
reasonably satisfactory to the Lessor and as shall be comparable to the
insurance required to be maintained by Section 12 hereof;
provided, that if in the event, facts and circumstances
constituting such Event of Loss described in clauses (ii), (vi), or (vii) above
shall cease to exist and the Aircraft shall be returned to Lessee in a usable
condition prior to the Loss Payment Date (as defined in Section 9(a) of the Head
Lease) or the Loss Termination Date (as defined in Section 9(b) of the Head
Lease), as the case may be, then such Event of Loss shall, upon the written
election of the Lessee delivered prior to such Loss Payment Date or Loss
Termination Date, as the case may be, to the Financing Parties, be deemed not to
have occurred.
An Event of Loss with respect to the Airframe will constitute an Event of Loss
with respect to the Aircraft. Any Part subjected to a pooling arrangement
pursuant to Section 8(a)(ii) will be deemed to have suffered an Event of Loss.
"FAA" means the United States Federal Aviation Administration.
"Federal Aviation Act" means Subtitle VII (Aviation Programs) of Title
49 of the United States Code.
"Force Majeure" means acts of God or public enemy, civil, war,
insurrection or riot, fire, flood, explosion, earthquake, accident, epidemic,
quarantine restriction, law, governmental priority, allocation, regulation or
order affecting materials, facilities or any part of the Aircraft, strike or
labor dispute causing cessation, slowdown or interruption of work; inability
after due and timely diligence to procure equipment, data and materials from
suppliers; the late delivery of the Aircraft by a previous lessee; delay due to
the requirement to comply with directives or modifications issued by the FAA or
other governmental authority under Applicable Law following the date of the
Lease; or any other cause beyond the control of Lessor, including, without
limitation, any failure by the Owner or any other Financing Party to observe or
perform any of its respective obligations under the Head Lease or any other
Financing Document provided that such failure is not attributable to any
corresponding act or omission of Lessor under any provision thereof.
"Lease" means this Operating Lease together with the Acceptance
Supplement and the Commercial Supplement.
"Lessor Lien" means any Lien arising from the act or omission of the
Lessor not related to the transactions contemplated by the Lease.
"Lien" means any mortgage, pledge, security interest, lien,
encumbrance, title retention agreement or other charge of any kind on real or
personal property.
<PAGE>
"Loose Equipment" means all items identified and listed on the
Acceptance Supplement as "Loose Equipment".
"Major Shop Visit" means hard time overhauls (together with hot section
inspections, if applicable) at an interval no greater than that interval which
is generally recommended by the Engine Manufacturer.
"Manufacturer" means, with respect to the Airframe or any Engine,
Propeller or Part, the manufacturer thereof.
"Overdue Rate" means as of any date the rate of interest for a "bank
prime loan" set forth in Federal Reserve Statistical Release H.15(519) for such
date plus 4% per annum, or, if less, the maximum rate of interest permitted by
law, calculated on the basis of the actual number of days elapsed in a calendar
year.
"Part" means each of the appliances, parts, accessories, instruments,
furnishings, seats and other equipment of any kind (other than Engines or
Propellers) initially installed on the Airframe or any Engine or Propeller and
each item of Loose Equipment, in each case until replaced pursuant to Section
11(c) and any part which may from time to time replace such Part pursuant to
Section 11(c).
"Permitted Lien" has the meaning specified in Section 13.
"Person" means any individual, partnership, limited liability company,
corporation, trust, unincorporated organization or governmental entity.
"Propeller" means each propeller specified in the Acceptance Supplement
until replaced pursuant to Section 11(c) and any propeller which may from time
to time replace such Propeller pursuant to Section 11(c).
"Rent" means any Basic Rent or Supplemental Rent.
"Return Certificate" means a return certificate, substantially in the
form of Exhibit B hereto and dated the date the Aircraft is return pursuant to
Section 14.
"Supplemental Rent" means any amount payable under the Lease other than
Basic Rent.
"Tax" means all taxes (including, without limitation, income,
franchise, excise, gross receipts, sales, use occupational capital, value-added,
leasing, subleasing, leasing use, subleasing use, landing, airport use, property
and stamp taxes and taxes imposed in respect of items of tax preference),
levies, imposts, duties, charges, assessments or withholdings of any nature
whatsoever imposed by any governmental entity together with any penalties,
additions to tax, fines and interest thereon.
<PAGE>
(b) Terms Defined in the Commercial Supplement.
The terms: "Approved Engine Service Plan", "Approved Maintenance Program", "BAI
Term Sheet", "Basic Rent", "Claim Notification Amount", "Cycle", "Damage Payment
Threshold", "Delivery Location", "Estimated Delivery Date", "Expiration Date",
"Final Delivery Date", "Financing Documents", "Financing Parties", "Flight
Hours", "Geographical Limits", "Head Lease", "Head Lessor", "Indemnified
Parties", "Insurance Deductible Amount", "Insured Parties", "Legend", "Lien
Limitation", "Loss Payee", "Memorandum of Understanding", "Minimum Liability
Coverage", "Owner", "Payment Date", and "Stipulated Loss Value"; have the
respective meanings set forth in the Commercial Supplement.
(c) Interpretation.
Unless otherwise indicated or the context shall otherwise require:
(i) references to any Person will include such Person's
successors and assigns;
(ii) references to the Airframe or an Engine or Propeller
includes all parts thereto;
(iii) references to any law, rule or regulation will include
such provision as amended, modified, substituted, reissued or reenacted; and
(iv) references to any agreement will mean such agreement as
amended, modified or supplemented from time to time.
(d) Inconsistency.
In the event of any inconsistency among the provisions of this Operating Lease,
the Acceptance Supplement and the Commercial Supplement, the provisions of the
Commercial Supplement will prevail over the provisions of either of this
Operating Lease or the Acceptance Supplement and the provisions of the
Acceptance Supplement will prevail over the provisions of this Operating Lease.
(e) Effectiveness.
The Lease will not be effective, and will not constitute an enforceable
obligation of either party hereto, unless and until the Commercial Supplement
has been executed and delivered by each of the Lessor and the Lessee.
SECTION 2. CONDITIONS PRECEDENT.
The Lessor's obligation to deliver the Aircraft to the Lessee is
subject to the satisfaction of each of the following conditions:
<PAGE>
(a) Acceptance of Aircraft.
The Lessee shall have accepted the Aircraft under the Lease as evidenced by the
Lessee's execution and delivery of the Acceptance Supplement;
(b) Insurance.
The Lessee shall have furnished to the Lessor certificates of insurance
evidencing compliance with the requirements of Section 12 and a report of the
Lessee's independent insurance brokers meeting the requirements of Section
12(f);
(c) Opinion of Counsel.
The Lessee shall have furnished the Lessor with an opinion of counsel to the
Lessee (which opinion and counsel will each be reasonably acceptable to the
Lessor) as to the matters set forth in Section 3 insofar as applicable to the
Lessee;
(d) No Defaults.
The Lessee shall not be in default under the Lease or under any other agreement
between or among the Lessee and the Lessor or any of its affiliate companies;
and
(e) Conditions Set Forth in the Commercial Supplement.
The Lessee shall have satisfied any additional conditions precedent specified in
the Commercial Supplement.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
(a) Mutual Representations and Warranties.
Each party represents and warrants to the other that:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(ii) It has the power to execute and deliver, and to perform
its obligations under, the Lease and has taken all necessary action to authorize
such execution, delivery and performance;
(iii) The execution, delivery and performance of the Lease by
it do not violate or conflict with any Applicable Law, or provision of its
corporate charter or bylaws, any order or judgment of any court or governmental
authority applicable to it or any of its assets or any contractual restriction
binding on it or affecting any of its assets;
<PAGE>
(iv) All governmental and other consents that are required to
have been obtained by it with respect to the Lease have been obtained, are in
full force and effect and all conditions of any such consents have been
satisfied; and
(v) Its obligations under the Lease constitute its legal,
valid and binding obligations, enforceable against it in accordance with their
respective terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally).
(b) Further Representation and Warranty.
The Lessee further represents and warrants to the Lessor that the Lessee is a
Certificated Air Carrier and holds an Air Carrier Operating Certificate and that
no action has been instituted or, to the knowledge of the Lessee, threatened by
the Department of Transportation, the FAA or any other governmental authority to
revoke, suspend or terminate its rights or status as a Certificated Air Carrier
or its Air Carrier Operating Certificate.
SECTION 4. TERM; DELIVERY; ACCEPTANCE.
(a) Term.
The lease of the Aircraft will commence on the Delivery Date and, unless sooner
terminated or canceled pursuant to the terms hereof, will continue until the
Expiration Date (the "Term").
(b) Delivery.
Subject to the provisions of the Lease, the Aircraft shall be delivered by
Lessor to and accepted by Lessee on the Delivery Date at the Delivery Location
or such other location as the parties shall otherwise agree in writing, shall
possess a valid Certificate of Airworthiness and shall meet FAA Part 121
equipment requirements. Following Lessee's acceptance of the Aircraft, as
evidenced by Lessee's signature of the Acceptance Supplement, Lessee shall ferry
the Aircraft to a maintenance facility where the Aircraft, at Lessor's expense,
shall undergo the work required to implement the work package set forth in
Schedule V of the Acceptance Supplement.
As at the date of this Lease, Lessor has advised Lessee that delivery of the
Aircraft is scheduled to occur on the Estimated Delivery Date. Lessor shall
promptly on ascertaining the same, notify Lessee of the actual date when it
expects delivery to take place (if it differs from the Estimated Delivery Date).
(c) Delay in Delivery - Force Majeure.
Lessor shall have no responsibility or liability for any failure to deliver the
Aircraft on the Estimated Delivery Date or thereafter due to the occurrence of
an event of Force
<PAGE>
Majeure. Upon the occurrence of an event of Force Majeure, Lessor shall promptly
notify Lessee of the circumstance thereof and shall use reasonable endeavors to
avoid the consequences of such event of Force Majeure. Lessee shall not be
entitled to refuse to accept delivery of the Aircraft when tendered by Lessor on
the Delivery Date or to cancel its obligation to take the Aircraft on lease from
Lessor as a consequence of any delay due to an event of Force Majeure; provided,
however, that if as a result of Force Majeure the Aircraft shall not have been
delivered to and accepted by Lessee prior to the Final Delivery Date, Lessee
shall be entitled by notice in writing to cancel its obligation to take the
Aircraft on lease from Lessor.
(d) Inspection.
Prior to the Delivery Date, Lessee shall be given an opportunity to inspect the
Aircraft at the Delivery Location. If the Aircraft generally accords with the
requirements of the Memorandum of Understanding, Lessee shall be obliged to
accept the Aircraft. Lessor shall correct any recordable defect and/or
non-conformity as promptly as possible after acceptance of the Aircraft by
Lessee or, if prompt remedy is not possible, Lessor shall propose a program for
the remedy of such defect or non-conformity acceptable to Lessor and Lessee. No
such defect or non-conformity shall prejudice or otherwise impair the
obligations of Lessee (including without limitation as to the payment of Rent
and other amounts) under the Lease.
(e) Inspection Indemnity.
Lessee shall indemnify and hold harmless Lessor, the Financing Parties and their
respective officers, agents and employees from and against any and all
liabilities, damages and losses (including costs and expenses incidental
thereto) arising by reason of death or injury to any employee or other
representative of Lessee, arising out of, or in any way connected with the
inspection of the Aircraft. Notwithstanding the foregoing, Lessee will not be
required to indemnify any such Person for any such liability, damage or loss
solely attributable to such person's willful misconduct or recklessness.
(f) Deficiencies and Delays.
Lessor shall not be liable for any liability, claim, loss, damage or expense of
any kind or nature caused directly or indirectly by the Aircraft or any part
thereof, by any inadequacy thereof for any purpose or any deficiency or defect
therein (except that Lessor shall be liable to remedy any recordable defect
and/or non-conformity which it has undertaken to remedy following the Delivery
Date), by the use or performance thereof, by repairs or servicing thereto, by
any delay in the delivery thereof for any reason, by any interruption or loss of
service or use thereof or by any loss of business or other consequential damage
or any damage whatsoever and howsoever caused prior to re-delivery of the
Aircraft to Lessor.
(g) Acceptance Supplement.
<PAGE>
On the Delivery Date Lessee shall, subject to the provisions of Section 4(d),
indicate and confirm its unconditional acceptance of the Aircraft for lease
under the Lease without any reservation whatsoever (other than in respect of any
recordable defect and/or non-conformity which has not been remedied prior to the
Delivery Date) by the execution and delivery to Lessor of the Acceptance
Supplement. For the avoidance of doubt, Lessee acknowledges that the execution
and delivery of the Acceptance Supplement shall constitute conclusive proof of
Lessee's agreement to Lessor's remedial program (if any) with regard to any
recordable defect or non-conformity.
SECTION 5. RENT.
(a) Basic Rent.
The Lessee will pay Basic Rent in arrears on each Payment Date in the amount
specified in the Commercial Supplement.
(b) Manner of Payment.
Rent will not be considered as having been paid until the date received by the
Lessor at the Address for Payment in immediately available funds consisting of
lawful currency of the United States. If any amount of Rent is not so received
by the Lessor on the date due, then without prejudice to any other remedy, the
Lessor may have hereunder, the Lessee will pay the Lessor, on demand, interest
at the Overdue Rate on such amount of Rent from the date due until the date so
received.
Rent and any other payments due to Lessor under this Lease shall be paid by wire
transfer in immediately available funds to the Address for Payments set forth on
the signature page hereto and in accordance with the Second Amendment and
Restatement of the Special Account and Disbursement Authorization Agreement
dated as of May 28, 1996 by and among the Bank of New York, Lessee, British
Aerospace Holdings, Inc., British Aerospace Asset Management, Inc. and Lessor as
the same may be amended from time to time. Lessor from time to time by written
notice to Lessee, and any Financing Party, upon written notice to Lessee that an
Event of Default under this Lease has occurred and is continuing, may designate
that such payments be made to such other place, person or person's account as
may be set forth in such notice, and any such payment made by Lessee to such
other place or person as designated by such Financing Party, as the case may be
shall be deemed payment to Lessor for purposed of this Section 5(b).
SECTION 6. NET LEASE.
This is a net lease and the Lessee's obligation to pay Rent and to
perform all covenants, conditions and agreements as and when required under this
Lease shall be absolute and unconditional and at the sole risk, cost and expense
of the Lessee and shall not be subject to any abatement, contribution,
reduction, set-off, defense counterclaim, interruption, deferment or recoupment
for any reason whatsoever.
<PAGE>
SECTION 7. DISCLAIMER OF WARRANTIES AND QUIET ENJOYMENT.
(a) Disclaimer of Warranties.
Lessee expressly agrees to take the Aircraft "as is where is". None of the
Lessor, any Financing Parties or any of their respective affiliates has made or
shall have been deemed to have made and shall not be deemed to have made, and
shall be deemed to expressly disclaimed, any representation or warranty, express
or implied, as to the airworthiness, value, condition, workmanship, design,
operation, fitness for use for a particular purpose of the Aircraft or any Part
thereof, as to the absence of latent or other defects, whether or not
discovered, as to the absence of any infringement of any patent, trademark or
copyright, as to the absence of obligations based on tort including strict
liability in tort, whether or not arising from the negligence of Lessor or any
Financing Party or any of their respective affiliates, or any other
representation or warranty whatsoever, express or implied with respect to the
Aircraft or any Part thereof.
(b) Quiet Enjoyment.
The Lessor covenants that neither the Lessor nor anyone claiming through or
under the Lessor shall at any time during the Term take or cause to be taken any
action inconsistent with Lessee's right to quiet enjoyment of, or otherwise
interrupt or interfere with the continuing possession, use or operation of, the
Aircraft by Lessee. The Lessee acknowledges that its rights under the Lease are
subject and subordinate to the Financing Documents and may be terminated by the
Financing Parties in the exercise of their rights under the Financing Documents.
SECTION 8. POSSESSION.
(a) Possession.
The Lessee will not lease or sublease, or otherwise in any manner deliver,
relinquish or transfer possession of the Aircraft or any Engine, Propeller or
Part to any Person without the consent of the Lessor which consent shall not be
unreasonably withheld; provided, that the Lessee may:
(i) deliver possession of the Aircraft or any Engine,
Propeller or Part to the manufacturer thereof or any third party maintenance
provider for testing, service, repair, maintenance, overhaul, alterations or
modifications to the extent required or permitted by the Lease;
(ii) subject any Engine, Propeller or Part removed from the
Airframe or any Engine or Propeller in the ordinary course of maintenance,
service, repair, overhaul and testing to a normal pooling arrangement customary
in the airline industry and entered into in the ordinary course of the Lessee's
business with any manufacturer, maintenance provider or air carrier; provided,
that such Engine, Propeller or Part will be promptly replaced pursuant to
Section 11(c); and provided, further, that if the Head
<PAGE>
Lessor's title to or interest in any such Engine or Propeller shall be divested
under any such arrangement, such divestiture shall be deemed to be an Event of
Loss with respect to such Engine or Propeller, as the case may be, and Lessee
shall comply with Section 11(c).
(b) Engines and Propellers.
The Lessee will not install any Engine or Propeller on any other aircraft
without the consent of the Lessor; provided, that, an Engine or Propeller may be
installed on an aircraft owned by or leased or subleased to the Lessee so long
as:
(i) no Default shall have occurred and be continuing;
(ii) the Lessee has operational control over such aircraft;
(iii) title to such Engine or Propeller remains vested in the
Owner; and
(iv) such Engine or Propeller does not become subject to any
Lien other than a Permitted Lien.
SECTION 9. REGISTRATION, INSIGNIA, USE AND OPERATION
(a) Registration.
The Lessee will not take any action which would cause the Aircraft to be
deregistered from the United States aircraft registry. The lessee will not claim
title to, or the right to sell, lease, sublease or otherwise dispose of, the
Airframe or any Engine, Propeller or Part and will not claim depreciation
allowances or other deductions or tax benefits associated with ownership of the
Airframe or any Engine, Propeller or Part.
(b) Insignia.
The Lessee will place and maintain in the cockpit of the Airframe and on each
Engine a fireproof metal nameplate having dimensions of not less than 150 mm by
100 mm bearing the Legend.
(c) Basing and Geographical Use.
The Lessee will not base the Aircraft outside the continental United States
shall operate the Aircraft predominantly within the United States and will not
use, operate or locate the Aircraft outside the Geographical Limits.
(d) Limitations on Use.
The Lessee will not use or operate the Aircraft:
<PAGE>
(i) in violation of Applicable Law;
(ii) for any purpose for which the Aircraft was not designed
or is not suitable;
(iii) unless the insurance required by Section 12 hereof is in
full force and effect or contrary to or inconsistent with the terms, conditions,
or warranties of such insurance or in any area excluded from coverage by such
insurance; or
(iv) in any recognized or threatened area of hostilities
unless fully covered by war risk insurance acceptable to Lessor.
SECTION 10. MAINTENANCE AND REPAIR
(a) General Maintenance Obligations.
During the Term, Lessee, at its sole cost and expense, shall service, repair,
maintain and overhaul, test or cause the same to be done to the Airframe and
each Engine, Propeller and Part:
(i) so as to keep such Airframe, Engines, Propellers and Parts
in as good operating condition and repair as when delivered to Lessee on the
Delivery Date, ordinary wear and tear excepted;
(ii) so as to keep the Aircraft in such operating conditions
as may be necessary to enable a current valid Certificate of Airworthiness for
the Aircraft to be maintained in good standing at all time;
(iii) in accordance with all Airworthiness Directives issued
by the FAA and all Service Bulletins designated by the Manufacturer as
"Mandatory", in each case which are required to be complied with during the
Term; and
(iv) in accordance with the Approved Maintenance Program.
(b) Modifications/Structural Repairs.
(i) All structural repairs made to the Aircraft during the
Term of this Lease shall be made by the Lessee, at Lessee's sole cost and
expense, in accordance with the Manufacturer's approved Structural Repair Manual
or other data approved by the Manufacturer and shall be supported by appropriate
paperwork in accordance with the Applicable FAR.
(ii) Lessee shall, at its sole cost and expense, make such
alterations, modifications and additions to the Airframe or any Engine or
Propeller as may be required to be made from time to time during the Term by
Applicable Law, regardless upon whom such requirements are, by their terms,
nominally imposed. No other
<PAGE>
alterations, modifications or additions to the Airframe or any Engine, Propeller
or Part shall be made during the Term without the express prior written consent
to the Lessor.
(iii) Except for any Engine, Propeller or Part removed from
the Airframe or any Engine or Propeller in the ordinary course of maintenance,
service, repair, overhaul and testing (which shall be promptly replaced), Lessee
shall not remove any Engine, Propeller or Part from the Airframe without the
express prior written consent of Lessor.
(iv) Title to all parts incorporated on, installed in or
attached to added to the Airframe or any Engine or Propeller shall vest without
further act in the Owner and become subject to the Financing Documents and this
Lease.
(c) Maintenance of Records.
Lessee shall keep all logs, manuals, certificates, data and inspection,
modifications repair, and overhaul records which are required to be maintained
with respect to the Aircraft under to Approved Maintenance Program or under
applicable rules and regulations of the FAA, Department of Transportation or
other government agency having jurisdiction over the Aircraft.
SECTION 11. EVENT OF LOSS.
(a) Risk of Loss.
The Lessee will bear all risks of loss, theft, damage or destruction of or to
the Airframe and each Engine, Propeller and Part.
(b) Event of Loss of Aircraft.
If an Event of Loss with respect to the Airframe or the Aircraft occurs, on the
first Payment Date occurring at least 30 days after such Event of Loss (or, if
earlier, on the Expiration Date) the Lessee will pay to the Lessor the
Stipulated Loss Value and such other Rent then due and payable under the Lease.
Upon payment in full of the Stipulated Loss Value and such other Rent, if any,
the Lease will terminate and the Lessor will cause title to the Aircraft to be
conveyed to the Lessee or its designee "AS IS, WHERE IS" and without recourse or
warranty express or implied (except for a warranty against Lessor Liens).
(c) Event of Loss of an Engine, Propeller or Part.
If an Event of Loss with respect to any Engine, Propeller or Part shall occur
which does not also involve an Event of Loss with respect to the Airframe, the
Lessee will promptly replace such Engine, Propeller or Part with another engine,
propeller or part, as the case may be, of the same or an improved make and
model, the maintenance condition, maintenance history, records and pattern of
usage of which shall be acceptable to the
<PAGE>
Lessor and the Lessee will cause title to such replacement engine, propeller or
part, as the case may be, to be conveyed to the Lessor its designee free and
clear of all Liens. Upon compliance by the Lessee with the requirements to this
Section 11(c), the Lessor will cause title to the replaced Engine, Propeller or
Part to be conveyed to the Lessee or its designee, "AS IS, WHERE IS" and without
recourse or warranty, express or implied (except for a warranty against Lessor
Liens).
(d) Evidence of Conveyance.
In the event of any conveyance of title to the Aircraft or any Engine,
Propeller, or Part pursuant to this Section 11, each of the Lessor or the Lessee
will execute such documents and assurances and take such further action as the
other party may reasonably request in order to effect the conveyance of such
title and/or the subjecting of any replacement engine, propeller or part to the
Lease.
SECTION 12. INSURANCE.
(a) Required Insurance.
The Lessee, at its sole cost and expense, will at all times during the Term
maintain in effect with respect to the Aircraft, with insurers of recognized
reputation and responsibility reasonably acceptable to the Lessor, hull war
risks, spares all risks and third party liability insurance of the type, in the
amounts and covering the risks set forth below:
(i) Third Party Liability Insurance. Comprehensive aircraft
and general liability insurance against third party bodily injury or property
damage (including without limitation) contractual liability, cargo liability (up
to $1,000,000), passenger legal liability/property damage (including war risk
and allied perils clause AV52C (all paragraphs deleted except B) or equivalent
coverage and exclusive of manufacturer's product liability insurance)) with
respect to the Aircraft for a combined single limit of liability in an amount
not less than the Minimum Liability Coverage, or such greater amount as the
Lessee may carry from time to time on other similar aircraft in its fleet;
(ii) Insurance Against Loss or Damage to the Aircraft. Hull
all risk insurance for ground, taxiing and flight on an agreed value basis,
excluding war risks and allied perils (but including extended coverage against
the type of risks excluded by clauses (c), (e) and (g) of the War, Hijacking and
Other Perils Exclusion Clause (AVN 48B)), covering the aircraft for an amount
not less than the Stipulated Loss Value from time to time and spares all risk
insurance (including allied perils to the extent available) covering Engines and
Propellers and Parts temporarily removed from the Airframe.
All such insurance will be of the type usually carried by corporations engaged
in the same or a similar business, similarly situated to the Lessee and
operating similar aircraft, and will cover such other risks as are customarily
insured against by such corporations. If and to the extent that the Lessee
maintains war risk and allied perils insurance
<PAGE>
(including governmental confiscation insurance) in effect with respect to other
similar aircraft in its fleet, the Lessee will maintain such insurance in effect
with respect to the Aircraft in an amount not less than the Stipulated Loss
Value.
(b) Insurance Requirements for All Policies.
The Lessee will cause all policies of insurance carried in accordance with this
Section 12 to name the Insured Parties as additional insureds (including their
officers, directors, employees and agents with respect to liability insurance)
as their respective interests may appear (it being understood that the Insured
Parties have no operational interest). Such policies will provide with respect
to the Insured Parties that:
(i) none of their respective interests in such policies will
be invalidated by any act or omission or breach of warranty of the Lessee or of
any other named insured;
(ii) no cancellation or lapse of coverage for nonpayment of
premium or otherwise, and no material change of coverage which adversely affects
the interests of such additional insured, will be effective as to such
additional insured until 30 days (or, with respect to war risk insurance such
lesser period as may be customary in the London market for such insurance in
such area of the world) after receipt by such additional insured of written
notice from the insurers of such cancellation, lapse, or change;
(iii) the Insured Parties will have no liability for premiums,
commissions, calls, assessments or advances with respect to such policies;
(iv) the insurers waive any rights of set-off, counterclaim,
deduction or subrogation against such Insured Parties and their respective
directors, officers, employees and agents; and
(v) any other insurance which may be available to any of the
Insured Parties will not reduce the amount payable to such Insured Party under
such policies, it being warranted by each Insured Party that it will not
knowingly effect or authorize the placement of other insurance covering the same
subject matter except on a contingency or secondary basis.
Each hull policy will additionally provide that all proceeds will be
payable to the Loss Payee, provided, that any proceeds for a claim not
constituting an Event of Loss will be payable as follows: (x) so long as the
insurers have not received notice that an Event of Default has occurred and is
continuing, so much of such proceeds as do not exceed the Damage Payment
Threshold will be payable to the Lessee to be applied to the repair of the
Aircraft and (y) the balance, if any, will be payable to the Lessor.
(c) Deductibles.
The insurance required to be maintained by the Lessee pursuant to this
Section 12
<PAGE>
may contain deductible amounts in such reasonable amounts as are then
applicable to similar owned or leased aircraft in the Lessee's fleet but in no
case will such deductibles exceed the Insurance Deductible Amount per
occurrence.
(d) Application of Hull Insurance Proceeds.
Any payments received by the Lessor or the Loss Payee under policies of hull
insurance required to be maintained by the Lessee pursuant to this Section 12,
will be applied as follows:
(i) If such payments are received with respect to loss or
damage (including an Event of Loss with respect to an Engine, Propeller or Part)
not constituting an Event of Loss with respect to an Airframe, such payments
will be paid over to the Lessee or to any repairer upon receipt by Lessor of
satisfactory evidence that the repair or replacement of such loss or damage as
contemplated by the Lease has been accomplished and all amounts due in
connection with such repair or replacement has been or will be paid; and
(ii) If such payments are received with respect to an Event of
Loss with respect to an Airframe, so much of such payments as will not exceed
the amount required to be paid by the Lessee pursuant to Section 11 hereof will
be applied in reduction of the Lessee's obligations to pay such amount if not
already paid by the Lessee, and the balance, if any, of such payments will be
promptly paid over to, or retained by, the Lessee.
