- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[XX] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] For fiscal
year ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
Commission file number - 0-23444
PAN AM CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0450311
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9300 N.W. 36TH STREET
MIAMI, FLORIDA 33178
---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 873-3000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common Stock, $.0001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Aggregate market value of Common Stock held by nonaffiliates as of
March 21, 1997: $63,349,655
Number of shares of Common Stock outstanding as of the close of
business on March 28, 1997: 10,965,191 shares.
Documents incorporated by reference: Definitive Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders (incorporated in Part III
to the extent provided in Items 10, 11, 12 and 13 hereof).
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
PART I................................................................................................. ii
Item 1. Description of Business....................................................................... 1
Item 2. Description of Property....................................................................... 10
Item 3. Legal Proceedings............................................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders........................................... 11
PART II................................................................................................ 11
Item 5. Market for Common Equity and Related Stockholder Matters...................................... 11
Item 6. Selected Financial Data....................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.......... 13
Item 8. Financial Statements and Supplementary Data................................................... 18
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......... 18
PART III............................................................................................... 18
PART IV................................................................................................ 19
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 19
</TABLE>
-i-
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL. Pan Am Corporation (f.k.a. "Frost Hanna Mergers Group, Inc.")
was formed in October 1993 to serve as a vehicle to effect a merger, exchange
of capital stock, asset acquisition or other similar business combination (a
"Business Combination") with an operating business. On September 23, 1996, Pan
Am Corporation completed a Business Combination (the "PAWA Merger") with PAWA
Holdings, Inc. (f.k.a. "Pan American World Airways, Inc.") ("PAWA"), a Florida
corporation, whose principal subsidiary is Pan American World Airways, Inc.
(f.k.a. "Pan American Airways, Inc."), a Florida corporation. Pan American World
Airways, Inc. was a development stage company incorporated in Florida in January
1996 established for the purpose of operating a commercial passenger and cargo
airline. Pan Am Corporation together with its subsidiaries are herein referred
to as "Pan Am" or the "Company".
Pan Am is an air carrier providing selected long-haul, point-to-point,
low fare full service over a limited network of routes throughout the United
States and Puerto Rico. From its inception until it commenced flight operations
on September 26, 1996, the Company's activities were limited to start-up
activities, including raising capital, recruiting key operating personnel,
obtaining and implementing computerized passenger reservation and management
information systems, negotiating airport gate and terminal facilities and
aircraft leases, contracting ground handling and aircraft maintenance services,
conducting pilot and flight attendant training and obtaining certification from
the Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA"). Pan Am began flight operations on September 26, 1996 providing daily
round trip flights between New York's Kennedy International Airport and Miami,
Florida and Los Angeles, California. The Company began daily round trip flights
between San Juan, Puerto Rico and Miami, Florida on December 14, 1996, between
New York's Kennedy International Airport and San Juan, Puerto Rico on January 5,
1997, and between Chicago's Midway Airport and Miami, Florida on March 1, 1997.
An aggregate of 18 daily flights are currently provided by the Company. In
addition, on or about April 6, 1997, Pan Am plans to implement nonstop service
from New York's Kennedy International Airport to Santo Domingo, Dominican
Republic.
As of March 31, 1997, Pan Am operated four Airbus A300-B4 ("A300")
aircraft. Three of the A300 aircraft are operated under operating leases with
ING Lease (Nederland) B.V. ("ING") and the fourth A300 aircraft is operated
under an operating lease with First Security Bank, National Association, as
trustee, with C-S Aviation Services, Inc., as Aircraft Manager ("C-S Aviation").
In addition, Pan Am has a wet-lease arrangement with Nations Air Express, Inc.,
a Delaware corporation ("Nations"), which is an unaffiliated third party, to
operate three Boeing 727-200 ("B727") aircraft on Pan Am's behalf. Nations
provides the aircraft, flying crew, maintenance, and insurance ("ACMI") and
retains operational control of such aircraft. See Item 2 - "Description of
Property -- Aircraft Leases." Pan Am is responsible for all other remaining
services and costs including fuel, landing fees and ground handling expenses.
Pan Am currently has entered into a lease for one additional A300 aircraft from
C-S Aviation, which is awaiting certification of airworthiness from the FAA
prior to commencing flight operations, and plans to lease another additional
A300 aircraft from ING by June, 1997. With the addition of these two aircraft,
the Company plans to further expand service on its current routes.
For the year ended December 31, 1996, passenger revenues accounted for
97.6% of Pan Am's operating revenues. Other income is primarily derived from
transporting freight and mail, and selling in-flight services, such as liquor
and movie headset rentals.
Pan Am is neither a successor to nor should it be confused with Pan
American World Airways, Inc., a New York corporation ("Former Pan Am"), which
ceased operations in 1991. The rights and obligations of the Former Pan Am were
discharged in bankruptcy. As part of such bankruptcy proceedings, Pan Am
indirectly purchased the various "Pan Am" trade names, trademarks and other
intellectual property rights previously owned by the Former
-1-
<PAGE>
Pan Am. In addition, certain of the Company's employees, including Mr. Martin R.
Shugrue, Jr., President and Chief Executive Officer of the Company, were once
employed by the Former Pan Am. However, the Company has no other association
with the Former Pan Am.
BUSINESS STRATEGY. Pan Am's strategy is to offer first class service at
fares lower than or comparable to the full fare coach prices charged by major
carriers, as well as discounted full coach service, attracting business flyers
who otherwise would fly coach on other airlines. For example, a one-way trip,
first class flight (which is available for a full coach fare) on Pan Am from Los
Angeles to New York and from New York to Miami is currently priced at $495 and
$231, respectively, whereas the same flights provided by two other major
competing airlines with the same originations and destinations are priced at
$874 and $614, respectively, and $1,348 and $895, respectively. Pan Am believes
that its discounted coach prices for full coach service will stimulate
additional demand for air travel from those who may travel more frequently if
motivated to do so by low fares, as well as create demand from those who would
use other means of transportation or not travel at all. Moreover, Pan Am
capitalizes on recognition of the "Pan Am" name to offer low fare, "brand name"
airline service, which Pan Am believes is lacking on most transcontinental and
other long-haul routes. Pan Am is a full service airline, offering amenities
such as meal and beverage service as well as offering passengers the ability to
participate in a frequent flyer program as discussed below.
In addition to attracting domestic passengers, Pan Am generates
additional traffic by carrying passengers arriving on international carriers at
gateway airports such as Kennedy in New York and Miami to their final United
States destinations. Currently, most international carriers must transfer their
passengers to a United States carrier, which in many instances may be a
competitor, or to a low fare, limited service airline to complete their journey.
In this regard, Pan Am is the United States domestic partner for a significant
number of international airlines, including carriers such as Aeroperu,
Icelandair, Avensa Airlines and Royal Jordanian Airlines, most of whom presently
do not have marketing or frequent flyer relationships with major United States
carriers. As the United States domestic partner of these international airlines,
Pan Am will carry their passengers on Pan Am's routes to and from gateway
airports and enable these international carriers to provide Pan Am with
pre-committed seats for such passengers. In order to provide convenient
connections, Pan Am coordinates its schedules with those of the international
carriers and enters into interline and code sharing agreements to provide
additional customer services such as joint ticketing and baggage transfers. Pan
Am formalized these international carrier relationships by the creation of the
"Pan Am Alliance," a consortium of airlines that share a common frequent flyer
program and jointly operate airport lounges.
Pan Am operates a point-to-point domestic route system, which avoids
the infrastructure cost of a hub-and-spoke route system while focusing on
long haul, higher density markets with conveniently timed flights and low
fares. Pan Am's point-to-point domestic route system, as compared to the
hub-and-spoke, concentrates on local, not connecting, traffic and provides for
more direct nonstop routings for long haul customers, thereby minimizing
connections, delays, and total trip time and permitting greater aircraft
utilization by eliminating the need for aircraft to wait for connecting
passengers. As a result, virtually all of the Company's customers fly nonstop.
Pan Am's long-term operating strategy includes future expansion beyond
its initial markets. Pan Am plans to select additional long haul routes on which
there exists a large volume of United States domestic traffic and international
carrier connecting opportunities, but which only have limited competition or
which lack a low fare, full service "brand name" competitor.
Pan Am intends to expand its operations through internal growth as well
as the acquisition of or merger with other airline operators, and has engaged
and may continue to engage in preliminary discussions with certain companies
with respect to various acquisitions which could result in material changes in
Pan Am's financial condition and operating results. As consideration for any
future acquisition, Pan Am may pay cash, incur
-2-
<PAGE>
indebtedness or issue debt or equity securities. Pan Am does not intend to seek
shareholder approval for any such acquisitions unless required by law or the
rules of the exchange on which its Common Stock (as defined below) is listed or
quoted.
RECENT DEVELOPMENTS. On March 21, 1997, Pan Am announced that it had
entered into a definitive agreement (the "Acquisition Agreement") with Cal
Acquisition Corporation, a Florida corporation ("CAL"), Air Holding Company, a
Florida corporation, and Carnival Air Lines, Inc., a Florida corporation
("Carnival Air"), dated March 20, 1997. Pursuant to the Acquisition Agreement,
CAL, a wholly owned subsidiary of Pan Am, will be merged with and into Carnival
Air, with Carnival Air being the surviving corporation. Carnival Air will, if
the transactions are consummated, become a wholly owned subsidiary of Pan Am in
exchange for 9,523,810 shares of common stock, .0001 par value per share (the
"Common Stock"), of Pan Am. Pan Am's Board of Directors approved this proposed
transaction pursuant to the terms of the Acquisition Agreement at a special
meeting held on March 20, 1997.
Carnival Air was founded in 1988 and currently operates a fleet of 27
jet aircraft, including nine A300 aircraft, between South Florida, the Northeast
United States, California and the Caribbean. Carnival Air is a privately held
corporation and is not part of publicly-held Carnival Corporation. If the
contemplated transactions are consummated, Carnival Air's existing shareholders
would own approximately 39% of the outstanding shares of Pan Am Common Stock on
a fully diluted basis.
In the Acquisition Agreement, each of the parties made customary
representations and warranties to the other. Although it is anticipated that the
transaction will be treated as a "pooling of interests" for accounting purposes,
such treatment is not a condition precedent to the parties' consummation of the
transaction. Carnival Air has agreed during the period of time from execution of
the Acquisition Agreement to closing to regularly consult with Pan Am with
respect to most operational issues (excluding pricing), including without
limitation, the day-to-day operations of Carnival Air. Carnival Air's ability to
enter into significant agreements and to expend monies during such period of
time is very limited.
The Acquisition Agreement requires Mr. Micky Arison, the majority
stockholder of Carnival, to make a $30,000,000 additional capital contribution
to Carnival Air prior to closing, which is anticipated to be utilized to
discharge and pay in full certain institutional indebtedness encumbering
Carnival Air's assets which are personally guaranteed by Mr. Arison. Mr. Arison
and a named designee are entitled to become members of Pan Am's Board of
Directors. The Acquisition Agreement is subjec t to approval of the shareholders
of Carnival Air and Pan Am, receipt of regulatory approvals and other material
consents of third parties, as well as the filing of a registration statement
with the United States Securities and Exchange Commission pursuant to which Pan
Am shares to be received in connection with the merger may be sold. Shareholders
owning approximately 90% of Carnival Air's shares of common stock and
approximately 40% of Pan Am's shares of common stock have agreed to vote in
favor of the merger.
There is no assurance that the above described transaction will be
consummated, or that it will not be consummated upon terms and conditions
materially different than those set forth above. The description of the
Acquisition Agreement is qualified in its entirety by reference to the complete
text of the Acquisition Agreement which is attached as an Exhibit hereto.
Additionally, on March 31, 1997, the Company reached an agreement in
principle for the sale of convertible preferred stock for net cash proceeds of
approximately $15 million and in March 1997, the Company agreed with Dade
County, Florida on an $8.5 million incentive package as an inducement to locate
its corporate headquarters within the County. The Company anticipates receiving
$5.0 million in cash from Dade County in April, 1997.
FARES, ROUTES AND SCHEDULING. As of March 31, 1997, the Company served
five markets offering full service air transportation at affordable low fares.
Service is provided on all routes every day although more frequent service may
be provided on peak travel days. As noted above, as of March 31, 1997, the
Company's route system includes nonstop service between Miami International
Airport and each of New York's Kennedy International Airport, Chicago's Midway
Airport, and San Juan, Puerto Rico. Nonstop daily service is also provided
between New York's Kennedy International Airport and each of Los Angeles
International Airport and San Juan, Puerto Rico.
The following table sets forth certain information with respect to the
Company's route system based on the Company's schedule in effect on March 31,
1997:
-3-
<PAGE>
<TABLE>
<CAPTION>
AIR MILEAGE FROM DATE SERVICE DAILY ROUND-TRIP
AIRPORT SERVED AIRPORT COMMENCED FLIGHTS SCHEDULED
<S> <C> <C> <C>
MIAMI
New York 1090 September 26, 1996 3
San Juan 1045 December 14, 1996 2
Chicago 1182 March 1, 1997 2
NEW YORK
Los Angeles 2475 September 26, 1996 1
San Juan 1597 January 5, 1997 1
</TABLE>
In general, airlines are permitted to set domestic ticket prices
without governmental regulation; however, the industry is characterized by
substantial price competition. The Company offers two basic types of fares: (1)
full, nonrestricted, refundable fares and (2) discounted, restricted,
nonrefundable fares. These fares are available either on a "walk-up" or advance
purchase basis for either round trip or one-way service. Examples of the
Company's published fares include (1) Miami/New York fares for nonstop service
ranging from $178 to $218 for round trip, advance purchase travel and $110 to
$198 for one-way travel on a walk-up basis for same day travel and (2)
Chicago/Miami fares for $220 for round trip, advance purchase travel and $154 to
$220 for one-way travel on a walk-up basis for same day travel. These ticket
prices vary depending, among other things, on the season and the matching of
competitive fares.
TRADEMARKS. Pan Am owns the "Pan Am" trade names, trademarks and other
intellectual property rights, including the name of Former Pan Am's frequent
flyer program, "WorldPass" (collectively, the "Pan Am Intellectual Property").
Pan Am indirectly acquired the Pan Am Intellectual Property in December 1993
from Former Pan Am in a transaction approved by the United States Bankruptcy
Court. Pan Am has registered its trademarks with the United States Patent and
Trademark Office and believes its trademark position is adequately protected in
all markets in which Pan Am will do business. Pan Am is presently involved in
litigation in the United States District Court, Southern District of New York,
with Eclipse Holdings, Inc. ("Eclipse"). Such litigation commenced on April 20,
1995 and is captioned: PAN AMERICAN WORLD AIRWAYS, INC. V. ECLIPSE HOLDINGS,
INC., DAVID LOCKWOOD, DAVID SCOTT AND RICHARD BARTEL, 95 Civ. 2763 (LMM).
Eclipse had initially submitted the winning bid in bankruptcy court to purchase
the Pan Am Intellectual Property, but was unable to secure financing for its bid
and subsequently assigned its rights to purchase the Pan Am Intellectual
Property to Pan Am. Pan Am has an action against Eclipse seeking to compel
Eclipse to execute and deliver the assignment documentation in order to register
the Pan Am Intellectual Property in certain foreign countries. Pursuant to such
action, Eclipse was compelled to execute such assignment documentation. Eclipse
has appealed such order. Additionally, Eclipse has filed an action against Pan
Am challenging Pan Am's ownership of the Pan Am Intellectual Property.
Management believes the suit will be resolved in Pan Am's favor. However, the
loss by Pan Am of the Pan Am Intellectual Property would have a material adverse
effect on Pan Am.
GOVERNMENTAL REGULATION.
GENERAL. Pan Am is an air carrier subject to the jurisdiction of and
regulation by the DOT and the FAA. On September 18, 1996 (effective on September
19, 1996), Pan American Airways, Inc. was granted a certificate of public
convenience and necessity under 49 U.S.C. Section 41102 authorizing it to engage
in interstate air transportation. This certificate was reissued in the name of
Pan American World Airways, Inc., the principal subsidiary of the Company, on
October 23, 1996. Pan Am's certificate permits it to operate among any points
within the United States, its territories and possessions. Pursuant to its
certificate, Pan Am is authorized to provide
-4-
<PAGE>
air transportation with large aircraft (more than 60 seats) and is limited to
operating no more than eight aircraft without prior approval by the DOT. Pan Am
has also been granted exemption authority to engage in scheduled foreign air
transportation between New York, New York and Santo Domingo, Dominican Republic
by the DOT on March 5, 1997, with authority effective until February 25, 1998.
In connection with such certificate, each United States carrier must qualify as
a United States citizen, which requires that it be organized under the laws of
the United States or a state, territory or possession thereof, that its
president and at least two-thirds of its board of directors and other managing
officers must be United States citizens, that not more than 25% of its voting
stock may be owned by foreign nationals, and that the carrier not be otherwise
subject to foreign control.
ECONOMIC. The DOT is primarily responsible for regulating consumer
protection and other economic issues affecting air services, including, among
other things, air carrier certification and fitness, insurance, deceptive and
unfair competitive practices, advertising, and other consumer protection matters
such as on-time performance, denied boarding and baggage liability. It also is
authorized to require reports from air carriers and to inspect a carrier's
books, records and property. The DOT has authority to investigate and institute
proceedings to enforce its economic regulations and may in certain circumstances
assess civil penalties, suspend or revoke operating authority and seek criminal
sanctions. In general, the amount of economic regulation over interstate air
carriers in terms of market entry, exit, pricing and inter-carrier acquisitions
and agreements has been greatly reduced subsequent to the enactment of the
Airline Deregulation Act of 1978.
SAFETY. The FAA regulates Pan Am's aircraft maintenance and operations,
equipment, aircraft noise, ground facilities, dispatch, communications,
training, security, weather observation, flight and duty time, crew
qualifications, aircraft registration and other matters affecting air safety. In
compliance with FAA regulations, Pan Am's aircraft are subject to many different
levels of maintenance or "checks". The FAA also has the authority to suspend
temporarily or revoke permanently the authority of Pan Am or its licensed
personnel for failure to comply with regulations promulgated by the FAA and to
assess civil penalties for such failures. The FAA requires each carrier to
obtain an operating certificate and operations specifications authorizing the
carrier to operate scheduled service to specific airports using specified
equipment. All of Pan Am's aircraft must have and maintain certificates of
airworthiness issued by the FAA. Pan Am holds an FAA certificate and operations
specifications under Part 121 of the Federal Aviation Regulations. In 1994, the
FAA began a reevaluation of its safety regulations by calling a meeting of
senior airline operating officials in January 1995. As a result of the FAA's
reevaluation, airlines agreed to undertake internal audits of their operations
and report to the FAA. Pan Am is in the process of developing procedures for
conducting such audits. It is Pan Am's policy and practice upon receiving any
comment from the FAA to respond to the FAA with its intentions for short-term
correction of the matter, and to follow up the initial action by implementing a
program for long-term resolution. In addition, given the ValuJet and TWA
accidents and the added concern for airline safety, Pan Am and other airlines
have come under and will likely continue to come under increased scrutiny from
various governmental agencies, including without limitation, the DOT and FAA. It
is not possible for Pan Am to predict the extent of this impact of increased
scrutiny on its future operations.
OTHER REGULATION BY FEDERAL AGENCIES OR LOCAL AUTHORITIES. Several
aspects of airline operations are subject to regulation or oversight by Federal
agencies other than the DOT and FAA: the United States Postal Service has
jurisdiction over certain aspects of the transportation of mail and related
services provided by Pan Am; the Railway Labor Act, which vests certain
regulatory powers in the National Mediation Board with respect to airlines and
labor unions arising under collective bargaining agreements, generally regulates
labor relations; the United States Department of Justice enforces the antitrust
laws; and the Federal Communications Commission regulates the utilization of
radio facilities. During a period of past fuel scarcity, air carrier access to
jet fuel was also subject to allocation regulations promulgated by the
Department of Energy.
Pan Am is also subject to local laws and regulations of locations where
it operates and the regulations of various local authorities that operate the
airports it serves, including state and local laws relating to the protection
-5-
<PAGE>
of the environment. Some local governments have adopted laws that expressly
govern aircraft operations, including noise abatement, curfews and use of
airport facilities. Many U.S. airports have adopted or are considering adopting
a "Passenger Facility Charge" of up to $3.00 generally payable by each passenger
departing from the airport. This charge must be collected from passengers by
transporting air carriers and must be remitted to the applicable airport
authority. Airport operators must obtain approval of the FAA before they may
implement a Passenger Facility Charge. Miami, New York, Chicago and San Juan
have been granted approval to have this charge collected.
From time to time, legislation is also proposed by Congress and
regulations are proposed by government agencies which could materially impact
Pan Am's operations and financial condition. For example, in recent years the
FAA has issued a number of directives and other regulations relating to, among
other things, collision and airborne windshear avoidance systems. Congress has
also reinstated the 10% excise tax on air transportation effective March 7,
1997, which had lapsed for a period of time, which will have an additional
effect on the future operations of the Company. Pan Am, consistent with general
airline industry practices, has passed-through to the customer the increase
associated with the reestablishment of this excise tax in those markets where
customer demand for Pan Am's services allowed for such action. The impact of the
ValuJet and TWA accidents, the 10% excise tax, and the general competitive
environment of the airline industry present uncertainty for 1997 and future
periods. Pan Am is unable to predict exactly how these issues will be resolved
and what and how much of an impact resolution of these uncertainties will have
on future operating results or the financial condition of the Company.
AIRWORTHINESS DIRECTIVES ("ADS") FOR AGING AIRCRAFT. The FAA has
implemented a number of regulations which impact Pan Am's maintenance programs.
These matters relate to, among other things, inspection and maintenance as
required by ADs issued under its "Aging Aircraft" program. The Company does not
currently expect the future costs of these ADs to be material. If the costs of
any future ADs would be of a material nature, it is expected that the costs
would be borne by the Company or shared with the lessors of the aircraft and
compliance would be accomplished within the required time periods.
Prior to acceptance by Pan Am and before entering revenue service, each
of the leased A300 aircraft received a complete major maintenance overhaul
(D-check). During this period, all outstanding ADs, including those issued under
the "Aging Aircraft" program, were accomplished and the Company is in compliance
with such ADs and all other FAA requirements.
SLOTS. The FAA's regulations currently permit the buying, selling,
trading or leasing of certain airport slots. Pan Am currently leases slots from
Northwest Airlines at New York's Kennedy International Airport. A slot is an
authorization to take off or land at the designated airport within a specified
time window. Slot values depend on several factors, including the airport, the
time of day, the number and availability of slots, and whether they are commuter
or jet air carrier slots. The following airports are slot-controlled: New York's
Kennedy International Airport and La Guardia Airport, Chicago's O'Hare
International Airport and Washington D.C.'s National Airport. The DOT and FAA
must be advised of all slot transfers and must determine that each such transfer
will not have certain injurious effects.
The FAA's slot regulations require the use of each slot at least 80% of
the time, measured on a bi-monthly basis. Failure to do so without a waiver of
the FAA (which is granted only in exceptional cases) subjects the slot to recall
by the FAA for non-use. In addition, the slot regulations provide that slots may
be withdrawn by the FAA at any time without compensation to meet the DOT's
operational needs (such as providing slots for international or essential air
transportation).
The FAA recently concluded a review of slot regulation and determined
that the present structure of the slot system should not be changed. Pan Am's
ability to increase its current level of operations, as well as its ability to
expand operations to the nation's other slot-controlled airports, will be
affected by the number and cost of slots available for takeoffs and landings.
-6-
<PAGE>
ENVIRONMENTAL MATTERS. The Federal Airport Noise and Capacity Act of
1990 ("ANCA") is intended to convert the nation's commercial jet service to
quieter Stage 3 operations by requiring phaseout of Stage 2 operations (as
defined in Part 36 of the Federal Aviation Regulations) by December 31, 1999,
subject to certain exceptions. Under 14 C.F.R. 91.867, a new entrant, such as
the Company, must comply with ANCA by operating a fleet that is at least 50%
Stage 3 by December 31, 1996 and 75% by December 31, 1998. Operation of Stage 2
aircraft after December 31, 1999 is prohibited, subject, however, to an
extension of the final compliance date to December 31, 2003, if at least 85
percent of the aircraft used by the operator in the contiguous United States
will comply with Stage 3 noise levels by July 1, 1999 and the operator
successfully obtains a waiver from the FAA of the December 31, 1999 final
phaseout date. Statutory requirements to obtain a waiver include a determination
by the FAA that the waiver is in the public interest or would enhance
competition or benefit service to small communities. There is no assurance that
such a waiver is obtainable.
The Company's A300 aircraft fleet, as of March 31, 1997, complied with
all Stage 3 noise regulations and consisted of four Stage 3 aircraft, yielding
100% Stage 3 compliance. Nations is responsible for complying with all ANCA
regulations with respect to its aircraft, including the B727 aircraft leased by
Pan Am. In the event Nations were unable to maintain compliance under ANCA, such
noncompliance could have a material adverse effect on the Nations operations
conducted on Pan Am's behalf. In such event, Pan Am would have to cover such
operations with another wet-lease operator and no assurance can be made that
such operator would be available or, if available, that Pan Am could reach an
agreement on the terms of such operations.
ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures that do not interfere
unreasonably with the interstate and foreign commerce of the national air
transportation system. ANCA generally requires FAA approval of local noise
restrictions on Stage 3 aircraft and establishes a regulatory notice and review
process for local restrictions on Stage 2 aircraft first proposed after October
1990. As a result of litigation and pressure from airport area residents,
airport operators have taken local actions over the years to reduce aircraft
noise. These actions have included regulations requiring aircraft to meet
prescribed decibel limits by designated dates, prohibition on operations during
night time hours, restrictions on frequency of aircraft operations, and various
operational procedures for noise abatement. In some instances, these
restrictions could cause curtailments in service or increases in operating costs
and such restrictions could limit the ability of Pan Am to expand its operations
at any affected airports. While Pan Am has had sufficient operational and
scheduling flexibility to accommodate local noise restrictions imposed to date,
its operations could be adversely affected if locally imposed regulations become
more restrictive or widespread. All airports where Pan Am currently operates
have established noise restriction procedures.
In addition to the aircraft noise regulations administered by the FAA,
the Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. Pan Am has
made all necessary modifications to its operating fleet to meet fuel-venting
requirements and smoke emissions standards.
AIRCRAFT FUEL. Since the commencement of airline operations, fuel costs
have constituted a significant portion of Pan Am's operating costs
(approximately 15% of total monthly operating expenses) and significant
increases in fuel costs or the unavailability of adequate supplies would
materially affect Pan Am's operating results. Both the cost and availability of
fuel are subject to many economic and political factors and events occurring
throughout the world which Pan Am can neither control nor predict. In the event
of a fuel shortage resulting from a disruption of oil imports or otherwise,
higher fuel prices or curtailment of scheduled service could result. Pan Am does
not have any agreement assuring the availability or price stability of fuel, and
significant increases in fuel prices or a shortage of supply could have a
material adverse effect on Pan Am's operating results. In addition, airlines in
general are also subject to local and state laws and regulations of locations
where they operate. Some local governments have adopted laws that expressly
govern aircraft fuel. Pan Am qualifies for an exemption from
-7-
<PAGE>
the payment of a 6.9 cent per gallon excise tax on aviation fuel purchased and
consumed in the State of Florida through July 1, 2001, which relieves Pan Am
from incurring additional fuel expenses in the State of Florida.
In August 1993, the United States increased taxes on domestic fuel by
4.3 cents per gallon. Aviation fuel was exempt from this tax increase until
October 1995. The Ways and Means Committee of the United States House of
Representatives has recommended that airlines continue to be exempted from this
tax until October 1997, and the Finance Committee of the United States Senate
has recommended an exemption which would expire in March 1997. However, Pan Am
cannot predict whether Congress or the President of the United States will
approve either proposed extension, the extent to which Pan Am will be able to
pass the cost of this increase on to its customers in the future, or the effect
that any such pass-through would have on demand for Pan Am's services.
COMPETITION. The airline industry is highly competitive as to fares,
frequent flyer benefits, routes and service. In addition, most of Pan Am's
competitors are larger and have greater financial resources than Pan Am.
Management believes that its competition will generally be a function of price.
Pan Am's ability to compete on the basis of price depends on its ability to
operate at costs equal to or lower than its competitors or potential
competitors. Management believes that its operating strategy of (i) operating
the high capacity, cost efficient A300 aircraft; (ii) offering long haul
service, which typically provides greater aircraft utilization than short and
medium haul flights; and (iii) operating a point-to-point system, instead of
operating from a more costly hub, will allow Pan Am to operate at costs lower
than those of its competitors. This operating structure will allow Pan Am to
offer prices to customers at or below those of its competitors. In the United
States, there are also few barriers to entry into the airline business, apart
from the need for certain government licenses and the need for and availability
of financing. Because of the relative ease with which United States carriers can
enter new markets, Pan Am's service is subject to potential increases in
competition from other air carriers, the extent and effect of which cannot be
predicted. In response to Pan Am's commencement of service to its markets, such
airlines may compete with Pan Am by adding flights and capacity in such markets
and lowering their fares, making it more difficult for Pan Am to achieve or
maintain profitable operations.
MARKETING. The Company's marketing efforts are vital to its success, as
the Company seeks to firmly establish itself in the marketplace as a provider of
quality service at affordable pricing. The Company's marketing strategy
concentrates on its three target market segments: the business flyer, the
leisure traveler and the overseas originating international traveler. Marketing
efforts directed at the business flyer sector include the Company's "First Class
for the price of coach" pricing structure available in all markets, and the
availability of its multi-dimensional frequent flyer program -- WorldPass. The
leisure traveler market segment is attracted primarily to the Company's pricing
structure, which includes low fares with advance purchase restrictions; these
fares represent everyday pricing which is lower than most of the Company's
competitors' and contain fewer restrictions than such competitors. The Company's
tickets are nonrefundable in such lower fare categories; however, no fees for
changes in travel plans are applied, which has proven very attractive to the
leisure and business traveler sectors. "Pan Am Alliance" is primarily
responsible for marketing to the international travel sector. See Item 1
"Description of Business -- Business Strategy." Pan Am's marketing activities
focus on the high worldwide recognition of the Company's name and famous logo,
which, in the Company's opinion, has helped it achieve rapid and widespread
marketplace recognition.
COMPUTER RESERVATION SYSTEMS. The Company controls its seat inventory
through the "Shares" Reservation System which is maintained by Electronic Data
Systems, Inc. (EDS). The Company participates in agreements with all the major
Global Distribution Systems (GDS) which allow for direct connection and
interaction between "Shares" and the various reservation systems for passenger
booking activity by travel agencies as well as other airlines.
The Company currently outsources its internal reservation services to a
third party, Outsourced Automated Systems and Integrated Solutions, Inc.
(OASIS), which is affiliated through common ownership of a major
-8-
<PAGE>
stockholder. Through Pan Am's toll free phone number (1-800-FLY PANAM),
customers can call directly to the Company, with such calls being handled by
OASIS, to make travel reservations and obtain flight information.
In addition, Pan Am provides travelers ticketless travel by offering
electronic ticketing (E-ticketing) to those passengers who wish the ease and
convenience this method affords for passenger check-in and boarding. Further,
this method of passenger ticketing reduces the distribution costs associated
with paper tickets such as preparation, ticket stock costs, mailing, handling
and storage, and lost documents.
ADVERTISING. The primary objectives of the Company's marketing
activities are to develop a brand identity or personality which is visibly
unique and easily contrasted with its competitors and to communicate its service
to potential customers. In order to achieve these objectives, the Company has
allocated a large portion of its operating budget to advertising, promotion and
public relations. The Company communicates regularly and frequently with
potential customers through the use of extensive advertisements on television
and radio and in newspapers and magazines. These communications feature the
Company's destinations, everyday low fares, ease of use (including its
simplified fare structure) and the Company's reservation phone number. New
service and route announcements are generally supported by heavy television
broadcast advertising campaigns, while radio and print advertising is often used
to announce daily pricing structures. The Company directs all of its advertising
in-house and utilizes the services of an outside agency for creative and
production work, and an outside media buying agency for advertising placement.
All public relations activity is handled by the Company on an in-house basis.
INSURANCE. The Company carries insurance of types customary in the
airline industry and in amounts deemed adequate to protect the Company and its
property against any potential liability and to comply both with federal
regulations and certain of the Company's credit and lease agreements. The
policies principally provide coverage for public and passenger liability,
property damage, cargo and baggage liability, loss or damage to aircraft,
engines, and spare parts, and hull war risk. The Company's aviation liability
policies provide for an aggregate maximum of $850 million per year for any
single incident or for all incidents in the aggregate for that year; within this
amount, personal injury awards are limited to $25 million per incident.
The Company carries general business insurance with coverages that are
customary in the airline industry. Such insurance includes premises liability,
business personal property, vehicle coverages, workers' compensation and general
liability.
FREQUENT FLYER AWARDS. Pan Am established WorldPass frequent flyer
program to develop passenger loyalty by offering awards to travelers for their
continued patronage. WorldPass is the same name used by Former Pan Am for its
frequent flyer program. Members of WorldPass earn mileage at accelerated rates,
which include 125% of each mile flown in economy class and 175% for each mile
flown in first class. Members may receive a free trip award when certain mileage
levels have been accrued by such member. Pan Am's mileage levels are purportedly
the lowest mileage levels offered by any major airline for a frequent flyer
award. In addition, any three members of WorldPass may aggregate their mileage
to attain the requisite mileage level. Mileage is tracked automatically when the
member presents his or her card at flight check-in.
EMPLOYEES. As of December 31, 1996, Pan Am had approximately 387 full
time employees, of whom 141 were employed in managerial, operational or
administrative positions and 246 were employed as members of flight crews
comprising the Company's pilots, flight engineers and flight attendant corps.
Management considers its employee relations to be good and believes that the
quality Pan Am product being provided to its passengers is in large part due to
the professionalism and enthusiasm of its employees. None of Pan Am's employees
are subject to collective bargaining agreements.
-9-
<PAGE>
SEASONALITY, INDUSTRY CONDITIONS AND OTHER FACTORS. Pan Am's results of
operations for any interim period are not necessarily indicative of those for
the entire year, since the air transportation business is subject to seasonal
fluctuations. Higher demand for air travel has traditionally resulted in more
favorable operating results for the second and third quarters of the year than
for the first and fourth quarters. The results of operations in the air
transportation business have also significantly fluctuated in the past in
response to general economic conditions, international conflicts affecting oil
exporting countries and actions taken by carriers with respect to fares. In
addition, fare initiatives, fluctuations in fuel prices, labor actions,
passenger demand and other factors could impact this seasonal pattern. Further,
in connection with Pan Am's operations for calendar year 1996, Pan Am was a
development stage company and commenced its flying operations on September 26,
1996.
OTHER INTERESTS. Pan Am also owns a 30% interest in Chalks Air Bridge,
Inc. ("Chalk's"). See Note 4 to the Consolidated and Combined Financial
Statements. Chalk's is a historical seaplane airline which has been in operation
for over 70 years. Chalk's currently owns and operates five Grumman Mallard
turbo prop seaplanes flying scheduled service to Bimini, Paradise Island, Key
West and the Dry Tortugas from Ft. Lauderdale and Watson Island (Miami),
Florida. Chalk's has entered into a license agreement with Pan Am pursuant to
which Chalk's operates under the name of "Pan Am AirBridge".
ITEM 2. DESCRIPTION OF PROPERTY
AIRCRAFT LEASES. As of March 31, 1997, Pan Am operated a total of four
A300 aircraft under operating leases for terms of five years with annual lease
payments totalling in the aggregate approximately $7.6 million. Under such
leases, the Company pays monthly maintenance reserves to the lessor to cover all
major engine and airframe overhauls on a flight hour usage basis. The ages of
such A300 aircraft range from fourteen to nineteen years old, with the average
age of such aircraft being 16.0 years. In addition, as of such date, Pan Am
leased three B727 aircraft on a wet-lease (ACMI) basis from Nations, an
unrelated third party airline operator, under short term lease commitments. The
wet-lease agreements will expire on December 31, 1997; however, such agreements
are cancelable within 30 days at the option of Pan Am.
For information regarding the Company's obligations under operating
leases see Note 10 to the Consolidated and Combined Financial Statements. Also
see Item 1 - "Description of Business -- General."
FACILITIES RENTALS. The Company has recently executed a sublease
agreement with Trans World Airlines for the exclusive use of fourteen ticket
counters and five gate positions at New York's Kennedy International Airport.
The lease is cancelable upon 30 days notice and calls for a monthly rental of
approximately $691,000.
At Miami, Florida, Los Angeles, California and San Juan, Puerto Rico,
the Company leases space for its airport operations directly from the various
airport authorities. These operating leases are cancelable upon 30 to 60 days
notice and call for monthly rentals aggregating approximately $215,000 per
month.
Facilities for the Company's airport operations at Chicago's Midway
Airport are provided by another carrier in conjunction with the Company's ground
and passenger servicing agreements.
TEMPORARY HEADQUARTERS, GROUND FACILITIES AND SERVICES. On March 1,
1996, Pan Am was granted the use of office space through the end of September
1996 by Eastern Air Lines, Inc. ("Eastern"), a major stockholder of Pan Am, at
Eastern's Doral Technology Center (the "Doral Facility") in Miami, Florida,
valued at
-10-
<PAGE>
$300,110, in exchange for 85,017 shares of Common Stock. Since October 1, 1996,
Pan Am has been leasing this space for $35,000 per month on a month to month
basis. Pan Am has temporarily established its offices at this location and
considers it to be adequate for its initial operations. On March 31, 1997, the
Company closed on the purchase from Eastern of the Doral Facility which will
temporarily serve as the primary place of Pan Am's business. The property
consists of a leasehold interest in a certain building and real property and
approximately 18 acres of land. The transaction, valued at $10.4 million, was
completed through the issuance of 1,294,625 warrants which entitle Eastern to
exchange such warrants for an equal number of shares of Common Stock of the
Company upon the satisfaction of certain conditions, including, among others,
the approval of the transaction by the shareholders of Pan Am.
As of March 31, 1997, most of the Company's airport operations relating
to: (1) passenger ticketing and boarding gate check-in (passenger service), (2)
baggage loading and (3) aircraft servicing are contracted to other air carriers
or fixed base operators. All of these agreements can be canceled by either party
by giving 30 to 60 days notice.
The Company has determined that providing passenger services is
economically beneficial at certain airports and is in the process of converting
from contracted services to in-house service. San Juan, Puerto Rico is currently
being staffed with Pan Am employees for passenger service. New York, New York
and Miami, Florida have converted the baggage service functions to in-house
service and expect to convert the passenger service function to same by July,
1997.