(e) Insurance for Own Account.
Nothing in this Section 12 will prohibit the Lessee or any of the Insured
Parties from obtaining insurance for their own account and any proceeds payable
thereunder will be payable as provided in the insurance policy relating thereto,
provided, that no such insurance may be obtained which would limit or otherwise
adversely affect the coverage or payment of any insurance required to be
obtained or maintained to this Section 12.
(f) Certificates.
Lessee shall furnish to Lessor certificates of insurance evidencing compliance
with the requirements of this Section 12.
(g) Reports, Etc.
The Lessee will begin negotiations for the renewal of each required policy at
least 30 days before its expiration. On the Delivery Date and on or prior to the
cancellation, lapse or expiration of any of the insurance required to be
maintained by this Section 12, the Lessee will deliver to the Lessor
satisfactory evidence that the Lessee has either renewed such insurance or has
obtained other insurance (which complies with the requirements of this Section
12) in replacement for such insurance together with a report signed by a firm
<PAGE>
of independent aircraft insurance brokers, appointed by the Lessee and
reasonably satisfactory to the Lessor, stating the opinion of such firm that the
insurance then carried and maintained on the Aircraft complies with the terms
hereof (including, without limitation, with respect to war risk insurance, if
required). The Lessee will cause such firm to: (i) advise each Insured Party in
writing promptly of any default in the payment of any premium and of any other
act or omission on the part of the Lessee of which such firm has knowledge and
which would in such firm's opinion invalidate or render unenforceable, in whole
or in any material part, any insurance on the Aircraft; (ii) advise each Insured
Party in writing at least 30 days prior to the termination or cancellation of,
or material adverse change in, such insurance carried and maintained on the
Aircraft pursuant to this Section 12 and (iii) confirm to the Lessor that the
terms and conditions of any provision for cancellation and automatic termination
contained in such policy are in accordance with normal market practice.
SECTION 13. LIENS.
The Lessee will not, directly or indirectly, create, incur, assume or
suffer to exist any Lien on or with respect to the Airframe or any Engine,
Propeller, or Part or title thereto or the respective rights, title and
interests of the Financing Parties or the Lessor therein or in the Lease except:
(a) the respective rights of the Lessor, the Lessee and the Financing
Parties as provided herein and any Liens created by the Financing Documents;
(b) the rights of others under agreements or arrangements to the extent
expressly permitted in Section 8(a) (ii);
(c) Liens for Taxes which are either not yet due or being contested in
good faith by appropriate proceedings provided that (i) such proceedings do not
involve any danger of the sale, forfeiture or loss of the Airframe or any
Engines, Propellers or Parts and (ii) the Lessee shall have established reserves
in an amount sufficient to satisfy such Liens; and
(d) material suppliers', mechanics', airports', workers', repairers',
employees' or other like Liens arising in the ordinary course of business and
for amounts the payment of which are either not yet due or being contested in
good faith by appropriate proceedings provided that (i) such proceedings do not
involve any danger of the sale, forfeiture or loss of the Airframe or any
Engines, Propellers or Parts and (ii) the Lessee shall have established reserves
in an amount sufficient to satisfy such Liens; and
(e) Lessor Liens;
provided, that the aggregate amount of Liens permitted by clauses (c) and (d)
will not exceed the Lien Limitation without the prior written consent of the
Lessor (Liens described in clauses (c) and (d), only to the extent the same do
not exceed in the aggregate the Lien Limitation, are referred to as "Permitted
Liens").
<PAGE>
SECTION 14. RETURN OF AIRCRAFT.
(a) Return of Aircraft.
On the Expiration Date or, earlier cancellation, expiration or termination of
this Lease (other than pursuant to Section 11), the Lessee, at its sole cost and
expense, shall, return the Aircraft and all Loose Equipment to Lessor at such
location within the continental United States as designated by Lessor, in its
sole and absolute discretion, in compliance with each of the following
provisions:
(i) the Aircraft shall be in as good operating condition,
repair and appearance (ordinary wear and tear excepted) as when delivered to the
Lessee on the Delivery Date, with all equipment, components and systems
functioning in accordance with the applicable manufacturer's specified
recommended limits;
(ii) the Aircraft shall be fully equipped and configured as of
the Delivery Date including, without limitation, with respect to the Aircraft
interior, seat covers and cushions, carpet, windows, sidewalls, bulkheads and
baggage compartments, and with the same (as identified by the manufacturer's
serial number ) Engines and Propellers installed as were originally delivered on
the Aircraft on the Delivery Date; provided however, in the event of a
replacement of any original Engine or original Propeller pursuant to Section 11,
Lessee shall return the Aircraft with such replacement Engine or Replacement
Propeller, as applicable;
(iii) the Aircraft shall have a current valid Certificate of
Airworthiness;
(iv) the Aircraft shall be airworthy and in a condition to
immediately comply without any qualification or exception for operation in
scheduled passenger revenue service in accordance with the Applicable FAR and
otherwise be in a condition which demonstrates full compliance with all of the
maintenance and repair obligations of the Lessee under Section 10 of this Lease;
(v) the Aircraft shall be in compliance (through terminating
action) with and shall have accomplished all FAA Airworthiness Directives and
Manufacturer's Service Bulletins which are designated "mandatory" and which in
either case, require the compliance on or before the Expiration Date (without
regard to any deviation, exemption, extension, or waiver which Lessee may have
obtained);
(vi) the Aircraft shall have had installed all applicable
vendor's or manufacturer's service kits delivered free of charge to the Lessee;
(vii) the Aircraft shall be in compliance with the Approved
Maintenance Program with no open, continued, deferred or placarded items or
discrepancies (including, without limitation, minimum equipment list (MEL) and
configuration deviation list (CDL) items); provided however, in the event Lessee
has
<PAGE>
been granted any deviation, exemption, extension or waiver for scheduled
maintenance with respect to any Engine, Propeller or other Part on the Aircraft
beyond the applicable manufacturer's recommended interval for such event, Lessee
shall perform a hardtime overhaul at return;
(viii) any and all damage (or repairs of damage) to the
Aircraft shall be demonstrated by Lessee to the satisfaction of the Lessor, in
Lessor's sole and absolute discretion, to be within the Manufacturer's
Structural Repair Manual limits;
(ix) the Aircraft shall be free of fuel and hydraulic leaks as
defined within the Manufacturer's limit over a five (5) consecutive hour period;
(x) the Aircraft shall be current on the Manufacturer's
recommended Corrosion Preventive Control Program (CPCP);
(xi) each Engine Line Replacement Unit (LRU) and each low
cycle fatigue unit (LCF) on an Engine shall have time remaining equal to or in
excess of the time remaining to the next scheduled overhaul for such Engine;
(xii) the Airframe shall have had freshly undergone the same
major airframe inspection and all such lesser included airframe inspections as
were performed prior to the Delivery Date;
(xiii) within the lesser of (x) the ninety (90) day period or
(x) 600 Flight Hours or cycles following return of the Aircraft in accordance
with the provisions of this Section 14, no time or calendar controlled component
on the Aircraft or any Engine, Propeller or Part shall require a schedule
overhaul or replacement, and no Engine shall require a hot section inspection;
(xiv) the Aircraft shall be free from all of Lessee's
distinctive identification (i.e. name, markings, coloring, stripes, and logos)
and the Aircraft will be re-delivered in all-over white exterior paint;
provided, however, this requirement shall not be construed to require the Lessee
to freshly paint the Aircraft unless its exterior is returned in other than
all-over white paint; and
(xv) the Airframe and each Engine, Propeller and Part shall be
free and clear of all Liens (other than Lessor's Liens).
In addition, at the time of return, Lessee shall comply with any additional
return conditions for the Aircraft set forth in the Commercial Supplement.
(b) Fuel.
At the times of inspection and return of the Aircraft, the fuel tanks on the
Aircraft shall be full.
<PAGE>
(c) Records.
(i) Upon the return of the Aircraft, Lessee shall, at its sole
cost and expense, deliver to Lessor all logs, manuals, certificates,
data and inspection, modification, repair, and overhaul records which
are required to be maintained with respect to the Aircraft under the
Approved Maintenance Program or under applicable rules and regulations
of the FAA, Department of Transportation or other government agency
having jurisdiction over the Aircraft, including, without limitation,
those set forth below:
Records
1. Current Logbooks recording total time in service for the Airframe
and each Engine and Propeller.
2. Current status of all life-limited parts on the Airframe and each
Engine and Propeller including historical records to show total time, origin and
service history.
3. Time since last overhaul, and detailed records including strip
reports for that overhaul, for all items required to be overhauled on a
specified time basis.
4. Current inspection status of all scheduled maintenance performed in
accordance with the approved program during period of lease.
5. Current status of all applicable Airworthiness Directives and
Mandatory Service Bulletins including method of compliance.
6. List of all major and minor alterations and repairs performed during
period of lease with supporting Supplemental Type Certificate, Form 337,
Engineering Order or equivalent approvals.
7. List of all serialized components changed during period of lease.
Documents
1. Current standard FAA Certificate of Airworthiness.
Manuals
1. Currently revised Aircraft Flight Manual.
2. Currently revised Crew Manual or Manufacturers Operations Manual
(Vols. 1 & 2).
3. Weight & Balance Manual with current weight statement.
<PAGE>
4. Other maintenance related manuals supplied under the contract.
5. Copy of the appropriate sections of Lessee's General Maintenance
Manual relating to maintenance and records practices.
(ii) Upon return, all such records shall be in full compliance
with the Approved Maintenance Program and the Applicable FAR. In the event of
missing or incomplete or other otherwise unacceptable records or documentation,
Lessee shall be responsible for the full cost of repeating or completing the
maintenance tasks reasonably necessary to reproduce records to a standard
acceptable to the Lessor under the Approved Maintenance Program and the
Applicable FAR.
(d) Final Inspection.
Lessee shall remove the Aircraft from service no less than thirty (30) days from
the scheduled expiration of the Term in order to permit the Lessor a reasonable
period of time to inspect the Aircraft and Aircraft records for compliance with
the return conditions contained in this Lease. Within such thirty day period,
Lessee, at its sole cost and expense, shall make the Aircraft and Aircraft
records available to Lessor for inspection ("Final Inspection") at a location
nominated by Lessor in order to verify that the condition thereof complies with
the provisions of this Section 14. In the event any required work, repairs or
services should delay the return of the Aircraft to Lessor beyond the expiration
or earlier termination of the Term of this Lease, Lessor shall notify Lessee in
writing and Lessee shall continue to pay Basic Rent and Aircraft Maintenance
Payments in the same manner as if there had been no expiration or termination of
this Lease until such required work, repair or servicing has been completed and
the Aircraft is returned to Lessor as provided in this Section 14. The period
allowed for the Final Inspection shall have such duration as to permit the
conduct by Lessor, acting diligently, of the following:
(i)inspection of all records, logs and other materials
referred to herein;
(ii) inspection of the Airframe, Engines, Propellers and
Parts; and
(iii) operational test flights and Engine health checks
inclusive of Lessor's representatives as observers as may be necessary for
Lessor to determine that the Aircraft is in full compliance with the return
conditions specified in this Lease. Lessee shall maintain adequate insurance
coverage for such flight or flights in accordance with the terms of this Lease
and such additional insurance coverage, if any, as Lessor may reasonably
require.
(e) Storage.
Upon any expiration or termination of this Lease with respect to the Aircraft,
at the written request of Lessor received by Lessee ten (10) days in advance of
the date
<PAGE>
provided for redelivery to Lessor pursuant to this Lease, Lessee shall arrange,
or shall cause to be arranged, storage of such Aircraft beyond the Term for a
period not exceeding one hundred eighty (180) days, at Lessor's risk and
expense.
(f) Return Certificate.
At the time the Aircraft is accepted for return by the Lessor, the Lessor and
the Lessee shall execute and deliver a Return Certificate in substantially the
form attached hereto as Exhibit B, with all blanks completed. In the absence of
manifest error or a condition that the Final Inspection would not have
reasonably discovered, any information set forth in the Return Certificate shall
be conclusive with respect to the condition of the Aircraft at the time of its
return.
SECTION 15. LESSEE GENERAL COVENANTS.
(a) Aircraft Information and Inspection.
The Lessee will furnish to the Lessor such information concerning the location,
condition, use and operation of, or other matters relating to, the Aircraft as
the Lessor may from time to time reasonably request, and the Lessee, at such
times as the Lessor may reasonably request, will permit any person or persons
designated by the Lessor in writing to visit the property of the Lessee to
inspect the Aircraft, its condition, use and operation, and the inspection,
modification, overhaul and other records maintained in connection therewith, and
to obtain copies of such records, at such person's or persons' expense.
(b) Financial and Other Information to be Supplied.
The Lessee agrees to furnish to the Lessor:
(i) as soon as possible and in any event within 10 days after
the occurrence of any Default or Event of Loss or any event which is expected to
result in a claim under any insurance required by Section 12 in excess of the
Claim Notification Amount, a certificate of a responsible officer of the Lessee
setting forth in reasonable detail the nature of such Default, Event of Loss or
event;
(ii) as soon as available, and in any event within 45 days
after the end of each of the first three fiscal quarters in each fiscal year of
the Lessee, a balance sheet of the Lessee as of the end of such quarter and
related statements of income, shareholders' equity and changes in financial
condition of the Lessee for such quarter and for the portion of the year ending
with the end of such quarter, certified (subject to year-end audit adjustments)
by the chief financial officer of the Lessee as having been prepared in
accordance with generally accepted accounting principles and practices;
(iii) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Lessee, a copy of the balance sheets of
the Lessee as of the end
<PAGE>
of such fiscal year and related statements of income, shareholders' equity and
changes in financial condition of the Lessee for such fiscal year, certified by
independent certified public accountants of national standing as having been
prepared in accordance with generally accepted accounting principles and
practices consistently applied (except as noted therein; provide that any
changes in accounting principles or practices must be approved by such
accountants);
(iv) prior to the beginning of each fiscal year and updated
thereafter as necessary to reflect material changes, an annual budget,
forecasting on a monthly basis the consolidated balance sheet and consolidated
statements of income and cash flows;
(v) within 45 days after the end of each quarter, reports of
aircraft summary statistics for that quarter, identified by route and fleet
type, including: passengers enplaned, passenger revenue, ASM's, RPM's, load
factor, yield, cost per ASM, break-even load factor, flight hours, block hours,
operating expenses per block hour, number of aircraft in revenue service, cities
served, daily utilization, departures scheduled, departures completed, average
stage length, average passenger haul, dispatch reliability, maintenance
delay/cancellations, daily average utilization, and average flight hours per
cycle;
(vi) from time, such other information relating to its
financial, operational or business affairs or conditions as the Lessor may
reasonable request;
(vii) as soon as possible, and in any event within 10 days,
after the Lessee obtains knowledge thereof, notice of the commencement of any
administrative or judicial proceedings by the Department of Transportation, the
FAA or any other governmental authority to suspend, revoke, terminate or
materially restrict the Lessee's status as an Certificated Air Carrier or its
Air Carrier Operating Certificate;
(viii) as soon as possible after the Lessee obtains knowledge
of any accident which is required to be reported as an "aircraft accident" as
defined in 49 CFR Part 830 connected with the use, operation or malfunction of
the Aircraft, including a summary of such "aircraft accident"; and
(ix) promptly upon request such information as may be
necessary to file any required reports with any governmental authority because
of Lessee's use or operation of the Aircraft.
(c) Corporate Existence.
The Lessee will at all times maintain its corporate existence, its rights and
status as a Certificated Air Carrier and its Air Carrier Operating Certificate.
The Lessee will not change its corporate name or operate under an assumed name
or relocate its chief executive office (as such term is defined in Article 9 of
the Uniform Commercial Code) unless it has given the Lessor thirty days prior
written notice of such action.
<PAGE>
(d) Merger, Consolidation.
The Lessee will not consolidate with or merge into any other corporation unless
the Lessee is the survivor, there is no material adverse affect on the Lessee's
financial condition or its ability to perform its obligations under the Lease
and no Default has occurred and is continuing (or would occur as a result of
such consolidation or merger).
(e) General Indemnity.
The Lessee hereby agrees to assume liability for, and to defend, indemnify,
protect, save and keep harmless each Indemnified Party on an after-tax basis
from and against, any and all claims, proceedings, losses, liabilities, suits
judgments, costs, expenses (including reasonable attorneys fees and expenses),
penalties or fines (each a "Claim") other than Claims arising out of the
liability of Lessor as a manufacturer, repairer, supplier, or servicing agent of
the Aircraft, which may at any time be suffered or incurred, directly or
indirectly, as a result of or connected with the leasing, possession, use,
maintenance, repair or operation of the Aircraft during the Term of the Lease.
Notwithstanding the foregoing, the Lessee will not be required to indemnify an
Indemnified Party for any Claim solely attributable to (i) such Indemnified
Party's own willful misconduct or gross negligence, (ii) a Lessor Lien, (iii)
any breach or default in a Financing Document which does not result from a
Default under the Lease, (iv) acts, omissions or events that occur after full
and final compliance by the Lessee with all the terms of this Lease unless such
claim arises out of and relates to an act, omission or event occurring prior to
the such date, (v) acts, omissions or events that occur after the date on which
the Aircraft or any Part of the Aircraft is no longer subject to this Lease, or
(vi) any failure on the part of Lessor to comply in any material respect with
any term of this Lease or any agreement relating hereto.
(f) Taxes Against Lessor or The Aircraft.
(i) Lessee agrees that each rental payment as required by
Section 5 of this Sublease shall be free and clear of withholdings of any nature
whatsoever, and in the event Lessee shall be required by law to make any such
withholdings from any such payments (x) the sum payable shall be increased as
may be necessary so that after making all required payments Lessor receives an
amount equal to the sum it would have received had no withholding been required,
(y) the Lessee shall make such withholdings and (z) the Lessee shall pay the
full amount withheld to the relevant taxation authority or other authority in
accordance with relevant law and notify Lessor of the amount of such withholding
tax, and provide Lessor with a receipt or other document appropriately
evidencing payment of such withholding tax. In addition and without prejudice to
the foregoing sentence, Lessee hereby assumes liability for and shall pay on
demand, indemnify, protect, defend, save and keep Lessor harmless on an
after-tax basis from and against any and all fees and Taxes together with any
penalties, fines or interest thereon (all of the foregoing being herein
collectively called "Impositions") imposed against Lessor, Lessee or the
Aircraft or any part thereof or interest therein by any Federal, state or local
government or taxing authority or by any foreign government, foreign
<PAGE>
governmental subdivision, or other foreign or international taxing authority:
(w) upon or with respect to the Aircraft or any part thereof or any interest in
the Aircraft or any part thereof; or (x) upon or with respect to the
manufacture, acquisition, construction, importation, installation, purchase,
delivery, ownership, lease, sublease, possession, rental, use, operation,
transportation, financing, insuring, improvement, return sale, replacement,
storage or transfer of title, return of other disposition of the Aircraft or any
part thereof; or (y) upon or with respect to the rentals, receipts, earnings or
gains arising from the Aircraft or any part thereof or the income or proceeds
with respect to the Aircraft; or (z) upon or with respect to this Sublease or
any other Financing Document or any payment made pursuant thereto including the
performance of any of the transactions, obligations or indemnities contemplated
hereby and thereby, or the issuance, acquisition or transfer of the Notes,
excluding, however;
(A) Impositions which are based on, or measured by, the net income of Lessor to
the extent imposed by the United States of America;
(B) Impositions which are based on, or measured by, the net income of Lessor to
the extent imposed by any state, city or municipality in which Lessor's
principal office is located or by any political subdivision of such state, city
or municipality;
(C) Impositions which are imposed with respect to any period, or with respect to
any act, occurring after the termination of this Sublease and the return of the
Aircraft to Lessor in the manner and condition required by Section 14 hereof and
otherwise in accordance with the provision of this Sublease;
So long as no Default or Event of Default has occurred and is continuing, any
Impositions imposed as a result of a transfer of other disposition by Lessor of
its interest in the Aircraft or the Sublease or any part thereof to the extent
such Impositions exceed those that would have been imposed had not such transfer
or disposition occurred; provided, that Lessee agrees to pay any such
Impositions referred to in the foregoing clauses which are in substitution for
or relieve Lessor from any Impositions or indemnity therefor which Lessee would
otherwise be obligated to pay under the terms of this Section 15(f) and
provided, further, that, with respect to this Section 15(f), if any Imposition
for which Lessee would be required to indemnify Lessor, if imposed on Lessor, is
imposed on another Indemnified Party, Lessee shall indemnify Lessor for the
amounts payable by Lessor to such other Indemnified Party under the Head Lease
or any other Financing Document;
Intangible or similar taxes; and
(F) Taxes that result from the willful misconduct or gross negligence of an
Indemnified Party or a breach of any Indemnified Party of any representation,
warranty or covenant of such Indemnified Party set forth in this Lease or any
related document, provided that this clause (F) shall not apply if such breach
results from a breach by Lessee of any of its representations, warranties or
covenants, and Lessor or any other Indemnified Party, to the extent permitted by
law, shall have no duty to avoid any such
<PAGE>
Taxes or mitigate the damages that would otherwise follow from such breach.
(ii) With respect to any payment or indemnity under this
Section 15(f), such payment or indemnity shall include any amount necessary to
hold Lessor harmless on a net after-tax basis (taking into account any tax
benefit or detriment realized by Lessor as a result of such payment) from all
taxes required to be paid by Lessor with respect to such payment or indemnity
under the laws of any Federal, state or local government or taxing authority in
the United States of America or any territory or possession thereof or any
foreign government, foreign governmental subdivision, or foreign or
international taxing authority. In case any report or return is required to be
filed with respect to any obligation of Lessee, Lessee will promptly notify
Lessor of such requirement and to the extent permitted by Lessor, Lessee will
either make such report or return in such manner as will show the ownership of
the Aircraft in Lessor or will notify Lessor of such requirement and make such
report or return in such manner as shall be satisfactory to Lessor.
(iii) Upon the commencement of any proceeding (including the
written claim or written threat of any proceeding) involving one or more
Impositions with respect to which Lessee has an indemnification obligation
pursuant to this Section 15(f), Lessor shall promptly, upon receiving written
notice thereof, given notice of such commencement to Lessee; provided, however,
that the failure by Lessor to so notify Lessee shall not relieve Lessee of any
liability that it may have hereunder but, any payment by Lessee under this
Section 15(f) shall not be deemed to constitute a waiver or release of any right
or remedy (including any remedy of damages) which it may have against Lessor if,
solely as a result of the failure by Lessor to give it notice in accordance with
this paragraph 15(f)(iii), it is unable to contest the liability indemnified
against. Upon receipt of an indemnity satisfactory to Lessor, the Lessee shall
be entitled to require that such claim be contested, at the expense of the
Lessee (including, without limitation, all costs, expenses, losses, legal and
accounting fees and disbursements), by, at the option of Lessor's sole
discretion (after consultation with the Lessee), (x) resisting payment thereof
if Lessor shall determine such course of action to be appropriate, (y) not
paying the same except under protest, if protest is necessary or proper, or (z)
if payment is made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and/or judicial proceedings. In addition, the Lessee
shall be entitled (A) in any proceeding that involves solely a claim for one or
more Impositions indemnified under this Section 15(f) to assume responsibility
for and control thereof; (B) in any proceeding involving a claim for one or more
Impositions indemnified under this Section 15(f) and other claims related or
unrelated to the transactions contemplated by the Sublease, to assume
responsibility for and control of such claim for an Imposition to the extent
that the same may be and is severed from such other claims (and Lessor shall use
reasonable efforts to obtain such severance unless, in the opinion of counsel
for Lessor, such severance or assumption of responsibility and control by the
Lessee may adversely affect the resolution of such other claims); or (C) in any
other case, to be consulted by Lessor (who shall consider, in good faith, all
reasonable requests of the Lessee) with respect to all proceedings; provided,
however, that the Lessee shall, if so requested by Lessor, assume responsibility
for and control of such claim and the portion of the cost of defending any such
nonseverable
<PAGE>
claim not indemnified against which is allocated to Lessor shall be for the
account of Lessor. Notwithstanding any of the foregoing, (A) the Lessee shall
not be entitled to assume the responsibility for and control of any proceedings
if (x) such Imposition relates in any way to the business of Lessor, other than
the ownership and leasing of the Aircraft and Engines, or (y) the claims, in the
opinion of independent counsel for Lessor, have a possibility of compromising or
jeopardizing any substantial interest of Lessor other than those relating to the
ownership and leasing of the Aircraft and Engines, and (B) Lessor shall not be
required to contest, or continue to contest after such contest has begun, any
Imposition if (w) a Default or any Event of Default shall have occurred and be
continuing under the Sublease, (x) the Impositions involved are less than
$50,000 in the aggregate in the period of one year provided, that such amount
shall be reduced by the amount of any tax indemnity payments made in respect of
such Imposition with respect to prior taxable periods and by the estimated
amount, in the opinion of Lessor, of any such tax indemnity payments for
subsequent taxable period, (y) such proceedings, in the opinion of Lessor, will
involve any possibility of the sale, forfeiture or loss of the Aircraft or any
part thereof, or the Lessor has exercised or is in the process of exercising any
of the remedies contained in Section 18 of the Head Lease, or (z) the Lessee
shall not have furnished Lessor with an opinion of independent counsel
reasonably satisfactory to Lessor to the effect there exists a meritorious basis
for contesting such Imposition. Lessor may participate at its own expense in any
proceeding controlled by the Lessee pursuant to the preceding provision. If
Lessor shall elect to contest any claim by paying the Impositions and seeking a
refund thereof, then the Lessee shall furnish Lessor with the funds necessary to
pay the Impositions.
Nothing contained in this Section 15(f) shall require Lessor to contest or
permit the Lessee to contest a claim which it would otherwise be required to
contest pursuant to this Section 15(f) if Lessor shall waive payment by the
Lessee of any amount that might otherwise be payable by the Lessee under this
Section 15(f) by way of indemnity in respect of such claim.
(iv) Lessor shall supply the Lessee with such information
requested by the Lessee as is necessary or advisable for the Lessee to control
or participate in any proceeding to the extent permitted by this Section 15(f).
Unless a Default or an Event of Default has occurred and is continuing under the
Sublease, Lessor shall not enter into a settlement or other compromise with
respect to any Imposition which it is required to contest hereunder without
prior written consent of the Lessee, which consent shall not be unreasonably
withheld or delayed, unless Lessor waives its right to be indemnified with
respect to such Imposition under this Section 15(f), and any such settlement or
concession of such Imposition by Lessor without the Lessee's prior written
consent shall be deemed a release of the Lessee of its obligation to indemnify
Lessor solely with respect to such Imposition.
(v) If Lessor shall obtain a repayment of any Imposition paid
by the Lessee pursuant to this Section 15(f), and if no Default or Event of
Default under the Sublease shall have occurred and be continuing, Lessor shall
promptly pay to the LESSEE the amount of such repayment, together with any
interest (other than interest for
<PAGE>
the period, if any, after such Imposition was paid by Lessor) until such
Imposition was paid or reimbursed by the Lessee; provided, however, that such
amount shall in no event be payable before such time as the Lessee shall have
made all payments and indemnities then due under this Sublease; provided,
further, however, that the aggregate amount of all payments made by the Lessee
pursuant to this Section 15(f) hereof with respect to such Imposition.