The Company has outsourcing arrangements for its line maintenance at
New York, New York, Los Angeles, California, San Juan, Puerto Rico and Chicago,
Illinois. The Company has its own mechanic work force in Miami, Florida, which
provides maintenance, including medium maintenance checks. A hangar facility has
been leased at the Miami airport for this function which includes stockroom
facilities for spare parts.
ITEM 3. LEGAL PROCEEDINGS
Other than the litigation concerning the Pan Am Intellectual Property
described in Item 1 - "Description of Business -- Trademarks", Pan Am is not
presently a party to any litigation, the outcome of which would have a material
adverse effect on its business operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to be reported.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.0001 par value per share, is traded on
the American Stock Exchange ("AMEX") under the symbol "PAA." The Common Stock
commenced trading on the AMEX on September 24, 1996. Prior to such time, the
Common Stock traded in the over-the-counter market (commencing on March 21,
1994) under the symbol "FHMG." The following table shows the reported high and
low sales prices of the Common Stock on the over-the-counter market and on the
AMEX.
-11-
<PAGE>
<TABLE>
<CAPTION>
LOW BID HIGH BID
(PER SHARE) (PER SHARE)
OVER-THE-COUNTER
<S> <C> <C>
April 1, 1994 - June 30, 1994 $5.75 $6.25
July 1, 1994 - September 30, 1994 4.75 5.75
October 1, 1994 - December 31, 1994 3.75 5.375
January 1, 1995 - March 31, 1995 3.25 4.25
April 1, 1995 - June 30, 1995 3.75 5.625
July 1, 1995 - September 30, 1995 3.875 5.5
October 1, 1995 - December 31, 1995 2.5 4.625
January 1, 1996 - March 31, 1996 3.125 8.125
April 1, 1996 - June 30, 1996 7.00 16.75
July 1, 1996 - September 22, 1996 7.5 15.125
AMEX
September 24, 1996 - September 30, 1996 12.00 17.50
October 1, 1996 - December 31, 1996 7.50 11.50
January 1, 1997 - March 24, 1997 6.8125 11.375
</TABLE>
The Company has not paid or declared any dividends on its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends on its Common Stock in the foreseeable future.
As of March 24, 1997, there were 310 holders of record of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
THE FOLLOWING FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31,
1996 HAS BEEN DERIVED FROM THE COMPANY'S CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS. THIS INFORMATION SHOULD BE READ WITH THE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS, AND RELATED NOTES THERETO INCLUDED ELSEWHERE HEREIN.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
FINANCIAL DATA:
(in thousands except per share amounts)
Operating revenues.............................................................. $ 10,441
Operating expenses.............................................................. $ 38,781
Non-operating income and (expenses), net........................................ $ 941
Loss before income taxes ....................................................... $(27,399)
Provision for income taxes...................................................... $ (155)
Net loss........................................................................ $(27,555)
Net loss per common and common equivalent shares ............................... $ (3.89)
Total assets at period-end...................................................... $ 26,545
Long-term obligations at period-end............................................. $ 11
Stockholders' equity at period-end.............................................. $ 11,660
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
OPERATING DATA:
Revenue passengers carried...................................................... 87,098
Revenue passenger miles (RPMs) (000s)........................................... 121,374
Available seat miles (ASMs) (000s).............................................. 264,795
Load factor..................................................................... 45.8%
Average length of passenger haul (miles)........................................ 1,394
Trips flown..................................................................... 769
Average passenger fare.......................................................... $ 116
Passenger revenue yield per RPM................................................. 8.3(cents)
Operating revenue yield per ASM................................................. 3.9(cents)
Operating expenses per ASM...................................................... 14.6(cents)
Fuel cost per gallon (average).................................................. 88.0(cents)
Number of employees at period-end............................................... 387
Size of fleet at period-end (1)................................................. 3
</TABLE>
(1) Does not include wet-lease aircraft operated by Nations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
As noted in Item I - "Description of Business -- General," Pan Am was
formed in October 1993 to serve as a vehicle to effect a Business Combination
with an operating business. On September 23, 1996, the Company completed the
PAWA Merger. PAWA was a development stage company established for the purpose of
operating a commercial passenger and cargo airline through its wholly owned
subsidiary, Pan American World Airways, Inc.
From its inception until it commenced flight operations on September
26, 1996, the Company's activities were limited to start-up activities,
including raising capital, recruiting key operating personnel, obtaining and
implementing computerized passenger reservation and management information
systems, negotiating airport gate and terminal facilities and aircraft leases,
contracting ground handling and aircraft maintenance services, conducting pilot
and flight attendant training and obtaining certification from the DOT and the
FAA.
The Company began flight operations on September 26, 1996 with two
leased A300 wide-body aircraft providing daily round trip flights between New
York, New York and Miami, Florida and New York, New York and Los Angeles,
California. The Company has continued to expand its operations and as of March
1, 1997, provides services to five destinations (including San Juan, Puerto Rico
and Chicago, Illinois) with eighteen daily flights utilizing four leased A300
aircraft operated by Pan Am and three wet-leased (ACMI) B727 aircraft operated
by Nations.
RESULTS OF OPERATIONS. As previously noted, Pan Am began commercial
operations as a low fare, full service airline on September 26, 1996. From
inception to the latter part of 1996, the Company considered itself a
development stage company during which time it had hired all personnel required
to commence airline operations and began making expenditures required to sustain
an infrastructure; however, it was deriving no revenues as it awaited regulatory
approval to commence airline operations. The Company believes that such
regulatory approval took longer to procure than anticipated, based in part upon
increased regulatory scrutiny focusing on start-up airlines after the ValuJet
accident. As of December 31, 1996, the Company had emerged from a development
stage company to that of a full service domestic airline. As a result,
management does not believe that a comparison of the results for prior periods
would be meaningful as it relates to the new operating entity. Consequently, the
following is a summary of selected financial and operating data for the fourth
-13-
<PAGE>
quarter ended December 31, 1996, and the year ended December 31, 1996, which
management believes reflects the airline's performance for those periods of
operations.
QUARTER ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- -----------------
Operating Revenues $10,242,900 $10,441,500
Total Expenses $24,980,500 $37,996,300
Net Loss $14,737,600 $27,554,800
Revenue Passengers Carried 86,444 87,098
Revenue Passenger Miles (RPMs) 120,164,000 121,374,100
Yield Per RPM 8.3(cents) 8.3(cents)
Load Factor 46.8% 45.8%
Management believes operating losses of approximately $14.7 million for
the first quarter of airline operations resulted primarily from: (1) the
expected losses associated with the start-up of flying operations with a limited
fleet of aircraft and need to establish the Company's presence in the markets
served, including the use of lower yielding promotional fares; (2) the inability
of the Company to obtain exemption from the DOT to advance advertise and sell
its seat inventory prior to certification from the DOT which prevented the
Company from having additional lead time to market its product and routes prior
to commencement of flying operations; (3) delinquent delivery of A300 aircraft
which caused the Company to cover its pre-committed schedule with wet-leased
aircraft from third party airline operators at operating costs greater than had
the Company been able to operate such service on its own behalf; (4) higher than
expected fuel costs; and (5) the airline's commencement of initial flying
operations during the off-peak travel period of the fall season.
OPERATING REVENUES. Airline revenues are primarily a function of the
number of passengers carried and fares charged by the airline. The Company
believes that revenues will gradually increase as the Company adds additional
service and gains market presence in the cities being served. During the three
months ended December 31, 1996, the Company has increased the percentage of
seats flown with revenue passengers while at the same time adding additional
capacity to its scheduled service. The Company commenced service with four daily
flights and expanded its schedule to 16 daily flights at year end. As the table
below indicates, Pan Am increased its scheduled operations as measured in
available seat miles ("ASMs") from October to December 1996 by 83% while
increasing its load factor of revenue passenger miles ("RPMs") flown by 36.4
points during the same period:
RPMS (000) ASMS (000) LOAD FACTOR (%)
---------- ---------- ----------------
October 16,938 60,169 28.2
November 31,907 86,435 36.9
December 71,319 110,319 64.6
The Company's financial results are highly sensitive to changes in fare
levels. Fare pricing policies have a significant impact on the Company's
revenues. The Company's average one-way fare for the three months ended December
31, 1996 was $116, exclusive of tax. On March 7, 1997, the 10% excise tax on air
transportation was reinstated. Pan Am, consistent with general airline industry
practices, has passed-through to the customer the increase associated with the
reestablishment of this excise tax in those markets where customer demand for
Pan Am's services allowed for such action. The elasticity of passenger demand,
increases in fares and associated taxes may result in a decrease in passenger
demand. The Company cannot completely predict future fare levels, which depend
to a substantial degree on actions of competitors. When sale prices or other
price changes are made by competitors in the Company's markets, the Company
believes that it must, in most cases, match these competitive fares in order to
maintain its market share.
-14-
<PAGE>
In addition to passenger revenues, the Company generated $252,500 in
other revenues primarily from transporting general cargo and mail and selling
in-flight services, such as liquor and movie headsets.
The Company anticipates that its business will follow the traditional
seasonal trends of the domestic United States airline industry, with traffic and
revenues typically higher during the winter, summer and late fall periods when
business travel is supplemented by discretionary personal travel.
OPERATING EXPENSES. Operating expenses totaling $25,541,100 for the
quarter ended December 31, 1996 consisted primarily of expenses incurred for
salaries, wages and benefits, aircraft fuel and oil, aircraft leases,
maintenance materials and repairs, agency commissions, other rentals, landing
and ground handling fees, advertising, depreciation and amortization and other
operating expenses.
Aircraft fuel expenses include the direct cost of fuel including taxes.
Aircraft fuel costs of $3,906,800 for 4,681,684 gallons used resulted in an
average fuel cost of 83.5(cent) and represented 15.3% of total operating
expenses for the three months ended December 31, 1996. Fuel prices are subject
to change weekly as the Company does not maintain inventories of its own. In
addition, fuel prices may be volatile subject to demand based upon a number of
factors outside the control of the Company. Any increase in the price of fuel
which could not be offset through increased fares could have a material adverse
impact upon the financial results of the Company.
Wages, salaries and related costs totaling $4,257,000 represented 16.7%
of total operating expenses for the three months ended December 31, 1996. All
employees are salaried, including pilots and flight attendants. As crew
utilization increases with the addition of A300 aircraft, the direct operating
cost per block hour should decrease as a result of this salary structure.
Maintenance material and repairs totaling $3,276,100, representing
12.8% of total operating expenses for the three months ended December 31, 1996,
is comprised substantially of airframe and engine overhaul reserves which are
paid to the lessors of the A300 aircraft.
Advertising amounting to $2,264,600, or 8.9% of total operating
expenses for the three months ended December 31, 1996, primarily relates to
promoting the commencement of service and expansion into the four new markets.
Aircraft rentals totaling $2,195,700, or 8.6% of total operating
expenses for the three months ended December 31, 1996, include lease payments
relating to three A300 aircraft operated by the Company and the wet-leasing of
two B727 aircraft operated by third parties. The wet-leasing arrangement was
necessary as a result of the delayed delivery of the Company's planned
additional A300 aircraft. The wet-leasing of aircraft results in higher expenses
to the Company than operations of its own aircraft; accordingly, the financial
results for the quarter have been negatively impacted by these increased
operating costs. Due to the late delivery of leased aircraft to the Company, the
Company anticipates the continued wet-leasing of a number of aircraft through
the first half of 1997; however, the Company intends to negotiate a reduction in
these rental rates.
Ground handling and landing fees amounting to $2,041,300, or 8.0% of
total operating expenses for the three months ended December 31, 1996, primarily
relates to passenger handling costs, including ticket counter, boarding gate and
baggage loading. Landing fees are principally based upon the number of aircraft
departures.
-15-
<PAGE>
All other operating costs totaling $7,599,600 for the three months
ended December 31, 1996, are of a nature normally incurred by an airline and are
typical within the industry, such as reservations and sales expenses, passenger
meals, traffic commissions, insurance and facilities rent.
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1996, the Company had
$15.0 million in cash and cash equivalents and a positive net working capital
position of approximately $6.2 million. The Company's financial resources have
been provided through financing activities totaling $39.0 million as follows:
(i) the sale of equity securities to initial investors for $5.0 million in cash
and $5.5 million in other property; (ii) two private placements of equity
securities which yielded approximately $18.7 million in net cash proceeds; and
(iii) approximately $9.8 million in net cash proceeds from the PAWA Merger.
Through December 31, 1996, the Company has utilized approximately $15.0
million in cash for operating activities, of which approximately $8.5 million
related to pre-operating expenditures prior to commencement of operations on
September 26, 1996.
Start-up losses for the airline operations during the quarter ended
December 31, 1996 amounted to $14.7 million. Management believes the principal
demand on the Company's resources from these losses resulted primarily from the
following factors: (1) the expected losses associated with the start-up of
flying operations with a limited fleet of aircraft and need to establish the
Company's presence in the markets served, including the use of lower yielding
promotional fares; (2) the inability of the Company to obtain an exemption from
the DOT to advance advertise and sell its seat inventory prior to certification
from the DOT restricted the Company's ability to advertise and market its
service prior to commencement of flying operations, thus not being able to
generate cash through advance ticket sales; (3) the delinquent delivery of A300
aircraft which caused the Company to cover its pre-committed schedule with
wet-leased aircraft from third party airline operators at operating costs
greater than had the Company been able to operate such service on its own
behalf; (4) higher than expected fuel costs; and (5) the airline's commencement
of initial flying operations during the off-peak travel period of the fall
season. Aircraft deliveries continue to hamper operations, and the Company
anticipates that it will be required to wet lease aircraft through the first
half of 1997. The Company intends to negotiate more favorable lease rate
arrangements.
Through the first quarter of 1997, the Company has continued to
experience substantial operating losses which has caused a substantial reduction
in its cash resources from December 31, 1996. Due to short-term liquidity
requirements, the Company has arranged for additional sources of capital as
follows: (i) on March 31, 1997, the Company reached an agreement in principle
for the sale of convertible preferred stock for expected net cash proceeds of
approximately $15 million; and (ii) in March 1997, the Company agreed with Dade
County, Florida on an $8.5 million incentive package as an inducement to locate
its corporate headquarters within the County. The Company anticipates receiving
$5.0 million in cash from Dade County in April, 1997.
Management believes that the above referenced proceeds (and, if
necessary, possible debt financing and additional equity offerings), if and when
received, will provide the Company with sufficient working capital for the near
term, although there can be no assurances that these funds will be sufficient or
that any necessary financing will be available to the Company. Further,
management has been and continues to take action that it believes will reduce
its operating losses, including the following measures: (1) renegotiation of
economic terms under its wet-lease agreements; (2) continued refinement of
purchasing strategies to reduce the unit cost of its larger operating
expenditures such as fuel, insurance, support services and passenger services;
(3) additional refinement of the Company's yield management system to improve
revenue; and (4) continued service expansion to provide added economies of scale
to the Company's fixed operating expense base. Since the inception of the
Company's flight operations on September 26, 1996, it has not generated
sufficient liquidity from operations to sustain its working capital needs. The
continuance of the Company's operations is dependent, among other things, upon
obtaining sufficient additional financing to fulfill its cash flow requirements,
growth in the Company's revenue base and, ultimately, the attainment of
sustained profitable operations. Although management has undertaken action
designed to meet these requirements as discussed above, no assurance can be made
that such objectives will be met or achieved by the Company.
-16-
<PAGE>
Pan Am does not anticipate any capital expenditures during the next
twelve months that will require any significant outlay of existing capital. Pan
Am's anticipated growth is expected to be achieved through the use of leased
equipment which reduces the level of its capital expenditures. To the extent
that any capital expenditures are incurred, it is anticipated that they would be
funded through external financial sources. Further, management is currently
evaluating the financial and economic benefits of purchasing aircraft through
long-term financing arrangements. It would be anticipated that any capital
outlay required to procure such financing would be funded from future equity or
debt offerings. To the extent the Company incurs indebtedness, the Company will
be subject to risks associated therewith, including the risks that interest
rates may fluctuate and cash flows may be insufficient to pay principal and
interest on any such indebtedness.
Pan Am has entered into definitive lease agreements with respect to
five aircraft, four of which are currently in operation, with the remaining
aircraft scheduled to be placed in operation by June, 1997. The sixth aircraft
to be leased through ING is currently under a term sheet and the definitive
lease is under negotiation. The ages of such aircraft range from 14 to 19 years
and the average age of such aircraft is 16.0 years. The lease terms for these
aircraft are generally five years. The leases generally require maintenance
reserves to be paid monthly, based on usage. Future minimum rental payments
under these five leases over the remaining terms, based on the estimated
delivery dates, are approximately $27.5 million. Pan Am currently intends to
lease additional aircraft as market or other conditions warrant in order to
meet its growth strategy. However, there can be no assurance that suitable
aircraft will be available for lease or purchase, in which case, the Company
would be required to reduce or delay its growth strategy.
The Company's ability to increase revenues and achieve profitability is
dependent in part upon its ability to attract a sufficient number of customers
at economically viable fares and operate efficiently. There is no assurance, if
or when, the Company will achieve profitability. The Company's prospects,
therefore, must be evaluated in light of the risks and expenses normally
encountered by a new entrant carrier with limited resources in the highly
competitive airline industry.
-17-
<PAGE>
Pan Am intends to expand its operations through internal growth as well
as the acquisition of or merger with other airline operators, and has engaged
and may continue to engage in preliminary discussions with certain companies
with respect to various acquisitions which could result in material changes in
Pan Am's financial condition and operating results. As consideration for any
future acquisition, Pan Am may pay cash, incur indebtedness or issue debt or
equity securities.
As discussed previously, the Company has entered into an agreement to
acquire Carnival Air through the issuance of 9,530,810 shares of Common Stock.
Carnival Air operates a fleet of 27 aircraft with approximately $270 million in
annual revenue. For the past five years, Carnival Air has been consistently
profitable. However, as with other smaller less recognized airlines, Carnival
Air suffered financially from the recent ValuJet incident which occurred in May,
1996. In recent months, Carnival Air has incurred significant operating losses
and has also experienced a liquidity deficiency. Pan Am's management believes
that certain cost benefits, synergies and enhanced revenues, particularly
branding the operations with the Pan Am name, will result from this merger and
the combined companies' operating performance will improve.
As contemplated in the merger, the primary shareholder of Carnival Air
is required to contribute $30.0 million in cash to Carnival Air, all or a
portion of which may be utilized to pay off an existing line of credit which is
secured by Carnival Air's assets and such primary shareholder's personal
guaranty. Pan Am will seek to renegotiate or replace the credit facility with a
view to making available additional proceeds for general operating purposes.
Further, Pan Am is currently in negotiations with certain institutions to
provide substantial financing for the combined companies to fund operations in
the near term and to assist towards achieving profitable operations. However, at
this juncture, no assurances can be given that any additional financing, if
available, will be sufficient to cover the liquidity needs of the combined
operations.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. Except for historical
information contained herein, the matters discussed in this report are
forward-looking statements made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. These forward-looking statements are
based largely on the Company's expectations and are subject to a number of risks
and uncertainties, including but not limited to, economic, competitive and other
factors affecting the Company's operations, markets, expansion strategies,
available financing, and other factors discussed elsewhere in this report and
the documents filed by the Company with the Securities and Exchange Commission.
Many of these factors are beyond the Company's control. Actual results could
differ materially from the forward-looking statements. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this report will, in fact, occur.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Report of Deloitte & Touche LLP, Independent Auditors, listed in
the accompanying Index to Consolidated Financial Statements included herein,
commencing at page F-1, are filed as part of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statement disclosure.
PART III
The information required in Item 10 (Directors and Executive Officers
of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) is incorporated by reference to the
Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission on or before April 25,
1997.
-18-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS. The financial statements listed in the
accompanying Index to Consolidated Financial Statements on page F-1 are filed
as part of this annual report.
2. FINANCIAL STATEMENT SCHEDULES. There are no financial
statement schedules filed as part of this annual report, since the required
information is included in the consolidated financial statements, including the
notes thereto, or the circumstances requiring inclusion of such schedules are
not present.
3. EXHIBITS.
3.1 Amended and Restated Articles of Incorporation of Pan Am
(incorporated by reference to Pan Am's Registration Statement
on Form S-4 (File No. 333-4350)).
3.2 Bylaws of Pan Am.
4.1 Specimen certificate representing Common Stock of Pan Am
(incorporated by reference to Pan Am's Registration Statement
on Form S-4 (File No. 3333-4350)).
10.1 Pan Am Corporation 1996 Stock Option Plan (incorporated by
reference to Pan Am's Registration Statement on Form S-4
(File No. 333-4350)).
10.2 Employment Agreement between Pan Am and Martin R. Shugrue,
Jr., dated March 8, 1996 (incorporated by reference to Pan
Am's Registration Statement on Form S-4 (File No. 333-4350)).
10.3 Lease Agreement relating to Aircraft A300-B4-203 #220 between
EAL (DELAWARE) VIII Corp., a Lessor, and Pan American Airways,
Inc., as Lessee (incorporated by reference to Pan Am's
Registration Statement on Form S-4 (File No. 333-4350)).
10.4 Lease Agreement relating to Aircraft A300-B4-203 #216 between
EAL (DELAWARE) VIII Corp., a Lessor, and Pan American Airways,
Inc., as Lessee (incorporated by reference to Pan Am's
Registration Statement on Form S-4 (File No. 333-4350)).
10.5 Lease Agreement relating to Aircraft A300-B4-203 #211 between
EAL (DELAWARE) VIII Corp., a Lessor, and Pan American Airways,
Inc., as Lessee.
10.6 Lease Agreement MSN053 dated as of September 27, 1996 between
First Security Bank, National Association as Lessor and Pan
American Airways, Inc. as Lessee (incorporated by reference to
Pan Am's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996).
10.7 Lease Agreement MSN075 dated as of September 27, 1996 between
First Security Bank, National Association as Lessor and Pan
American Airways, Inc. as Lessee (incorporated by reference to
Pan Am's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996).
-19-
<PAGE>
10.8 Acquisition Agreement dated as of March 20, 1997 between Pan
Am Corporation, CAL Acquisition Corporation, Air Holding
Company and Carnival Air Lines, Inc.
21 Subsidiaries of Pan Am.
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
99 Press Release of Pan Am and Carnival Air Lines, Inc.,
relating to the proposed transaction.
-20-
<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.
PAN AM CORPORATION
Date: March 28, 1997 By:/S/ MARTIN R. SHUGRUE, JR.
---------------------------
Martin R. Shugrue, Jr.,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on March 28, 1997 on
behalf of the registrant and in the capacities indicated.
/S/ MARTIN R. SHUGRUE, JR.
------------------------------------
Martin R. Shugrue, Jr., President,
Chief Executive Officer and Director
/S/ JOHN J. OGILBY, JR.
------------------------------------
John J. Ogilby, Jr., Chief Financial Officer and
General Counsel
(Principal Financial Officer)
/S/ ROBERT C. COILE
------------------------------------
Robert C. Coile, Vice President, Finance and
Accounting
(Principal Accounting Officer)
/S/ CHARLES E. COBB, JR.
------------------------------------
Charles E. Cobb, Jr., Chairman of the Board
/S/ PHILLIP FROST
------------------------------------
Phillip Frost, M.D., Vice Chairman of the Board
/S/ RICHARD B. FROST
------------------------------------
Richard B. Frost, Director
/S/ MARK J. HANNA
------------------------------------
Mark J. Hanna, Director
/S/ RICHARD C. PFENNIGER, JR.
------------------------------------
Richard C. Pfenniger, Jr., Director
/S/ JOHN J. SICILIAN
------------------------------------
John J. Sicilian, Director
/S/ HERSHEL F. SMITH, JR.
------------------------------------
Hershel F. Smith, Jr., Director
-21-
<PAGE>
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PAGE NO.
Independent Auditors' Report on the Consolidated Financial F-2
Statements
Independent Auditors' Report on the Combined Financial F-3
Statements
Consolidated and Combined Balance Sheets F-4
Consolidated and Combined Statement of Operations F-5
Consolidated and Combined Statements of Stockholders' F-6
Equity
Consolidated and Combined Statements of Cash Flows F-7
Notes to Consolidated and Combined Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pan Am Corporation:
We have audited the accompanying consolidated balance sheet of Pan Am
Corporation and subsidiaries (the "Company") as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1996,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Management's plans concerning operating and financing matters are discussed in
Note 1.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
March 31, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Pan American World Airways, Inc. and Affiliate:
We have audited the accompanying combined balance sheet of Pan American World
Airways, Inc. and Affiliate (collectively, the "Predecessor Company") (a
development stage company) as of December 31, 1995 and the related combined
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995 and for the period from
Inception (see Note 1) to December 31, 1995 (not presented herein). These
financial statements are the responsibility of the Predecessor 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 included 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, such combined financial statements present fairly, in all
material respects, the financial position of the Predecessor Company at
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995, and for the period from
Inception to December 31, 1995 (not presented herein), in conformity with
generally accepted accounting principles.
The Predecessor Company is in the development stage at December 31, 1995. As
discussed in Note 1 to the combined financial statements, the Predecessor
Company has not yet commenced operations or verified the market acceptance and
demand for the use of its service marks.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
April 24, 1996
F-3
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
("PREDECESSOR COMPANY")
COMBINED BALANCE SHEET
DECEMBER 31, 1995
1996 1995
(Predecessor
ASSETS Company)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,005,669
Trade accounts receivables, principally traffic 3,233,068
Expendable aircraft parts 261,787
Prepaid expenses and other assets 1,623,317
-------------
Total current assets 20,123,841
PROPERTY - Net (Note 3) 2,066,308
OTHER ASSETS:
Service marks (net of accumulated amortization
of $126,314 and $82,211) 1,557,867 $1,601,970
Organizational costs (net of accumulated
amortization of $20,789 and $8,371) 50,282 12,684
Deposits (Note 1) 2,745,352
Investment in affiliate (Note 4) 1,000
------------- ----------
TOTAL $ 26,544,650 $1,614,654
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,749,444
Air traffic liability 4,164,313
Accrued compensation 243,900
Deferred income taxes (Note 5) 155,421
Other accrued expenses 612,602 $ 4,263
Current portion of long-term debt 2,949
------------- ----------
Total current liabilities 13,928,629 4,263
------------- ----------
Long-term debt less current maturities 10,593
-------------
Other liabilities (Note 6) 945,381
-------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY (Notes 6 and 7):
Common stock, $.0001 par value, 100,000,000 and 20,000
shares authorized,10,920,191 and 750 shares issued and
outstanding 1,092 8
Capital surplus 39,555,374 2,106,031
Accumulated deficit (27,554,831) (495,648)
Receivables from officers and stockholders (96,767 shares) (341,588)
------------- ----------
Total stockholders' equity 11,660,047 1,610,391
------------- ----------
TOTAL $ 26,544,650 $1,614,654
============= ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
("PREDECESSOR COMPANY")
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1996 1995 1994
(Predecessor (Predecessor
Company) Company)
<S> <C> <C>
REVENUES:
Passenger $ 10,188,971
Cargo and mail 96,012
Other income 156,502 $ 2,050 $ 1,010
------------ --------- ---------
Total revenues 10,441,485 2,050 1,010
------------ --------- ---------
EXPENSES:
Wages and related costs 8,446,007 114,651 24,665
Aircraft fuel and oil 4,268,158
Aircraft maintenance
and repairs 3,889,796
Advertising 3,555,816
Professional and technical 3,037,654 40,789 28,261
Aircraft rentals 2,804,504
Ground handling and landing fee 2,168,504
Reservations and sales 1,740,435
Personnel expenses 1,637,467 10,654 21,256
Passenger food expense 1,447,045
Facilities and other rents 1,262,238
Insurance 970,182
Materials and supplies - other 652,548
Passenger traffic commissions 559,603
Depreciation and amortization 334,397 46,283 44,086
Communications 282,689
Other 1,724,404 28,766 17,280
------------ --------- ---------
Total expenses 38,781,447 241,143 135,548
------------ --------- ---------
NON-OPERATING
INCOME (EXPENSES):
Interest income 654,484
Interest expense (51,748)
Write-down of investment (17,000)
Other 354,816
------------
Total non-operating income 940,552
------------
LOSS BEFORE DEFERRED
INCOME TAX PROVISION (27,399,410) (239,093) (134,538)
DEFERRED INCOME
TAX PROVISION (155,421)
------------ --------- ---------
NET LOSS $(27,554,831) $(239,093) $(134,538)
============ ========= =========
NET LOSS PER SHARE $ (3.89) $ (318.79) $ (179.38)
============ ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,078,041 750 750
============ ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
("PREDECESSOR COMPANY")
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
Receivables
Common Capital Accumulated From Officers Deferred
Stock Surplus Deficit and Stockholders Compensation Total
<S> <C> <C> <C> <C> <C> <C>
Successor Company:
INITIAL CAPITALIZATION -
Issuance of 2,848,068 shares $ 285 $10,516,733 $(1,800,662) $(2,001,023) $ 6,715,333
Private offering of 4,728,123 shares 473 19,242,456 (41,476) 19,201,453
Issuance of 3,344,000 shares in reverse
acquisition (Note 1) 334 9,796,185 9,796,519
Settlement of Stockholder Note 1,500,550 1,500,550
Amortization of deferred compensation 2,001,023 2,001,023
Net loss for the year ended
December 31, 1996 $(27,554,831) (27,554,831)
------ ----------- ------------ ----------- ----------- ------------
BALANCE, DECEMBER 31, 1996 $1,092 $39,555,374 $(27,554,831) $ (341,588) $ 0 $ 11,660,047
====== =========== ============ =========== =========== ============
Common Capital Accumulated
Stock Surplus Deficit Total
Predecessor Company:
BALANCE, JANUARY 1, 1994 $ 8 $ 1,535,999 $ (122,017) $ 1,413,990
Capital contributions 273,146 273,146
Net loss for the year ended
December 31, 1994 (134,538) (134,538)
------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1994 8 1,809,145 (256,555) 1,552,598
Capital contributions 296,886 296,886
Net loss for the year ended
December 31, 1995 (239,093) (239,093)
------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1995 $ 8 $ 2,106,031 $ (495,648) $ 1,610,391
====== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
("PREDECESSOR COMPANY")
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1996 1995 1994
(Predecessor (Predecessor
Company) Company)
<S> <C> <C> <C>
Net loss $(27,554,831) $(239,093) $(134,538)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 334,397 46,283 44,086
Amortization of deferred compensation 2,001,023
Employee stock bonus subscriptions 620,881
Deferred income taxes 155,421
Amortization of prepaid rent 300,110
Vendor payable settled for common stock 324,500
Write-off of investment in affiliate 17,000
Changes in certain assets and liabilities:
Increase in receivables (3,232,518)
Increase in prepaid expenses (1,623,317)
Increase (decrease)in accounts payable 8,690,329 (24,665) (16,123)
Increase in air traffic liability 4,164,313
Increase in accrued compensation 243,900
Increase in accrued expenses 612,602 4,263
------------ --------- ---------
Net cash used in
operating activities (14,946,190) (213,212) (106,575)
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (796,301)
Payments for service marks (87,849) (162,396)
Investment in affiliate (18,000)
Deposits (2,745,352)
------------ --------- ---------
Net cash used in
investing activities (3,559,653) (87,849) (162,396)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from long-term debt 13,774
Principal payments on long-term debt (232)
Issuance of common stock 33,497,970
Capital contributions 296,886 273,146
------------ --------- ---------
Net cash provided by
financing activities 33,511,512 296,886 273,146
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH 15,005,669 (4,175) 4,175
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,175
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 15,005,669 $ 0 $ 4,175
============ ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-7
<PAGE>
PAN AM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
("PREDECESSOR COMPANY")
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
ORGANIZATION AND BASIS OF PRESENTATION - Pan Am Corporation (f/k/a Frost
Hanna Mergers Group, Inc.) (the "Company") was formed to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition
or other similar business combination with an operating business. On
September 23, 1996, the Company completed a business combination (the
"Merger") with PAWA Holdings, Inc. (f/k/a Pan American World Airways,
Inc.), a Florida Corporation ("PAWA"). The Merger was treated for
accounting purposes as a capital transaction equivalent to the issuance of
stock by PAWA for the net monetary assets (which consisted principally of
approximately $9.8 million of cash) of Frost Hanna Mergers Group, Inc.
Because PAWA is the accounting acquirer in this "reverse acquisition," the
financial statements of Pan Am Corporation are considered to be a
continuation of PAWA.
PAWA was established on January 11, 1996 for the purpose of operating a
commercial passenger and cargo airline. On March 8, 1996 (the
"Contribution Date"), stockholders contributed various ownership interests
in assets and liabilities (recorded at the lower of contributors cost or
fair value) (the "Contribution") in return for stock and warrants of PAWA.
Although PAWA was incorporated on January 11, 1996, the accompanying
financial statements reflect operations as though it commenced on
January 1, 1996. On September 19, 1996, final regulatory approvals were
received and on September 26, 1996, operations as a scheduled passenger
and cargo air carrier commenced.
The Company and its predecessor were in the development stage, however by
December 31, 1996, the Company had emerged as a full service domestic
airline providing service to New York, Miami, Los Angeles and San Juan,
Puerto Rico.
The December 31, 1996 consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries; Pan American
World Airways, Inc. (f/k/a Pan American Airways, Inc.), a Florida
corporation, Pan American World Airways, Inc., a Delaware corporation, Pan
American Airbridge Holdings, Inc., a Florida corporation, and EAL Asset
Company No. 1, Inc., a Florida corporation. All intercompany balances and
transactions have been eliminated.
As required by instructions to Form 10-K, the combined financial
statements of the Predecessor Company as of December 31, 1995 and for two
years in the period then ended, have been included herein. The Predecessor
Company consists of the combination of Pan American World Airways, Inc., a
Delaware corporation, and Pan American Airbridge Holdings, Inc., a Florida
corporation. The Predecessor Company had common ownership and management
and its principal asset, service marks related to the Pan Am(R) trade
name, was held for development. All intercompany balances and transactions
have been eliminated.
CONTINUITY OF OPERATIONS - The Company has incurred substantial operating
losses since inception, of which approximately $12.8 million relates to
the period prior to commencement of airline operations,
F-8
<PAGE>
and approximately $14.7 million subsequent thereto. Through the first
quarter of 1997, the Company continues to experience operating losses.
The continuance of the Company is dependent, among other things, upon
obtaining sufficient additional financing to fulfill cash flow
requirements, growth in the Company's revenue base and, ultimately, the
attainment of profitable operations.
Management believes that its liquidity problem is short-term in nature and
requires bridge financing for an interim period. To this end, the Company
has arranged for additional sources of capital as follows:
In March 1997, the Company completed the sale of a new series of
convertible preferred stock for net cash proceeds of approximately
$15.0 million.
The Company agreed with Dade County, Florida on an incentive package
totaling approximately $8.5 million as an inducement to locate its
headquarters within the County. The Company anticipates receiving
approximately $5.0 million in cash relating to the award in April
1997.
With the financing described above, the Company expects to meet its
short-term working capital needs.
Toward attaining profitable operations, the Company's operating plan
provides for the following more significant items:
Expansion of the Company's aircraft fleet to not only grow the
revenue base, but also to more widely distribute fixed infrastruture
costs.
Convert the Company's higher cost short-term wet-lease agreements to
Company operated aircraft.
No assurances can be given that the Company can achieve its operating
plan or obtain additional sources of funds in the future.
The following is a summary of significant accounting policies of the
Company:
RISKS AND UNCERTAINTIES - The airline industry is intensely competitive.
Domestic certificated airlines are free to enter and exit domestic markets
and to set fares without regulatory approval. Any significant fare
reductions or introduction of directly competing routes by other airlines
could have a material adverse effect on the Company's results of
operations and financial condition.
The Company cannot predict the future cost and availability of fuel for
flight operations. Substantial price increases or the unavailability of
adequate suppliers could have a material adverse effect on the Company's
financial position or results of operations.
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. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - For purposes of consolidated financial
statements, the Company considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
EXPENDABLE AIRCRAFT PARTS - Expendable aircraft parts are carried at the
lower of cost or market, with cost being determined on the first-in,
first-out basis. An allowance is provided when, in the judgment of
management, the realizable value of individual parts declines below the
cost of such parts.
F-9
<PAGE>
PROPERTY - Property is stated at the lower of cost or market. Depreciation
and amortization are provided on the straight-line method over the
estimated useful lives of the various assets. Property useful lives are as
follows:
Spare rotables.....................................five years
Software...........................................five years
Technical library and training manuals.............five years
Office equipment...................................five years
Ground equipment...................................five years
AIRCRAFT MAINTENANCE AND REPAIRS - For aircraft under operating lease,
maintenance overhaul reserves for engines and airframe are maintained by
the lessor and are provided for by the Company on a monthly basis based
upon a per flight hour charge for each aircraft. Such reserves are charged
to expense when incurred.
INTANGIBLE ASSETS - Service marks related to the Pan Am trade name (stated
at cost) are amortized on the straight-line method over forty years.
The Company evaluates its intangible assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS")
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO
BE DISPOSED OF. This Statement requires assessment of impairment of
long-lived assets whenever factors, events or changes in circumstances
indicate the carrying amount of certain long-lived assets to be held and
used may not be recoverable. Assessment of impairment is based on the
expected undiscounted cash flows of the assets. If an asset is determined
to be impaired, an impairment loss is recognized to the extent the
carrying amount of the impaired asset exceeds fair value.
DEPOSITS - As is customary in the airline industry, the Company maintains
performance deposits with respect to security on aircraft leases, landing
fees, ground handling fees and credit card processing.
INVESTMENT IN AFFILIATE - The Company accounts for its investment in
affiliate under the equity method.
DEFERRED COMPENSATION - Deferred compensation, a contra-equity account, is
recorded for the difference between the fair value and the exercise price
of shares of common stock subject to stock options. Deferred compensation
was amortized on a straight-line method over the vesting period.
REVENUE RECOGNITION - Revenues are recognized when the transportation is
provided. Customer flight deposits and unused passenger tickets sold are
included in air traffic liability. As is customary within the industry,
the Company performs periodic evaluations of this estimated liability, and
any adjustments resulting therefrom, which can be significant, are
included in the results of operations for the periods in which the
evaluations are completed.
FREQUENT FLYER AWARDS - the Company accrues the estimated incremental cost
of providing free travel awards earned under its frequent flyer program at
the time of travel by participating passengers.
PASSENGER TRAFFIC COMMISSIONS - Passenger traffic commissions are
recognized as expense when the transportation is provided and the related
revenue is recognized. The amount of passenger traffic commissions paid
but not yet recognized as expense is included in prepaid expenses and
other assets in the accompanying consolidated balance sheet.
ADVERTISING - The cost of advertising is expensed as incurred.
DEFERRED INCOME TAXES - The Company provides for deferred taxes under the
liability method. Under such method, deferred taxes are adjusted for tax
rate changes as they occur. Deferred income tax assets and liabilities are
computed for differences between the financial statement and the tax basis
of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
F-10
<PAGE>
The Company expects to file consolidated income tax returns.