(vi) If Lessor utilizes an Imposition indemnified under this
Section 15(f) which is imposed by any foreign government or taxing authority or
governmental subdivision of a foreign country as a credit against United States
Federal or any other income taxes otherwise payable by Lessor assuming for this
purpose that Lessor utilizes first, all foreign taxes (including foreign taxes
which are carried over to the taxable year for which a determination is being
made other than those arising out of the transactions contemplated by this
Sublease), then Lessor shall pay to the Lessee an amount equal to the reduction
in its United States Federal or any state income taxes resulting from such
utilization; provided, however, that the amount payable with respect to any
Imposition pursuant to this Section 15(f)(vi) shall not exceed the amount
previously paid by the Lessee with respect to such Imposition pursuant to this
Section 15(f). If the utilization as a credit by Lessor of such Imposition later
results in (x) the expiration of any foreign tax credit carryovers or carrybacks
of Lessor that would not otherwise have expired, or (y) the inability of Lessor
to use another foreign tax as a credit against United States Federal income
taxes for a particular year if such tax would otherwise have been utilized
(either in the current year or by way of carryback or carryover), then the
Lessee shall, upon demand, pay to Lessor the amount of such Impositions. Any
determination as to the utilization of Impositions as a credit shall be made in
good faith by Lessor, which determination shall be conclusive and binding on the
Lessee in the absence of manifest error.
(vii) The Lessee agrees to use its best efforts to obtain
official receipts indicating the payment of all foreign taxes that are subject
to indemnification under this Section 15(f) and shall promptly send to Lessor
each such receipt obtained by the Lessee.
In the event Lessee shall fail to make any payment or to do any act as herein
provided, then Lessor shall have the right, but not the obligation, without
notice to or demand upon Lessee, and without releasing Lessee from any
obligation hereunder, to make or do the same, and to pay, purchase, contest or
compromise any encumbrance, charge or lien which in Lessor's judgment places the
Head Lessor's title to the Aircraft, any Financing Party's security interest in
the Aircraft, Lessor's leasehold interest in the Aircraft, or Lessee's
possession of the Aircraft in jeopardy and in exercising any such rights, incur
any liability and expend whatever reasonable amount Lessor, the Head Lessor or
such Financing Party in their respective absolute discretion may deem necessary
therefore. All sums so incurred or expended or reimbursed by Lessor shall be,
without demand, immediately due and payable by Lessee and shall bear interest at
the Overdue Rate.
(ix) The provisions of this Section shall survive the
expiration or termination of this Sublease and the other Operative Documents but
only to the extent
<PAGE>
that the event or the last of a series of events giving rise to any Imposition
imposed against Lessor shall have occurred prior to the return of the Aircraft
to Lessor upon the expiration or termination of this.
(x) For purposes of Section 15(e) and this Section 15(f),
"Lessor" shall include all corporations making a consolidated or combined return
in which Lessor is included and the agents, employees, servants, successors and
assigns of any thereof.
(xi) Lessee further agrees that neither Lessee, nor any
affiliate thereof, nor any user or person in possession of the Aircraft will
take, directly or indirectly, any action or any position on any tax return or
other document inconsistent with the assumptions in Section 1 of the Tax
Indemnification Agreement and the Lessee and each affiliate of Lessee and each
user or person in possession of the Aircraft will file those returns, take those
actions and execute those documents that may be reasonably necessary to
facilitate accomplishing the intent underlying those assumptions. In addition,
without limiting the generality of the foregoing, the Lessee shall furnish
Lessor within 30 days after the end of each calendar year, included in whole or
in part in the term, a report with respect to the location of the Aircraft
during such calendar year in sufficient detail to enable the Head Lessor to
determine the portion of income and deductions with respect to the transaction
approximately treated as allocable to the United States within the meaning of
Section 861 of the Code.
(g) Further Assurances.
The Lessee will promptly execute and deliver such further documents and
assurances and take such further action as the Lessor may from time to time
reasonable request in order effectively to carry out the intent and purpose of
the Lease.
SECTION 16. EVENTS OF DEFAULT
The following events will constitute Events of Default:
(a) The Lessee shall fail to make any payment of Rent when the same
shall have become due;
(b) The Lessee shall fail to carry and maintain insurance on or with
respect to the Aircraft in accordance with the provisions of Section 12; or
(c) The Lessee shall fail to perform or observe any covenant, condition
or agreement to be performed by it under Section 8(a), Section 9(c), Section 13,
Section 15(c), Section 15(d) or Section 18(e)(i); or
(d) The Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it hereunder and such
failure shall continue unremedied for a period of 30 days; or
(e) Any representation or warranty made by the Lessee in the Lease
shall
<PAGE>
prove to have been incorrect in any material respect at the time made; or
(f) A case under the Federal Bankruptcy Code shall have commenced with
respect to the Lessee or any event or condition shall have occurred which would
permit a court to order the commencement of a case under Section 303 of the
Federal Bankruptcy Code against the Lessee; or
(g) The FAA or the Department of Transportation or any other
governmental authority shall have suspended, revoked, terminated or materially
restricted the Lessee's rights or status as a Certificated Air Carrier or its
Air Carrier Operating Certificate; or
(h) The Lessee shall be in default (i) in respect of any obligation for
borrowed money or any lease (whether a finance lease or an operating lease) of
any aircraft or other equipment material to the Lessee's operations or (ii) in
respect of any other agreement with the Lessor or any of its Affiliates; or
(i) Any event or condition shall occur which, in the reasonable opinion
of the Lessor, constitutes or results in a material adverse change in the
Lessee's financial condition or the Lessee's ability to perform its obligations
under the Lease; or
(j) Any security, deposit, guaranty or other credit enhancement
required by the Commercial Supplement shall lapse, cease to be maintained or
become unenforceable (or Lessee shall assert that the same is unenforceable) in
whole or in any material part; or
(k) Any additional Event of Default specified in the Commercial
Supplement shall have occurred and be continuing.
SECTION 17. REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter
so long as the same shall be continuing, the Lessor may, at its option, declare
the Lease to be in default by a written notice to the Lessee (provided that the
Lease shall be deemed to have been declared in default without the necessity of
such written notice upon the occurrence of any Event of Default described in
paragraph (f) of Section 16 hereof) and at any time thereafter, so long as the
Lessee shall not have remedied all outstanding Events of Default, the Lessor may
do one or more of the following as the Lessor in its sole discretion shall
elect, to the extent permitted by, and subject to compliance with any mandatory
requirements of, Applicable Law then in effect:
(a) cause the Lessee, upon the written demand of the Lessor and at the
Lessee's expense, to return promptly all or such part of the Aircraft as the
Lessor may so demand to the Lessor or its order in the manner and condition
required by, and otherwise in accordance with all the provisions of Section 14
as if the Aircraft were being returned at the end of the Term, or the Lessor, at
its option, may enter upon the premises where all or any part of the Aircraft is
located and take immediate possession of and remove the same by summary
proceedings or otherwise, all without liability accruing to the Lessor
<PAGE>
for or by reason of such entry or taking of possession or removal, whether for
the restoration of damage to property caused by such taking or otherwise; or
(b) hold, use, operate, lease to others or keep idle all or any part of
the Airframe or such Engine as the Lessor, in its sole discretion, may
determine, all free and clear of any rights of the Lessee except as hereinafter
set forth in this Section 17 and without any duty to account to the Lessee with
respect to such action or inaction or for any proceeds with respect thereto,
except to the extent required by paragraph (d) below if the Lessor elects to
exercise its rights under such paragraph (d) in lieu of its rights under
paragraph (c) below; or
(c) whether or not the Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under paragraph (a) or paragraph (b)
above with respect to all or any part of the Aircraft, the Lessor, by written
notice to the Lessee specifying a Payment Date, may demand that the Lessee pay
to the Lessor, and the Lessee shall pay the Lessor, on such Payment Date, as
liquidated damages for loss of a bargain and not as a penalty (in lieu of the
Basic Rent due on such Payment Date and for the remainder of the Term), an
amount equal the excess, if any of the net present value (discounted at the
interest rate set forth in Federal Reserve Statistical Release H.15(519) for
Treasury constant maturities having a maturity nearest to the Expiration Date)
of the Basic Rent which would have been payable to and including the Expiration
Date under the Lease had the Lease not been declared in default minus the net
present value (discounted as aforesaid) of the fair market rental value of the
Aircraft for such period; or
(d) in the event Lessor, pursuant to paragraph (b) above, shall have
leased the Aircraft, in lieu of exercising its rights under paragraph (c) above
with respect to the Aircraft, the Lessee may, if is shall so elect, demand that
the Lessee pay the Lessor, and the Lessee shall pay to the Lessor, on the date
of such lease, as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the Basic Rent due on such Rent payment Date and for the remainder
of the Term), an amount equal to the excess, if any of the net present value
(discounted as aforesaid) of the basic rent payable under such lease for the
period ending on the earlier of its scheduled term or the Expiration Date; or
(e) the Lessor may cancel the Lease, or may exercise any other right or
remedy which may be available to it under Applicable Law or proceed by
appropriate court action to enforce the terms or to recover damages for the
breach hereof. Any payment of liquidated damages under paragraph (c) or (d)
above shall be deducted from any award of damages herein.
In addition, the Lessee shall be liable, except as otherwise provided
in paragraphs (c) and (d) above, for any and all unpaid Rent due hereunder
before, after or during the exercise of any of the foregoing remedies and for
all legal fees and other costs and expenses incurred by reason of the occurrence
of any Event of Default or the exercise of the Lessor's remedies with respect
thereto, including all costs and expenses incurred in connection with the
retaking or return of the Aircraft in accordance with the terms of Section 14 or
in placing Aircraft in the condition and airworthiness required by such
<PAGE>
Section. For purposes of paragraph (c) above, "fair market rental value" shall
be the amount which a lessee, under no compulsion to lease, would agree to pay
for the lease of the Aircraft in its then existing condition for a period ending
on the Expiration Date. Except as otherwise expressly provided above, no remedy
referred to in this Section 17 is intended to be exclusive, but each shall be
cumulative and in addition to any other remedies.
SECTION 18. MISCELLANEOUS
(a) Applicable Law.
The Lease will in all respects be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia (excluding the conflict laws provisions
thereof).
(b) Notices.
Unless otherwise specifically provided herein, all notices required or permitted
by the terms hereof will be in writing and will be deemed to have been duly
given when delivered personally or otherwise actually received or five days
after being deposited in the United States mail, registered, postage prepaid,
addressed if to the Lessor or the Lessee at the address for notices set forth
below its signatures to the Lease and if to any Financing Party at the address
set forth in the Commercial Supplement or pursuant to Section 18(e), or at such
other place as any such party may designate by notice given in accordance with
the Section to the other parties.
(c) Judicial Proceedings
(i) Any judicial proceeding brought against the Lessee with
respect to the Lease may be brought in any court of competent jurisdiction in
the Commonwealth of Virginia, and, by execution and delivery of the Lease, the
Lessee (x) accepts, generally and unconditionally, the nonexclusive jurisdiction
of such courts and any related appellate court, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with Lease and (y)
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or preceding brought in such a court or that such court is
an inconvenient forum. The Lessee hereby waives personal service of process and
consents that service of process upon it may be made by certified or registered
mail, return receipt requested, at its address specified or determined in
accordance with the provisions of Section 18(b), and service so made will be
deemed completed on the third Business Day after such service is deposited in
the mail. Nothing herein will affect the right to serve process in any other
manner permitted by law or will limit the right of the Lessor to bring
proceedings against the Lessee in the courts of any other jurisdiction.
(ii) Any judicial proceeding by the Lessee against the Lessor
involving, directly or indirectly, any matter in any way arising out of, related
to, or connected with the Lease will be brought only in a court located in the
Commonwealth of
<PAGE>
Virginia.
(iii) The Lessee and the Lessor hereby waive trial by jury in
any judicial proceeding to which they are both parties involving, directly or
indirectly, any matter (whether sounding in tort, contract or otherwise) in any
way arising out of, related to, or connected with the Lease or the relationship
established hereunder.
(d) Unenforceability.
Any provision of the Lease which is prohibited or unenforceable in any
jurisdiction will, as to such jurisdiction be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction will
not invalidate or render unenforceable such provision in any other jurisdiction.
(e) Assignment.
(i) Prohibition of Assignment by the Lessee. The Lessee will
not assign, convey or otherwise dispose of any of its rights or obligations
under the Lease without first obtaining the prior written consent of the Lessor
and the Financing Parties, which consent from the Lessor sahll not be
unreasonably witheld.
(ii) Assignment by the Lessor. The Lessor may, without the
consent of the Lessee, assign any of its rights or obligations under the Lease
or any of its right, title or interest in and to the Aircraft, including
(without limitation) pursuant to a sale-leaseback, a securitization or mortgage
financing pursuant to which the rights of any head lessor or secured party may
be superior to the rights of the Lessee hereunder in the event that the Lessor
defaults under its obligations thereunder. The Lessor will promptly notify the
Lessee of any such assignment and the Lessee agrees to promptly execute and
deliver in connection with any such assignment such documents and assurances
(including, without limitation, a consent to Assignment) and to take such
further action as the Lessor may reasonably request to establish or protect the
rights and remedies created or intended to be created in favor or any assignees
in connection with any such assignment.
(f) Lessor's Rights to Perform for the Lessee.
If the Lessee fails to perform or observe any covenant, condition or agreement
to be performed or observed by the Lessee under the Lease, the Lessor may
perform or observe such covenant, condition or agreement at the cost and expense
of the Lessee, and the Lessee will reimburse the Lessor for such cost and
expense on demand.
(g) Survival.
The Lessee's obligations to indemnify the Lessor and the Financing Parties set
forth in Sections 15(e) and 15(f) will survive the termination or other
cancellation of the Lease
<PAGE>
and the return of the Aircraft pursuant to Section 14.
(h) Integrated Agreement.
The Lease embodies the entire agreement and understanding between the Lessor and
the Lessee relating to the lease of the Aircraft and other items to be delivered
hereunder. Any other previous oral or written communications, representations,
agreements or understandings between the Lessor and the Lessee with respect to
the leasing of the Aircraft are superseded and canceled by the Lease.
(i) Waivers, headings.
No term or provision of the Lease may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought. The Lease will constitute an agreement of lease, and nothing contained
herein will be construed as conveying to the Lessee any right, title or interest
in the Aircraft except as lessee only. The section and paragraph headings in the
Lease and the table of contents are for convenience or reference only and will
not modify, define, expand or limit any of the terms or provisions hereof and
all references herein to numbered sections, unless otherwise indicated, are to
sections of the Lease.
(j) Time.
Time is of the essence.
(k) Counterparts.
This Operating Lease, the Acceptance Supplement and the Commercial Supplement
may be signed in any number of counterparts, each of which will be an original,
with the same effect as if the signatures thereto were upon the same instrument.
[The remainder of this page is intentionally blank.]
IN WITNESS WHEREOF, this Operating Lease [920] has been executed and delivered
by the duly authorized representatives of the Lessor and the Lessee as of the
date hereof.
Jet Acceptance Corporation
By:_____________________
Name:
Title: Vice President
Address for Notices:
15000 Conference Center Drive
Suite 200
<PAGE>
Chantilly, Virginia 20151
Attn: Vice President, Commercial
Address for Payments:
All payment of Rent should
be sent as follows:
CITIBANK
Wilmington, Delaware
Routing No. 031100209
Account No. 3855-8704
for British Aerospace Asset Management Turboprops
CCAIR, Inc.
By:______________________
Name:
Title:
Address for Notices:
4700 Yorkmont Road
Suite 205
Charlotte, North Carolina 28208
Attention: President
Receipt of this original counterpart of the foregoing Operating Lease [920] is
hereby acknowledged this ___ day of ____________, 199__.
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION,
Security Trustee
By: _______________________
Title: ______________________
Exhibit A
Form of Acceptance Supplement
ACCEPTANCE SUPPLEMENT [920], dated December __, 1997, between Jet
Acceptance Corporation, a Delaware corporation, as lessor (the "Lessor"), and
CCAIR, Inc., a Delaware corporation, as lessee (the "Lessee").
WHEREAS, the Lessor and the Lessee have entered into that certain
Operating Lease [920], dated as of November 24, 1997 (the "Operating Lease";
capitalized terms used herein without other definition have the respective
meanings set forth in the
<PAGE>
Operating Lease) which provides for the acceptance of the Aircraft to be
evidenced by the execution and delivery of an Acceptance Supplement;
WHEREAS, the Lessor has tendered the Aircraft to the Lessee for
acceptance under the Lease and the Lessee has agreed to accept the Aircraft for
lease under the Lease;
NOW THEREFORE, the Lessor and the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee under the Lease
and the Lessee hereby accepts and leases from the Lessor under the Lease the
Aircraft more fully described in Schedule I hereto at ______ (time) on the date
hereof at _______ (location).
2. Unless sooner canceled or terminated in accordance with the terms of
the Lease, the Lease will terminate on January 1, 1999 (the "Expiration Date").
3. On the date hereof, the remaining life of the time and cycle limited
parts of the Aircraft is as set forth in Schedule II hereto.
4. The Aircraft has been delivered with the logs, manuals,
certificates, data and inspection, modification, repair and overhaul records
listed in Schedule III hereto and the loose equipment listed in Schedule IV
hereto.
5. The Lessee acknowledges that the Aircraft conforms to the Lessee's
requirements with the exception of the items listed in the work package set
forth in Schedule V hereto and that the Lessee has accepted the Aircraft under
the Lease "AS IS, WHERE IS". Lessor and Lessee, after Lessee's inspection of the
Aircraft at the maintenance facility, shall make any changes to the Schedule V
work package necessary for the Aircraft to meet airworthiness and FAA Part 121
equipment requirements on the Delivery Date. Lessor and Lessee shall sign a
delivery receipt incorporating such revised Schedule V and evidencing Lessee's
irrevocable acceptance of the Aircraft.
6. The Lessee confirms that the Delivery Date is the date hereof.
7. Subject to the provisions of Section 1(d) of the Operating Lease,
all of the terms and provisions of the Operating Lease are incorporated in this
Acceptance Supplement to the same extent as if fully set forth herein.
[Signatures to follow on next page]
IN WITNESS WHEREOF, this Acceptance Supplement [920] has been executed and
delivered by the duly authorized representatives of the Lessor and the Lessee as
of the date hereof.
Jet Acceptance Corporation
<PAGE>
By_____________________
Name:
Title: Vice President
CCAIR, Inc.
By_____________________
Name:
Title:
Schedule I Aircraft Description
Airframe:
Manufacturer: British Aerospace
Model: Jetstream Super 31 (3201)
Serial Number: 920
U.S. Registration Number: N920AE
Engines:
Manufacturer: Garrett AiResearch
Model: TPE331-12UAR-704H
Serial Numbers: P66251 and P66288
Propellers:
Manufacturer: McCauley
Model: 4HFR34C653/L106FA-0
Serial Numbers: 902204 and 902206
Schedule II Time and Cycles
On the Delivery Date, the time and cycles on the Airframe, Engines and
Propellers were as follows:
<PAGE>
Schedule III Aircraft Documentation
The following documentation was delivered with the Aircraft:
Schedule IV Loose Equipment
The following Loose Equipment was delivered with the Aircraft:
Schedule V Work Package
Exhibit B Form of Return Certificate
RETURN CERTIFICATE [920], dated ______, ___, between Jet Acceptance
Corporation, a Delaware corporation, as lessor (the "Lessor"), and CCAIR, Inc.,
a Delaware corporation, as lessee (the "Lessee").
WHEREAS, the Lessor and the Lessee have entered into that certain
Operating Lease [920], dated as of November 24, 1997 (the "Operating Lease";
capitalized terms used herein without other definition have the respective
meanings set forth in the Operating Lease);
WHEREAS, the Lessee has on the date hereof tendered the Aircraft for
return to the Lessor pursuant to Section 14 of the Lease and the Lessor has
agreed to accept the return of the Aircraft;
NOW THEREFORE, the Lessor and the Lessee hereby agree as follows:
1. the Lessee hereby redelivers to the Lessor the Aircraft more fully
described in Schedule I hereto on _________(date and time) at
________________(location).
2. On the date hereof, the remaining life of the time and cycle limited
parts of the Aircraft is as set forth in Schedule II hereto.
3. The Aircraft has been returned with the logs, manuals, certificates,
data and inspection, modification, repair and overhaul records listed in
Schedule III hereto and the loose equipment listed in Schedule IV hereto.
4. The Lessor hereby accepts the return of the Aircraft and confirms to
the Lessee that, except as set forth in Schedule V hereto, the Aircraft has been
returned in compliance with Section 14 of the Lease.
<PAGE>
IN WITNESS WHEREOF, this Return Certificate [920] has been executed and
delivered by the duly authorized representatives of the Lessor and the Lessee as
of the date hereof.
Jet Acceptance Corporation
By:___________________________
Name:
Title:
CCAIR, Inc.
By:___________________________
Name:
Title:
[Each of the Schedules to this Return Certificate are to be initialed by the
Lessor and the Lessee.]
Schedule I Aircraft Description
Airframe:
Manufacturer: British Aerospace
Model: Jetstream Super 31 (3201)
Serial Number: 920
U.S. Registration Number:
Engines:
Manufacturer: Garrett AiResearch
Model: TPE331-12
Serial Numbers:
Propellers:
Manufacturer: McCauley
<PAGE>
Model:
Serial Numbers:
Schedule II Time and Cycles
On the date of return of the Aircraft, the time and cycles on the Airframe,
Engines and Propellers were as follows:
Schedule III Aircraft Documentation
The following Aircraft Documentation was returned with the Aircraft:
Schedule IV Return Condition Discrepancies
[Discrepancies or reservations to be listed or "None" should be indicated].
Commercial Supplement [920]
COMMERCIAL SUPPLEMENT [920], dated November 24, 1997 between Jet
Acceptance Corporation, a Delaware corporation, as lessor (the "Lessor"), and
CCAIR, Inc., a Delaware corporation, as lessee (the "Lessee").
WHEREAS, the Lessor and the Lessee have entered into that certain
Operating Lease[920], dated as of November 24, 1997 (the "Operating Lease";
capitalized terms used herein without other definition have the respective
meanings set forth in the Operating Lease), which Operating Lease contemplates
that certain terms will be set forth in a Commercial Supplement;
NOW THEREFORE, the Lessor and the Lessee hereby agree as follows:
Section 1. Definitions. The following terms will have the meanings set
forth below for all purposes of the Lease:
"Additional Financing Parties" mean each of the Persons specified as an
"Additional Financing Party" on Schedule I or other Persons which the Lessor
from time to time notifies Lessee pursuant to Section 18(e) of the Lease are to
be an Additional Financing Party.
<PAGE>
"Aircraft Maintenance Payment" means the applicable amount per Flight
Hour or Cycle payable monthly in arrears with respect to the Airframe, Engines
and Propellers as specified in Schedule I hereto.
"Approved Engine Service Plan" means an agreement, in form and
substance reasonably satisfactory to the Lessor, with the Manufacturer of the
Engines or such other third party maintenance provider reasonably satisfactory
to the Lessor, providing for scheduled and unscheduled maintenance of the
Engines, as the same may be amended, modified or supplemented from time to time
with the consent of the Lessor.
"Approved Maintenance Program" means the Manufacturer's recommended
maintenance program with respect to the Aircraft as approved by the FAA for use
by the Lessee, which maintenance program shall require, inter alia, that the
Lessee maintain (x) each Engine on a maintenance schedule which incorporates
each Major Shop Visit and (y) each other time controlled component on the
Aircraft on a maintenance schedule which incorporates hardtime overhauls at an
interval which is no greater than that which is recommended for such event by
the component's manufacturer.
"BAAM" means British Aerospace Asset Management, Inc., a Delaware
corporation formerly known as JSX Capital Corporation.
"BAI Term Sheet" means the BAI Term Sheet signed by British Aerospace,
Inc. (now British Aerospace Holdings, Inc. as successor in interest), Lessor and
Lessee as incorporated into The Plan by the Order Confirming Plan entered by the
Bankruptcy Court for the Western District of North Carolina in the case In Re:
CCAir, Inc., No. C-B-90-30927.
"Basic Rent" means all rent payable pursuant to Section 5(a) of the
Operating Lease and, with respect to any Payment Date, the amount set forth in
Schedule I hereto with respect to such Payment Date.
"British Aerospace Entities" means, collectively and individually,
Lessor, British Aerospace Holdings, Inc. and BAAM.
"Cycle" shall mean as that term is defined by the applicable
Manufacturer.
"Damage Threshold Amount" means the amount set forth in Schedule I
hereto.
"Delivery Location" means Kingman, Arizona or any other location
mutually agreed by the parties.
"Estimated Delivery Date" means December 23, 1997.
"Expiration Date" means the date specified in Schedule I hereto and the
Acceptance Supplement.
<PAGE>
"Fair Market Value" means, with respect to Major Shop Visit or hard
time overhaul of any Aircraft component, including without limitation, any
Engine or Propeller, that price which is the arithmetic mean price then
obtainable for such service (exclusive of shipping and insurance) from three FAA
approved service centers none of which is affiliated with the Lessee, two of
which shall selected by the Lessor and one of which shall be selected by the
Lessee; provided however each such quote shall be stated in writing by the
vendor.
"Final Delivery Date" means March 23, 1998.
"Financing Documents" means each of the documents or agreements
specified as "Financing Documents" on Schedule I or such other agreements or
documents which the Lessor from time to time notifies the Lessee pursuant to
Section 18(e) of the Lease are to be Financing Documents.
"Financing Parties" means each of the Persons specified as a "Financing
Party" on Schedule I or such other Persons that the Lessor from time to time
notifies the Lessee pursuant to Section 18(e) of the Lease are to be a Financing
Party.
"Flight Hour" means each hour or part thereof elapsing from the moment
at which the wheels of the Aircraft leave the ground on the take-off of the
Aircraft until the wheels of the Aircraft touch the ground on the next landing
of the Aircraft. For the purpose of all calculations under this Lease measured
in "Flight Hours", such hours, including fractions thereof measured in minutes,
shall be accumulated throughout each Rental Period.
"Geographical Limits" means the continental United States, Canada,
Mexico, Bermuda, and the Bahamas.
"Head Lease" means the Lease Agreement between First Security Bank,
National Association (formerly known as First Security Bank of Utah, National
Association), not in its individual capacity but solely as owner trustee under a
Trust Agreement dated June 15, 1991(the "Trust Agreement"), as lessor, and
Lessor, as lessee, dated as of June 15, 1991.
"Head Lessor" means First Security Bank, National Association, not in
its individual capacity but solely as owner trustee under the Trust Agreement
"Indemnified Parties" means the Lessor, each Financing Party, each
Additional Financing Party, and all affiliates, successors, assigns, agents,
servants, officers and employees of each of the foregoing.
"Insurance Deductible Amount" means the amount set forth in Schedule I
hereto.
"Insured Parties" means each of the Financing Parties, the Lessor, the
Additional Financing Parties, and any other Person which the Lessor from time to
time notifies the
<PAGE>
Lessee is to be an Insured Party.
"Legend" means the legend to be set forth in the nameplate referred to
in Section 9(b): first security bank, n.a., as owner-trustee, owner, and lessor
state street bank and trust company of connecticut, n.a, as security trustee and
mortgagee
or such other legend which the Lessor from time notifies the Lessee is to be set
forth in such nameplate.
"Lien Limitation" means $25,000.
"Loan Agreement" means the Amended and Restated Loan Agreement between
Lessee and BAAM dated February 10, 1995 as the same has been or may hereafter be
amended.
"Loss Payee" means First Security Bank, National Association.
"MACRO Program" means a materials and component repair and overhaul
agreement with respect to the Aircraft between Lessee and AI(R) American
Support, Inc. the terms and conditions of which shall be acceptable to Lessor.
"Memorandum of Understanding" means the Memorandum of Understanding
dated November 11, 1997 between British Aerospace Asset Management, Inc. and
Lessee in respect of, inter alia, the Aircraft.
"Minimum Liability Coverage" means the amount set forth in Schedule I
hereto.
"Owner" means First Security Bank, National Association.
"Payment Date" means each of the dates listed in Schedule I hereto
under "Basic Rent" under the column titled "Payment Date".
"Plan" means the Plan by Order Confirming Plan entered by the
Bankruptcy Court for the Western District of North Carolina in the case styled
In Re: CCAir, Inc. No. C-B-90-30927.
"Rental Period" means the period from and including any Payment Date
(or, in the case of the first Rental Period, from and including the Delivery
Date) to and including the day preceding the next Payment Date or, in the case
of the final Rental Period, the Expiration Date.
"Stipulated Loss Value" means, with respect to any Payment Date, the
amount set forth in Schedule I hereto with respect to such Payment Date.
Section 2. Additional Conditions Precedent.
<PAGE>
(a) Lessee shall execute such security agreements, and any financing
statement required by Lessor, granting Lessor a security interest in and to all
presently existing and subsequently created accounts receivable of Lessee and
all proceeds thereof and all ticket stock owned or held by Lessee or by any
party on behalf of Lessee and all proceeds thereof (the "Receivables Security
Interest"). The Receivables Security Interest shall secure all of Lessee's
obligations to Lessor (including but not limited to Lessee's obligations under
this Lease) or British Aerospace Entities, other than Plan payments. The
Receivables Security Interest in favor of Lessor shall be subject only to: (x)
the setoff rights in favor of USAirways arising under the code sharing agreement
dated as of November 1, 1988 as amended through January 23, 1991, effected under
the Airline Clearing House Agreement, and pursuant to the Order entered by the
Bankruptcy Court in the Bankruptcy Case on July 16, 1990; and (y) a security
interest in favor of BAAM to secure the Loan as that term is defined in the Loan
Agreement as the same has been or may hereafter be amended.
(b) Lessee shall submit to Lessor a business plan in form and substance
acceptable to Lessor and accepted by Shorts outlining the terms and conditions
of Lessee's removal of the Shorts 360 aircraft from its fleet and the financing
transaction related thereto;
(c) Lessee shall submit to Lessor its plan for recapitalization and
such plan shall provide for Lessee's receipt of at least $1,500,000 of
additional equity and shall be in form and substance acceptable to Lessor;
(d) Lessee shall be current in making rent and any other payments
pursuant to any other sublease agreements for Jetstream 3101 aircraft and
aircraft spare parts between Lessor or any British Aerospace Entity and Lessee
and shall be in full compliance with any return conditions or other terms and
conditions under such sublease agreements with regard to any of such Jetstream
3101 aircraft and aircraft spare parts; and
(e) Lessee shall submit to Lessor its current and projected financial
statements and business plan and such financial statements and business plan
shall be in form and substance acceptable to Lessor; and
(f) The Aircraft shall be enrolled in the MACRO program.
Section 3. Specific Maintenance and Return Conditions.
(a) Additional Return Conditions.
In the event that at the time of expiration or termination of this
Lease, an Event of Default has occurred and is continuing under the MACRO
Program or the Aircraft is not enrolled in the MACRO Program; and there exists a
difference in the overall maintenance status of the Aircraft at the time of the
Aircraft's return to Lessor from the overall maintenance status of the Aircraft
at the time of original delivery and acceptance of the
<PAGE>
Aircraft under this Lease with respect to hours, cycles or calendar-time
remaining on those time controlled Aircraft components listed on Schedule II
attached hereto other than Engines, Lessor of Lessee, as the case may be, shall
pay the other party of positive or negative overall contribution to the value of
the maintenance condition of the Aircraft based upon the following formula:
Adjustment=((TRd-TRr)*(Vo/TBO)
Where:
"Adjustment" - is the sum of the difference in value for all individual
Components (as defined below) fitted on the Aircraft between the maintenance
standard as defined above and the value at the date of return.
"Components" - as used in this Section, is defined as all time
controlled components (other than Engines) fitted on the Aircraft as listed in
Schedule II attached hereto and incorporated into this Agreement by reference;
"TBO" - is the limit between major maintenance events (overhauls,
inspections, or replacements) for each Component as specified in Aircraft
Manufacturer's Recommended Maintenance Manual applicable to the Aircraft and as
generally accepted in the United States for operation of such Aircraft as
adjusted or amended by the Manufacturer from time to time; provided however,
that such change is universally recommended by the Aircraft Manufacturer and not
merely recognized as an alternative or option under such program.
"Vo" - is the projected cost of each major maintenance event for each
Component based on the direct cost of overhaul, inspection or replacement for
said Components at the then published Manufacturer's flat rate for such service
or replacement.
"TRd" - is the time remaining on each Component at the original
delivery and acceptance of the Aircraft under the applicable Lease of the
Aircraft until the next scheduled major maintenance event, as identified at the
time of delivery.
"TRr" - is the time remaining on each Component at the time of return
of the Aircraft until the next scheduled major maintenance event, as identified
at the time of return.
(1) Notwithstanding any provision to the contrary contained in this
Lease, in the event that the time between hard time overhaul for any component
is generally extended by the manufacturer beyond that limit specified in
Schedule II prior to Aircraft return, the applicable limit in Schedule II shall
be modified to mirror such extension.
(2) Any financial adjustments made pursuant to this Section 3 shall be
based on the then Fair Market Value available for such overhaul at the time of
Aircraft return.
<PAGE>
(3) In the event any monies are owing by Lessee pursuant to the
calculation set forth in this Section 3, any net balances of Aircraft
Maintenance Payments remaining after application to all qualifying outstanding
maintenance events excluding amounts collected with respect to Engines shall be
applied as a reduction against such amount otherwise due from Lessee in
accordance with the calculation.
(ii).....Upon return of the Aircraft, the Engines shall be
freshly overhauled or, alternatively, the Lessee shall pay for all time consumed
on the Engines (including its life cycle fatigue components) since the last hard
time overhaul and since the last hot section inspection in an amount equal to
the number of Flight Hours accumulated on each Engine since the last such event
(as applicable) multiplied by the then applicable Aircraft Maintenance Payment
set aside rate for the Engines as specified in accordance with this Lease,
taking into account any net balances of such reserves then remaining with
respect to the Engines after application to all qualifying hot section
inspections and overhauls.
(c) Engine Service Plan. If at any time during the Term of this Lease,
Lessee is requested in writing by Lessor, Lessee shall enroll and maintain the
Engines under an Approved Engine Service Plan.
Section 4. Additional Events of Default.
(a) Lessee shall be in default under the MACRO Program; or
(b) A Default or breach of any term of the Plan, including, but without
limitation, a Default in payments under the Plan; or
(c) The Receivables Security Interest shall cease to be in full force
and effect; or
(d) [Not Used]
(e) The code sharing agreement between Lessee and USAirways shall cease
to be in full force and effect or shall have been amended, modified or
supplemented without Lessor's consent and such amendment, modification, or
supplement would materially adversely affect the ability of Lessee or any
affiliate subsidiary of Lessee to perform its obligations hereunder or under any
other lease between Lessee and Lessor.
Section 5. Subordination; assignment.
(a) Anything in the Operating Lease to the contrary notwithstanding,
Lessee's rights thereunder to the possession, use and enjoyment of the Aircraft
shall be subject to the rights of the Owner Trustee under the Head Lease in and
to the Aircraft and the rights of the Security Trustee in respect of the
Aircraft, and Lessee confirms and agrees that its rights and interests under the
Operating Lease are in all events subject and junior to the rights and interests
of the Owner Trustee and the Security Trustee. Upon written notice
<PAGE>
to Lessee by the Owner Trustee or the Security Trustee that an Event of Default
has occurred and is continuing under the Head Lease, the Owner Trustee or the
Security Trustee may require that all rentals and other sums due under the
Operating Lease in respect of the Aircraft shall thereafter be paid directly to
the Owner Trustee or the Security Trustee (in each case, without further
liability to make such payments to Lessor) and that in the event the Head Lease
shall have been terminated pursuant to Section 18 thereof, the Owner Trustee or
the Security Trustee, as the case may be, may, at its option, by written notice
to Lessee after the date of such termination:
(i) require Lessee to enter into an agreement in form and
substance satisfactory to the Owner Trustee or the Security Trustee, as the case
may be, and its counsel, attorning to and recognizing the Owner Trustee or the
Security Trustee, as the case may be, as the Lessor thereunder; or
(ii) terminate the Operating Lease and require prompt delivery
by Lessee of the Aircraft to the Owner Trustee or the Security Trustee, as the
case may be, in accordance with the provisions of Section 14 thereof.
(b) Unless and until Lessee shall have received any such written notice
from the Owner Trustee or the Security Trustee requiring attornment or
terminating the Operating Lease, Lessee shall be and remain fully obligated
under the Operating Lease notwithstanding the continuance of any Event of
Default under the Head Lease or the termination thereof pursuant to Section 18
thereof.
(c) Lessee hereby acknowledges notice of, and hereby consents to, the
assignment of this Operating Lease to the Owner Trustee pursuant to the terms of
a sublease security assignment and from Lessor to the Security Trustee pursuant
to the terms of a security agreement.
Section 6. Incorporation of Terms of Lease. Subject to the provisions
of Section 1(d) of the Lease, all of the terms and provisions of the Operating
Lease are incorporated in this Commercial Supplement to the same extent as if
fully set forth herein.
Section 7. Confidentiality. This Commercial Supplement contains
confidential financial information and is intended to be proprietary and
confidential and each of the parties hereto agrees to treat this Commercial
Supplement as proprietary and confidential. No information contained in this
Commercial Supplement will be made available by any party hereto to anyone
except (A) in the case of the Lessor, to existing or prospective Financing
Parties and their respective counsel, independent insurance brokers or other
agents, who agree to hold such information proprietary and confidential, (B) to
the Lessee's or the Lessor's counsel or independent certified public
accountants, independent insurance brokers or other agents who agree to hold
such information proprietary and confidential, (C) as may be required by any
statute, court or administrative order or decree or governmental ruling or
regulation or (D) as may be necessary for purposes of protecting the interests
of any such Person or for enforcement of the Lease; provided, that any and all
disclosures permitted by clauses (C) or (D) above will be made only to the
<PAGE>
extent necessary to meet the specific requirements or needs of the Persons to
whom such disclosures are hereby permitted.
IN WITNESS WHEREOF, this Commercial Supplement [920] has been executed and
delivered by the duly authorized representatives of the Lessor and the Lessee as
of the date hereof.
Jet Acceptance Corporation
By:___________________________
Name:
Title: Vice President
CCAIR, Inc.
By:___________________________
Name:
Title:
Schedule I
Certain Terms
a. Basic Rent:
Basic Rent will be payable monthly in arrears on each Payment Date in
the amount set forth opposite such Payment Date below:
Payment Date :
Basic Rent:
Delivery Date until March 23, 1998
$0
March 24, 1998 to Expiration Date
$15,000.00
b. Stipulated Loss Value:
The Stipulated Loss Value as of any Payment Date will be the amount set
forth below opposite such Payment Date:
[See attached Stipulated Loss Value Table]
<PAGE>
c. Expiration Date.
Unless sooner canceled or terminated in accordance with the terms of
the Lease, the Lease will terminate on January 1, 1999 (the "Expiration Date").
d. Insurance:
"Claim Notification Amount" means $250,000.
"Damage Payment Threshold" means $250,000.
"Insurance Deductible Amount" means $250,000.
"Minimum Liability Coverage" means $150,000,000.
e. Financing Parties:
Each of the following Persons is a "Financing Party":
First Security Bank, National Association
AT&T Capital Holdings International, Inc.
State Street Bank and Trust Company of Connecticut, National
Association
PFL Life Insurance Company
Monumental Life Insurance Company
Pacific Fidelity Life Insurance Company
Western Reserve Life Assurance Company of Ohio
Alexander Hamilton Life Insurance Company of America
First Alexander Hamilton Life Insurance Company of America
Additional Financing Parties:
Each of the following Persons is an "Additional Financing Party":
Sara Leasing, Inc.
Sentinel Investment (Shannon) Limited
<PAGE>
Woodchester Finance Limited
Hill Samuel Bank Limited
Hill Samuel (Jetstream) Limited
British Aerospace Holdings, Inc.
Financing Document:
Each of the following documents or agreements is a "Financing
Document":
Participation Agreement among Head Lessor, Lessor, AT&T Capital
Holdings International, Inc., PFL Life Insurance Company, Monumental Life
Insurance Company, Pacific Fidelity Life Insurance Company, Western Reserve Life
Assurance Company of Ohio, Alexander Hamilton Life Insurance Company of America,
First Alexander Hamilton Life Insurance Company of America, and State Street
Bank and Trust Company, N. A. dated as of June 15, 1991
Trust Agreement between Head Lessor and AT&T Capital Holdings
International, Inc. dated as of June 15, 1991
Security Agreement-Trust Deed between Head Lessor and State Street Bank
and Trust Company, N.A. dated as of June 15, 1991
Lease Agreement between Head Lessor and Lessor dated as of June 15,
1991, as supplemented and amended from time to time
Tax Indemnity Agreement between Lessor and AT&T Capital Holdings
International, Inc. dated as of June 15, 1991
Assignment of Sublease between Lessor and Head Lessor dated as of June
15, 1991
This Operating Lease [920], Acceptance Supplement [920], and Commercial
Supplement [920]
Schedule II
HOUR, CYCLE OR CALENDAR-TIME CONTROLLED AIRCRAFT COMPONENTS
EXHIBIT 10.7(a)
SETTLEMENT AGREEMENT
BY AND BETWEEN
CCAIR, INC.,
AS LESSEE
AND
LYNRISE AIR LEASE, INC.,
AS LESSOR
Dated as of March 31, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS..................................................... 1
1.1. Definitions............................................... 1
SECTION 2. RETURN OF THE AIRCRAFT; BASIC RENT.............................. 4
2.1. Return.................................................... 4
2.2. Base Rent................................................. 4
SECTION 3. CONSIDERATION FOR SETTLEMENT.................................... 5
3.1. Notes; Option Agreement; Registration Rights Agreement.... 5
3.2. Engine Return Conditions.................................. 5
3.3. Records Credit............................................ 5
SECTION 4. [INTENTIONALLY OMITTED]......................................... 5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF AIRLINE....................... 6
5.1. Incorporation; Power and Authority........................ 6
5.2. Due Execution; No Breach.................................. 6
5.3. Capitalization............................................ 6
5.4. Spare Parts............................................... 7
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE LESSOR
PARTIES............................................................ 7
6.1. Incorporation; Power and Authority........................ 7
6.2. Due Execution: No Breach.................................. 7
6.3. Securities Laws........................................... 8
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF AIRLINE........................ 9
7.1. Authority for Action...................................... 9
7.2. Representations and Warranties True....................... 9
7.3. Covenants and Agreements Performed........................ 9
7.4. No Actions, Suits or Proceedings.......................... 9
7.5. Acknowledgment of Termination of Leases................... 9
7.6. Option Agreement.......................................... 9
7.7. Consent................................................... 9
7.8. Bankruptcy Note........................................... 9
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF THE LESSOR..................... 9
8.1. Authority for Action...................................... 10
8.2. Representations and Warranties True....................... 10
8.3. Covenants and Agreements Performed........................ 10
8.4. No Actions, Suits or Proceedings.......................... 10
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
8.5. Short Term Note........................................... 10
8.6. Bill of Sale.............................................. 10
8.7. Consent................................................... 10
8.8. Release By Airline........................................ 10
8.9. Payment of Expenses of Trustees........................... 10
SECTION 9. SECURITIES LAW COMPLIANCE....................................... 10
SECTION 10. MISCELLANEOUS.................................................. 11
10.1. General Interpretive Rules................................ 11
10.2. Waiver.................................................... 11
10.3. Amendments................................................ 11
10.4. Governing Law............................................. 11
10.5. Severability.............................................. 11
10.6. Effect of Headings........................................ 11
10.7. Counterparts.............................................. 12
10.8. Notices................................................... 12
10.9. ENTIRE AGREEMENT.......................................... 12
10.10. Successors and Assigns.................................... 13
10.11. Further Assurances........................................ 13
EXHIBITS
Exhibit A - Form of Short Term Note
Exhibit B - Option Agreement
Exhibit C - Acknowledgment of Termination of Leases
Exhibit D - Consent of Trustees
Exhibit E - Release of Lessor
SCHEDULES
Schedule A - Listing of Leases
Schedule B - Selected Spare Parts, Engine and Landing Gear
Schedule C - Missing Records
-ii-
<PAGE>
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is entered into as of March
31, 1998 by and between CCAIR, INC., a Delaware corporation ("Airline") and
LYNRISE AIR LEASE, INC., a Delaware corporation formerly known as Shorts Air
Lease, Inc. ("Lessor").
R E C I T A L S:
WHEREAS, Lessor previously leased to Airline nine SD3-60-300 series
aircraft bearing manufacturer's serial numbers SH3721, SH3722, SH3729, SH3731,
SH3742, SH3747, SH3748, SH3753 and SH3759 and FAA Registration Numbers N121PC,
N722PC, N729PC, N360PC, N742CC, N747HH, N748CC, N153CC and N159CC, respectively
(collectively, the "Aircraft"), pursuant to the separate leases listed on
Schedule A hereto (collectively, the "Leases"); and
WHEREAS, Airline and the Lessor have been participating in negotiations
regarding an agreement pursuant to which Airline would return the Aircraft to
the Lessor;
WHEREAS, pursuant to such negotiations, Airline has redelivered all of
the Aircraft to the Lessor; and
WHEREAS, the parties wish to set forth in this Agreement their
definitive understandings relating to the return of the Aircraft to the Lessor
and the Airline's obligations relating to the Aircraft.
NOW, THEREFORE, in consideration of the mutual promises herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
SECTION 1. DEFINITIONS
1.1. Definitions. For purposes of this Agreement, terms with initial
capital letters used herein without definition shall have the meanings given to
them in the Leases, except that the following terms shall have the meanings set
forth below:
"Accepted Aircraft" shall have the meaning set forth in
Section 2.1.
"Affiliate" means, in relation to a specified Person, a Person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such
specified Person; "control" when used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Bankruptcy Note" means, the promissory note executed by
Airline and payable to the order of Lessor in the principal amount of
$400,000.
SETTLEMENT AGREEMENT - Page 1
<PAGE>
"Bill of Sale" means, the bill of sale executed by Airline
that transfers to Lessor all of Airline's right, title and interest in
and to the Engine, Landing Gear, Records and Selected Spare Parts.
"Business Day" means any day except a Saturday, Sunday or any
other day on which commercial banks in Charlotte, North Carolina or the
City of New York, New York are authorized or required by law to close.
"CCAIR Release" means a release agreement relating to the
Leases, dated the Closing Date and in substantially the form of Exhibit
E attached hereto.
"Claims" means all actions, causes of action, suits, debts,
dues, sums of money, accounts, bonds, bills, covenants, contracts,
controversies, agreements, promises, trespasses, Damages, judgments,
executions, claims, Liabilities, investigations, prosecutions and
demands whatsoever, in law or equity, regardless of when made or
asserted and regardless of whether fixed or contingent.
"Closing" means the closing of the transactions contemplated
by this Agreement, which shall occur upon the execution and delivery by
the parties of this Agreement.
"Closing Date" shall mean April 17, 1998.
"Common Stock" means the common stock, $.01 par value per
share, of Airline.
"Damages" means any and all costs, losses, claims,
Liabilities, fines, penalties, damages and expenses (including interest
which may be imposed in connection therewith), court costs, and
reasonable fees and disbursements of counsel, consultants and expert
witnesses incurred by a party hereto.
"Engine" means the aircraft engine manufactured by Pratt &
Whitney described on Schedule B attached hereto.
"Landing Gear" means the two nose landing gear described on
Schedule B attached hereto.
"Lease Obligations" means $9,785,012, which amount constitutes
any and all amounts that are now or may hereafter be owed by Airline to
Lessor under the Leases, including, without limitation, all rental
payments, maintenance and repair obligations and any and all other
obligations, less the aggregate fair market value of the Selected Spare
Parts, the Engine and the Landing Gear.
"Liabilities" means liabilities, debts or obligations, whether
accrued, absolute, fixed, contingent, liquidated, unliquidated, joint,
several or joint and several or otherwise, known or unknown.
SETTLEMENT AGREEMENT - Page 2
<PAGE>
"Material Adverse Effect" means any action with respect to a
Person which has any material adverse effect on such Person's ability
to perform its obligations hereunder or pursuant to any agreement,
instrument or document delivered hereunder, or is likely to have any
material adverse effect on such Person's business or financial
condition considered as a whole.
"Missing Records" means the Records described on Schedule D
attached hereto.
"Note" means the 7% Convertible Subordinated Note due 2004 in
the original principal amount of Seven Million Nine Hundred Twenty
Thousand Dollars ($7,920,000), to be issued by Airline to Lessor.
"Option Agreement" means the option agreement between Airline
and Lessor in substantially the form of Exhibit B attached hereto.
"Option Exercise Closing Date" means the fifth business day
after (i) receipt by Lessor of written notice from the Airline of the
Airline's desire to purchase the Short Term Note in cash pursuant to
the Option Agreement, or (ii) receipt by Lessor of net cash proceeds of
Airline's common stock equal to the Purchase Price, issued to Lessor
pursuant to the Option Agreement.
"Person" means any individual, corporation, partnership,
trust, joint venture, estate, limited liability company, association,
unincorporated association, governmental entity or any other entity or
organization.
"Purchase Price" means (i) the payment of One Million Eight
Hundred Five Thousand Twelve Dollars ($1,805,012), less the amount, if
any, of the Records Credit, plus interest thereon from the Closing Date
until and including the Option Exercise Closing Date at a fixed rate of
interest equal to 7% per annum calculated based on a 360 day year and
the actual days elapsed, in cash or at Airline's option, by delivery to
Lessor of Airline's common stock, which shall be immediately salable in
the public market without restriction in quantities sufficient to
generate net cash proceeds to Lessor equal to such amount, and (ii) the
delivery by Airline to Lessor of the Note and the Registration Rights
Agreement.
"Records" means all logs, manuals, data, and inspection,
modification and overhaul records, maintenance and inspection programs
and other documentation required to be maintained under applicable
rules and regulations of the Federal Aviation Administration related to
the Aircraft.
"Records Credit" means an amount attributable to the aggregate
value of any Missing Records that may be located by Airline and
delivered to Lessor on or before May 31, 1998, not to exceed One
Hundred Twenty-Five Thousand Eight Hundred Eighty Dollars ($125,880).
For the purposes of determining the amount of the Records Credit, the
respective values assigned to the Missing Records are set forth on
Schedule D attached hereto.
SETTLEMENT AGREEMENT - Page 3
<PAGE>
"Registration Rights Agreement" means the registration rights
agreement between Airline and the Lessor.
"Rent Deficiency Claim" shall mean the aggregate claim for
rents due under the Leases over and above the amount the parties agree
that Lessor reasonably should be able to recover from releasing the
Aircraft following their return by Airline. The Rent Deficiency Claim
shall be set by the parties at $7,920,000. Such number was calculated
based upon, among other things, the sum of (i) payment for certain
accrued rent due to Lessor under the Leases, (ii) amounts owing to
Lessor under the Bankruptcy Note, and (iii) the difference between (A)
the aggregate rental stream due under the Leases from August 1, 1997
through the remaining terms thereof and (B) the assumed then fair
market rental of each aircraft, which the parties have agreed solely
for purposes of this agreement is $20,000 per aircraft per month, with
such sum discounted to present value using a discount rate of 15% per
annum, which amount was reduced by $90,000 for three "C" checks and
$240,000 for four "D" checks.
"Securities Act" means the Securities Act of 1933, as amended.
"Short Term Note" means the promissory note, in substantially
the form of Exhibit A attached hereto, to be issued by Airline to
Lessor on the Closing Date.
"Selected Spare Parts" means the SD3-60-300 spares described
on Schedule B attached hereto.
"Spare Parts" means the SD3-60-300 spare parts owned by
Airline listed on Schedule C attached hereto.
SECTION 2. RETURN OF THE AIRCRAFT; BASIC RENT
2.1. Return. The Airline has redelivered all of the Aircraft to return
locations designated by Lessor. All deficiencies on the two Aircraft bearing FAA
Registration Nos. N121PC and N722PC (the "Accepted Aircraft") have been
corrected in accordance with the terms of the Leases and Lessor has accepted the
Accepted Aircraft for return. Lessor and Airline previously inspected each of
the seven remaining Aircraft and Lessor and Airline have agreed upon the items
that must be repaired on each Aircraft to satisfy the return conditions
specified in the Leases (the "Agreed Maintenance Items"). Lessor has taken
possession and control of the seven remaining Aircraft and Lessor and Airline
have agreed that Lessor shall be responsible for directing the repair and paying
the cost of repair for the Agreed Maintenance Items. Airline has satisfied all
Claims and all of its obligations to Lessor under the Leases through the
issuance to Lessor of the Short Term Note.
2.2. Base Rent. Airline paid to Lessor base rent for each Aircraft in
an amount equal to $20,000 per month per Aircraft for the period from August 1,
1997 through February 28, 1998. Any remaining obligation of Airline to pay base
rent under the Leases is evidenced by the Short Term Note.
SETTLEMENT AGREEMENT - Page 4
<PAGE>
SECTION 3. CONSIDERATION FOR SETTLEMENT
3.1. Notes; Option Agreement; Registration Rights Agreement.
(a) Upon Closing, in full and final satisfaction of any and
all Claims of Lessor against Airline arising under or in connection
with the Leases, Airline shall (i) issue to Lessor the Short Term Note
and (ii) transfer to Lessor all of Airline's right, title and interest
in and to the Engine, Landing Gear, Records and Selected Spare Parts on
an "as is, where is, with all faults" basis and without representation
or warranty of any kind or nature, express or implied, pursuant to the
Bill of Sale. As soon as reasonably practicable after the Closing, (i)
in exchange for the Landing Gear, Airline will receive landing gear S/N
DRG8769/85 (which has a broken cuff and steering units) from Aircraft
SH3722 and a rental landing gear S/N DRG1464/86 from Aircraft SH3753,
(ii) in exchange for two engines (S/N 106104 and 106115) shipped by
Airline to Lessor, two rental engines (S/N 106210 and 106126) from
Aircraft SH3747 and SH3759 will be returned to the lessors thereof, and
(iii) propeller GP149 from Aircraft SH3747 will be returned to Airline
promptly after receipt by Lessor of an acceptable replacement
propeller.
(b) At Closing Airline and Lessor shall enter into the Option
Agreement pursuant to which Lessor shall grant to Airline the right to
purchase from Lessor the Short Term Note for the Purchase Price. In the
event that Airline timely exercises its option to purchase the Short
Term Note for the Purchase Price in accordance with the terms of the
Option Agreement, as consideration for the Lessor's acceptance of the
early return of the Aircraft and consummation of the other transactions
contemplated hereby and in full and final settlement of any and all
Claims of Lessor against Airline arising under or in connection with
the Leases, Airline shall pay to Lessor on the Option Exercise Closing
Date, the Purchase Price.
3.2. Engine Return Conditions. The Aircraft have been inspected by and
returned to the Lessor. Lessor hereby acknowledges and agrees that the Aircraft
engines, taken as a whole fleet, have an average of not less than 50% of the
number of hours then allowed between hard-time maintenance overhauls based upon
a 7,000 hour requirement and that Airline has fully satisfied by performance
and/or payment through issuance of the Short Term Note to Lessor, the return
conditions for the Aircraft engines set forth in the Leases.