On the Contribution Date, one of the assets contributed to the Company was
an S corporation for federal income tax purposes. Therefore, the income
tax effects of the results of operations prior to such contribution accrue
directly to the previous stockholders. However, on the Contribution Date,
such subsidiary had a change in its tax status and, accordingly, the
Company recognized a deferred tax liability of $155,421 with a
corresponding charge to the provisions for income taxes during 1996.
STOCK-BASED COMPENSATION - SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation to
employees using the intrinsic value method as prescribed by Accounting
Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. Accordingly, compensation cost for
stock options issued to employees are measured as the excess, if any, of
the fair value of the Company's stock at the date of grant over the amount
an employee must pay for the stock. SFAS No. 123 requires companies using
the intrinsic-value method to make certain pro forma disclosures using the
fair-value method (see Note 6).
2. LOSS PER SHARE
Net loss per common and common equivalent share is computed by dividing
net loss by the weighted average number of common stock and common stock
equivalent shares outstanding. During each of the three years in the
period ended December 31, 1996, the Company's common stock equivalents,
consisting of stock options and warrants outstanding, were anti-dilutive.
3. PROPERTY - NET
Property at December 31, 1996 consisted of the following:
Spare rotables..............................................$ 797,887
Software.................................................... 500,000
Technical library........................................... 250,000
Training manuals............................................ 50,000
Office equipment............................................ 734,990
Ground equipment............................................ 13,498
----------
2,346,375
Less: depreciation and amortization......................... 280,067
----------
Total property - net........................................$2,066,308
==========
4. INVESTMENT IN AFFILIATE
The Company's investment in affiliate, which is carried at its net
realizable value, consists of a 30% interest in Chalks Air Bridge, Inc.,
which owns 100% of Flying Boat, Inc., a Delaware corporation. Flying Boat,
Inc. is the owner and operator of Pan Am Air Bridge (f/k/a Chalks
International Airlines), a historic seaplane airline operation. The
Company has granted, without royalties or fees, a license to Flying Boat,
Inc. to use the Pan Am trade name, subject to termination only upon the
occurrence of specific events. As of December 31, 1996, the Company had
loaned $50,000 to Flying Boat, Inc.
F-11
<PAGE>
5. DEFERRED INCOME TAXES
Deferred income taxes at December 31, 1996 consisted of the deferred tax
liability related to intangible asset amortization deductions taken for
income tax purposes by a certain subsidiary, but not yet taken for
financial statement purposes. As of December 31, 1996, there is no
assurance that the Company will generate sufficient earnings to utilize
its available tax assets (primarily a net operating loss carryforward of
approximately $27 million) for carryforwards, therefore a valuation
allowance has been established to offset such existing tax assets.
6. STOCKHOLDERS' EQUITY
STOCKHOLDERS' OPTIONS - The Company has granted certain Stockholders
options to purchase the Company's common stock as follows:
Options granted to certain officers, as an employment inducement,
to purchase 790,918 shares of the Company's stock for $1 per share
which are exercisable on or after March 4, 1997 and expire on
March 3, 2006. The Company has accounted for the difference
between the fair value of the stock at the date of grant and the
$1 exercise price as compensation expense during the year ended
December 31, 1996.
In connection with the Merger, options were granted to purchase
276,821 shares of the Company's stock for $1 per share in payment
of certain acquisition costs. The options were exercisable
immediately upon consummation of the Merger and expire nine years
from the date of the Merger. The Company has accounted for the
difference between the fair value of the stock at the merger date
and the $1 exercise price as an adjustment to capital surplus.
STOCKHOLDERS' WARRANTS - The Company has granted certain stockholders
warrants to purchase the Company's common stock as follows:
Warrants, issued in connection with the Contribution, to purchase
80,000 shares of the Company's common stock were issued at an
exercise price of (i) $5 per share if exercised during the period
ended May 19, 1997 and (ii) $8.10 per share during the subsequent
three-year period. The Company has accounted for the fair value of
the warrants as an adjustment to capital surplus.
Warrants, issued in connection with the Initial Private Offering,
to purchase an aggregate of 80,000 shares of the Company's common
stock at an exercise price of (i) $5 per share if exercised during
the period ended May 19, 1997 and (ii) $8.10 per share during the
subsequent three-year period. The Company has accounted for the
fair value of the warrants as an adjustment to capital surplus.
Warrants, issued in connection with the Initial Public Offering by
Frost Hanna Mergers Group, Inc., to purchase an aggregate of
170,000 shares at an exercise price of $8.10 per share commencing
March 19, 1995 for a period of four years. The Company has
accounted for the fair value of the warrants as an adjustment to
capital surplus.
RECEIVABLE FROM OFFICERS AND STOCKHOLDERS - As described below, the
Company has issued common stock to certain Stockholders subject to payment
upon the occurrence of future events. The amounts receivable from
stockholders have been reflected as a reduction in stockholders' equity in
the accompanying consolidated balance sheet.
In consideration for the issuance of 425,085 shares of the
Company's stock, a certain Stockholder has agreed to contribute
$1.5 million in cash or property upon the Company entering into a
definitive lease agreement with an aircraft leasing firm for two
specific A-300 aircraft. In July 1996, the Company finalized
agreements for the leasing of these two specified aircraft. In
December 1996, the Company agreed with the Stockholder to convert
a
F-12
<PAGE>
subsequent loan from the stockholder in the amount of $1.5
million in satisfaction of this obligation. (See Note 11.)
In consideration for the issuance of 85,017 shares of the
Company's stock, a certain Stockholder has agreed to contribute,
upon the Company's demand, a certain note receivable and a certain
route authority which have a combined estimated value of
approximately $300,000. Both the stockholder and the Board of
Directors of the Company agreed that if the value of this property
varied based upon anticipated future events, the parties would
review the transaction with respect to making certain equitable
adjustments.
The Company received notes totaling $41,478 from certain officers
in exchange for 11,750 shares subscribed pursuant to the Initial
Private Offering. The notes earn interest at 6% and are due upon
demand.
STOCK OPTION PLAN - In April 1996, the Company's Board of Directors
established, with subsequent stockholder approval, a stock option plan
covering substantially all employees, officers, directors and others who
provide services to the Company. Under the plan, an aggregate of 600,000
stock options for shares of common stock are available for issuance at an
exercise price of not less than the fair market value of the Company's
common stock on the date of grant. The Company's Compensation and Stock
Option Committee determines the persons to whom grants are made and the
vesting, timing, amounts and other terms of such grants. During 1996, the
Company approved the grant of options to purchase 445,000 shares of common
stock at a weighted average exercise price of $5.27 which generally vest
in equal portions over three years. At December 31, 1996, 10,000 options
with an exercise price of $5.00 were exercisable. The weighted average
fair value of options granted during 1996 was $1.60. The following table
summarizes information about stock options outstanding at December 31,
1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES: AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
<S> <C> <C> <C> <C> <C>
$5.00 405,000 9.34 $5.00 10,000 $5.00
$8.00 40,000 9.82 8.00 8.00
------- ------
Total 445,000 9.38 5.27 10,000 5.00
======= ======
</TABLE>
The Company applies APB No. 25 and related interpretations in measuring
compensation for its stock option plan for employees as described in Note
1. Accordingly, no compensation expense has been recognized in 1996
related to the plans. Compensation costs would have been increased by
$135,725 with a corresponding increase in the loss per share of $0.02 in
1996 had the fair values of stock options granted been recognized as
compensation cost as prescribed by SFAS No. 123.
The fair value of options at grant date was estimated using the
Black-Scholes multiple option model where each vesting increment is
treated as a separate option with its own expected life and own fair
value. The following weighted average assumptions were used:
Expected life 5 years
Interest rate 6.30%
Volatility None when the Company was private,
0.42438 when public thereafter.
Dividend yield None
F-13
<PAGE>
SUBSCRIPTIONS - The Company has granted certain pending stock issuances,
recorded as other liabilities, as follows:
In October 1996, the Company reached an agreement with a certain
vendor to issue 45,000 shares of stock based upon the then current
per share market value in settlement of amounts outstanding totaling
$324,500. The shares were issued on February 3, 1997.
In December 1996, the Company granted employees a stock bonus. Such
grant amounted to 81,850 shares valued at $620,881 based upon the
then current per share market value. The $620,881 was considered
compensation expense during the year ended December 31, 1996. The
Company plans to issue the shares in the second quarter of 1997.
7. STOCK OFFERINGS
On April 12, 1996, the Company completed a private offering (the "Initial
Private Offering") pursuant to which it sold 2,991,623 shares of common
stock at $3.53 per share. The Company received $10,560,429 in cash
proceeds from the Initial Private Offering and used the proceeds thereof
for working capital purposes.
On April 29, 1996, the Company completed a second private offering (the
"Second Private Offering") pursuant to which it sold 1,736,500 shares of
common stock at $5.00 per share. The Company received $8,182,500 in cash
proceeds and $500,000 in other assets from the Second Private Offering.
The Company used the proceeds of the Second Private Offering for working
capital purposes.
8. PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of
operations for the years ended December 31, 1996 and 1995 give effect to
the Merger as if it had occurred at the beginning of each period
presented. The pro forma financial data is provided for comparative
purposes only and do not purport to be indicative of the results which
actually would have been obtained if the Merger had been effected at the
beginning of each period presented or of those results which may be
obtained in the future.
The Merger has been accounted for as a capital transaction equivalent to
the issuance of stock by PAWA for the Company's net monetary assets (a
"reverse acquisition").
FOR THE YEARS ENDED
DECEMBER 31,
1996 1995
Operating revenues $ 10,441,485 $ 37,050
============ ========
Operating expenses $ 39,624,239 $619,049
============ ========
Net loss $(27,978,255) $(87,987)
============ ========
Net loss per share $ (2.94) $ (0.03)
============ ========
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company has been involved in several non-cash investing and financing
activities, most of which relate primarily to the Company's initial
capitalization and equity offerings. Summarized below are
F-14
<PAGE>
those transactions which occurred during the year ended December 31, 1996:
RECORDED
ASSETS CONTRIBUTED VALUE
Facility rentals $ 300,110
Service marks 1,605,550
Aircraft parts and other property 1,810,224
Vendor payable settlement 324,500
Acquisition costs 534,265
Receivables from officers and stockholders 341,588
Employment services 2,001,023
----------
Total $6,917,260
==========
There was no cash paid for income taxes in any of the periods presented.
Cash paid for interest for the year ended December 31, 1996 totaled
$51,748. There was no cash paid for interest during 1995 or 1994.
10. LEASES
The Company leases its aircraft, space in airport terminals and other
property and equipment under operating leases which expire in various
years through 2001. The Company does not currently have any property under
leasing arrangements which would qualify as a capital lease.
At December 31, 1996, the Company had aircraft leases on three Airbus
A300-B4s. The initial lease term on each aircraft is 60 months expiring on
different dates in 2001. The Company also has firm commitments to lease
two additional A300-B4 aircraft. The Company is responsible for normal
maintenance and repairs and makes monthly payments to the lessor for
engine and airframe overhaul reserves. In addition, the Company also
leases two B727 aircraft on a wet-lease basis from a third party airline
operator under short-term lease commitments, cancelable within 30 days at
the option of the Company.
Future minimum lease payments at December 31, 1996, for noncancelable
operating leases with initial terms of more than one year, are as follows:
1997 $ 5,818,224
1998 5,818,224
1999 5,818,224
2000 5,818,224
2001 4,213,608
-----------
Total minimum lease payments $27,486,504
===========
Rental expense for all operating leases in 1996 was $1,950,462 and
maintenance overhaul reserve expense in 1996 totaled $2,043,317. There was
no rental expense during 1995 or 1994.
11. TRANSACTIONS WITH RELATED PARTIES
In September 1996, the Company received a $1.5 million loan from a
Stockholder. The note was to bear interest at 6% and was due upon demand.
In December 1996, the Company agreed with the Stockholder to apply the
note against the Stockholder's receivable as discussed in Note 6.
F-15
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
The Company is a party to litigation involving the acquisition of the
service marks. At the time of acquisition of such service marks and
pursuant to an asset purchase agreement, the seller of the service marks
agreed to sign such documents and take such steps as required for the
Company to record assignments of the service marks in various countries in
which the service marks were registered. Such recordings were to be
effected by documents executed subsequent to the service mark assignment
to the Company. The seller has failed to effect and execute all documents
as requested by the Company. Accordingly, the Company filed suit for
breach of contract, specific performance and injunctive relief to cause an
authorized officer of the seller to execute all required documents. The
seller has entered counterclaims and has attempted to void the asset
purchase agreement. The Company believes that the matter will be resolved
in the Company's favor and that the likelihood of an unfavorable outcome
for the Company in this matter is remote. However, in the unlikely event
that the Company does not prevail in this matter, the loss of the service
marks would have a material adverse effect on the Company.
Additionally, the Company's legal counsel has advised the Company that
although the Company is not a successor to the former Pan Am, certain
foreign creditors of the former Pan Am might seek within their foreign
jurisdictions to recover debts of the former Pan Am from the Company and
the Company's property might be subject to attachment or seizure on a
"successor liability" theory if the Company were to commence operations in
certain foreign countries.
The Company also has been a party to various litigation in protecting the
service marks, none of which would have a material adverse impact on the
Company's financial statements.
Various claims, contractual disputes and lawsuits against the Company
arise periodically involving complaints which are normal and reasonably
foreseeable in light of the nature of the Company's business. The majority
of these suits are covered by insurance. In the opinion of management, the
resolutions of these claims will not have a material adverse effect on the
business, operating results or financial condition of the Company.
13. SUBSEQUENT EVENT
On March 20, 1997, the Company entered into a definitive agreement to
merge with Carnival Air Lines, Inc. ("Carnival"), a passenger airline
headquartered in Fort Lauderdale, Florida. The Company will exchange
9,530,810 shares of common stock for all outstanding common shares of
Carnival. The merger is expected to be accounted for as a
pooling-of-interests and close in the second quarter of 1997. For the
twelve-month period ended December 31, 1996, Carnival had operating
revenues of approximately $270 million.
In March 1997, the Company reached an agreement in principle for the sale
of convertible preferred stock for expected net cash proceeds of
approximately $15 million.
In March 1997, the Company purchased an office complex, which will
temporarily act as its corporate headquarters, from a major stockholder.
The property consists of the leasehold interest in certain buildings and
real property and approximately 18.0 acres of land. The transaction,
valued at $10.4 million, was completed through the issuance of 1,294,625
warrants which are exercisable for an equal number of shares of common
stock of the Company.
* * * * *
F-16
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.2 Bylaws of Pan Am.
10.5 Lease Agreement relating to Aircraft A300-B4-203 #211 between
EAL (DELAWARE) VIII Corp., a Lessor, and Pan American Airways,
Inc., as Lessee.
10.8 Acquisition Agreement dated as of March 20, 1997 between Pan Am
Corporation, CAL Acquisition Corporation, Air Holding Company
and Carnival Air Lines, Inc.
21 Subsidiaries of Pan Am.
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule.
99 Press Release of Pan Am and Carnival Air Lines, Inc., relating
to the proposed transaction.
EXHIBIT 3.2
BYLAWS
OF
PAN AM CORPORATION
ARTICLE I
IDENTIFICATION
SECTION 1. SEAL. The seal of the Corporation shall be circular in form
and mounted upon a metal die, suitable for impressing upon paper, and shall bear
the name of the Corporation and such symbols or words as the Board of Directors
of this Corporation may decide.
SECTION 2. PLACE OF BUSINESS. The Corporation may have offices and do
business at any place in any of the states, districts or territories of the
United States and in any and all foreign countries.
ARTICLE II
STOCK CERTIFICATES, TRANSFER AND RECORDS
SECTION 1. FORMS OF SHARE CERTIFICATES. The shares of the Corporation
shall be represented by certificates, in such forms as the Board of Directors
may prescribe, signed by the President or a Vice President and the Secretary or
an Assistant Secretary and sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a Transfer Agent
or a Registrar other than the Corporation or its employees. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he/she were such officer
at the date of issue.
Each certificate representing shares shall state upon the face thereof:
(1) The name of the Corporation;
(2) That this Corporation is formed under the laws of the
State of Florida;
(3) The name of the person or persons to whom issued;
(4) The number and class of shares, and the designation of the
series, if any, which such certificate represents; and
(5) The par value of each share represented by such
certificate, or a statement that the shares are without par value.
<PAGE>
Should the Articles of Incorporation presently authorize, or be amended
to authorize, the issuance of shares of more than one class or more than one
series, in that event each certificate representing shares issued by the
Corporation shall set forth or fairly summarize upon the face or back of the
certificate, or shall state that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of:
(1) The designations, preferences, limitations, and relative
rights of each class or series of authorized shares to be issued.
(2) The variations in the relative rights and preferences
between the shares of each such series so far as the same have been fixed and
determined and the authority of the Board of Directors to fix and determine the
relative rights and preferences of subsequent series.
Every certificate representing shares which are restricted as to sale,
disposition or other transfer of such shares shall state that such shares are
restricted as to transfer and shall set forth or fairly summarize upon the
certificate or shall state that the Corporation will furnish to any shareholder
upon request and without charge a full statement of such restrictions.
SECTION 2. TRANSFER OF SHARES. The rights against the Corporation
inherent in the shares represented by any stock certificate of this Corporation
are transferable only by registration of such shares in the name of the assignee
as the registered holder on the Stock Transfer Books of the Corporation. The
Board of Directors may appoint one or more Transfer Agents and/or Registrars,
jointly or severally, of the certificates representing the shares of stock of
the Corporation and the Board of Directors may adopt such rules and regulations
concerning the issue, transfer and registration of the stock of this Corporation
as it may deem expedient, consistent with law, and may delegate the maintenance
of the Stock Transfer Books and Record of Shareholders and Shareholders' Meeting
Ledger derived therefrom to any duly appointed Transfer Agent of the
Corporation.
SECTION 3. RECORD OF SHAREHOLDERS. The Corporation shall keep at its
registered office or principal place of business or at the office of its
Transfer Agent or Registrar, among other records, a Record of Shareholders
setting forth, among other things, the names and addresses of the holders of all
issued shares of the Corporation, the number, class and series, if any, of
shares held by each, the certificate numbers representing such shares and the
date of issue of the certificates representing such shares, and a Stock Register
setting forth the total number of shares which the Corporation is authorized to
issue, and the total number of shares actually issued.
-2-
<PAGE>
Whenever the Corporation shall have six or more shareholders, the
officer or agent having charge of the Stock Transfer Books for shares of the
Corporation shall make, at least 10 days before each meeting of shareholders, a
Shareholders' Meeting Ledger which shall be a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number and class and series, if any, of shares held by each. Such list
shall be kept on file at the registered office of the Corporation, at the
principal place of business of the Corporation or at the office of the transfer
agent for a period of 10 days prior to such meeting and shall be subject to
inspection by any shareholder at any time during the meeting. Shareholders shall
be responsible for notifying the Corporation or a Transfer Agent, in writing, of
any changes in their names or addresses from time to time, and failure so to do
will relieve the Corporation, its other stockholders, directors, officers,
agents and attorneys, of Liability for failure to direct notices or other
documents, or to pay over or transfer dividends or other property or rights to a
name or address other than the name and address appearing in the Stock Transfer
Books or Record of Shareholders.
The original Stock Transfer Books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of shareholders.
Any person who shall have been a holder of record of one quarter of one
percent of shares or of voting trust certificates therefor at least six months
immediately preceding his demand or shall be the holder of record of, or the
holder of record of voting trust certificates for, at least five percent of the
outstanding shares of any class or series of the Corporation upon written demand
stating the purpose thereof, shall have the right to examine, in person or by
agent or attorney, at any reasonable times, for any proper purpose, its relevant
books and records of accounts, minutes and record of shareholders. Persons so
entitled to inspect books and records of accounts, minutes and records of
shareholders of the Corporation, may make extracts therefrom at their own
expense. This right of inspection shall not extend to any person who has within
two years sold or offered for sale any list of shareholders of the Corporation
or any other corporation, has aided or abetted any person in procuring any list
of shareholders or holders of voting trust certificates for any such purpose,
has improperly used any information secured through any prior examination of the
books and records of account, minutes or record of shareholders or of holders of
voting trust certificates for shares of the Corporation or any other
corporation, or was not acting in good faith or for a proper purpose in making
his demand.
SECTION 4. LOSS OF CERTIFICATE. In case of loss or destruction of any
certificate of stock, the Board of Directors may
-3-
<PAGE>
authorize the issuance of another certificate in its place upon proof,
satisfactory to the Board, of such loss or destruction. If the directors deem it
advisable they may require the giving of a satisfactory bond of indemnity to the
Corporation in such sum as they may require before issuing such duplicate
certificate.
ARTICLE III
MEETING OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareholders of the
Corporation shall be held either at the principal office of the Corporation, or
at such other place within or without the United States as shall be designated
by the Board of Directors.
SECTION 2. ANNUAL MEETING AND MEETINGS FOR THE ELECTION OF DIRECTORS.
The annual meeting of the shareholders for the election of directors and
transaction of other business shall be held at any time on any day of any month
of each year so noticed, if such day is not a legal holiday, and if a legal
holiday, then on the first following business day that is not a legal holiday.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the Board of Directors, or the holders of not less than 10% of all
of the shares entitled to vote at the meeting.
SECTION 4. NOTICE OF MEETINGS - WAIVER. Written notice stating the
place, day and hour of the meeting and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered to each
shareholder of record entitled to vote at such meeting not less than ten nor
more than 60 days before the date of the meeting, either personally or by first
class mail, by or at the direction of the President, the Secretary or the
officer or persons calling the meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the Stock Transfer Books of the
Corporation, with postage thereon prepaid. A shareholder may waive notice in
writing of a shareholders' meeting either before or after the time of such
meeting, and the business or purpose of such meeting need not be specified in
the waiver. Attendance by a shareholder at a shareholders' meeting shall also
constitute a waiver of notice of such meeting, except when the person 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
convened.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to
-4-
<PAGE>
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or shareholders entitled to receive payment of any dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors of the Corporation may provide that the stock transfer books shall be
closed for a stated period but not to exceed, in any case, 60 days. If the Stock
Transfer Books shall be closed for at least ten days immediately preceding such
meeting.
In lieu of closing the Stock Transfer Books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than 60 days and, in case of
a meeting of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If the Stock Transfer Books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date under this section for the adjourned meeting.
SECTION 6. VOTING AT MEETINGS.
A. VOTING RIGHTS. At each election of directors, every shareholder
entitled to vote at such meeting shall have the right to vote, in person or by
proxy, the number of shares owned by him on the record date for as many persons
as there are directors to be elected. At each shareholders' meeting every
shareholder entitled to vote at such meeting shall have the right to vote, in
person or by proxy, the number of shares owned by him on the record date upon
each proposal duly presented at the meeting.
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, only after the
shares have been transferred into his name as trustee, or into the name of his
nominee. The Corporation shall not be entitled to vote Treasury Shares. In all
cases a resolution shall be considered to be adopted by the shareholders if
approved by the affirmative vote of a majority of the shares represented and
entitled to vote on the question at a meeting duly held at which a quorum is
present.
-5-
<PAGE>
B. QUORUM. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders. When
a specified item of business is required to be voted on by a class or series of
stock, a majority of the shares of such class or series shall constitute a
quorum for the transaction of such item of business by that class or series.
After a quorum has been established at a shareholders' meeting, the subsequent
withdrawal of any shareholders, so as to reduce the number of shares entitled to
vote at the meeting below the number required for a quorum, shall not affect the
validity of any action taken at the meeting or any adjournment thereof.
B. PROXIES. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact.
C. JUDGES OF PROXIES, VOTES AND ELECTIONS. The Board of Directors at
its annual meeting may appoint two or more Judges of Proxies, Votes and
Elections to serve until the final adjournment of the next annual stockholders'
meeting. If they fail to make such appointment, or if their appointees, or any
of them, fail to appear at any meeting of shareholders the Chairman of the
meeting of the shareholders may appoint another Judge to serve for the meeting.
Each Judge, before entering upon the discharge of his duties, shall
take and sign an oath to execute faithfully his duties of a Judge at such
meeting with strict impartiality and according to the best of his ability.
The Judges shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote, with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the Judges
shall make a report in writing of any challenge, question or matter determined
by them and execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts stated and
of the vote as certified by them.
SECTION 7. ADJOURNMENT OF MEETINGS. If a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and any business may
be transacted at the
-6-
<PAGE>
adjourned meeting that might have been transacted on the original date of the
meeting. If, however, after the adjournment the Board of Directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record on the new record date who is entitled to
vote at such meeting.
SECTION 8. ACTION WITHOUT A MEETING. When shareholders owning not less
than a majority of the voting shares entitled to vote on or authorize any action
shall determine to take such action without a meeting, they shall sign a written
consent on the record of the action taken and such action shall be as valid as
if a meeting had been legally calmed and notified.
SECTION 9. MINUTES. Minutes shall be made of all shareholder
proceedings, which minutes shall be taken and kept by the Secretary of the
Corporation.
ARTICLE IV
THE BOARD OF DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The business and affairs
of the Corporation shall be managed by the Board of Directors. The number of
directors which shall constitute the whole Board shall be not less than one. The
number of directors shall be determined from time to time by resolution of the
Board of Directors. In the absence of an express determination by the Board, the
number of directors, until changed by the Board, shall be that number of
directors elected at the most recently held annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders and
until his successor shall have been elected and qualified or until his earlier
resignation, removal from office, or death. Directors need not be residents of
the State of Florida or shareholders of the Corporation.
SECTION 2. ELECTION. At the annual meeting of shareholders, the
shareholders shall elect directors to hold office until the next succeeding
annual meeting or until their successors have been elected and qualified. If
directors are not elected at the annual meeting, the incumbent directors shall
continue in office until their successors are elected and qualified.
SECTION 3. VACANCIES. Whenever any vacancies shall occur in the Board
of Directors by death, resignation, removal, increase in the number of directors
or otherwise, the same may be filled by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Board of Directors, and
the director so elected shall hold office only until the next election of
directors by shareholders.
-7-
<PAGE>
SECTION 4. PLACE, CALL AND ADJOURNMENT OF DIRECTORS' MEETINGS. Meetings
of the Board of Directors may be held either within or without the United
States. Meetings of the Board of Directors may be called by the Chairman of the
Board, by the President of the Corporation or by any director. The President
shall preside at all directors' meetings.
A majority of the directors present at a meeting, whether or not a
quorum is present, may adjourn any meeting to another time and place. Notice of
any adjournment of a meeting to another time or place shall be given, in the
manner described above, to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet each year
immediately after the annual meeting of shareholders for the purpose of
organization, election of officers and consideration of any other business that
may properly be brought before the meeting. No notice of any kind to either old
or new members of the Board of Directors for such annual meeting shall be
necessary.
SECTION 6. OTHER MEETINGS. Other meetings of the Board of Directors may
be held upon written notice by mail, telegram or cablegram at least two days
prior to the day for such meeting. Notice of any meeting of the Board of
Directors may be waived in writing signed by the person or persons entitled to
such notice, whether before or after the time of such meeting. Attendance of a
director at such meeting shall constitute a waiver of notice thereof. The
purpose or purposes of such meeting of the Board of Directors need not be
specified in the notice, or waiver of notice of such meeting.
SECTION 7. QUORUM AND ACTS. A majority of the members of the Board of
Directors then in office shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors, except that any
action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if a consent in writing, setting forth
the action so to be taken, signed by all of the directors or a majority thereof,
to the extent permitted by law, is filed in the minutes of the proceedings of
the Board. Members of the Board of Directors or any committee thereof shall be
deemed present at any meeting of the Board or the committee if a conference
telephone or other similar communications equipment by means of which all
persons participating in the meeting can hear each other is used.
SECTION 8. REMOVAL. At a meeting of shareholders called expressly for
that purpose, any director or the entire Board of
-8-
<PAGE>
Directors may be removed, with or without cause, by a vote of the holders of a
majority of the shares then entitled to vote at an election of directors.
SECTION 9. RESIGNATION. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the President
or to the Secretary of the Corporation. Such resignation shall take effect at
the time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the entire Board, may designate from among its members an
executive committee and other committees, each of which, to the extent provided
in the resolution, shall have all the authority of the Board, except that no
such committee shall have authority to:
(1) approve or recommend to the shareholders' actions or
proposals required to be approved by shareholders;
(2) designate candidates for the office of director, for
purposes of proxy solicitation or otherwise;
(3) fill vacancies on the Board of Directors or any committee
thereof;
(4) amend the bylaws;
(5) authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board of Directors; and
(6) authorize or approve the issuance or sale of, or any
contract to issue or sell, shares or designate the terms of a series of a class
of shares, except that the Board of Directors, having acted regarding general
authorization for the issuance or sale of shares, or any contract therefor and,
in the case of a series, the designation thereof may, pursuant to a general
formula or method specified by the Board by resolution or by adoption of a stock
option or other plan, authorize a committee to fix the terms of any contract for
the sale of the shares and to fix the terms upon which such shares may be issued
or sold, including, without limitation, the price, the rate or manner of payment
of dividends, provisions for redemption, sinking fund, conversion, and voting or
preferential rights, and provisions for other features of a class of shares, or
a series of a class of shares, with full power in such committee to adopt any
final resolution setting forth all the terms thereof and to authorize the
statement of the terms of a series for filing with the Florida Department of
State.
-9-
<PAGE>
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee.
Unless a greater proportion is required by the resolution designating a
committee, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members present at a meeting at the time of such vote,
if a quorum is then present, shall be the act of such committee, except that any
action which may be taken at a meeting of such committee may be taken without a
meeting if consent in writing, setting forth the action so to be taken, signed
by all of the members of the committee, is filed in the minutes of the
proceedings of the committee.
Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 11. COMPENSATION. The Board of Directors shall have authority
to fix the compensation of directors for services in any capacity.
ARTICLE V
THE OFFICERS
SECTION 1. OFFICERS. The Board of Directors at their annual meeting
each year may elect a President, Secretary, and a Treasurer, and such other
officers and assistant officers and agents as may be deemed necessary by the
Board of Directors. Any two or more offices may be held by the same person. All
officers shall serve until the next annual meeting of the Board of Directors or
until their respective successors are elected and qualify.
SECTION 2. VACANCIES. Whenever any vacancies shall occur in any office
by death, resignation, removal, increase in the number of officers of the
Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until his successor is chosen and
qualified.
SECTION 3. DUTIES.
CHAIRMAN OF THE BOARD. If such officer is appointed, the Chairman shall
preside at all meetings of the Directors and by virtue of his office shall be a
member of all standing committees. He shall have such other duties and powers as
may be assigned to him by the Board of Directors.
PRESIDENT. The President shall be the chief executive officer of the
Corporation, and in the recess of the Board of Directors,
-10-
<PAGE>
shall have the general control and management of its business and affairs
subject, however, to the right of the Board of Directors to delegate any
specific power, except such as may by statute be exclusively conferred upon the
President, to any other officer or officers of the Corporation. He shall preside
at all meetings of the shareholders unless otherwise determined by a majority of
all the shares of the capital stock issued and outstanding, present in person or
by proxy. He shall preside at all stockholders' meetings and meetings of the
Board of Directors.
VICE-PRESIDENT. In case of the office of the President becoming vacant
by death, resignation, or otherwise, or in case of the absence of the President,
or his disability to discharge the duties of his office, such duties shall, for
the time being, devolve upon the Vice-President, first in order of election, who
shall do and perform such other acts as the Board of Directors may, from time to
time, authorize him to do, but a Vice-President who is not a director cannot
succeed to or fill the office of President.
SECRETARY. The Secretary of the Corporation shall keep the minutes of
all the meetings of the shareholders and Board of Directors in books provided
for that purpose; he shall sign, with the President or Vice-President, in the
name of the Corporation, all contracts authorized by the Board of Directors, and
when necessary shall affix the corporate seal of the Corporation, thereto, he
shall have charge of the certificate books, transfer books and stock ledgers and
such other books and papers as the Board of Directors may direct; all of which
shall, at all reasonable times, be open to the examination of any director upon
application at the office of the Secretary, and in addition such other duties as
may be delegated to him by the Board of Directors.
TREASURER. The Treasurer shall have custody and keep account of all
money, funds and property of the Corporation unless otherwise determined by the
Board of Directors, and he shall render such accounts and present such statement
to the Directors, and Vice-President.
SECTION 4. COMPENSATION. The compensation of the officers shall be
fixed, from time to time, by the Board of Directors.
SECTION 5. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed by the Board whenever in its judgment the best
interests of the Corporation will be served thereby. Removal shall be without
prejudice to the contract rights, if any, of the person removed. Election or
appointment of an officer shall not of itself create contract rights.
SECTION 6. RESIGNATION. Any officer of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the President
or to the Secretary of the Corporation.
-11-
<PAGE>
Such resignation shall take effect at the time specified therein and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 7. CORPORATE INSTRUMENTS. All checks and drafts on, and
withdrawals from, the Corporation's accounts with banks or other financial
institutions, and all bills of exchange, notes and other instruments for the
payment of money, drawn, made, endorsed, or accepted by the Corporation, shall
be signed on its behalf by the person or persons thereunto authorized by, or
pursuant to resolution of, the Board of Directors.
ARTICLE VI
EMPLOYEE INSURANCE AND PENSION PLANS
The Board of Directors may, from time to time, establish, amend or
revoke a plan or plans which would furnish to any or all employees, at the
expense of this Corporation, insurance against disability, accident, sickness,
or death, and provide for satisfactory retirement benefits, in such a manner and
upon such terms and conditions as shall be determined by the Board of Directors.
ARTICLE VII
AMENDMENTS
The Board of Directors of the Corporation shall have the power to
alter, amend or repeal the Bylaws or adopt new Bylaws. Notwithstanding the
foregoing, any Bylaw, whether adopted by the Board of Directors or by the
shareholders, may be repealed or changed by the shareholders, and new Bylaws may
be adopted by the shareholders. The shareholders may prescribe in any Bylaw made
by them that such Bylaw shall not be altered, amended or repealed by the Board
of Directors.
-12-
EXHIBIT 10.5
LEASE AGREEMENT
RELATING TO
ONE (1) AIRBUS A300B4-200
AIRCRAFT BEARING MANUFACTURER'S
SERIAL NUMBER 211 AND
TWO GENERAL ELECTRIC CF6-50C2 ENGINES
between
EAL (DELAWARE) VIII CORP.
AS LESSOR
and
PAN AMERICAN AIRWAYS, INC.
AS LESSEE
Dated as of August 26, 1996
This Lease Agreement may be executed in several counterparts. To the extent, if
any, that this Lease Agreement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in this Lease Agreement may be created or
perfected through the transfer or possession of any counterpart other than the
original executed counterpart which is identified as the counterpart containing
receipt therefor executed by Lessor on the signature page of this Lease
Agreement.
<PAGE>
THIS LEASE AGREEMENT is made as of the 26th day of August, 1996.
BETWEEN:
(A) EAL (DELAWARE) VIII CORP., a Delaware corporation (hereinafter
referred to as "LESSOR"); and
(B) PAN AMERICAN AIRWAYS, INC., a corporation organized and existing under
the laws of the State of Florida, having its principal office at 9300
N.W. 36th Street, Miami, Florida (hereinafter referred to as "LESSEE").
R E C I T A L S :
WHEREAS, Lessee and ING executed the Letter Agreement, dated
February 5, 1996, pursuant to which Lessee and ING set forth the principal terms
pursuant to which Lessee would lease three Airbus A300B4-200 aircraft (including
the Aircraft, as hereinafter defined) from Lessor;
WHEREAS, Lessee and Lessor have entered into the Lease
Agreement, dated as of April 15, 1996, which was amended and supplemented by the
Lease Supplement, Acceptance Certificate and Amendment No. 1 (as so amended, the
"INTERIM LEASE"), pursuant to which Lessee leased from Lessor the Aircraft
described below on a short term basis pending the completion by Lessee of its
proving runs and the issuance by the Secretary of Transportation of an air
carrier's operating certificate under Chapter 447 of Title 49, U.S. Code;
WHEREAS, upon the earlier to occur of the issuance to Lessee
of such certificate and the last day of the Lease Term under the Interim Lease,
Lessee shall return the Aircraft to Lessor thereunder;
WHEREAS, if, at the expiration of such Lease Term, such
certificate has been issued to Lessee and the other conditions precedent to the
obligations of Lessor hereunder are
<PAGE>
satisfied, then, simultaneously with the expiration of such Lease Term,
Lessee shall lease the Aircraft from Lessor under this Lease and Lessor shall
lease the Aircraft to Lessee hereunder; provided, however, that, notwithstanding
any other provision of any Lease Document, such lease hereunder shall not occur
and the Aircraft shall not for any purpose be considered leased to Lessee
hereunder, unless and until Lessee is a Certificated Air Carrier; and
WHEREAS, Lessor desires to lease to Lessee and Lessee desires
to lease from Lessor the Aircraft under this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT:
CLAUSE 1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following terms shall, except where the context
otherwise requires, have the following meanings (in any case in which
any capitalized term is used herein with a meaning defined in the
Interim Lease, such case shall be identified parenthetically as such):
"AD COST" shall have the meaning specified in Clause 13.7 of this Agreement.
"ADDITIONAL NAMED INSURED" shall have the meaning specified in Clause 10.1(a) of
this Agreement.
"AIRCRAFT" means the Airframe together with (i) the two (2) Engines, whether or
not any of such initial or substituted Engines may from time to time no
longer be installed on the Airframe or may be installed on any other aircraft so
long as title thereto shall remain vested in Lessor in accordance with the terms
of this Agreement, (ii) all Parts and all components thereof, (iii) all
ancillary equipment or devices furnished with the Aircraft (including Schedules
A, B, D and E) and (iv) all substitutions, replacements and renewals of any and
all thereof.
-2-
<PAGE>
"AIRCRAFT DOCUMENTATION" shall mean all historical records referred to in this
Agreement, including Schedules A, B, D and E, delivered with the Aircraft for
work accomplished prior to the Delivery Date and current records for work
accomplished subsequent to the Delivery Date, including, but not limited to, all
documents, manuals, data, overhaul records, life limited part traceability, log
books, original Aircraft and Engine delivery documents, serviceable parts tags,
FAA forms, modification records, inspection records, any and all other
documentation pertaining to the Aircraft, Engine or Parts.
"AIRFRAME" means (i) the Airbus A300B4-200 airframe bearing Manufacturer's
Serial Number 211 further described in this Agreement, including Schedules A, B,
D and E, and in the Lease Supplement and Acceptance Certificate executed
pursuant hereto on the Delivery Date and (ii) any and all Parts (except the
Engines or engines from time to time installed thereon) so long as the same
shall be incorporated or installed in or attached to such airframe, or so long
as title thereto shall remain vested in Lessor in accordance with the terms of
Clause 13.4, after removal from such airframe.