3.3. Records Credit. In the event that Airline delivers to Lessor the
Missing Records or any part thereof, on or before May 31, 1998, Airline shall
receive a credit in the amount of the Records Credit for the Missing Records so
delivered.
SECTION 4. [INTENTIONALLY OMITTED].
SETTLEMENT AGREEMENT - Page 5
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF AIRLINE
Airline hereby represents and warrants to the Lessor that, as of the
date hereof:
5.1. Incorporation; Power and Authority. Airline is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all requisite corporate power and authority to enter into,
and be bound by the terms and conditions of, this Agreement and each other
agreement executed and delivered (and to be executed and delivered) by Airline
in connection with the transactions contemplated hereby.
5.2. Due Execution; No Breach.
(a) Due Execution. This Agreement is, and each other agreement
or instrument contemplated hereby, when executed and delivered by
Airline in accordance with the provisions hereof and thereof, will be
(assuming the due execution and delivery thereof by the other parties
thereto), a legal, valid and binding obligation of Airline, in each
case enforceable against Airline in accordance with its terms except as
such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to
time in effect which affect the enforcement of creditors' rights
generally and by legal and equitable limitations on the availability of
specific performance and other equitable remedies against Airline.
(b) No Breach. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will (i) conflict with or result in any violation of or constitute a
breach of any of the terms or provisions of, or result in the
acceleration of any obligation under, or constitute a default under any
provision of any mortgage, bond, indenture, agreement or other
instrument or obligation to which Airline is a party or to which it is
subject or bound, which conflict, violation, breach, acceleration or
default will have a Material Adverse Effect; (ii) violate any judgment,
order, injunction, decree or award of any court, administrative agency,
arbitrator or governmental body against or affecting or binding upon,
Airline, which violation will have a Material Adverse Effect; or (iii)
constitute a violation by Airline of any law or regulation of any
jurisdiction as such law or regulation relates to Airline, or any of
its assets, which violation will have a Material Adverse Effect.
5.3. Capitalization. As of the Closing Date, the authorized capital
stock of Airline consists of 10,000,000 shares of common stock, $.01 par value
per share (the "Common Stock"), and no shares of preferred stock ("Preferred
Stock"). As of the date hereof, there are issued and outstanding (a) 8,365,695
shares of Common Stock, of which no shares are held as treasury stock, and (b)
no shares are Preferred Stock. All of the outstanding shares of capital stock of
the Airline have been validly issued, are fully paid and nonassessable. As of
the date hereof, there are no shares of Common Stock reserved for conversion of
the Note. There are no agreements restricting the transfer of, or affecting the
rights of any holder of, the Note or any other shares of Airline's capital
stock, and no preemptive rights on the part of any holder of any class of
securities of the Airline. Except for 778,243 options that have been granted and
that are outstanding and 41 warrants exercisable for the issuance of 451,250
shares of Common Stock, Airline does not have outstanding
SETTLEMENT AGREEMENT - Page 6
<PAGE>
any options, warrants, rights, or other agreements or commitments of any kind
obligating the Airline, contingently or otherwise, to issue or sell any shares
of its capital stock or any securities or obligations convertible into, or
exchangeable for, any shares of its capital stock, and no authorization therefor
has been given. None of the outstanding shares of capital stock of the airline
was issued in violation of the Securities Act or the securities or blue sky laws
of any state or jurisdiction.
5.4. Spare Parts. Airline has good and marketable title to the Spare
Parts, free and clear of all mortgages, liens, pledges, charges or other
encumbrances. All SD3-6-300 parts owned by Airline as of March 12, 1998 and as
of the date hereof are listed on Schedule C hereto.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE LESSOR PARTIES
Lessor represents and warrants to Airline as follows:
6.1. Incorporation; Power and Authority. Lessor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, and has all requisite corporate power and authority to enter into,
and be bound by the terms and conditions of, this Agreement and each other
agreement executed and delivered (and to be executed and delivered) by Lessor in
connection with the transactions contemplated hereby.
6.2. Due Execution: No Breach.
(a) Due Execution. This Agreement is, and each other agreement
or instrument contemplated hereby, when executed and delivered by
Lessor in accordance with the provisions hereof and thereof, will be
(assuming the due execution and delivery thereof by the other parties
thereto), a legal, valid and binding obligation of Lessor, in each case
enforceable against such Lessor in accordance with its terms except as
such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to
time in effect which affect the enforcement of creditors' rights
generally and by legal and equitable limitations on the availability of
specific performance and other equitable remedies against such Lessor.
(b) No Breach. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will (i) conflict with or result in any violation of or constitute a
breach of any of the terms or provisions of, or result in the
acceleration of any obligation under, or constitute a default under any
provision of any mortgage, bond, indenture, agreement or other
instrument or obligation to which Lessor is a party or to which it is
subject or bound, which violation, breach or default will have a
Material Adverse Effect; (ii) violate any judgment, order, injunction,
decree or award of any court, administrative agency, arbitrator or
governmental body against or affecting or binding upon, Lessor or any
of its assets, which conflict, violation, breach, acceleration or
default will have a Material Adverse Effect; or (iii) constitute a
violation by such Lessor of any law or regulation of any jurisdiction
as such law or regulation relates to Lessor or any of its assets and in
any event which violation will have a Material Adverse Effect.
SETTLEMENT AGREEMENT - Page 7
<PAGE>
6.3. Securities Laws.
(a) Investment Intent. In the event that Airline exercises the
Option, Lessor will be acquiring the Note, and any Common Stock issued
upon conversion, payment, redemption or repurchase thereof, for its own
account for investment, and not with the view to a sale of such
securities in connection with any distribution thereof, except in
compliance with the Securities Act and any applicable state "Blue Sky"
laws, and subject to the disposition of the Note being at all times
within its control, except as otherwise expressly provided herein.
(b) Accredited Investor; Qualified to Hold Common Stock.
Lessor is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act and is not precluded
from owning or holding Common Stock under applicable law or by United
States Department of Transportation regulations or rulings.
(c) Registration and Transfer. In the event that Airline
exercises the Option, Lessor understands that Airline shall, pursuant
to the Registration Rights Agreement, provide certain registration
rights under the Securities Act with respect to the registration of the
Common Stock which may be issued upon conversion, payment, redemption
or repurchase of the Note under the Securities Act. Nonetheless, Lessor
understands that there are legal and contractual restrictions on the
transferability of the Note and such Common Stock. Lessor understands
that prior to the effective date of any registration statement relating
to such securities there may be no public market for the Note and that
it is possible that no public market will exist at any time thereafter.
In addition, until such time as the offer and sale of the Note (and the
Common Stock which may be issued upon payment, redemption, repurchase
or conversion thereof) have been registered for sale or until such
securities otherwise may be sold without restriction in accordance with
the provisions of the Securities Act, legends will be placed on all
certificates or other instruments evidencing such securities with
respect to the restrictions on the assignment, resale or other
disposition of such securities and stop transfer restrictions may be
placed with the transfer agent with respect to such securities so as to
restrict the assignment, transfer or resale thereof.
(d) Advisors. Lessor has been afforded the opportunity to seek
and rely upon the advice of its own attorneys, accountants, or other
professional advisors in connection with an investment in Airline and
the execution of this Agreement.
(e) Access to Information. Lessor confirms that it has been
given an opportunity to make any inquiries of and receive answers from
Airline and its representatives with respect to the Note, the Common
Stock and Airline that Lessor wished to make, and to obtain any
additional information that Airline possesses, or can acquire without
unreasonable effort or expense, that is necessary to verify the
accuracy of the information furnished in response to such inquiries.
SETTLEMENT AGREEMENT - Page 8
<PAGE>
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF AIRLINE
The obligations of Airline to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, on or before the Closing Date,
of the following conditions (subject to the right of Airline to waive any such
condition or conditions):
7.1. Authority for Action. On the Closing Date, Lessor will have all
necessary power and authority to consummate the transactions contemplated hereby
and perform its obligations hereunder and under the other agreements and
instruments executed or to be executed in connection with the consummation of
such transactions.
7.2. Representations and Warranties True. All of the representations
and warranties of the Lessor contained in this Agreement or in any written
statement, certificate, schedule or other document delivered pursuant hereto or
in connection with the transactions contemplated hereby shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date.
7.3. Covenants and Agreements Performed. Lessor shall have performed or
complied with or delivered all covenants, agreements, conditions or documents
required by this Agreement to be performed, complied with or delivered by Lessor
prior to or on the Closing Date.
7.4. No Actions, Suits or Proceedings. No action, suit or proceeding
shall be pending or, to the knowledge of Lessor or Airline, threatened, before
any court or governmental body seeking to restrain or prohibit, or to obtain
damages in respect of, this Agreement or the consummation of the transactions
contemplated hereby.
7.5. Acknowledgment of Termination of Leases. Lessor shall,
concurrently with the Closing, have executed and delivered to Airline an
Acknowledgment of Termination of Leases in the form of Exhibit C, with only such
changes thereto as may be agreed by Airline.
7.6. Option Agreement. Lessor shall, concurrently with the Closing,
have executed and delivered to Airline the Option Agreement in the form of
Exhibit B, with only such changes as may have been agreed to by Airline.
7.7. Consent. The Trustees shall have executed and delivered to Airline
the Consent in the form of Exhibit D, with only such changes as may have been
agreed to by Airline.
7.8. Bankruptcy Note. The Bankruptcy Note shall have been returned to
Airline marked "cancelled."
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF THE LESSOR
The obligations of Lessor to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, on or before the Closing Date,
of the following conditions (subject to the right of the Lessor to waive any
such condition or conditions):
SETTLEMENT AGREEMENT - Page 9
<PAGE>
8.1. Authority for Action. On the Closing Date, Airline will have all
necessary power and authority to consummate the transactions contemplated hereby
and perform its obligations hereunder and under the other agreements and
instruments executed or to be executed in connection with the consummation of
such transactions.
8.2. Representations and Warranties True. All of the representations
and warranties of Airline contained in this Agreement or in any written
statement, certificate, schedule or other document delivered pursuant hereto or
in connection with the transactions contemplated hereby shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date.
8.3. Covenants and Agreements Performed. Airline shall have performed
or complied with or delivered all covenants, agreements, conditions or documents
required by this Agreement to be performed, complied with or delivered by
Airline prior to or on the Closing Date.
8.4. No Actions, Suits or Proceedings. No action, suit or proceeding
shall be pending or, to the knowledge of the Lessor or Airline, threatened,
before any court or governmental body seeking to restrain or prohibit, or to
obtain damages in respect of, this Agreement or the consummation of the
transactions contemplated hereby.
8.5. Short Term Note. Concurrently with the Closing, Airline shall have
executed and delivered the Short Term Note in the form of Exhibit A, with only
such changes as may have been agreed to by Lessor.
8.6. Bill of Sale. Concurrently with the Closing, Airline shall have
executed and delivered to Lessor the Bill of Sale transferring title to the
Engine, Landing Gear, Records and Selected Spare Parts to Lessor.
8.7. Consent. The Trustees shall have executed and delivered to Lessor
the consent in the form of Exhibit D, with only such changes as may have been
agreed to by Lessor.
8.8. Release By Airline. Airline shall have executed and delivered to
Lessor the CCAIR Release in the form of Exhibit F, with only such changes as may
have been agreed to by Lessor.
8.9. Payment of Expenses of Trustees. The Airline shall have paid the
reasonable expenses of the Trustees incurred in connection with this Settlement
Agreement and the Consent, including reasonable attorneys' fees and costs.
SECTION 9. SECURITIES LAW COMPLIANCE
Lessor covenants that, if Airline exercises the Option pursuant to the
Option Agreement and delivers the Note to Lessor, it will not sell the Note or
any portion thereof, or any other securities which it may be issued upon
conversion, payment, redemption, repurchase or other similar occurrence with
respect to the Note, in violation of the provisions of any applicable securities
laws, including, without limitation, the provisions of the Securities Act.
Lessor hereby agrees to
SETTLEMENT AGREEMENT - Page 10
<PAGE>
indemnify and hold Airline harmless from and against all Damages which Airline
may suffer or incur as a consequence of any breach by it of the provisions of
this Section.
SECTION 10. MISCELLANEOUS
10.1. General Interpretive Rules. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
(i) the terms defined in this Agreement include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
genders; (ii) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(iii) references herein to "Sections," "subsections" and other subdivisions, and
to "Schedules" and "Exhibits," without reference to a document, are to
designated Sections, subsections and other subdivisions of, and to Schedules and
Exhibits to, this Agreement; (iv) a reference to a subsection without further
reference to a Section is a reference to such subsection as contained in the
same Section in which the reference appears, and this rule shall also apply to
other subdivisions; (v) the use of the term "including" is intended to indicate
that the language following such term is illustrative but not exclusive; and
(vi) the words "herein," "hereof," "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular provision.
10.2. Waiver. The waiver or failure of any party to exercise in any
respect any right provided for herein on a particular occasion shall not be
deemed a waiver of such right on any other occasion or a waiver of any other
right. To be effective, a waiver must be in writing and be signed by the party
that is entitled to the benefit of the right that is being waived.
10.3. Amendments. No amendment of this Agreement shall be made or
deemed effective unless in writing and executed and delivered by the party
against which enforcement of such amendment is sought.
10.4. Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the internal law of the State of New York,
without regard to its principles of conflicts of law, as to all matters
including validity, effect and performance.
10.5. Severability. If any one or more of the provisions herein, or
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect, and of the
remaining provisions, shall not be in any way impaired or affected, and in lieu
of each such illegal, invalid or unenforceable provision Airline and the Lessor
shall negotiate in good faith to add a provision that is legal, valid, and
enforceable and as similar in terms to such illegal, invalid or unenforceable
provision as may be possible while giving effect to the benefits and burdens for
which the parties have bargained hereunder.
10.6. Effect of Headings. The Recitals and Section and subsection
headings are for convenience only and shall not affect the construction.
SETTLEMENT AGREEMENT - Page 11
<PAGE>
10.7. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
10.8. Notices.
(a) Form. All notices, claims, demands and other
communications hereunder ("Communications") shall be in writing and,
unless expressly provided otherwise herein, shall be made by hand
delivery, first class mail, telecopy or overnight air courier
guaranteeing next day delivery to a party at its address as set forth
below:
If to Airline: CCAIR, Inc.
4700 Yorkmont Road
Charlotte, North Carolina 28219-0929
Attn.: Mr. Kenneth Gann
And with copies of all Barlow Management, Inc.
Communications (which 1954 Airport Road, Suite 200
shall not constitute Atlanta, Georgia 30341
notice) to: Attn.: Mr. George Murnane, III
and Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attn.: Thomas W. Hughes, Esq.
If to the Lessor: Lynrise Air Lease, Inc.
1023 15th Street, N.W., Suite 1000
Washington, D.C. 20005
Attn.: Mr. Michael Wayshner
And with copies of all Ropes & Gray
Communications (which One International Place
shall not constitute Boston, Massachusetts 02110-2624
notice) to: Attn.: Robert L. Nutt, Esq.
(b) Effectiveness. All Communications shall be deemed to have
been duly given (i) at the time delivered by hand, if personally
delivered; (ii) three Business Days after being deposited in the mail,
postage prepaid, if mailed; (iii) when receipt confirmed, if
telecopied; and (iv) the second Business Day after timely delivery to
the courier, if sent by overnight courier guaranteeing next day
delivery.
10.9. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER AGREEMENTS
AND INSTRUMENTS EXECUTED AND DELIVERED, AND TO BE EXECUTED AND
DELIVERED, IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY
SETTLEMENT AGREEMENT - Page 12
<PAGE>
AND THEREBY ARE INTENDED BY THE PARTIES AS FINAL, COMPLETE AND EXCLUSIVE
STATEMENTS OF THEIR AGREEMENTS AND UNDERSTANDINGS WITH RESPECT TO THE SUBJECT
MATTERS HEREOF AND THEREOF.
10.10. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties.
10.11. Further Assurances. Each party agrees to perform all further
acts and to execute and deliver all instruments and documents reasonably
requested by the other party to be executed and delivered as necessary to carry
out the purposes of, and intent of the parties evidenced in, this Agreement and
the other documents executed and delivered in connection with the transactions
contemplated hereby.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the first date written above.
CCAIR, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
LYNRISE AIR LEASE, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
SETTLEMENT AGREEMENT - Page 13
<PAGE>
Exhibit A
Form of Short Term Note
<PAGE>
Exhibit B
Option Agreement
<PAGE>
Exhibit C
Acknowledgement of Termination of Leases
<PAGE>
Exhibit D
Consent of Trustees
<PAGE>
Exhibit E
Release of Lessor
<PAGE>
Schedule A
Listing of Leases
<PAGE>
Schedule B
Selected Spare Parts, Engine and Landing Gear
<PAGE>
Schedule C
Missing Records
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
as of April _, 1998, by and among CCAIR, Inc., a Delaware corporation (the
"Company"), and Lynrise Air Lease, Inc., a Delaware corporation ("Lynrise").
W I T N E S S E T H:
WHEREAS, the Company has agreed to grant certain registration rights to
the Holder with respect to the shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), issuable pursuant to the Company's 7%
Convertible Subordinated Note Due 2004 (the "Convertible Securities").
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"Holder" means Lynrise, and, subject to Section 9(f), any
assignee or transferee of a Registrable Security.
"Indemnified Party" means a party who is to be indemnified
pursuant to Section 6 hereof.
"Indemnifying Party" means a party who shall indemnify an
Indemnified Party pursuant to Section 6 hereof.
"Inspectors" has the meaning set forth in Section 4(h) hereof.
"Piggy-back Registration" means the registration of a
Registrable Security pursuant to the terms and provisions of Section 2 hereof.
<PAGE>
"Records" has the meaning set forth in Section 4(h) hereof.
"Registrable Securities" means the shares of Common Stock
issued or issuable pursuant to the Convertible Securities and held by the
Holder, and any and all securities of the Company issued or issuable with
respect to such shares by way of a dividend, reclassification, stock split, or
other distribution or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
Any Registrable Security will cease to be a Registrable Security when (i) a
registration statement covering such Registrable Security has been declared
effective by the Commission and the Registrable Security has been disposed of
pursuant to such effective registration statement, (ii) the Registrable Security
is sold to the public under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met, (iii) the Registrable Security has been otherwise
transferred, the Company has delivered a new certificate or other evidence of
ownership for it not bearing a legend restricting further transfer, and the
Company has received the opinion of counsel acceptable to it that such
Registrable Security may be resold without subsequent registration under the
Securities Act, or (iv) the Registrable Security is eligible for sale pursuant
to Rule 144(k) (or any successor provision) under the Securities Act.
"Registration Expenses" is defined in Section 5.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such similar or successor Federal statute.
"Term" means that period of time as set forth in subsection
9(b).
"Underwriter" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
2. Registration Rights.
A. Demand Registration.
(i) Request for Registration. If at any time the Company shall
receive a written request (specifying that it is being made pursuant to this
Section 2.A) from the Holder or Holders of at least fifty percent (50%) of the
Registrable Securities then outstanding (the "Initiating Holders"), that the
Company file a registration statement on Form S-1 under the Act, or a similar
document pursuant to any other statute then in effect corresponding to the Act,
covering the registration of at least fifty percent (50%) of the Registrable
Securities then outstanding, then the Company shall, within ten (10) days of the
receipt thereof, give written notice of such request to each Holder other than
the Initiating Holders. The Company shall, subject to the limitations contained
in subparagraphs (ii) and (iii) below, effect as soon as practicable, and in any
event within one hundred twenty (120) days of the receipt of such request from
the Initiating Holders, the registration under
-2-
<PAGE>
the Securities Act of all Registrable Securities requested by the Holders
pursuant to this subparagraph (i) who may request, within twenty (20) days of
the mailing of such notice by the Company, to have all or any portion of their
Registrable Securities also included in the registration. The Company shall use
its best efforts to cause any such Registration Statement to be initially filed
with the Commission within forty five (45) days of the receipt of a request from
the Initiating Holders as set forth above.
(ii) Priority of Registration. Any distribution of Registrable
Securities made pursuant to a registration request under this Section 2.A. may
be done at the option of the Holder, by means of an underwriting and, subject to
the limitations set forth in this subsection (ii), may, at the Company's option,
include other shares of Common Stock owned by other holders of the Company's
Common Stock ("Other Securityholders"). A majority in interest of the Holders
initiating the registration request (the "Initiating Holders") shall select the
Underwriter or Underwriters for such underwriting. The Company shall have the
right to disapprove any Underwriter so selected if, in its reasonable judgment,
the underwriting of the Company's securities by such Underwriter would have a
material and adverse effect on the market for the Company's securities
("Material Adverse Effect"). The right of any Holder to include his or its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the Underwriter or Underwriters.
Notwithstanding any other provision of this Section 2.A., if the Underwriter
advises the Initiating Holders and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders and Other Securityholders which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities and other shares of Common Stock that may be included in
the underwriting shall be allocated first among all Holders, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder, and, then, only if
no shares of Registrable Securities have been excluded by reason of such
Underwriters' marketing limitation, among all Other Securityholders, in
proportion (as nearly as practicable) to the amount of Common Stock owned by
each Other Securityholder or as otherwise deemed appropriate by the Company.
(iii) The Company shall be obligated to effect no more than three (3)
registrations pursuant to this Section 2.A. No registration of Registrable
Securities pursuant to this Section 2.A. which shall not have become and
remained effective shall be deemed to be a registration for any purpose of this
sentence.
(iv) Notwithstanding anything to the contrary herein, the holders of
the Convertible Securities shall not be required to convert the Convertible
Securities for Registrable Securities until the effective date of the
registration contemplated in this Section.
-3-
<PAGE>
B. Piggyback Registration.
(i) Request for Registration. If at any time after the date
hereof, the Company proposes to file a registration statement under the
Securities Act, including any universal or unallocated shelf registration
statement (other than a registration statement on Form S-4 or S-8 (or any
successor form that may be adopted by the Commission) or a registration
statement filed in connection with an exchange offer) with respect to an
offering of equity securities of the Company for its own account or for the
account of any of its security holders, then the Company shall give written
notice of such proposed filing to each Holder as soon as practicable (but in no
event less than 20 days before the anticipated filing date). Such notice shall
offer each Holder the opportunity to have all or any of the Registrable
Securities held by such Holder included in the registration statement proposed
to be filed or, at the Company's option, in a separate registration statement to
be filed concurrently with such registration statement (the "Piggy-back
Registration"). Within fifteen days after receiving such notice, each Holder may
make a written request to the Company that any or all of the Holder's
Registrable Securities be included in the Piggy-back Registration, which notice
shall specify the number of shares to be so included. Subject to Subsection B(2)
hereof, the Company shall include in the Piggy-back Registration (or in a
separate registration statement filed concurrently therewith) all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within fifteen days after the receipt by each Holder of the
Company's notice. The Company may in its discretion withdraw any registration
statement filed pursuant to this Section 2.B. subsequent to its filing without
liability to the Holders except with respect to expenses. Any Holder shall be
permitted to withdraw all or part of such Holder's Registrable Securities
requested to be included in a Piggy-back Registration at any time prior to the
effective date of such Piggy-back Registration without any liability for any
Registration Expenses.
(ii) Priority on Piggy-back Registration. If any Piggy-Back
Registration is to be an underwritten offering, the Company shall use
commercially reasonable efforts to cause the managing Underwriter or
Underwriters to permit the shares of Registrable Securities requested by the
Holders of Registrable Securities ("Selling Piggy-back Holders") to be included
in the Piggy-back Registration (on the same terms and conditions as similar
securities of the Company included therein to the extent appropriate).
Notwithstanding any other provision of this Section 2.B., if the Underwriter
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, then the Company shall so advise each
Holder and any Other Securityholders which would otherwise be underwritten
pursuant hereto and, (i) if such Piggy-back Registration is incident to a
primary registration on behalf of the Company, the number of shares of
Registrable Securities and other shares of Common Stock that may be included in
the underwriting shall be allocated first to all securities being issued by the
Company, second to Registrable Securities of the Selling Piggy-back Holders and
to the securities of all Other Securityholders whose piggy-back rights were
obtained prior to the Date of this Agreement, collectively, in proportion (as
nearly as practicable) to the amount of securities owned by each Holder and
Other Securityholder, or otherwise as may be agreed by them and deemed
appropriate by the Company, and third, to the securities of all Other
Securityholders whose piggy-back rights were obtained on or after the Date of
this Agreement, collectively, in proportion (as nearly as practicable) to the
amount of securities
-4-
<PAGE>
owned by each Other Securityholder, or otherwise as may be agreed by them and
deemed appropriate by the Company, and (ii) if such Piggy-back Registration is
incident to a secondary registration on behalf of holders of securities of the
Company, the number of shares of Registrable Securities and other shares of
Common Stock that may be included in the underwriting shall be allocated first
to the Registrable Securities of the Selling Piggy-back Holders and to the
securities of all Other Securityholders whose piggy-back rights were obtained
prior to the date of this Agreement, collectively, in proportion (as nearly as
practicable) to the amount of securities owned by each Holder and Other
Securityholder, or otherwise as may be agreed by them and deemed appropriate by
the Company, and second to the securities of all Other Securityholders whose
piggy-back rights were obtained on or after the Date of this Agreement,
collectively, in proportion (as nearly as practicable) to the amount of
securities owned by each Other Securityholder, or otherwise as may be agreed by
them and deemed appropriate by the Company.
(iii) Notwithstanding anything to the contrary herein, it is
acknowledged by the parties that certain shareholders of the Company have demand
registration rights pursuant to that certain Common Stock Purchase Agreement
(the "Prior Agreement") dated as of December 3, 1997, among the Company and such
shareholders, and that pursuant to Section 7.1 of the Prior Agreement the
Company is not permitted to grant piggyback rights with respect to demand
registrations by such shareholders without their consent. The parties agree that
the piggyback rights granted herein shall be subject to the consent rights of
the parties to the Prior Agreement, to the extent applicable. The Company
covenants and agrees that (i) promptly upon the execution of this Agreement it
will use its best efforts to obtain the consent of the parties to the Prior
Agreement to waive their right of consent with respect to piggyback rights
granted hereunder, and (ii) during the term of this Agreement it will not grant
any similar consent rights to any other persons other than as may be consistent
with the terms of this Agreement.
(iv) Notwithstanding anything to the contrary herein, the holders of
the Convertible Securities shall not be required to convert the Convertible
Securities for Registrable Securities until the effective date of the
registration contemplated in this Section.
3. Holdback Agreements; Restrictions on Public Sale by Holder of
Registrable Securities. Upon inclusion by the Company of any Holder's
Registrable Securities in a registration statement filed pursuant to Section 2
hereof, such Holder agrees not to effect any public sale or distribution of the
issue being registered or a similar security of the Company or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the 14
days prior to, and during the 180 day period beginning on, the effective date of
such registration statement (except as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering. Such restriction on
sale shall not apply to any transfer of Registrable Securities by the Holder to
one or more of the Holder's affiliates.
-5-
<PAGE>
4. Registration Procedures.
Subject to the other provisions and limitations contained in this
Agreement, whenever any Holder has requested that any Registrable Securities be
registered pursuant to Section 2 hereof, the Company will use its best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request, the Company will as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement on any form for which the Company then qualifies and which
counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration
statement to become effective under the Securities Act; provided,
however, that, (i) at least five business days before filing a
registration statement or prospectus or as promptly as practicable
prior to filing any amendments or supplements thereto, the Company will
furnish to the Holders and to one counsel selected by the Holder or
Holders of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel, and (ii) after
the filing of the registration statement, the Company will promptly
notify each such Holder and such counsel of comments received from, or
any stop order issued or threatened by, the Commission and take all
reasonable actions required to respond to such comments or, as the case
may be, prevent the entry of such stop order or to remove it if it has
been entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until the later of (i) such time period as all
of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition as set forth in such registration
statement (but no longer than 180 days after effectiveness); or (ii)
the expiration of the time when a related prospectus is required to be
delivered under the Securities Act.