"APU" means the Garret model TSCP 700-5 auxiliary power unit.
"AVIALL" means AVIALL Caladonian Engine Services, Monument Crescent, Shaw Farm
Industrial Estate, Prestwick International Airport, Prestwick, Ayrshire,
Scotland KA9 2RX.
"AVIALL ENGINE MAINTENANCE AND POOLING CONTRACT" means the contract entered into
between Lessee, ING and AVIALL, as amended from time to time. For the
avoidance of doubt, the parties hereto expressly agree that in case of any
conflict between the terms of the AVIALL Engine Maintenance and Pooling Contract
and the terms of this Agreement, the latter shall prevail.
"BASIC RENT" shall have the meaning set forth in Clause 4.
-3-
<PAGE>
"BUSINESS DAY" means a day (other than a Saturday, Sunday or holiday scheduled
by law) on which banks are open for business in Miami, Florida; New York, New
York; and Amsterdam, The Netherlands.
"BUSINESS PLAN" shall have the meaning specified in Clause 8.2(viii) of this
Agreement.
"CERTIFICATED AIR CARRIER" means any corporation domiciled in the United States
of America that is a "citizen of the United States" (as defined in Section 40102
of the Federal Aviation Act), and holding a Certificate issued under Chapter 447
of Title 49, U.S. Code issued by the United States Department of Transportation
or any predecessor or successor agency thereto, or, in the event such
Certificates shall no longer be issued, any corporation domiciled in the United
States of America and legally and regularly engaged in the business of
transporting for hire passengers or cargo by air predominantly to, from or
between points within the United States of America, and, in either event,
operating commercial jet aircraft, which also is certificated so as to fall
within the purview of Section 1110 or any analogous statute.
"CLAIMS" shall have the meaning specified in Clause 16 of this Agreement.
"CONSULTING AGREEMENT" means the Consulting Agreement, dated as of February 20,
1996 and attached hereto as Schedule K, between ING and Lessee, as supplemented,
amended and otherwise in effect from time to time.
"CYCLE" means with respect to the Aircraft, an Engine or other engine, one
take-off and landing of the Aircraft or (as the case may be), Airframe or other
airframe on which such Engine or other engine is installed.
"DEBT INSTRUMENT" shall have the meaning specified in Clause 17.1 of this
Agreement.
"DEFAULT" means an Event of Default or an event which, with the giving of notice
or the lapse of time or both, would or could become an Event of Default.
-4-
<PAGE>
"DEFERRED RENT" shall have the meaning specified in Clause 4.2.
"DELIVERY" means the delivery of the Aircraft by Lessor to Lessee and the
acceptance by Lessee hereunder on the Delivery Date.
"DELIVERY DATE" means the date on which Lessee accepts delivery of the Aircraft
from Lessor, which shall be the date of the Lease Supplement and Acceptance
Certificate and which shall occur on the date that is the last day of the "Lease
Term," as defined in the Interim Lease, unless Lessor elects not to deliver the
Aircraft to Lessee hereunder due to the occurrence of an Event of Default (as
defined herein or in the Interim Lease).
"DELIVERY LOCATION" shall have the meaning specified in Clause 2.2(i) of this
Agreement.
"DOLLARS" or "$" or "USD$" means the lawful currency of the United States of
America.
"ELIGIBLE CLAIM" means a claim submitted by Lessee for payment or reimbursement
of Lessee for labor, parts and materials costs paid by Lessee in performing, in
relation to the Aircraft in accordance with the Maintenance Program, any or all
of the maintenance processes referred to in subdivisions (i) through (vi) of
Clause 5.1, except to the extent that such claim relates to any remedial action
necessitated by foreign object or other accidental damage to the Aircraft,
negligent or other improper maintenance, repair, modification, alteration, use
or operation of the Aircraft, or an Inherent Defect or any cost which is
reimbursable from insurance or warranty claims after due diligence.
"EMERGENCY EQUIPMENT LIST" means the emergency equipment list set forth in
Schedule E-2 hereto.
"ENGINE" means each of the two (2) General Electric CF6-50C2 aircraft engines
bearing the manufacturer's serial numbers specified in the Lease Supplement and
Acceptance Certificate and
-5-
<PAGE>
further described in this Agreement, including Schedules A, B and D, which
are initially installed on the Airframe when delivered and leased hereunder (or
in lieu of any such engine, a Replacement Engine subsequently substituted
therefor pursuant to Clause 11.2), whether or not from time to time no longer
installed on the Airframe or installed on any other airframe or aircraft so long
as title thereto shall remain vested in Lessor in accordance with the terms of
this Agreement, together in each case with any and all Parts incorporated or
installed in, or attached to, such engine (or Replacement Engine) when delivered
and leased hereunder or at any time thereafter, or after removal therefrom any
and all Parts removed therefrom so long as title thereto shall remain vested in
Lessor in accordance with the terms of Clause 13.4. The term "ENGINE" means, as
of any date of determination, if the context so requires, all Engines then
delivered and leased hereunder. Notwithstanding the foregoing, Lessor may, prior
to the Delivery Date under the Interim Lease, substitute any General Electric
CF6-50C2 aircraft engine for any engine that is identified by serial number in
this Lease, so long as (i) Lessor shall furnish Lessee with notice of such
substitution immediately upon becoming aware thereof; (ii) such substitute
engine is airworthy and is accompanied by all relevant Aircraft Documentation
relating to engines; (iii) Lessor shall make available to Lessee all related
Aircraft Documentation; and (iv) any such substitute engine shall comply with
the requirements of Schedule A applicable to "Engines"; and, upon such
substitution, such replacement engine shall constitute an "Engine" hereunder.
"EVENT OF DEFAULT" means the occurrence of any of the events specified in
Clause 17.1.
"EVENT OF LOSS" means, with respect to the Aircraft or the Airframe or any
Engine (the "PROPERTY"), any of the following events with respect to the
Property: (i) loss of the Property or the use thereof due to hijacking, theft,
disappearance, destruction, damage beyond repair or rendition of such property
permanently unfit for normal use for any reason whatsoever (in the case of
hijacking, theft or disappearance, an Event of Loss shall be deemed to have
occurred on the expiration of a period of 30 consecutive days during which
Lessee or the lawful possessor of the Property continuously loses possession or
use thereof); (ii) any damage to such Property which results in an insurance
settlement with respect to such Property on the basis of an actual
-6-
<PAGE>
total loss or constructive total loss; (iii) the condemnation or taking of,
or requisition of title to or use of, such Property or the confiscation or
seizure of such Property by any governmental body; (iv) the prohibition of the
use of the Property by Lessee for a period in excess of 60 days (or such longer
period as may be agreed by Lessor) as a result of any rule, regulation, order or
other action by any governmental body; and (v) any other case which by
subsequent agreement the parties hereto may deem to be an "Event of Loss"
subject, with respect to the Event of Loss described in this clause (v), to the
insurers' consent thereto.
"EXPIRATION DATE" means (i) the Initial Lease Term Expiration Date or (ii) if
Lessee exercises the first Extension Option, the First Extension Lease
Termination Date or (iii) if Lessee exercises the second Extension Option, the
Second Extension Lease Termination Date.
"EXTENSION LEASE TERM" means the period of time covered by the First Extension
Lease Term or the Second Extension Lease Term as to which the related Extension
Option was exercised.
"EXTENSION OPTION" shall have the meaning specified in Clause 3.2(i) of this
Agreement.
"FAA" means the Federal Aviation Administration of the United States of America
or its successor agency from time to time charged with the administration or
enforcement of United States aviation law.
"FAR" means the United States Federal Aviation Regulations.
"FAR PART 121" means PART 121-OPERATIONS: CERTIFICATION AND OPERATIONS:
DOMESTIC, FLAG, AND SUPPLEMENTAL AIR CARRIERS AND COMMERCIAL OPERATORS OF
LARGE AIRCRAFT, of the regulations of the FAA, 14 C.F.R. ss.ss. 121 ET SEQ., as
amended and in effect from time to time.
"FEDERAL AVIATION ACT" or "ACT" means Subtitle VII, Part A of Title 49 of the
United States Code.
-7-
<PAGE>
"FIRST EXTENSION LEASE TERM" means the Extension Lease Term commencing on the
Initial Lease Term Expiration Date and expiring on the First Extension Lease
Termination Date.
"FIRST EXTENSION LEASE TERMINATION DATE" means the date that is two and one-half
years after the Initial Lease Term Expiration Date.
"FIRST REFUSAL PURCHASE AGREEMENT" means that Right of First Refusal Purchase
Agreement between ING and the Lessee, in the form attached as Schedule L hereto.
"FLIGHT HOUR" means, with respect to the Airframe, each hour or part thereof
which elapses from takeoff to touchdown and, with respect to each Engine, each
hour or part thereof which elapses from takeoff to touchdown of the Airframe or
of any other airframe on which such Engine is then installed (whether such
Engine is installed on the Airframe or another airframe), in each case as
recorded in the Aircraft or other aircraft log book or in any other document
recording flight time accepted by the FAA.
"GAAP" means generally accepted accounting principles, as in effect in the
United States, consistently applied from period to period.
"INDEMNITEE" or "INDEMNITEES" means each of Lessor, ING and their respective
successors, assigns, agents, directors and employees.
"INDEPENDENT MAINTENANCE CONTRACTOR" shall mean any person approved by the FAA
and Lessor to perform maintenance on the Aircraft in accordance with this Lease.
"ING" means ING Lease (Nederland) B.V., a Netherlands corporation or, as the
context requires, ING Aviation Lease B.V. or any Affiliate of either thereof,
and, in any case, its successors and assigns.
"INHERENT DEFECT" means any defect in the Aircraft or any part thereof arising
out of a fault or
-8-
<PAGE>
error in the design, manufacture or construction thereof.
"INITIAL LEASE TERM" means the period commencing on the Initial Lease Term
Commencement Date and ending on the Initial Lease Term Expiration Date.
"INITIAL LEASE TERM COMMENCEMENT DATE" shall mean the "Expiration Date," as
defined in the Interim Lease, which is expected to occur on or about September
15, 1996, subject to paragraph 3 of Schedule A.
"INITIAL LEASE TERM EXPIRATION DATE" means the fifth anniversary of the Delivery
Date (as "Delivery Date" is defined in the Interim Lease).
"INTERIM LEASE" has the meaning specified in the first Whereas clause of this
Lease.
"LAW" means and includes (i) any statute, decree, constitution, regulation,
order or any directive of any government entity; (ii) any treaty, pact, compact
or other agreement to which any government entity is a signatory or party; and
(iii) any amendment or revision of any thereof.
"LEASE", "THIS LEASE", "THIS AGREEMENT", "HEREIN", "HEREUNDER", "HEREBY" or
other like words mean this Lease Agreement, as it may be supplemented from time
to time or amended pursuant to the applicable provisions hereof.
"LEASE DOCUMENTS" means this Agreement, the Lease Supplement and Acceptance
Certificate, the Consulting Agreement, the Spare Parts Lease (when and if
executed), the First Refusal Purchase Agreement, the Other Leases and all other
documents, instruments and agreements required hereunder or thereunder.
"LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE" means the Lease Supplement and
Acceptance Certificate to be executed and delivered by Lessee and countersigned
by Lessor on the Delivery Date pursuant to Clause 2.2, substantially in the form
of Schedule B hereto.
-9-
<PAGE>
"LEASE TERM" means the term of leasing of the Aircraft hereunder commencing on
the Delivery Date and terminating on the Expiration Date.
"LESSOR LIEN" means any Lien created over the Aircraft by Lessor or exercised,
asserted or claimed against the Aircraft or any part thereof in respect of a
debt, liability or other obligation (whether financial or otherwise) of Lessor
(other than (i) a debt, liability or other obligation arising from the operation
of the Aircraft or any part thereof by Lessee, and (ii) any such Lien created by
or through Lessor pursuant to and in accordance with the terms of any of the
Lease Documents).
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease or other
security interest of any kind (including any conditional sale or other title
retention agreement).
"LOOSE EQUIPMENT LIST" means the loose equipment list set forth in Schedules E-1
and E-2 hereto.
"MPD" means the Airbus Industrie's Maintenance and Planning Document for the
Aircraft.
"MAINTENANCE MANUAL" means, for the Aircraft, any Engine or Part, the applicable
manufacturer's maintenance manual for such item.
"MAINTENANCE PAYMENTS" means those payments required to be made by Lessee
pursuant to Clauses 5.1 and 5.2 of this Agreement.
"MAINTENANCE PROGRAM" means Lessee's FAA approved maintenance program in effect
from time to time for the Aircraft encompassing scheduled maintenance,
condition-monitored maintenance, maintenance of the Airframe, Engines and Parts
of the Aircraft as approved and accepted by Lessor or such other maintenance
program approved and accepted by Lessor (such acceptances and approvals of
Lessee's FAA approved maintenance program not to be
-10-
<PAGE>
unreasonably withheld).
"MAINTENANCE RESERVE ACCOUNT" shall have the meaning specified in Clause 5.1 of
this Agreement.
"MANUFACTURER" means Airbus Industrie.
"MONTHLY ANNIVERSARY DATE" means the date in each calendar month subsequent to
the calendar month in which the Delivery Date occurs which numerically
corresponds to the Delivery Date; PROVIDED that if no date numerically
corresponds to the Delivery Date in any calendar month, the Monthly Anniversary
Date for such month shall be the last day of such month.
"MONTHLY PERIOD" means (i) the period beginning on the Delivery Date and ending
on the first Monthly Anniversary Date and (ii) each subsequent period beginning
on a Monthly Anniversary Date and ending on the following Monthly Anniversary
Date.
"OTHER LEASES" means the Interim Lease and those Lease Agreements (as in effect
from time to time, including any interim or short term lease and any replacement
thereof) entered into between Lessor and Lessee or ING and Lessee relating to
the lease of Airbus model A300 aircraft (other than the Aircraft), as such
agreements may be supplemented, amended and otherwise in effect from time to
time.
"PARTS" means all appliances, components, parts, instruments, appurtenances,
avionics, accessories, furnishings and other equipment of whatever nature (other
than complete Engines or engines) which may from time to time be incorporated or
installed in or attached to the Airframe or any Engine.
"PERMITTED LIEN" means any Lien of the type described in subclause (i), (ii),
(iii) and (iv) of Clause 9.1;
-11-
<PAGE>
"PERSON" means any individual, company, partnership, joint venture, trust or
unincorporated association, or any state or government or any agency,
instrumentality or political subdivision of any state or government.
"POWER OF ATTORNEY" means the power of attorney, substantially in the form
attached hereto as SCHEDULE I, executed by Lessee and delivered to ING and to be
effective only after an Event of Default has occurred.
"REDELIVERY" means the redelivery of the Aircraft by Lessee to Lessor and the
acceptance by Lessor hereunder on the Redelivery Date.
"REDELIVERY DATE" means the date on which Lessor accepts redelivery of the
Aircraft from Lessee, which shall be the date of the Return Acceptance
Certificate executed by Lessor.
"RENT" means Basic Rent and Supplemental Rent.
"RENT PAYMENT DATE" means the Initial Lease Term Commencement Date and the date
in each calendar month subsequent to the calendar month in which the Initial
Lease Term Commencement Date occurs which numerically corresponds to the Initial
Lease Term Commencement Date; PROVIDED, HOWEVER, that (i) if for any month no
date numerically corresponds with such date, then the Rent Payment Date shall be
the last day of such month and (ii) if for any month such day is not a Business
Day, then the Rent Payment Date shall be the next Business Day.
"RENT PAYMENT PERIOD" means the one-month period commencing on the Initial Lease
Term Commencement Date or any Rent Payment Date, and ending on the next
succeeding Rent Payment Date or, in the case of the last Rent Payment Period,
the Expiration Date.
"REPLACED ENGINE" shall have the meaning set forth in Clause 11.3.
-12-
<PAGE>
"REPLACEMENT ENGINE" means a replacement engine which shall have been leased
hereunder pursuant to Clause 11.2.
"RETURN ACCEPTANCE CERTIFICATE" means the Return Acceptance Certificate to be
executed and delivered by Lessor and countersigned by Lessee on the Redelivery
Date, substantially in the form of Schedule H hereto.
"RETURN LOCATION" means Lessee's maintenance headquarters in the continental
United States or such other location as Lessor and Lessee shall mutually agree;
PROVIDED, HOWEVER, that, in connection with any return or repossession of the
Aircraft upon or following the occurrence of an Event of Default, "Return
Location" means such location within the continental United States as Lessor
shall specify to Lessee.
"REVIMA" means Associete pour la Revision a et L'Envretien du Materiel
Aeronautique.
"REVIMA APU MAINTENANCE AND POOLING CONTRACT" means the contract entered into
between Lessor and Revima, as amended from time to time. For the avoidance of
doubt, the parties hereto expressly agree that in case of any conflict between
the terms of the Revima APU Maintenance and Pooling Contract and the terms of
this Agreement, the latter shall prevail.
"SCHEDULED DELIVERY DATE" means August 8, 1996 or such other date as Lessor and
Lessee shall mutually agree.
"SECOND EXTENSION LEASE TERM" means the Extension Lease Term commencing on the
First Extension Lease Termination Date and terminating on the Second
Extension Lease Termination Date.
"SECOND EXTENSION LEASE TERMINATION DATE" means the date that is two and
one-half years after the First Extension Lease Termination Date.
-13-
<PAGE>
"SECTION 1110" means Section 1110 of the U.S. Bankruptcy Code (11 U.S.C.
ss. 1110), as amended and in effect from time to time.
"SECURITY AGREEMENT" means the Aircraft Security Agreement, dated as of February
15, 1990 between the Lessor, as mortgagor and ING, as mortgagee, as supplemented
and amended.
"SECURITY DEPOSIT" and "SECURITY DEPOSITS" have the meaning specified in Clause
30.
"SPARE PARTS LEASE" means the Spare Parts Lease Agreement, when and if executed,
between ING (or an affiliate of ING) and Lessee, as supplemented, amended and
otherwise in effect from time to time.
"STIPULATED LOSS VALUE" means $18,000,000, subject, however, to such adjustment
as may be agreed upon as a result of negotiations to occur on or about each
anniversary of the Delivery Date.
"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other than
Basic Rent) which Lessee assumes or agrees to pay to Lessor hereunder or under
any of the Lease Documents, including payments of Stipulated Loss Value and
amounts calculated by reference thereto, Maintenance Payments and indemnity
payments.
"TAXES" means any and all present or future taxes (including, without
limitation, income, receipts, value added, turnover, property (tangible or
intangible), sales, use, excise and other taxes), levies, imposts, duties,
charges or fees, deductions or withholdings of any nature imposed, levied,
collected, withheld or assessed by any government or taxing authority.
"TECHNICAL DATA AND MANUALS LIST" means a list in the form set out in Schedule D
hereto.
"UNITED STATES AIR CARRIER" means any "air carrier" (as defined in Section
40102(2) of the Federal Aviation Act) that is certificated under Chapter 411 of
such Act and that is operating
-14-
<PAGE>
pursuant to a certificate issued under 14 C.F.R. Part 121 (or which has like
authority under any similar or successor provision).
1.2 The Schedules to this Agreement shall form an integral part hereof.
Reference herein to any agreement or other instrument shall be deemed
to include references to such agreement or other instruments as varied
or amended or supplemented or replaced from time to time. Where the
context permits, any reference to Lessee or Lessor or any other person,
company or other legal entity also include their respective successors
and permitted assigns and (where applicable) their servants and agents.