(c) furnish to each Holder of Registrable Securities covered
by such registration statement, prior to filing the registration
statement, if requested, copies of such registration statement as
proposed to be filed, and thereafter furnish to each such Holder such
number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated or deemed to be incorporated therein by
reference), the prospectus included in such registration statement
(including each preliminary prospectus), and such other documents as
each such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by each such Holder;
-6-
<PAGE>
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as each Holder of Registrable Securities covered by
such registration statement reasonably (in light of each such Holder's
intended plan of distribution) requests and do any and all other acts
and things which may be reasonably necessary to enable each such Holder
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by each such Holder and keep each such registration or
qualification (or exemption therefrom) effective during the period such
registration statement is effective; provided, however, that the
Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and
operations of the Company to enable each Holder of Registrable
Securities covered by the registration statement to consummate the
disposition of such Registrable Securities; provided, however, that the
Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(f) at any time when a prospectus relating to Registrable
Securities is required to be delivered under the Securities Act, (i)
notify each Holder of Registrable Securities covered by the
registration statement of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus, (ii)
prepare and file such supplement, amendment or any other required
document so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (iii) promptly make available to each such
Holder any such supplement, amendment or other document;
(g) enter into and perform customary agreements (including an
underwriting agreement in customary form with the managing Underwriter
or Underwriters, if any), use commercially reasonable efforts to obtain
any necessary consents in connection with any proposed registration and
sale of Registrable Securities, and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities;
(h) make available for inspection during business hours on
reasonable advance notice by each Holder of Registrable Securities
covered by the registration statement, any Underwriter participating in
any disposition pursuant to such registration statement, and any
attorney, accountant, or other professional retained by any such Holder
or such Underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents, and properties of the
Company (collectively, the "Records") as shall be
-7-
<PAGE>
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors, and
employees to supply all information reasonably requested by any such
Inspectors in connection with such registration statement. Records
which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) in the reasonable judgment of
counsel to the Company the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such registration
statement or (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Each
Holder agrees that information obtained by such Holder as a result of
such inspections shall be deemed confidential and shall not be used by
such Holder as the basis for any market transactions in the securities
of the Company unless and until such is made generally available to the
public. Each Holder further agrees that such Holder will, upon learning
that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(i) if such sale is pursuant to an underwritten offering, use
its best efforts to obtain (A) a comfort letter or comfort letters
together with auditor's consents from the Company's independent public
accountants and (B) legal opinions from the Company's legal counsel,
each in customary form and covering such matters of the type
customarily covered by comfort letters or legal opinions, as any Holder
of Registrable Securities covered by the registration statement or the
managing Underwriter or Underwriters may reasonably request;
(j) otherwise use its best efforts to comply with the
Securities Act, the Securities Exchange Act of 1934 and all applicable
rules and regulations of the Commission, and make available to its
security holders as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of section 11(a) of the
Securities Act;
(k) if requested by the managing Underwriter or Underwriters,
if any, or any Holder of Registrable Securities covered by the
registration statement in connection with an underwritten offering
pursuant to Section 2 hereof, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
Underwriter or Underwriters, if any, and/or any such Holder reasonable
requests to be included therein, as may be required by applicable laws
and (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after the Company
has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment; provided, however,
that the Company shall not be required to take any actions pursuant to
this Section 4(k) that are not, in the reasonable opinion of counsel
for the Company, in compliance with applicable law;
(l) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement filed in
connection herewith, or the lifting of any
-8-
<PAGE>
suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment;
(m) cooperate with each Holder of Registrable Securities
covered by the registration statement and the managing Underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates or
notes shall not bear any restrictive legends and shall be in a form
eligible for deposit with the transfer agent for the Common Stock; and
enable such Registrable Securities to be in such denominations and
registered in such names as the managing Underwriters, if any, or
holders may request at least two business days prior to any sale of
Registrable Securities;
(n) use its best efforts to qualify the Registrable Securities
for quotation on NASDAQ; and
(o) take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable
Securities.
Notwithstanding the provisions of this Agreement, the Company shall be
entitled to postpone, for a reasonable period of time (which shall not exceed
120 days in any twelve-month period), the filing or effectiveness of any
registration statement under Section 2 if (A) the board of directors of the
Company determines in the good faith exercise of their reasonable business
judgment, that such registration and offering is reasonably likely to interfere
materially with bona fide financing, acquisition, or other business plans of the
Company (including a proposed primary offering by the Company of its own
securities) at the time the right to delay is exercised (whether or not a final
decision has been made to undertake such action or plan at such time) or would
require disclosure of non-public information, the premature disclosure of which
is reasonably likely to materially adversely affect the business, properties,
operations or financial results of the Company; provided, however, that the
Company shall not be required to disclose to the Holders requesting registration
any such transaction, plan or non-public information, or (B) at any time prior
to the effectiveness of any Piggy-back Registration the board of directors of
Company determines in good faith that the Company is unable to comply with the
provisions of Article 3 or Article 11 of Regulation S-X under the Securities
Act, to the extent then applicable to the Company. If the Company postpones the
filing or effectiveness of a registration statement pursuant hereto, it shall
promptly notify in writing the Holders of Registrable Securities requesting such
registration when the events or circumstances permitting such postponement have
ended and at such time shall proceed with the filing of the registration
statement as requested.
The Company may require each Holder to furnish promptly in writing to
the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.
-9-
<PAGE>
Each Holder requesting registration of Registrable Securities pursuant
to Section 2 of this Agreement shall cooperate with the Company and, if
applicable, the Underwriter or Underwriters in providing such information and
executing and delivering such documents as the Company or the Underwriter or
Underwriters reasonably shall request in connection with any such registration,
and the Company shall not be obligated to include in any such registration any
Registrable Securities of any Holder who does not comply with this paragraph.
Each Holder of Registrable Securities covered by a registration
statement agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subsection 4(f) hereof only for
so long as provided in subsection 4(f), such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by subsection 4(f)
hereof, and, if so directed by the Company, such Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. If the Company shall give such notice,
the Company shall extend the period during which such registration statement
shall be maintained effective (including the period referred to in subsection
4(b) hereof) by the number of days during the period from and including the date
of the giving of notice pursuant to subsection 4(f) hereof to the date when the
Company shall make available to such Holder a prospectus supplemented or amended
to conform with the requirements of subsection 4(f) hereof.
5. Registration Expenses.
In connection with any registration statement required to be filed
hereunder, the Company shall pay all expenses incident to performance of or
compliance with Section 2 hereof by the Company (the "Registration Expenses"),
including, but not limited to: (i) all registration and filing fees; (ii) fees
and expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities); (iii) printing and automated document preparation
expenses (including expenses of printing certificates for Registrable
Securities); (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties); (v) any fees and expenses incurred in connection with the listing of
the Registrable Securities on the national securities exchange or automated
quotation system on which the Common Stock is listed; (vi) fees and
disbursements of the Company's counsel and customary fees and expenses for
independent certified public accountants retained by the Company (including the
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters requested pursuant to subsection 4(i)
hereof); (vii) the fees and expenses of any special experts or other persons
retained by the Company in connection with such registration; (viii) messenger,
delivery and telephone expenses related to any registration contemplated
hereunder, and (ix) reasonable fees and expenses of counsel to the Holders in an
amount not to exceed $7,500. The Company shall not have any obligation to pay
any underwriting fees, discounts, or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses of any Holder (or the
agents who manage the accounts of such Holder), which amounts shall be the
responsibility of the selling Holder or Holders.
-10-
<PAGE>
6. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder of Registrable Securities and, if
applicable, its directors and officers and each person who controls such Holder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, covered by a registration statement filed pursuant to this
Agreement from and against any and all losses, claims, damages, liabilities and
expenses (including reasonable legal and other costs of investigation and
defense) (collectively, "Losses") arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any such
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such Losses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Holder or on such
Holder's behalf expressly for use therein; provided, however, that with respect
to any untrue statement or omission or alleged untrue statement or omission made
in any preliminary or final prospectus, the indemnity agreement contained in
this subsection shall not apply to the extent that any such Losses result from
the fact that a current copy of the prospectus was not sent or given to the
person asserting any such Losses at or prior to the written confirmation of the
sale of the Registrable Securities concerned to such person if it is determined
that it was the responsibility of such Holder to provide such person with a
current copy of the prospectus and such current copy of the prospectus would
have cured the defect giving rise to such Losses. The Company also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors, and each person who controls such Underwriters within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act on
substantially the same basis as the indemnification of Holders provided in this
subsection 6(a).
(b) Indemnification by Holders. Each Holder agrees to
indemnify and hold harmless the Company, its directors and officers, and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act (other than the Holder),
covered by a registration statement filed pursuant to this Agreement from and
against any and all Losses arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any such registration
statement or prospectus relating to the Registrable Securities or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only insofar as such Losses arise out of, or are based upon,
any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Holder or on such
Holder's behalf, in such Holder's capacity as a Holder and not in his capacity
as a director or officer of the Company, if applicable, expressly for use
therein; provided, however, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary or
final prospectus, the indemnity agreement contained in this subsection shall not
apply to the extent that any such Losses result from the fact that a current
copy of the prospectus was not sent or given to the person asserting any such
Losses at or prior to the written confirmation of the
-11-
<PAGE>
sale of the Common Stock concerned to such person if it is determined that it
was the responsibility of the Company or any other person or entity (other than
the Holder) to provide such person with a current copy of the prospectus and
such current copy of the prospectus would have cured the defect giving rise to
such Losses. Each Holder also agrees to indemnify and hold harmless underwriters
of the Registrable Securities, their officers and directors, and each person who
controls such underwriters within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act on substantially the same basis
as the indemnification of the Company provided in this subsection 6(b); provided
further, however, that the obligation of such Holder to indemnify pursuant to
this subsection 6(b) shall be several, not joint and several, among such Holders
selling Registrable Securities, and the liability of each such Holder will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such Holder from the sale of its Registrable Securities
pursuant to such registration.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any person entitled to indemnification under subsections (a) or
(b) above (an "Indemnified Party") in respect of which indemnity may be sought
from any party who has agreed to provide such indemnification (an "Indemnifying
Party"), the Indemnified Party shall promptly notify the Indemnifying Party in
writing, and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all expenses. The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party has agreed
to pay such fees and expenses, (ii) the Indemnifying Party shall have failed to
promptly assume the defense of such action or proceeding and to employ counsel
reasonably satisfactory to the Indemnified Party, (iii) the named parties to any
such action or proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such Indemnified Party,
or (iv) the Indemnified Party's counsel shall have advised the Indemnified Party
that there may be defenses available to the Indemnified Party that are different
from or in addition to those available to the Indemnifying Party and that the
Indemnifying Party is not able to assert on behalf of or in the name of the
Indemnified Party (in which case of either (iii) or (iv), if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party); it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such Indemnified Parties, which firm shall be designated in writing by such
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
its written consent, or if there be a final judgment for the plaintiff in any
such action or proceeding, the Indemnifying Party shall indemnify and hold
harmless such
-12-
<PAGE>
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to the Indemnified Parties in respect of any Losses
(other than by reason of exceptions provided in subsection 6(a) or 6(b)), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and Holders (together with any other
selling stockholders that may be obligated thereon pursuant to similar
indemnification or contribution provisions as contained herein), on the other
hand, with respect to the statements or omissions which resulted in such Losses,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of Holders
(together with any other selling stockholders that may be obligated thereon
pursuant to similar indemnification or contribution provisions as contained
herein) on the other 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 such party, and such party's relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this subsection 6(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
subsection. Notwithstanding the provisions of this subsection 6(d), no Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities of such Holder were offered to the public
exceeds the amount of any damages which such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of subsection 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company, and (iii) the consummation of the sale or
successive resale of the Registrable Securities.
7. Participation in Underwritten Registrations.
No Holder may participate in any underwritten registration hereunder
unless such Holder (i) agrees to sell his securities on the basis provided in
any underwriting arrangements approved by the persons or entities entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement;
-13-
<PAGE>
provided, however, that no such Holder shall be required to make any
representations or warranties in connection with any such registration other
than representations and warranties as to (i) such Holder's ownership of his or
its Registrable Securities to be sold or transferred free and clear of all
liens, claims, and encumbrances, (ii) such Holder's power and authority to
effect such transfer, and (iii) such matters pertaining to compliance with
securities laws as may be reasonably requested; provided further, however, that
the obligation of such Holder to indemnify pursuant to any such underwriting
arrangements shall be several, not joint and several, among such Holders selling
Registrable Securities, and the liability of each such Holder will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such Holder from the sale of its Registrable Securities
pursuant to such registration.
8. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933 Act
("Rule 144") and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, and with a view to making it possible for Holders to register the
Registrable Securities pursuant to a registration on Form S-3, the Company
agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(b) take such action as will permit Holders to use Form S-3
for the sale of their Registrable Securities;
(c) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act; and
(d) furnish to any Holder forthwith upon request (1) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, or as to its qualification as a
registrant whose securities may be resold pursuant to Form S-3, (2) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (3) such other information as may be
reasonably requested in availing any Holder of any rule or registration of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
9. Miscellaneous.
(a) Remedies. In addition to being entitled to exercise all
rights provided herein and granted by law, including recovery of damages, each
Holder will be entitled to specific performance of his rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
-14-
<PAGE>
(b) Term. The term of this Agreement shall terminate on the
earlier to occur of (i) the tenth anniversary of the date hereof or (ii) the
first date on which there are no longer any Registrable Securities (the "Term").
(c) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to Holders in this
Agreement or otherwise conflicts with the provisions hereof.
(d) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified, or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of the Holders.
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to the Holder, at the most current address
given to the Company in accordance with the provisions of this
subsection, which address initially is:
Lynrise Air Lease, Inc.
1023 15th Street, N.W., Suite 1000
Washington, D.C. 20005
Telecopier: (202) 789-0076
Attention: Mr. Michael Wayshner
with a copy to:
Robert L. Nutt, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier: (617) 951-7050
(ii) if to the Company, at its most current address
and thereafter at such other address as may be designated from time to
time by notice given in accordance with the provisions of this section,
which address initially is:
CCAIR, Inc.
4700 Yorkmont Road
Charlotte, NC 28219-0929
Attention: Mr. Kenneth Gann
Telecopier: (____)
with a copy to:
-15-
<PAGE>
Thomas Hughes, Esq.
Winstead Sechrest & Minick, P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2199
(iii) if to any other Holder, at such address set
forth on the signature pages hereto or on the Addendum to this
Agreement executed and delivered by such Holder pursuant to Section
9(f) hereof or at such other address as may be designated from time to
time by notice given in accordance with the provisions of this section.
(f) Successors and Assigns. The Company shall not assign its
rights or obligations hereunder without the prior written consent of the
Holders. Holders may assign their respective rights and obligations hereunder to
persons to whom they transfer or otherwise assign Registrable Securities. Any
assignment of rights under this Agreement in violation of the foregoing shall be
null and void. Subject to the foregoing, this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company and
each Holder; provided, however, that any assignee or transferee of Registrable
Securities that is deemed a Holder under this Agreement shall be entitled to the
rights and benefits afforded such person by this Agreement only upon such
person's execution and delivery of an addendum to this Agreement, in form and
substance acceptable to the Company, agreeing to be bound by the duties and
obligations of a Holder under this Agreement.
(g) Counterparts. This Agreement may be executed in a number
of identical counterparts and it shall not be necessary for the Company and each
Holder to execute each of such counterparts, but when both have executed and
delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument, enforceable
against each in accordance with its terms. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart
executed by the party against whom enforcement of this Agreement is sought.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.
(j) Severability. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. Furthermore,
-16-
<PAGE>
in lieu of each such illegal, invalid, or unenforceable provision, there shall
be added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
(k) Entire Agreement. This Agreement is intended by the
Company and the Holders as a final expression of their agreement and is intended
to be a complete and exclusive statement of their agreement and understanding in
respect of the subject matter contained herein. This agreement supersedes all
prior agreements and understandings between the Company and the Holders with
respect to such subject matter.
(l) Third Party Beneficiaries. Subject to the terms of
subsection 9(f) hereof, this Agreement is intended for the benefit of the
Company and the Holders and their respective successors and assigns and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person or entity.
(m) Attorneys' Fees. In any proceeding brought to enforce any
provision of this Agreement, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to its costs and expenses and any other
available remedy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Company: CCAIR, INC.
By:_____________________________________
Kenneth W. Gann, Chief Executive Officer
Holder: LYNRISE AIR LEASE, INC.
By:______________________________________
By:
Title:
-17-
EXHIBIT 10.7(c)
THIS NOTE WAS OFFERED PURSUANT TO EXEMPTIONS FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND STATE SECURITIES
LAWS, AND HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES AUTHORITY. NO TRANSFER OR SALE OF THIS NOTE SHALL BE MADE
UNLESS SUCH TRANSFER OR SALE COMPLIES WITH THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES
LAW. IN THE EVENT THAT THE TRANSFER OF THIS NOTE IS TO BE MADE, THE COMPANY
SHALL REQUIRE A CERTIFICATE AND, IF APPLICABLE, MAY REQUIRE AN OPINION OF
INDEPENDENT COUNSEL, ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY, THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION, DESCRIBING
THE APPLICABLE EXEMPTION AND THE BASIS THEREFOR, FROM SAID ACT AND LAWS OR IS
BEING MADE PURSUANT TO SAID ACT AND LAWS.
CCAIR, INC.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2004
$7,920,000
CCAIR, Inc., a Delaware corporation (hereinafter called the "Company")
which term includes any successors), for value received, hereby promises to pay
to Lynrise Air Lease, Inc. or registered assigns, the principal sum of SEVEN
MILLION NINE HUNDRED TWENTY THOUSAND DOLLARS, in 10 equal semiannual
installments of principal as provided herein, payable on each June 30 and
December 31 (each a "Principal Payment Date"), commencing on December 31, 1999
and on each Principal Payment Date thereafter until and including June 30, 2004.
A final installment in the amount of all outstanding principal, Capitalized
Interest (hereinafter defined) and all accrued and unpaid interest shall be
payable on December 31, 2004.
Interest Payment Dates: March 31, June 30, September 30 and December
31; commencing March 31, 1999.
Record Dates: March 15, June 15, September 15 and December 15.
Reference is made to the further provisions of this Note following the
signature page hereof, which will, for all purposes, have the same effect as if
set forth at this place.
-1-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
CCAIR, INC.,
a Delaware corporation
By:
Kenneth W. Gann
President
Attest: ___________________________
Secretary
-2-
<PAGE>
CCAIR, INC.
7% CONVERTIBLE SUBORDINATED NOTE DUE 2004
1. Interest and Principal. CCAIR, Inc., a Delaware corporation
(hereinafter called the "Company," which term includes any successors), promises
to pay interest on the unpaid principal amount of this Note at the rate of 7%
per annum. To the extent it is lawful, the Company promises to pay interest on
any past due principal, and to the extent lawful, on any Capitalized Interest
from the Interest Payment Date on which such Capitalized Interest accrues and
any interest payment due but unpaid at a rate of 8% per annum compounded on June
30 and December 31 of each year.
The Company will pay interest quarterly in Cash on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing March 31, 1999. Interest on this Note will accrue from December 31,
1997; provided that the interest accrued from December 31, 1997 until and
including December 31, 1998 (the "Capitalized Interest"), shall not be due and
payable until December 31, 2004. Interest on the outstanding principal balance
of this Note accruing after December 31, 1998 shall be due and payable on each
Interest Payment Date. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months, and the actual number of days elapsed.
The Company hereby promises to repay the outstanding principal balance
of this Note in 10 equal semiannual installments of principal in the amount of
Four Hundred Thirty-Five Thousand Six Hundred Dollars ($435,600) each, payable
on each June 30 and December 31 of each year (each a "Principal Payment Date"),
commencing December 31, 1999, and on each Principal Payment Date thereafter
until and including June 30, 2004. A final installment in the amount of all
outstanding principal, plus the Capitalized Interest, plus accrued and unpaid
interest, shall be due and payable on December 31, 2004.
2. Method of Payment. The Redemption Price (hereinafter defined) and
each installment of principal of this Note are payable, at the Company's option,
in Cash (hereinafter defined) or subject to the satisfaction of the following
conditions, in Common Stock (hereinafter defined) of the Company: (i) no Event
of Default (hereinafter defined) has occurred and is then continuing; (ii) the
Company's certified independent public accountants issued an unqualified opinion
in connection with their most recent audit report for the Company; and (iii) the
Company's Common Stock is then listed or admitted to trading on a national
securities exchange in the United States or is quoted on the Nasdaq Stock Market
(collectively, the "Common Stock Payment Conditions"). The current market price
per share of a share of Common Stock (the "Current Market Price") on any payment
date shall be deemed to be the average of the last sale prices of a share of
Common Stock as reported on the principal national securities exchange on which
the Common Stock is listed or admitted for trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the
Nasdaq Stock Market's National Market, at the close of
-3-
<PAGE>
business (the "Last Sale Price") for the preceding thirty (30) Trading Days
(hereinafter defined) ending on the last Trading Day prior to the applicable
payment date or other applicable date. If on any such Trading Day the Common
Stock is not quoted by any organization referred to in the definition of Last
Sale Price, the fair market value of the Common Stock on such day, as reasonably
determined in good faith by the Board of Directors of the Company, shall be
used. Each installment of interest is payable in Cash. Payment of principal (to
the extent made in Cash) and interest shall be made (i) by check mailed to the
Holder at its address set forth herein or such other address designated by
notice to the Company as provided herein, or (ii) by wire transfer of
immediately available funds in accordance with wire instructions designated by
notice to the Company as provided herein.
3. Paying Agent and Registrar. Initially, the Company at present having
an address at 4700 Yorkmont Road, Second Floor, Charlotte, North Carolina 28208
will act as initial paying agent where the Note may be presented for payment
("Paying Agent"). The Company may change the Paying Agent without notice to the
Holder. When acting as Paying Agent, the Company or any Affiliate thereof shall
segregate and hold in a separate trust fund for the benefit of the Holder, all
money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company or any such Affiliate, the Company will
appoint an independent Person (hereinafter defined) to act as Paying Agent. The
Company may have one or more additional Paying Agents.
The term "Paying Agent" includes any additional Paying Agent.
4. Redemption.
(a) Right of Redemption. At any time, upon thirty (30) days'
prior notice to the Holder, the Company will have the right to pay all
Capitalized Interest and redeem all or any part of this Note, provided
that each partial redemption shall be in the principal amount of
$100,000 or an integral multiple thereof, for a redemption price equal
to 100% of the aggregate outstanding principal balance of this Note or
such portion to be redeemed plus payment of all Capitalized Interest
(the "Redemption Price"), in each case (subject to the right of the
Holder, as provided below, to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date [hereinafter
defined]) together with accrued and unpaid interest, if any, to the
Redemption Date.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail, postage
prepaid, to Holder. Each notice for redemption shall identify the principal
amount to be redeemed and shall state:
(i) the Redemption Date, and that the Note called for
redemption may not be converted after the Business Day (hereinafter
defined) prior to the Redemption Date;
-4-
<PAGE>
(ii) the Redemption Price, plus the amount of accrued and
unpaid interest, if any, to be paid upon such redemption;
(iii) the name and address of the Paying Agent;
(iv) that the Note called for redemption must be surrendered
to the Paying Agent at the address specified in such notice to collect
the Redemption Price;
(v) that, unless (A) the Company defaults in its obligation to
deposit Cash or, at its option but subject to the Common Stock Payment
Conditions, Common Stock with the Paying Agent, or (B) such redemption
payment is prohibited pursuant to Paragraph 10 hereof or otherwise,
interest on the Note called for redemption will cease to accrue on and
after the Redemption Date and the only remaining right of the Holder of
this Note is to receive payment of the Redemption Price, plus accrued
and unpaid interest, if any, to the Redemption Date, upon surrender to
the Paying Agent of the Note called for redemption and to be redeemed;
(vi) if the Note is being redeemed in part, the portion of the
principal amount of the Note to be redeemed and that, after the
Redemption Date, and upon surrender of the Note, a new Note in an
aggregate principal amount equal to the unredeemed portion thereof will
be issued; and
(vii) that the notice is being sent pursuant to the redemption
provisions of Paragraph 4 of this Note.
(b) Effect of Notice of Redemption. Once notice of redemption is mailed
in accordance with Subparagraph 4(a), this Note or such portion hereof called
for redemption shall become due and payable on the Redemption Date at the
Redemption Price, plus accrued and unpaid interest, if any, to the Redemption
Date. Upon surrender to the Paying Agent, this Note or such portion hereof
called for redemption shall be paid at the Redemption Price, plus accrued and
unpaid interest, if any, to the Redemption Date; provided that if the Redemption
Date is a Legal Holiday (hereinafter defined), payment shall be made on the next
succeeding Business Day (hereinafter defined) with accrued interest for the
period from such Redemption Date to such succeeding Business Day.
(c) Deposit of Redemption Price; Redemption in Common Stock.
(i) On or prior to the Redemption Date, the Company shall
deposit with the Paying Agent (or, if the Company or an Affiliate
thereof is acting as Paying Agent, segregate and hold in trust) Cash
or, at the Company's option but subject to the Common Stock Payment
Conditions, Common Stock in an amount sufficient to pay the Redemption
Price of, plus accrued and unpaid interest on, this Note or such
portion hereof to be redeemed on
-5-
<PAGE>
such Redemption Date and, if this Note is redeemed in full, all
Capitalized Interest plus accrued and unpaid interest thereon. The
Paying Agent shall promptly return to the Company any Cash or Common
Stock so deposited which is not required for that purpose upon the
written request of the Company.
(ii) If the Company complies with clause (c)(i) of this
Paragraph 4 and payment of this Note or such portion hereof called for
redemption is not prohibited under Paragraph 12 or otherwise, interest
on this Note or such portion hereof to be redeemed will cease to accrue
on the applicable Redemption Date, whether or not this Note is
presented for payment. Notwithstanding anything herein to the contrary,
if this Note is surrendered for redemption in the manner provided
herein and is not so paid upon surrender for redemption because of the
failure of the Company to comply with clause (c)(i) of this Paragraph
4, interest shall continue to accrue and be paid from the Redemption
Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in
each case at the rate and in the manner provided in Paragraph 1 hereof.
5. Transfer and Exchange.
(a) When this Note is presented to the Company with a
request:
(x) to register the transfer of this Note; or
(y) to exchange this Note for an equal principal
amount of Notes of other denominations;
the Company shall register the transfer or make the exchange as
requested if its reasonable requirements for such transaction are met;
provided, however, that if surrendered for transfer or exchange, this
Note shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company, duly executed
by the Holder hereof or his attorney duly authorized in writing.
(b) No transfer or sale of this Note shall be made until the
registration requirements of the Securities Act, and any applicable
state securities laws are complied with, or such transfer or sale is
exempt from the registration requirements under the Securities Act and
said laws. No transfer or sale of this Note shall be made to any Person
who is precluded from owning or holding Common Stock under applicable
law or by United States Department of Transportation regulations or
rulings. In the event that a transfer is to be made, the Company shall
require the holder of this Note to deliver, at its expense, a
certificate acceptable to and in form and substance satisfactory to the
Company that such transfer is being made (i) pursuant to an exemption,
describing the applicable exemption and the basis therefor, from the
Securities Act and said laws or is being made pursuant to the
-6-
<PAGE>
Securities Act and said laws and that the transferee agrees to be bound
by and to abide by the provisions of this Note, and (ii) to a Person
that is not precluded from owning or holding Common Stock under
applicable law or United States Department of Transportation
regulations or rulings. The Company may request an opinion of counsel
to establish compliance with the Securities Act or said laws. The
opinion of counsel shall not be an expense of the Company.
(c) Obligations with respect to Transfers and Exchanges of
this Note.
(i) To permit registrations of transfers and
exchanges, the Company shall execute Notes at the Holder's
request.
(ii) No service charge shall be made for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax,
assessments, or similar governmental charge payable in
connection therewith.
(iii) The Company shall not be required to register
the transfer of or exchange of (a) this Note to the extent it
is subject to redemption in whole or in part pursuant to
Paragraph 4, except the unredeemed portion of this Note if
being redeemed in part, or (b) this Note for a period
beginning 15 days before the mailing of a notice of an offer
to repurchase pursuant to Paragraph 10 hereof or the mailing
of a notice of redemption pursuant to Paragraph 4 hereof and
ending at the close of business on the day of such mailing.
6. Persons Deemed Owners. The registered Holder of this Note may be
treated as the owner of it for all purposes.
7. Unclaimed Money. If money or Common Stock for the payment of
principal or interest remains unclaimed for two years, the Paying Agent(s) (if
other than the Company) will return the money or Common Stock, as the case may
be to the Company at its written request. After that, all liability of such
Paying Agent(s) with respect to such money or Common Stock shall cease and the
Holder of this Note shall thereafter look only to the Company for payment of
such money or Common Stock.
8. Amendment; Supplement; Waiver. The Holder and the Company, when
authorized by board resolutions, may by written agreement executed by the
Company and Holder amend or supplement this Note for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Note or of modifying in any manner the rights of the Holder under this
Note. The Holder may, in writing, waive compliance by the Company with any
provision of this Note.
-7-
<PAGE>
9. Conversion Rights.
(a) Conversion Privilege. Subject to and upon compliance with
the provisions of this Paragraph 9, at the option of the Holder, this
Note may at any time after the date of issuance of this Note, be
converted, in whole, or in part, into fully paid and non-assessable
shares of Common Stock issuable upon conversion of this Note, at the
Conversion Price (hereinafter defined), until and including, but not
after the close of business on the second Business Day prior to the
Stated Maturity (hereinafter defined), provided that, to the extent
that this Note or some portion hereof shall have been called for
redemption or delivered for repurchase prior to such date and no
default is made in making due provision for the payment of the
Redemption Price or Repurchase Price in accordance with the terms
hereof, this Note or such portion thereof may be so converted only
until and including, but not after, the close of business on the
Business Day prior to the Redemption Date or Repurchase Date, as
applicable, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
(b) Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder shall surrender this Note to the
Company at any time during usual business hours at its office or agency
maintained for the purpose as provided in this Note, accompanied by a
fully executed written notice, in substantially the form attached to
this Note, that the Holder elects to convert this Note or a stated
portion thereof, and, if this Note is surrendered for conversion during
the period between the close of business on any Record Date and the
opening of business on the next following Interest Payment Date and has
not been called for redemption on a Redemption Date which occurs within
such period, accompanied also by payment to the Company of an amount
equal to the interest payable on such Interest Payment Date on the
principal amount of this Note being surrendered for conversion,
notwithstanding such conversion. The Holder of this Note at the close
of business on a Record Date will be entitled to receive the interest
payable on this Note on the corresponding Interest Payment Date
notwithstanding the conversion thereof after such Record Date. The
interest payment with respect to this Note if called for redemption on
a date during the period from the close of business on or after any
Record Date to the close of business on the Business Day following the
corresponding Interest Payment Date will be payable on the
corresponding Interest Payment Date to the registered Holder at the
close of business on that Record Date (notwithstanding the conversion
of such Note before the corresponding Interest Payment Date) and a
Holder who elects to convert need not include funds equal to the
interest paid. Such notice of conversion shall also state the name or
names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued if other than that of the
Holder. The Note surrendered for conversion shall (if reasonably
required by the Company) be duly endorsed by, or be accompanied by a
written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder or his attorney duly authorized in writing. As
promptly as practicable after the receipt of such
-8-
<PAGE>
notice and the surrender of the Note as aforesaid, the Company shall,
subject to the provisions of this Paragraph 9, issue and deliver at
such office or agency to such Holder, or on his written order, a
certificate or certificates for the number of full shares of Common
Stock issuable on such conversion of the Note in accordance with the
provisions of this Paragraph 9 and Cash, as provided in this Paragraph
9, in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the date
(herein called the "Date of Conversion") on which the Note shall have
been surrendered as aforesaid, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become
on the Date of Conversion the holder or holders of record of the shares
represented thereby; provided, however, that any such surrender on any
date when the stock transfer books of the Company shall be closed shall
cause the person or persons in whose name or names the certificate or
certificates for such shares are to be issued to be deemed to have
become the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock
transfer books are open but such conversion shall nevertheless be at
the Conversion Price in effect at the close of business on the date
when the Note shall have been so surrendered with the conversion
notice. In the case of conversion of a portion, but less than all, of
this Note, the Company shall as promptly as practicable execute and
deliver to the Holder, at the expense of the Company, a Note or Notes
in the aggregate principal amount of the unconverted portion of this
Note so surrendered. Except as otherwise expressly provided in this
Note, no payment or adjustment shall be made for interest accrued on
this Note (or portion thereof) converted or for dividends or
distributions on any Common Stock issued upon conversion of this Note.
(c) Fractional Interests. No fractions of shares shall be
issued upon conversion of this Note. If any fraction of a share of
Common Stock would, except for the foregoing provisions of this
Paragraph 9, be issuable on the conversion of this Note, the Company
shall make payment in lieu thereof in an amount of Cash equal to the
value of such fraction.
(d) Initial Conversion Price. The Initial Conversion Price
(herein so called) per share of Common Stock issuable upon conversion
of this Note shall be $7.50 (or $7.50 in principal amount of this Note
for each such share of Common Stock).
(e) Continuation of Conversion Privilege in Case of
Reclassification, Change, Merger, Consolidation or Sale of Assets. If
any of the following shall occur, namely: (a) any reclassification or
change of outstanding shares of Common Stock issuable upon conversion
of this Note (other than a change in par value, or from par value to no
par value, or from no par value, to par value, or as a result of a
subdivision or combination), (b) any consolidation or merger of the
Company with or into any other Person, or the merger of any other
Person with or into the Company (other than a merger which does not
result in any reclassification,
-9-
<PAGE>
change, conversion, exchange or cancellation of outstanding shares of
Common Stock) or (c) any sale, transfer or conveyance of all or
substantially all of the assets of the Company (computed on a
consolidated basis), then the Company, or such successor or purchasing
entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance,
execute and deliver to the Holder an amendment providing that the
Holder of this Note shall have the right to convert this Note only into
the kind and amount of shares of stock and other securities and
property (including Cash) receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance by a holder
of the number of shares of Common Stock issuable upon conversion of
this Note immediately prior to such reclassification, change,
consolidation, merger, sale, transfer or conveyance assuming such
holder of Common Stock of the Company failed to exercise his rights of
an election, if any, as to the kind or amount of securities, cash and
other property receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance (provided that if
the kind or amount of securities, cash, and other property receivable
upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance is not the same for each share of Common Stock
of the Company held immediately prior to such reclassification, change,
consolidation, merger, sale, transfer or conveyance in respect of which
such rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this Paragraph 9 the kind and amount
of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or
conveyance by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing
shares). If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including Cash)
receivable thereupon by a holder of shares of Common Stock includes
shares of stock or other securities and property (including Cash) of a
corporation other than the successor or purchasing corporation, as the
case may be, in such consolidation, merger, sale or conveyance, then
such amendment shall also be executed by such other corporation and
shall contain such additional provisions to protect the interests of
the Holder of this Note as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. The
provisions of this Paragraph 9 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(f) Notice of Certain Events. In case:
(i) the Company shall declare a dividend (or any
other distribution) payable to the holders of Common Stock
(other than cash dividends);
(ii) the Company shall authorize the granting to all
of the holders of Common Stock of rights, warrants or options
to subscribe for or purchase any shares of stock of any class
or of any other rights;
-10-
<PAGE>
(iii) the Company shall authorize any
reclassification or change of the Common Stock (including a
subdivision or combination of its outstanding shares of Common
Stock), or any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the
Company is required under the laws of the state of
incorporation of the Company, or the sale or conveyance of all
or substantially all the property or business of the Company;
(iv) there shall be proposed any voluntary or
involuntary dissolution, liquidation or winding-up of the
Company; or
(v) the Company or any of its Subsidiaries shall
complete an Offer (hereinafter defined); then, the Company
shall cause to be mailed to the Holder of this Note, at his
address as it shall appear on the registry books of the
Company, at least 20 days before the date hereinafter
specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice
stating the date on which (1) a record is expected to be taken
for the purpose of such dividend, distribution, rights,
warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights,
warrants or options or to participate in such Offer are to be
determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up is expected to become effective and
the date, if any is to be fixed, as of which it is expected
that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, change,
consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up.
(g) Taxes on Conversion. The Company will pay any and all
documentary, stamp or similar taxes payable to the United States of
America or any political subdivision or taxing authority thereof or
therein in respect of the issue or delivery of shares of Common Stock
on conversion of this Note pursuant hereto; provided, however, that the
Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of
Common Stock in a name other than that of the Holder of this Note and
no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of
any such tax or has established, to the reasonable satisfaction of the
Company, that such tax has been paid. The Company extends no protection
with respect to any other taxes imposed in connection with conversion
of this Note.
-11-
<PAGE>
(h) Company to Provide Stock. The Company shall reserve, free
from preemptive rights, out of its authorized but unissued shares,
sufficient shares to provide for the conversion of this Note from time
to time as such Note is presented for conversion; provided, however,
that nothing contained herein shall be construed to preclude the
Company from satisfying its obligations in respect of the conversion of
this Note by delivery of repurchased shares of Common Stock which are
held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose
of conversion of this Note require registration with or approval of any
governmental authority under any Federal or state law before such
shares may be validly issued or delivered upon conversion, then the
Company covenants that it will in good faith and as expeditiously as
possible use its best efforts to secure such registration or approval,
as the case may be; provided, however, that nothing in this
Subparagraph 9(h) shall be deemed to limit in any way the obligations
of the Company provided in this Paragraph 9.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of this Note will upon issue (i) be fully
paid and non-assessable by the Company, (ii) be free of preemptive
rights, and (iii) have the benefit of demand registration rights
pursuant to the Registration Rights Agreement.
(i) Return of Funds Deposited for Redemption of Converted
Note. Any funds which at any time shall have been deposited by the
Company or on its behalf with any Paying Agent for the purpose of
paying the principal of and interest on this Note and which shall not
be required for such purposes because of the conversion of this Note
shall after such conversion be repaid to the Company by such Paying
Agent.
10. Adjustment of Common Stock Issuable Upon Conversion.
(a) General; Number of Shares; Conversion Price. The number of
shares of Common Stock which the Holder of this Note shall be entitled
to receive upon each conversion hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise
(but for the provisions of this Section 10) be issuable upon
designation of the amount to be converted hereunder by the Holder
hereof pursuant to Section 9 hereof, by the fraction of which (i) the
numerator is the Initial Conversion Price and (ii) the denominator is
the Conversion Price in effect on the date of such conversion. The
"Conversion Price" shall initially be the Initial Conversion Price,
shall be adjusted and readjusted from time to time as provided in this
Section 10 and, as so adjusted or readjusted, shall remain in effect
until a further adjustment or readjustment thereof is required by this
Section 10.
-12-
<PAGE>
(b) Adjustment of Conversion Price.
(i) Issuance of Additional Shares of Common Stock. In
case the Company at any time or from time to time after the
date hereof shall issue or sell additional shares of Common
Stock ("Additional Shares") (including Additional Shares of
Common Stock deemed to be issued pursuant to Subparagraph (c)
or (d) hereof) without consideration or for a consideration
per share less than the Current Market Price in effect
immediately prior to such issue or sale, then, and in each
such case, subject to Subparagraph (g) hereof, such Conversion
Price shall be reduced, concurrently with such issue or sale,
to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding
immediately prior to such issue or sale plus (2) the
number of shares of Common Stock which the aggregate
consideration received by the Company for the total
number of such Additional Shares of Common Stock so
issued or sold would purchase at such Current Market
Price; and
(B) the denominator of which shall be the
number of shares of Common Stock outstanding
immediately after such issue or sale.
(ii) Dividends and Distributions. In case the Company
at any time or from time to time after the date hereof shall
declare, order, pay or make a dividend or other distribution
(including without limitation any distribution of Cash, other
or additional stock or other securities or property or Options
[as hereafter defined], by way of dividend or spin off,
reclassification, recapitalization or similar corporate
rearrangement or otherwise) on the Common Stock, other than a
dividend payable in Additional Shares of Common Stock, then,
and in each such case, subject to Subparagraph (g) hereof, the
Conversion Price in effect immediately prior to the close of
business on the Record Date fixed for the determination of
holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the
close of business on such Record Date, to a price (calculated
to the nearest .001 of a cent) determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be the
Current Market Price in effect on such record date,
less the amount of such dividend or distribution (as
reasonably determined in good faith by the Board of
Directors of the Company) applicable to one share of
Common Stock; and
-13-
<PAGE>
(B) the denominator of which shall be such
Current Market Price.
(c) Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof
shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to
receive, any options or warrants for either Common Stock or securities
convertible into Common Stock (collectively, "Options") or securities
convertible into Common Stock ("Convertible Securities"), then, and in
each such case, the maximum number of Additional Shares of Common Stock
(as set forth in the instrument relating thereto, without regard to any
provisions contained therein for a subsequent adjustment of such number
the purpose of which is to protect against dilution) at any time
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date; provided, however, that such
Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to
Subparagraph (e) hereof) of such shares would be less than the greater
of the Current Market Price or the Conversion Price in effect on the
date of and immediately prior to such issue, sale, grant or assumption
or immediately prior to the close of business on such record date, as
the case may be; and provided, further, that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment of the Conversion Price
shall be made upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the
consequent issue or sale of Convertible Securities or shares
of Common Stock;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase in the consideration payable to the Company,
or decrease in the number of Additional Shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof
(by change of rate or otherwise), the Conversion Price
computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date with
respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options, or the rights of
conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(iii) upon the expiration (or purchase by the Company
and cancellation or retirement) of any such Options which
shall not have been exercised, or the expiration of any rights
of conversion or exchange under any such Convertible
-14-
<PAGE>
Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of
conversion or exchange under which) shall not have been
exercised, the Conversion Price computed upon the original
issue, sale, grant or assumption thereof (or upon the
occurrence of the record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon (and
effective as of) such expiration (or such cancellation or
retirement, as the case may be), be recomputed as if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of
Common Stock, if any, actually issued or sold upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or
not exercised, plus the consideration actually
received by the Company upon such exercise, or for
the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the
additional consideration, if any, actually received
by the Company upon such conversion or exchange, and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued or sold upon the exercise of such
Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the
consideration received by the Company for the
Additional Shares of Common Stock deemed to have then
been issued was the consideration actually received
by the Company for the issue, sale, grant or
assumption of all such Options, whether or not
exercised, plus the consideration deemed to have been
received by the Company (pursuant to Subparagraph (e)
hereof) upon the issue or sale of such Convertible
Securities with respect to which such Options were
actually exercised; and
(iv) no readjustment pursuant to clause (ii) or (iii)
above (either individually or cumulatively together with all
prior readjustments made in respect of such Options or
Convertible Securities) shall have the effect of increasing
the Conversion Price by a proportion (relative to the
Conversion Price in effect immediately prior to such
readjustment) in excess of the inverse of the aggregate
proportional adjustment thereof made in respect of the issue,
sale, grant or assumption of such Options or Convertible
Securities.
If the consideration provided for in any Option or the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Security
shall be reduced, or the rate at which any
-15-
<PAGE>
Option is exercisable or any Convertible Security is convertible into or
exchangeable for shares of Common Stock shall be increased, at any time under or
by reason of provisions with respect thereto designed to protect against
dilution, then, effective concurrently with each such change, the Conversion
Price then in effect shall first be adjusted to eliminate the effects (if any)
of the issuance (or deemed issuance) of such Option or Convertible Security on
the Conversion Price and then readjusted as if such Option or Convertible
Security had been issued on the date of such change with the terms in effect
after such change, but only if as a result of such adjustment the Conversion
Price then in effect hereunder is thereby reduced.
(d) Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof
shall declare or pay any dividend on the Common Stock payable in Common
Stock, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common
Stock), then, and in each such case, Additional Shares of Common Stock
shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date
for the determination of holders of any class of securities entitled to
receive such dividend, or (b) in the case of any such subdivision, at
the close of business on the date immediately prior to the day upon
which such corporate action becomes effective.
(e) Computation of Consideration. For the purposes of this
Section 10:
(i) the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the
accounting treatment of such consideration:
(A) insofar as it consists of Cash, be
computed at the amount of Cash actually received by
the Company net of any expenses paid or incurred by
the Company or any commissions or compensations paid
or concessions or discounts allowed to underwriters,
dealers or others performing similar services in
connection with such issue or sale;
(B) insofar as it consists of property
(including securities) other than Cash actually
received by the Company, be computed at the fair
value thereof at the time of such issue or sale, as
reasonably determined in good faith by the Board of
Directors of the Company;
(C) insofar as it consists neither of Cash
nor of other property, be computed as having no
value; and
(D) in case Additional Shares of Common
Stock are issued or sold together with other stock or
securities or other assets of the Company for a
-16-
<PAGE>
consideration which covers both, be the portion of
such consideration so received, computed as provided
in clauses (A), (B) and (C) above, allocable to such
Additional Shares of Common Stock, all as reasonably
determined in good faith by the Board of Directors of
the Company;
(ii) Additional Shares of Common Stock deemed to have
been issued pursuant to Subparagraph (c) hereof shall be
deemed to have been issued for a consideration per share
determined by dividing:
(A) the total amount of Cash and other
property, if any, received and receivable by the
Company as direct consideration for the issue, sale,
grant or assumption of the Options or Convertible
Securities in question, plus the minimum aggregate
amount of additional consideration (as set forth in
the instruments relating thereto, without regard to
any provision contained therein for a subsequent
adjustment of such consideration the purpose of which
is to protect against dilution) payable to the
Company upon the exercise in full of such Options or
the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange
of such Convertible Securities, in each case
computing such consideration as provided in the
foregoing clause (i),
by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein for a subsequent adjustment of such number
the purpose of which is to protect against dilution)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities; and
(iii) Additional Shares of Common Stock deemed to
have been issued pursuant to Subparagraph (d) hereof shall be
deemed to have been issued for no consideration.
(f) Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased.
-17-
<PAGE>
(g) Minimum Adjustment of Conversion Price. If the amount of
any adjustment of the Conversion Price required pursuant to this
Section 10 would be less than one-tenth of one percent (.1%) of the
Conversion Price in effect at the time such adjustment is otherwise so
required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with
any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate at least
one-tenth of one percent (.1%) of such Conversion Price.
(h) Shares Deemed Outstanding. For all purposes of the
computations to be made pursuant to this Section 10, (i) there shall be
deemed to be outstanding all shares of Common Stock issuable pursuant
to the exercise of Options and conversion of Convertible Securities
outstanding on the date hereof, including without limitation this Note,
(ii) immediately after any Additional Shares of Common Stock are deemed
to have been issued pursuant to Section 2.3 or 2.4 hereof, such
Additional Shares shall be deemed to be outstanding, (iii) treasury
shares shall not be deemed to be outstanding and (iv) no adjustment
shall be made in the Conversion Price upon the issuance of shares of
Common Stock pursuant to Options and Convertible Securities so deemed
to be outstanding, but this Subparagraph (h) shall not prevent other
adjustments in the Conversion Price arising by virtue of such
outstanding Options or Convertible Securities pursuant to the
provisions of Subparagraph (c) hereof; provided, however, that, for
purposes of calculating adjustments to the Conversion Price, there
shall be deemed to be outstanding immediately after giving effect to
any issuance of shares of Common Stock, Options or Convertible
Securities all shares of Common Stock issuable upon the exercise of
Options and conversion of Convertible Securities then outstanding
(including without limitation this Note) after giving effect to
antidilution provisions contained in all such outstanding Options and
Convertible Securities which cause an adjustment in the number of
shares of Common Stock so issuable, either by virtue of such issuance
of shares of Common Stock, Options or Convertible Securities or by
virtue of the operation of such antidilution provisions.
11. Subordination.
(a) Note Subordinated to Existing Senior Indebtedness. The
Company and Holder, by its acceptance of this Note, agree that (i) the
payment of the principal of and interest on this Note and (ii) any
other payment in respect of this Note, including on account of the
acquisition or redemption of this Note by the Company is subordinated,
to the extent and in the manner provided in this Paragraph 11, to the
prior payment in full of all Existing Senior Indebtedness (hereinafter
defined), and that these subordination provisions are for the benefit
of the holders of Existing Senior Indebtedness. This Note will rank
pari passu in right of payment with all Indebtedness of the Company
other than the Existing Senior Indebtedness.
-18-
<PAGE>
This Paragraph 11 shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or
continue to hold, Existing Senior Indebtedness, and such provisions are
made for the benefit of the holders of Existing Senior Indebtedness,
and such holders are made obligees hereunder and any one or more of
them may enforce such provisions.
(b) No Payment on Note in Certain Circumstances.
(i) No payment may be made by the Company on account
of the principal of or interest on this Note, or to acquire
this Note (including repurchases of this Note at the option of
the Holder) for cash, securities or property, or on account of
the redemption provisions of this Note (except for any payment
or distribution of equity or debt securities which are
subordinated to the payment in full of all Existing Senior
Indebtedness then outstanding to at least the same extent as
the obligations evidenced hereby are subordinated to the
payment in full of all Existing Senior Indebtedness hereunder
and which, in any case, do not mature prior to the maturity of
the Existing Senior Indebtedness), (A) upon the maturity of
any Existing Senior Indebtedness of the Company by lapse of
time, acceleration (unless waived) or otherwise, unless and
until all principal of and interest on such Existing Senior
Indebtedness are first paid in full (or such payment is duly
provided for), or (B) in the event of default in the payment
of any principal of or interest on any Existing Senior
Indebtedness when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration
or otherwise (a "Payment Default"), unless and until such
Payment Default has been cured or waived or otherwise has
ceased to exist.
(ii) Upon (A) the happening of an event of default
(other than a Payment Default) that permits the holders of
Existing Senior Indebtedness or their representative
immediately to accelerate its maturity and (B) the giving of
written notice of such event of default given to the Company
by the holders of at least 25% in aggregate principal amount
outstanding of such Existing Senior Indebtedness or their
representative (a "Payment Notice"), then, unless and until
such event of default has been cured or waived or otherwise
has ceased to exist, no payment (by set off or otherwise) may
be made by or on behalf of the Company on account of the
principal of or interest on this Note, or to acquire or
repurchase this Note for Cash, securities or property, or on
account of the redemption provisions of this Note, in any such
case (except for any payment or distribution which the Holder
is entitled to receive pursuant to the parenthetical clause in
the foregoing Subparagraph 11(b)(i)). Notwithstanding the
foregoing, unless (i) the Existing Senior Indebtedness in
respect of which such event of default exists has been
declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the
-19-
<PAGE>
"Payment Blockage Period"), and (ii) such declaration has not
been rescinded or waived at the end of the Payment Blockage
Period, the Company shall be required to pay all sums not paid
to the Holder of this Note during the Payment Blockage Period
due to the foregoing prohibitions and to resume all other
payments as and when due on this Note. Any number of Payment
Notices may be given; provided, however, that (i) not more
than one Payment Notice shall be given within a period of any
360 consecutive days and (ii) no event of default that existed
upon the date of such Payment Notice or the commencement of
such Payment Blockage Period (whether or not such event of
default is on the same issue of Existing Senior Indebtedness)
shall be made the basis for the commencement of any other
Payment Blockage Period.
(iii) In the event that, notwithstanding the
foregoing provisions of this Paragraph 10, any payment or
distribution of assets of the Company shall be received by the
Holder at a time when such payment or distribution is
prohibited by the provisions of this Paragraph 11, then such
payment or distribution (subject to the provisions of
Subparagraph 11(f)) shall be received and held in trust by
Holder or such Paying Agent for the benefit of the holders of
Existing Senior Indebtedness, and shall be paid or delivered
by Holder or such Paying Agent, as the case may be, to the
holders of Existing Senior Indebtedness remaining unpaid or
unprovided for or their representative or representatives, or
to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Existing Senior
Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Existing
Senior Indebtedness held or represented by each, for
application to the payment of all Existing Senior Indebtedness
remaining unpaid to the extent necessary to pay or to provide
for the payment of all such Existing Senior Indebtedness in
full after giving effect to any concurrent payment and
distribution to the holders of such Existing Senior
Indebtedness.
(c) Note Subordinated to Prior Payment of All Existing Senior
Indebtedness on Dissolution, Liquidation or Reorganization. Upon any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities:
(i) the holders of all Existing Senior Indebtedness
shall first be entitled to receive payments in full (or have
such payment duly provided for) before the Holder is entitled
to receive any payment on account of the principal of and
interest on the Note (except for any payment or distribution
which the Holder is entitled to receive pursuant to the
parenthetical in the foregoing Subparagraph 11(b)(i));
-20-
<PAGE>
(ii) any payment or distribution of assets of the
Company of any kind or character, whether in Cash, property or
securities (except for any payment or distribution which the
Holder is entitled to receive pursuant to the parenthetical in
the foregoing Subparagraph 11(b)(i)) to which the Holder would
be entitled (by setoff or otherwise), except for the
provisions of this Paragraph 11, shall be paid by the
liquidating trustee or agent or other Person making such a
payment or distribution directly to the holders of Existing
Senior Indebtedness or their representative to the extent
necessary to make payment in full of all such Existing Senior
Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such
Existing Senior Indebtedness; and
(iii) in the event that, notwithstanding the
foregoing, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities (except for any payment or distribution which the
Holder is entitled to receive pursuant to the parenthetical in
the foregoing Subparagraph 11(b)(i)), shall be received by the
Holder or any Paying Agent (or, if the Company or any
Affiliate of the Company is acting as its own Paying Agent,
money for any such payment or distribution shall be segregated
or held in trust) on account of the principal of or interest
on this Note before all Existing Senior Indebtedness is paid
in full, such payment or distribution (subject to the
provisions of Subparagraph 11(f)) shall be received and held
in trust by the Holder or Paying Agent for the benefit of the
holders of such Existing Senior Indebtedness, or their
respective representative, ratably according to the respective
amounts of such Existing Senior Indebtedness held or
represented by each, to the extent necessary to make payment
as provided herein of all such Existing Senior Indebtedness
remaining unpaid after giving effect to all concurrent
payments and distributions and all provisions therefor to or
for the holders of such Existing Senior Indebtedness, but only
to the extent that as to any holder of such Existing Senior
Indebtedness, as promptly as practical following notice from
the Company to the holders of such Existing Senior
Indebtedness that such prohibited payment has been received by
the Holder or Paying Agent (or has been segregated as provided
above), such holder (or a representative therefor) notifies
the Company of the amounts then due and owing on such Existing
Senior Indebtedness, if any, held by such holder and only the
amounts specified in such notices to the Company shall be paid
to the holders of such Existing Senior Indebtedness.
(d) Holder to Be Subrogated to Rights of Holders of Existing
Senior Indebtedness. Subject to the payment in full of all Existing
Senior Indebtedness as provided herein, the Holder of this Note shall
be subrogated to the rights of the holders of such Existing Senior
Indebtedness to receive payments or distributions of assets of the
Company applicable to the Existing Senior Indebtedness until all
amounts owing on this Note shall be
-21-
<PAGE>
paid in full, and for the purpose of such subrogation no such payments
or distributions to the holders of such Existing Senior Indebtedness by
the Company, or by or on behalf of the Holder by virtue of this
Paragraph 11, which otherwise would have been made to the Holder shall,
as between the Company and the Holder, be deemed to be payment by the
Company or on account of such Existing Senior Indebtedness, it being
understood that the provisions of this Paragraph 11 are and are
intended solely for the purpose of defining the relative rights of the
Holder, on the one hand, and the holders of such Existing Senior
Indebtedness, on the other hand.
If any payment or distribution to which the Holder would
otherwise have been entitled but for the provisions of this Paragraph
11 shall have been applied, pursuant to the provisions of this
Paragraph 11, to the payment of amounts payable under Existing Senior
Indebtedness, then the Holder shall be entitled to receive from the
holders of such Existing Senior Indebtedness any payments or
distributions received by such holders of Existing Senior Indebtedness
in excess of the amount sufficient to pay all amounts payable under or
in respect of such Existing Senior Indebtedness in full.
(e) Obligations of the Company Unconditional. Nothing
contained in this Paragraph 11 or elsewhere in this Note is intended to
or shall impair as between the Company and the Holder, the obligation
of the Company, which is absolute and unconditional, to pay to the
Holder the principal of and interest on this Note as and when the same
shall become due and payable in accordance with the terms hereof, or is
intended to or shall affect the relative rights of the Holder and
creditors of the Company other than the holders of the Existing Senior
Indebtedness, nor shall anything herein or therein prevent Holder from
exercising all remedies otherwise permitted by applicable law upon
default under the Note, subject to the rights, if any, under this
Paragraph 11, of the holders of Existing Senior Indebtedness in respect
of cash, property or securities of the Company received upon the
exercise of any such remedy. Notwithstanding anything to the contrary
in this Paragraph 11 or elsewhere in this Note, upon any distribution
of assets of the Company referred to in this Paragraph 11, the Holder
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate
of the liquidating trustee or agent or other Person making any
distribution to the Holder for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the
Existing Senior Indebtedness and other Indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this
Paragraph 11 so long as such court has been apprised of the provisions
of, or the order, decree or certificate makes reference to, the
provisions of this Paragraph 11.
-22-
<PAGE>
(f) Application of Assets. Any deposit of assets with any
Paying Agent (whether or not in trust) for the payment of principal of
or interest on this Note shall be subject to the provisions of
Subparagraphs 11(a), (b), (c) and (d); provided that, if prior to one
Business Day preceding the date on which by the terms of this Note any
such assets may become distributable for any purpose (including,
without limitation, the payment of either principal of or interest on
any Note) the Paying Agent shall not have received with respect to such
assets written notice from one or more holders of Existing Senior
Indebtedness or from any representative therefor of the existence of
facts that would prohibit the making of any payment to the Holder, then
such Paying Agent shall have full power and authority to receive such
assets and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which
may be received by it on or after such date.
(g) Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Existing Senior Indebtedness. No right of any
present or future holders of any Existing Senior Indebtedness to
enforce subordination provisions contained in this Paragraph 11 shall
at any time in any way be prejudiced or impaired by any act or failure
to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company
with the terms of this Note, regardless of any knowledge thereof which
any such holder may have or be otherwise charged with. The holders of
Existing Senior Indebtedness may extend, renew, modify or amend the
terms of the Existing Senior Indebtedness or any security therefor and
release, sell or exchange such security and otherwise deal freely with
the Company, all without affecting the liabilities and obligations of
the Company or the Holder.
(h) Holder Authorizes Holders of Existing Senior Indebtedness
to Effectuate Subordination of Note. If in the event of any
dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon
an assignment for the benefit of creditors of the Company), Holder does
not file a proper claim or proof of debt in the form required in such
proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then the holders of the Existing Senior
Indebtedness or their representative are or is hereby authorized to
have the right to file and are or is hereby authorized to file an
appropriate claim for and on behalf of the Holder of this Note. Nothing
herein contained shall be deemed to authorize the holders of Existing
Senior Indebtedness or their representative to authorize or consent to
or accept or adopt on behalf of Holder any plan of reorganization,
arrangement, adjustment or composition affecting this Note or the
rights of Holder hereof, or to authorize the holders of Existing Senior
Indebtedness or their representative to vote in respect of the claim of
Holder in any such proceeding.
-23-
<PAGE>
12. Repurchase of Note at Option of Holder Upon a Change of Control.
(a) In the event that a Change of Control occurs, Holder shall
have the right, at Holder's option, subject to the terms and conditions
of this Note, to require the Company to repurchase all or any part of
Holder's Note at a price (the "Repurchase Price"), payable in Cash or,
at Holder's option, Common Stock and in an amount equal to 100% of the
outstanding principal amount of this Note or such part hereof, together
with accrued and unpaid interest (including Capitalized Interest) to
the Repurchase Date.
(b) In the event that a Change of Control occurs, the Company
shall commence an irrevocable and unconditional offer to purchase this
Note (a "Repurchase Offer"), in accordance with the procedures set
forth in this Paragraph 12 as follows:
(1) the Repurchase Offer shall commence within 20
Business Days following a Change of Control;
(2) the Repurchase Offer shall remain open for at
least 20 Business Days following its commencement, but in any
case not more than 60 Business Days following the Change of
Control (the "Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the
Company shall purchase this Note to the extent tendered in
response to the Repurchase Offer;
(4) if the Repurchase Date (hereinafter defined) is
on or after a Record Date and on or before the related
Interest Payment Date, any accrued interest (other than
Capitalized Interest) will be paid to the Person in whose name
this Note is registered at the close of business on such
Record Date, and no additional interest (other than
Capitalized Interest) will be payable to the Holder if this
Note is tendered pursuant to the Repurchase Offer; and
(5) on or before the commencement of any Repurchase
Offer, the Company shall send, by first-class mail, a notice
to the Holder, which (to the extent consistent with the terms
hereof) shall govern the terms of the Repurchase Offer and
shall state:
(i) that the Repurchase Offer is being made
pursuant to such notice and this Paragraph 12 and
that this Note, or any portion thereof, tendered will
be accepted for payment in Cash or, at the Holder's
option, Common Stock;
-24-
<PAGE>
(ii) the Repurchase Price (including the
amount of accrued and unpaid interest, if any), the
date this Note may be tendered, purchased and paid
for in accordance with this Paragraph 12 (the
"Repurchase Date") and the Repurchase Put Date
(hereinafter defined);
(iii) that this Note, or any portion
thereof, not tendered or accepted for payment will
continue to accrue interest;
(iv) that, unless the Company defaults in
depositing Cash or, at the Holder's option, Common
Stock with the Paying Agent in accordance with the
last paragraph of this clause (b) or such payment is
prevented pursuant to the subordination provisions of
this Note or otherwise, this Note, or such portion
thereof, tendered and accepted for payment pursuant
to the Repurchase Offer shall cease to accrue
interest after the Repurchase Date;
(v) if the Holder elects to have this Note,
or such portion thereof, purchased pursuant to a
Repurchase Offer it will be required to surrender
this Note, with the form entitled "Option of Holder
to Elect Purchase" attached hereto completed, to the
Paying Agent (which may not for purposes of this
Paragraph 12, notwithstanding anything in this Note
to the contrary, be the Company or any Affiliate of
the Company) at the address specified in the notice
prior to the close of business on the earlier of (a)
the third Business Day prior to the Repurchase Date
and (b) the third Business Day following the
expiration of the Repurchase Offer (such earlier date
being the "Repurchase Put Date");
(vi) that the Holder will be entitled to
withdraw its election, in whole or in part, if the
Paying Agent (which may not for purposes of this
Paragraph 12, notwithstanding anything in this Note
to the contrary, be the Company or any Affiliate of
the Company) receives, up to the close of business on
the Repurchase Put Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder
is withdrawing and a statement that the Holder is
withdrawing his election to have such principal
amount of this Note purchased; and
(vii) a brief description of the events
resulting in such Change of Control.
On or before the Repurchase Date, the Company shall (i) accept for
payment this Note or portions hereof properly tendered pursuant to the
Repurchase Offer on or before the Repurchase Put
-25-
<PAGE>
Date, and (ii) deposit with the Paying Agent Cash or, at the Holder's option,
Common Stock in an amount sufficient to pay the Repurchase Price (together with
accrued and unpaid interest, if any) of this Note or portions hereof so
tendered. The Paying Agent shall promptly mail to the Holder of this Note so
accepted payment in an amount equal to the Repurchase Price (together with
accrued and unpaid interest, if any), and the Company shall promptly mail or
deliver to such Holder a new Note equal in principal amount to any unpurchased
portion of this Note so surrendered. In the event the Holder elects to have the
Repurchase Price paid in Common Stock, the current market price per share of
Common Stock on the Repurchase Date shall be deemed to be the average of the
Last Sale Prices of a share of Common Stock for the preceding thirty (30)
Trading Days ending on the last Trading Day prior to the Repurchase Date. If on
any such Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Last Sale Price, the fair market value of the Common
Stock on such day, as reasonably determined by the Board of Directors of the
Company, shall be used.
13. Dispositions of Assets. The company shall not sell, assign,
transfer or otherwise dispose of any of its assets except (a) obsolete or worn
out property disposed of in the ordinary course of business or property that is
no longer useful in the conduct of the Company's business disposed of in the
ordinary course of business; (b) transfers resulting from any casualty or
condemnation of property or assets; or (c) any sale or other transfer of any
property or assets, provided that the net proceeds of all such sales and
transfers shall not exceed $50,000 in the aggregate during any fiscal year of
the Company.
14. Events of Default and Remedies.
(a) "Event of Default," wherever used herein, means any one of
the following events (whatever the reason for such Event of Default and
whether it shall be caused voluntarily or involuntarily or effected,
without limitation, by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) failure by the Company to pay any installment of
interest on this Note as and when due and payable, or failure
by the Company to perform any conversion of this Note required
hereunder, and the continuance of such failure for a period of
5 Business Days, whether or not any such payment or conversion
is prohibited by the subordination provisions of this Note;
(2) failure by the Company to pay any installment of
principal on this Note as and when due and payable or failure
by the Company to pay all or any part of the principal of or
on this Note when and as the same become due and payable at
maturity, by acceleration or otherwise, or in respect of any
repurchase or redemption, including, without limitation,
default in the payment of the Repurchase Price on the
-26-
<PAGE>
Repurchase Date in accordance with the terms hereof, whether
or not any such payment is prohibited by the subordination
provisions hereof;
(3) failure by the Company to observe or perform any
covenant or agreement contained in this Note (other than a
default in the performance of any covenant or agreement which
is specifically dealt with elsewhere in this Paragraph 13),
and, if such default is subject to cure, continuance of such
failure for a period of 30 days after there has been given, by
registered or certified mail, to the Company by the Holder, a
written notice specifying such default or breach, requesting
it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(4) a default under (i) any Existing Senior
Indebtedness or (ii) Indebtedness of the Company with an
aggregate principal amount in excess of $500,000, in either
case, (a) resulting from the failure to pay principal, premium
or interest when due that extends beyond any stated period of
grace applicable thereto or (b) as a result of which the
maturity of such Indebtedness has been accelerated prior to
its stated maturity;
(5) Insolvency; Voluntary Proceeding. The Company,
(i) ceases or fails to be solvent, or generally fails to pay,
or admits in writing its inability to pay, its debts as they
become due; (ii) voluntarily ceases to conduct its business in
the ordinary course; (iii) commences any Insolvency Proceeding
with respect to itself; or (iv) takes any action to effectuate
or authorize any of the foregoing.
(6) Insolvency; Involuntary Proceeding. (i) Any
involuntary Insolvency Proceeding is commenced or filed
against the Company, or any writ, judgment, warrant of
attachment, warrant of execution or similar process is issued
or levied against any assets with an aggregate fair market
value in excess of $250,000 of the Company, and such
proceeding or petition shall not be dismissed, or such writ,
judgment, warrant of attachment, warrant of execution or
similar process shall not be released, vacated or fully bonded
within 60 days after commencement, filing or levy; (ii) the
Company admits the material allegations of a petition against
it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency
Proceeding, or (iii) the Company acquiesces in the appointment
of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor) or other similar
Person for itself or a substantial portion of its property or
business.
(7) final unsatisfied judgments not covered by
insurance (including self-insurance), or the issuance of any
warrant of attachment against any portion of
-27-
<PAGE>
the property or assets of the Company, aggregating in excess
of $250,000 at any one time shall have been rendered against
the Company and not have been stayed, bonded or discharged for
a period (during which execution shall not be effectively
stayed) of 60 days (or, in the case of any such final judgment
which provides for payment over time, which shall so remain
unstayed, unbonded or undischarged beyond any applicable
payment date provided therein).
Notwithstanding the 30-day period and notice requirement
contained in Paragraph 14(a)(3) above, with respect to a default under
Paragraph 12 the 30-day period referred to in Paragraph 14(a)(3) shall
be deemed to have begun as of the date the Change of Control notice is
required to be sent in the event that the Company has not complied with
the provisions of Paragraph 12 and the Holder thereafter gives the
Notice of Default referred to in Paragraph 14(a)(3) to the Company;
provided, however, that if the breach or default is a result of a
default in the payment when due of the Repurchase Price on the
Repurchase Date, such Event of Default shall be deemed, for purposes of
this Paragraph 14(a), to arise no later than on the Repurchase Payment
Date.
If a Default occurs and is continuing, the Company shall,
within 30 days after the occurrence of such default, give to the Holder
notice of such Default.
(b) Acceleration of Maturity Date; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Subparagraph 14(a)(5) or (6) relating to the Company) occurs and is
continuing, then, and in every such case, unless the principal of this
Note shall have already become due and payable, the Holder, by a notice
in writing to the Company (an "Acceleration Notice"), may declare all
of the principal of this Note (or the Repurchase Price if the Event of
Default includes failure to pay the Repurchase Price, determined as set
forth below), including in each case accrued interest thereon, to be
due and payable immediately. If an Event of Default specified in
Subparagraph 14(a)(5) or (6) relating to the Company occurs, all
principal and accrued interest thereon will be immediately due and
payable on this Note without any declaration or other act on the part
of the Holder.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has
been obtained by the Holder as hereinafter provided, the Holder, by
written notice to the Company, may rescind any such declaration of
acceleration.
(c) Collection of Indebtedness and Suits for Enforcement. The
Company covenants that if an Event of Default in payment of principal
or interest specified in clause (1) or (2) of Paragraph 14(a) occurs
and is continuing, the Company shall, upon demand of the Holder,
subject to the Common Stock Payment Conditions and at Holder's option,
pay
-28-
<PAGE>
to it Cash or deliver to it Common Stock, in an amount equal to the
whole amount then due and payable on this Note for principal, interest
and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal and on any overdue
interest, at the rate borne by this Note, and, in addition thereto,
such further amount as shall be sufficient to cover the reasonable
costs and expenses of collection, including the reasonable fees of
counsel. In the event that Holder elects to receive payment of
accelerated amounts then owing to it in Common Stock, the Holder shall
provide 30 days prior written notice of such election to the Company.
In such event, the current market price per share of the Common Stock
shall be computed on the basis of the average of the Last Sale Prices
for the preceding 30 Trading Days ending on the last Trading Day prior
to the delivery of such Common Stock to the Holder. If on any such
Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Last Sale Price, the fair market value of the
Common Stock on such day, as reasonably determined by the Board of
Directors of the Company, shall be used.
If the Company fails to pay such amounts forthwith upon such
demand as required hereby, the Holder may institute a judicial
proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce
the same against the Company or any other obligor upon this Note and
collect the moneys adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor
upon this Note, wherever situated.
If an Event of Default occurs and is continuing, the Holder
may in its discretion proceed to protect and enforce its rights by such
appropriate judicial proceedings as the Holder shall deem most
effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Note or in
aid of the exercise of any power granted herein, or to enforce any
other proper remedy.
In addition to all other amounts due hereunder, Holder shall
be entitled to recover reasonable costs and expenses incurred in
connection with the administration, workout or enforcement of this
Note, including without limitation, reasonable attorneys' fees and
expenses.
(d) Priorities. Any money collected by the Holder pursuant to
this Paragraph 14 shall be applied in the following order:
FIRST: To the Holder to reimburse it for the costs and
expenses of collection and enforcement including, without limitation,
reasonable attorneys' fees;
SECOND: To the holders of Existing Senior Indebtedness to the
extent required in Paragraph 11;
-29-
<PAGE>
THIRD: To the Holder in payment of the amounts then due and
unpaid for principal of and interest on this Note in respect or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on this Note for principal and interest, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
(e) Unconditional Right of Holder to Receive Principal and
Interest. Notwithstanding any other provision of this Note, the Holder
shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest on this Note when due
(including, in the case of redemption, the Redemption Price on the
applicable Redemption Date, and in the case of the Repurchase Price, on
the applicable Repurchase Date) and to institute suit for the
enforcement of any such payment after such respective dates, and such
rights shall not be impaired without the consent of Holder.
(f) Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holder is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or
in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
(g) Delay or Omission Not Waiver. No delay or omission by the
Holder of this Note to exercise any right or remedy arising upon any
Event of Default shall impair the exercise of any such right or remedy
or constitute a waiver of any such Event of Default. Every right and
remedy given by the terms of this Note or by law to the Holder may be
exercised from time to time, and as often as may be deemed expedient,
by the Holder.
15. No Recourse Against Others. No direct or indirect partner,
employee, stockholder or officer, as such, past, present or future, of the
Company or any successor corporation or any Subsidiary or any of the Company's
Affiliates shall have any personal liability in respect of the obligations of
the Company under this Note by reason of his, her or its status as such partner,
stockholder, director, officer or employee. The Holder of this Note by accepting
this Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of this Note.
16. Notices. Any notices or other communications to the Company or
Holder required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery,
-30-
<PAGE>
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
CCAIR, Inc.
4700 Yorkmont Road
Second Floor
Charlotte, North Carolina 78708
Attention: Kenneth W. Gann, President
Telecopy: (704) 359-0351
with a copy to:
Barlow Partners, L.P.
1954 Airport Road, Suite 200
Atlanta, Georgia 30341
Attention: George Murnane, III
Telecopy: (770) 455-7550
if to the Holder:
Lynrise Air Lease, Inc.
1023 15th Street, N.W., Suite 1000
Washington, D.C. 20005
Attention: Mr. Michael Wayshner
Telecopy: (202) 789-0076
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Mr. Robert L. Nutt, Esq.
Telecopy: (617) 951-7050
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when receipt is acknowledged, if
telecopied; and three Business Days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
If a notice or communication is mailed in the manner provided above, it
is duly given, whether or not the addressee receives it.
-31-
<PAGE>
17. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day
on which banking institutions in New York, New York are authorized or obligated
by law or executive order to close. If a payment date is a Legal Holiday at such
place, payment may be made at such place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the intervening period.
18. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, EXCLUDING PRINCIPLES OF CONFLICTS OF
LAWS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF
NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF
NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THE NOTE, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
19. Registration Rights. Holder is entitled to certain registration
rights with respect to this Note pursuant to, and subject to the terms of, the
Registration Rights Agreement.
20. Definitions. For the purposes hereof, the following terms shall
have the meanings set forth below:
"Affiliate" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, (ii)
any spouse, immediate family member, or other relative who has the same
principal residence of any person described in clause (i) above, and (iii) any
trust in which any person described in clause (i) or (ii) above has a beneficial
interest. For purposes of this definition, the term "control" means the power to
direct the management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise.
-32-
<PAGE>
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash" means such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts.
"Change of Control" occurs upon the occurrence of any of the following
events: (i) any sale, transfer or other disposition, whether direct or indirect,
of all or substantially all of the assets of the Company, on a consolidated
basis, in one transaction or a series of related transactions to any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended and the rules and regulations
promulgated by the SEC thereunder (the "Exchange Act"), whether or not
applicable), (ii) the acquisition in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) by any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) of any securities of the
Company as a result of such acquisition, such person or group either
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 51% of the total voting power in the
aggregate normally entitled to vote in the election of directors of the Company,
(iii) when, during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office, (iv) a sale, transfer or other disposition, whether directly or
indirectly, by the Company of all or substantially all of its assets, on a
consolidated basis, or (v) the pro rata distribution by the Company to its
stockholders of substantially all of its assets.
-33-
<PAGE>
For purposes of this definition, the terms "person" and "group" shall
have the meanings used for purposes of Rules 13d-3 and 13d-5 of the Exchange Act
as in effect on the date hereof, whether or not applicable.
"Common Stock" means the Company's common stock, par value $.01 per
share, or as such stock may be reconstituted from time to time.
"Credit Facilities" means the lines of credit the Company has entered
into with British Aerospace and Centura Bank, together with the documents
related thereto, as the same may be amended, extended, renewed, restated,
supplemented or otherwise modified (in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions) from time to
time, and any agreement governing Indebtedness incurred to refund or refinance
the borrowings and commitments then outstanding or permitted to be outstanding
under such credit facilities or successor credit facilities, whether by the same
or any other lenders or group of lenders.
"Default" means any event, act or condition which with notice, lapse of
time or both, would constitute an Event of Default.
"Existing Senior Indebtedness" means any Indebtedness of the Company
under the Credit Facilities and all refinancings and refundings thereof, unless
the instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior, in right of payment, to this Note or to
other Indebtedness which is pari passu with, or subordinated to, this Note;
provided, that, the principal amount of Existing Senior Indebtedness shall be
limited to an aggregate amount at any time outstanding not to exceed $4,400,000.
Notwithstanding the foregoing, in no event shall Existing Senior Indebtedness
include (a) Indebtedness of the Company owed or owing to any Subsidiary of the
Company or any officer, director or employee of the Company or any Subsidiary of
the Company, (b) Indebtedness to trade creditors or (c) any liability for taxes
owed or owing by the Company.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except such as would constitute trade payables to trade creditors in the
ordinary course of business, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a capitalized lease obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under Interest Swap and Hedging
Obligations; (c) all liabilities of others of the kind described in the
preceding clause (a) or (b) that such person has guaranteed or that is otherwise
its legal liability and all obligations to purchase, redeem or acquire any
Capital Stock; and (d) any and
-34-
<PAGE>
all deferrals, renewals, extensions, refinancings, refundings (whether direct or
indirect) of any liability of the kind described in any of the preceding clauses
(a), (b) or (c), or this clause (d), whether or not between or among the same
parties.
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such person before any court or other
governmental authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors
(including any proceeding under the Bankruptcy Laws); (b) any general assignment
for the benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors generally or
any substantial portion of such creditors; (c) the entering of any decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over such Person or over all or a substantial part of such
Person's respective properties; or (d) the appointment of an interim receiver,
trustee or other custodian of such Person for all or a substantial part of such
Person's properties.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Officer" means, with respect to the Company, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Controller, or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to Paragraph 4 of this Note.
-35-
<PAGE>
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, by and among the Company and the Holder, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"SEC" means the Securities and Exchange Commission.
"Stated Maturity," when used with respect to any Note, means December
31, 2004.
"Subsidiary" with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power normally entitled to vote in
the election of directors is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) a partnership in which such person or a
Subsidiary of such person is, at the time, a general partner and owns alone or
together with one or more Subsidiaries of such person a majority of the
partnership interests, or (iii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the New York
Stock Exchange (or, if the Common Stock is not listed or admitted to trading
thereon, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the Nasdaq Stock
Market's National Market if the Common Stock is quoted thereon).
-36-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Paragraph ____ of the Note, check the box: [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Paragraph ____ of the Note, state the amount you want to be
purchased: $______________.
If you want the purchase price for this Note or such part thereof to be
paid in Common Stock, check the box: [ ]
Date:____________________ Signature:__________________________________________
(Sign exactly as your name appears on the other side
of this Note)
-37-
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Note, without recourse, representation or warranty,
to _____________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee.)
________________________________________________________________________________
________________________________________________________________________________
(Please insert Social Security or other identifying number of assignee.)
_______________________ and irrevocably appoint __________ agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Date:____________________ Signature:__________________________________________
(Sign exactly as your name appears on the other side
of this Note)
Signature Guarantee.1
- --------
1 Participant in a recognized Signature Guarantee Medallion Program (or
other signature acceptable to the Trustee).
-38-
<PAGE>
FORM OF CONVERSION NOTICE
To: CCAIR, Inc.
7% Convertible Subordinated Note due 2004
The undersigned owner of this Note hereby: (i) irrevocably exercises
the option to convert this Note, or the portion hereof below designated, for
shares of Common Stock of CCAIR, Inc. in accordance with the terms of this Note
and (ii) directs that such shares of Common Stock deliverable upon the
conversion, together with any check in payment for fractional shares and any
Note representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Note.
Date:____________________ Signature:__________________________________________
Fill in for registration of shares if to be delivered, and of the Note
if to be issued, otherwise than to and in the name of the registered holder.
Social Security or other Taxpayer Identifying Number
___________________________________________
(Name)
___________________________________________
(Street Address)
___________________________________________
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$_______________________
Signature Guarantee.2
772732- 041798 v18 - 183:17336-1
- --------
2 Participant in a recognized Signature Guarantee Medallion Program (or
other signature acceptable to the Trustee).
-39-
EXHIBIT 18
April 17, 1998
CCAIR, Inc.
Post Office Box 19929
Charlotte, North Carolina 28219-0929
Gentlemen/Ladies:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accounts whenever there has been a change
in accounting principle or practice.
As of July 1, 1997, the Company changed from the deferral method of accounting
for engine, propeller and landing gear overhauls to the accrual method.
According to the management of the Company, this change was made to more closely
emulate its lease agreements and contracts for repair and maintenance of these
components.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgement and business planning of your management.
Very truly yours,
ARTHUR ANDERSEN LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (Statement File No. 33-
58860).
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 17, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from CCAIR,
Inc. financial statements for the fiscal year and quarter ended
December 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000850922
<NAME> CCAIR, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JUL-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 11,647 11,647
<SECURITIES> 0 0
<RECEIVABLES> 5,047,701 5,047,701
<ALLOWANCES> 113,700 113,700
<INVENTORY> 509,486 509,586
<CURRENT-ASSETS> 8,751,107 8,751,107
<PP&E> 9,906,003 9,906,003
<DEPRECIATION> 6,552,430 6,552,430
<TOTAL-ASSETS> 12,140,202 12,140,202
<CURRENT-LIABILITIES> 25,651,462 25,651,462
<BONDS> 0 0
0 0
0 0
<COMMON> 83,357 83,357
<OTHER-SE> (16,236,994) (16,236,994)
<TOTAL-LIABILITY-AND-EQUITY> 12,140,202 12,140,202
<SALES> 0 0
<TOTAL-REVENUES> 16,090,406 32,836,555
<CGS> 0 0
<TOTAL-COSTS> 27,432,018 43,539,471
<OTHER-EXPENSES> (6,940) (27,291)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 376,528 641,394
<INCOME-PRETAX> (11,711,200) (11,318,019)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,711,200) (11,318,019)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (12,981,816) (12,981,816)
<NET-INCOME> (24,693,016) (24,299,835)
<EPS-PRIMARY> (3.16) (3.10)
<EPS-DILUTED> (3.15) (3.10)
</TABLE>