Where the context permits, words importing the singular number only
shall include the plural and vice versa, words importing any gender
shall include all other genders and words importing persons shall
include corporations, and vice versa. The headings or sub-headings of
Clauses to this Agreement and the Contents are inserted for convenience
of reference only and shall not in any way affect the interpretation of
this Agreement.
CLAUSE 2. AGREEMENT TO LEASE
2.1 AGREEMENT TO LEASE. Subject to the terms and conditions of this
Agreement, Lessor hereby agrees to lease to Lessee hereunder, and
Lessee hereby agrees to lease from Lessor hereunder, the Aircraft
during the Lease Term unless earlier terminated pursuant to Clause 11.1
or Clause 17 hereof. The right to lease the Aircraft conferred hereby
shall include the use of all Aircraft Documentation and any other
documents relating to the Aircraft delivered pursuant to this Agreement
and any other records, books, manuals, handbooks, data, drawings,
schedules and other documentation relating to the Aircraft or Airbus
A300B4-200 aircraft; provided that, throughout the Lease Term, title to
the same shall remain with Lessor except as otherwise expressly
provided for herein.
2.2 (i) DELIVERY. Except as otherwise provided herein, and subject to
the terms and conditions of this Agreement, delivery to and
acceptance of the Aircraft by Lessee under this Agreement
shall take place "AS IS, WHERE IS" and SUBJECT TO
-15-
<PAGE>
EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION SET
FORTH IN CLAUSE 8 HEREOF on or about the Scheduled Delivery
Date at Miami, Florida (the "DELIVERY LOCATION"), or such
other location as Lessor and Lessee shall mutually agree.
(ii) [This clause is reserved.]
(iii) [This clause is reserved.]
(iv) ACCEPTANCE OF DELIVERY. On the Delivery Date, Lessee shall
cause an officer or other duly authorized employee to execute
the Lease Supplement and Acceptance Certificate, substantially
in the form of Schedule B to this Agreement. Execution and
delivery of such Lease Supplement and Acceptance Certificate
on behalf of Lessee, without the necessity of any further act,
shall irrevocably constitute technical acceptance by Lessee of
the Aircraft in its then present condition for delivery to it
in accordance herewith.
(v) EXCLUSION OF LIABILITY. Without prejudice to Clause 8.1,
Lessor shall not have any responsibility or liability to
Lessee for, or arising out of, any delay in the delivery of
the Aircraft or any Part thereof or for any damage incurred in
the course of delivery except when due to the willful
misconduct of Lessor.
(vi) CASUALTY TO THE AIRCRAFT PRECEDING DELIVERY. In the event the
Aircraft is lost or damaged beyond economical repair prior to
the Scheduled Delivery Date, Lessor shall immediately advise
Lessee in writing and the obligation to make the Aircraft
available to the Lessee shall terminate and the Down Payment
shall be promptly returned by Lessor to Lessee.
-16-
<PAGE>
CLAUSE 3. LEASE TERM
3.1 LEASE TERM. The Lease Term hereunder shall be initially for a period of (i)
60 months commencing on the Delivery Date (subject to extension or earlier
termination as hereinafter set forth), LESS (ii) the number of months comprising
the Lease Term under the Interim Lease (it being the intent of the parties that
the Lease Term under the Interim Lease and under this Lease is contemplated to
be of a duration of 60 months).
3.2 LEASE EXTENSION OPTION.
(i) Lessee will have two options (each, an "EXTENSION OPTION"),
each to extend the term of this Agreement for an additional
two and one-half year period commencing on the Initial Lease
Term Expiration Date and the First Extension Lease Term
Expiration Date, as the case may be; PROVIDED, HOWEVER, in
each case, that it shall be a condition precedent to Lessee's
right to exercise any Extension Option, that (a) no Default
and no Event of Default shall have occurred and be continuing
on the date on which Lessee exercises such Extension Option,
(b) Lessee shall have exercised any preceding Extension
Option, and (c) Lessee shall have provided Lessor and ING with
the irrevocable written notice of the exercise thereof
pursuant to Clause 3.2(ii) below.
(ii) In order to exercise any Extension Option, Lessee must give
irrevocable written notice to Lessor and ING (i) with respect
to the First Extension Lease Term, not later than 120 days
prior to the Initial Lease Term Expiration Date and (ii) with
respect to the Second Extension Lease Term, not later than 120
days prior to the First Extension Lease Term Expiration Date,
each of which shall state that Lessee is exercising the
applicable Extension Option hereunder and shall certify that
no Default and no Event of Default has occurred and is
continuing as of the date of such notice. Any such notice
shall specify the first and last day of the applicable
Extension Lease Term and shall constitute Lessee's irrevocable
and unconditional
-17-
<PAGE>
obligation to continue to lease the Aircraft for the
applicable Extension Lease Term in accordance with the terms
of this Agreement.
CLAUSE 4. BASIC RENT
4.1 BASIC RENT.
(i) During the Initial Lease Term, Lessee shall, unless otherwise
agreed in writing, pay Basic Rent in respect of each Rent
Payment Period in advance on each Rent Payment Date on which
such Rent Payment Period commences according to the following
schedule:
RENT PAYMENT DATE BASIC RENT
1-2 USD$ 4,000
3-5 29,000
6-8 54,000
9 129,000
10-59 159,000
The foregoing schedule was prepared on the basis of the
assumption that the Lease Term (as defined in the Interim
Lease) is one month in duration and that Lessee does not
exercise the Extension Option (as defined therein). If,
however, Lessee exercise the Extension Option under the
Interim Lease and the Lease Term thereunder is therefore of
two months duration, then Basic Rent hereunder shall be
payable according to the following schedule: RENT PAYMENT DATE
BASIC RENT
1 USD$ 4,000
2-4 29,000
5-7 54,000
8 129,000
9-58 159,000
-18-
<PAGE>
The intent of the both of the foregoing schedules is to defer
Lessee's first year rental obligations in the sum of $1.0
million in respect of the Aircraft in accordance with such
schedules above over the first ten months (which period
includes the Lease Term under the Interim Lease) at a zero
rate of interest, repayable over the remaining term of the
Lease, as provided in Clause 4.2 below.
(ii) Lessee's obligations under Clause 4(i) above shall commence on
the Initial Lease Term Commencement Date whether or not Lessee
has (a) accepted Delivery of the Aircraft hereunder or (b)
received all consents, licenses, certificates and
authorizations required by applicable Law to engage in the
business of regularly scheduled carriage of persons and
property within the United States.
(iii) During the First Lease Extension Term and the Second Lease
Extension Term, if any, and unless otherwise agreed in
writing, Lessee shall pay Basic Rent for each Rent Payment
Period thereof in the amount of USD$ 150,000 in advance on
each Rent Payment Date on which such Rent Payment Period
commences.
(iv) If Lessee shall fail to return the Aircraft to Lessor at the
time and in the condition required by this Lease (whether at
the expiration or any termination of Lessee's right to lease
the Aircraft hereunder or otherwise), then, in addition to any
other right or remedy available to Lessor in respect thereof,
Lessee shall continue to pay Basic Rent, pro-rated on a daily
basis, for each day following the date on
-19-
<PAGE>
which such return was required until such time as the Aircraft
is returned to Lessor and is in the condition required by this
Lease. Lessee's obligation under the preceding sentence shall
survive the termination or any expiration of this Lease.
4.2 DEFERRED RENT. The Basic Rent payment schedule set forth in Clause
4.1(i) is based on an average monthly Basic Rent payment of USD$
139,000 due on each Rent Payment Date. Lessor has agreed to defer all
or a portion of the Basic Rent payments due on the first nine Rent
Payment Dates (the first eight Rent Payment Dates hereunder if Lessee
exercises the Extension Option under the Interim Lease) (the "DEFERRED
RENT") of the Initial Lease Term and Lessee has agreed to repay such
Deferred Rent during the remaining 50 Rent Payment Dates of the Initial
Lease Term, as provided in such Basic Rent payment schedule. If this
Agreement shall terminate for any reason after commencement thereof
(including, but not limited to, pursuant to Clause 11 hereof), or if an
Event of Default shall occur, then in addition to all other amounts due
and owing to Lessor hereunder, Lessee shall pay to Lessor an additional
amount equal to the aggregate of all Deferred Rent minus all payments
received by Lessor in respect thereof, in each case, at the time of
such termination or Event of Default. From and following the time of
any such termination or Event of Default, the amount of Basic Rent for
any Rent Payment Period or portion thereof shall be USD$ 139,000 unless
otherwise agreed in writing.
4.3 ADDITIONAL RENT FOR PRE-DELIVERY WORK. Lessee has requested that,
prior to the
-20-
<PAGE>
Scheduled Delivery Date, Lessor perform certain work on the Aircraft
relating to (i) the reconfiguration and upgrading of the interior of
the Aircraft (the "INTERIOR RECONFIGURATION") and (ii) the purchase and
installation of a Honeywell dual GPS navigation system (the "GPS
WORK"). So long as no Default shall have occurred and be continuing,
Lessor shall perform the Interior Reconfiguration and the GPS Work in
accordance with the workscope therefor previously agreed upon by Lessor
and Lessee, including the acquisition of the related Parts and the
installation thereof in the Aircraft, and Lessor shall use its
commercially reasonable best efforts to complete the Interior
Reconfiguration and the GPS Work prior to the Scheduled Delivery Date
under the Interim Lease. Lessee shall reimburse Lessor for all costs
attributable to Lessee's requests relating thereto, and not those costs
that are normally part of the workscope of a "D-Check" (including in
such reimbursement, the cost of Parts and labor costs) incurred by
Lessor in connection with the Interior Reconfiguration and the GPS Work
(collectively, the "PRE-DELIVERY COST"). Such reimbursement shall be
paid by Lessee to Lessor as Supplemental Rent hereunder in 60 equal
consecutive monthly installments, each in an amount equal to 2.25% of
the Pre-Delivery Cost, one such installment to be made on each Rent
Payment Date, commencing on the Rent Payment Date that occurs on the
Delivery Date under the Interim Lease and continuing during the 58 or
59 Rent Payment Dates, as the case may be, scheduled to occur under
this Lease; PROVIDED, HOWEVER, that if this Agreement shall terminate
for any reason (including but not limited to a termination pursuant to
CLAUSE 11), or if an Event of Default shall occur, then in addition to
all other amounts due and owing to Lessor hereunder, Lessee shall pay
to Lessor the aggregate Pre-Delivery Cost minus all payments previously
received by
-21-
<PAGE>
Lessor from Lessee in respect thereof, in each case, at the time of
such termination or Event of Default. By way of example, if the
Pre-Delivery Cost is $100,000.00, then the amount payable by Lessee in
respect thereof on each of the first 60 consecutive Rent Payment Dates
under this Lease and the Interim Lease would be $2,250 (i.e., $100,000
x 2.25%), including the principal and interest components of such
installment.
The amount of the Pre-Delivery Cost shall be determined by Lessor on
the basis of the invoices relating thereto, without mark-up, and Lessor
shall furnish copies of such invoices to Lessee. The Pre-Delivery Cost
and the amount of each monthly installment payable by Lessee hereunder
shall be calculated by Lessor (which calculation shall be conclusive
absent manifest clerical error) and shall be set forth in the Lease
Supplement and Acceptance Certificate executed by Lessee and Lessor on
the Delivery Date.
CLAUSE 5. MAINTENANCE AND OTHER PAYMENTS
5.1 MAINTENANCE RESERVE ACCOUNTS. Six maintenance reserve accounts (each,
a "MAINTENANCE RESERVE ACCOUNT") shall be maintained by Lessor, one in
respect of each of the following maintenance processes:
(i) the Airframe "C-Check" (which expression shall, for this
purpose, include the C-1, C-2 and C-6 Checks and all phases
of the 3C Check, all routine and non- routine man hours, and
all Maintenance Program inspection items contained in such
Checks);
-22-
<PAGE>
(ii) the Airframe "D-Check" (which expression shall, for this
purpose, include routine and non-routine man hours, the 9, 10
and 15 year CPCP inspection, and all Maintenance Program
inspection items contained in such Checks; the "D- Check"
reserve shall also include the cost to be incurred for
replacement of the hard time controlled list set forth in
Schedule J.
(iii) the Airframe "mid D-Check" (which expression shall, for this
purpose, include the C-4 and Mid-D Checks, the 2-1/2 year, 4
year and 5 year CPCP inspections and all routine and
non-routine man hours, and all Maintenance Program inspection
items contained in such Checks);
(iv) the Engines (which expression shall, for this purpose, not
extend to any Engine components forming part of nose cowl and
thrust reverser) off-wing overhaul, including Life Limited
Part replacement; provided that, at all times during which the
AVIALL Engine Maintenance and Pooling Contract is in
existence, no maintenance reserve account shall be maintained
by the Lessor in respect of these Engine maintenance
processes, such processes being carried out pursuant to the
AVIALL Engine Maintenance and Pooling Contract;
(v) the APU restoration; provided that, at all times during which
the Revima APU Maintenance and Pooling Contract is in
existence, no maintenance reserve account shall be maintained
by the Lessor in respect of the APU maintenance processes,
-23-
<PAGE>
such processes being carried out pursuant to the Revima APU
Maintenance and Pooling Contract; and
(vi) Landing gear overhauls.
The Maintenance Reserve Accounts are to be maintained by
Lessor for its own administrative and bookkeeping convenience and Lessee
acknowledges that it shall have no right, title or interest in such accounts.
5.2 CONSTITUTION OF MAINTENANCE PAYMENTS. The Maintenance Payments with
respect to the items set forth in Clause 5.1 shall be constituted as follows:
(i) an amount equal to USD$ 125 per Airframe Flight Hour, payable
monthly for the purpose of meeting Eligible Claims in respect
of the maintenance processes referred to in Clause 5.1(i)
(Airframe "C-Check");
(ii) an amount equal to USD$ 15,000 per month payable for the
purpose of meeting Eligible Claims in respect of the
maintenance processes referred to in Clause 5.1(ii) (Airframe
"D-Check");
(iii) an amount equal to USD$ 130 per Airframe Flight Hour payable
monthly for the purpose of meeting Eligible Claims in respect
of the maintenance processes referred to in Clause 5.1(iii)
(Airframe "Mid D-Check");
-24-
<PAGE>
(iv) an amount equal to USD$ 210 per Flight Hour for each Engine
payable monthly for the purpose of meeting Eligible Claims for
such Engine in respect of the maintenance processes referred
to in Clause 5.1(iv) (Engine overhaul);
(v) an amount equal to USD$ 55 per Airframe Flight Hour payable
for the purposes of meeting Eligible Claims in respect of the
maintenance processes referred to in Clause 5.1 (v) (APU
restoration);
(vi) an amount equal to USD$ 6,250 per month payable for the
purpose of meeting Eligible Claims in respect of the
maintenance processes referred to in Clause 5.1(vi) (landing
gear);
(vii) for so long as the AVIALL Engine Maintenance and Pooling
Contract is in effect with Lessee, an amount equal to USD$ 50
per Flight Hour for each Engine (in addition to the payment
required under clause (iv)) payable monthly for the purpose of
meeting Eligible Claims in respect of the maintenance
processes effected under and pursuant to such contract; and
(viii) for so long as the Revima APU Maintenance and Pooling Contract
is in effect with Lessee, an amount equal to USD$ 55 per
Airframe Flight Hour (in lieu of the payment required under
clause (v)) payable monthly for the purpose of meeting
Eligible Claims in respect of the maintenance processes
effected under
-25-
<PAGE>
and pursuant to such agreement.
During the Lease Term, the Maintenance Payments specified in subdivisions (ii)
and (vi) of this Clause 5.2 shall be paid monthly in advance with respect to
each Rent Payment Period on the Rent Payment Date on which such Rent Payment
Period commences. The Maintenance Payments specified in subdivisions (i), (iii),
(iv) and (v) of this Clause 5.2 shall be paid monthly in arrears on the date on
which the monthly report described in Clause 13.2 is due; PROVIDED, HOWEVER,
that the number of Flight Hours upon which each such payment is calculated shall
not in any case be less than 150 unless the Aircraft is grounded solely for the
performance of the maintenance described above.
ING on behalf of Lessor shall keep a record of the amounts deposited
into and withdrawn from the maintenance reserve allocations specified above, but
nothing herein shall require ING to maintain separate bank accounts for all or
any part of any such allocation or account.
5.3 ADJUSTMENT TO MAINTENANCE PAYMENTS. With regard to the Maintenance
Payment set forth in subdivision (iv) of Clause 5.2 with respect to the
Engines, the following will apply: Lessee shall pay to Lessor USD$ 210
per Engine Flight Hour based on an average yearly Ambient Temperature
of equal or below 75 Degrees F and an hours/cycles ratio equal to or
higher than 3:1. Annually on the first and each subsequent anniversary
of the Delivery Date, (i) this average Ambient Temperature will be
reconciled against average monthly temperatures for the preceding
12-month period at the outstation actually utilized by Lessee, by the
method of adding average Ambient
-26-
<PAGE>
Temperatures per take-off and dividing by the total number of flights
and (ii) this hours/cycles ratio will be reconciled with the actual
hours and cycles flown during the preceding 12-month period. If the
actual average Ambient Temperature so calculated exceeds 75 Degrees F,
and/or if the actual hours/cycles ratio so calculated is less than 3:1,
such Maintenance Payment shall be recalculated in accordance with Table
1 below, and Lessee shall immediately upon demand pay the difference
between the actual monies paid by Lessee for such period and such
recalculated Maintenance Payment. Lessee shall provide Lessor, on an
annual basis, with its projections of the hours/cycles ratio for the
next succeeding period of twelve months.
<TABLE>
<CAPTION>
Table 1
Hours and Cycles Ratio
<S> <C> <C> <C> <C>
========================================================================================================================
Ambient
Temperature less than 125:1 1.26- 1.76- 2.26-
Deg F 1.75:1 2.25:1 2:75:1
========================================================================================================================
less than 75 326 275 244 226
- ------------------------------------------------------------------------------------------------------------------------
76 - 85 347 288 255 237
- ------------------------------------------------------------------------------------------------------------------------
85 - 95 353 298 265 244
- ------------------------------------------------------------------------------------------------------------------------
greater than 96 359 296 269 248
========================================================================================================================
===================================================================================================================================
Ambient
Temperature 2.76- 2.26- 3.76- 4.26- greater than 4.76:1
Deg F 3.25:1 3.75:1 4.25:1 4.75:1 greater than
===================================================================================================================================
less than 75 210 202 193 189 187
- -----------------------------------------------------------------------------------------------------------------------------------
76-85 221 212 204 200 197
- -----------------------------------------------------------------------------------------------------------------------------------
85-95 229 216 208 204 202
- -----------------------------------------------------------------------------------------------------------------------------------
less than 96 233 221 212 206 206
===================================================================================================================================
</TABLE>
-27-
<PAGE>
5.4 (i) CONDITIONS PRECEDENT TO REIMBURSEMENT FOR ELIGIBLE CLAIMS.
Lessor's obligation to pay or reimburse Lessee for any
Eligible Claims in respect of the maintenance processes
referred to in Clause 5.2 is subject to the satisfaction of
the following conditions precedent:
(a) before any work with respect to such Eligible Claim
is performed, Lessee shall submit in writing to
Lessor the proposed workscope and estimated cost
therefor; should Lessor object to the workscope, cost
or entity, then the parties shall consult as soon as
possible to resolve the issue. If the
parties cannot resolve the issue as to workscope,
then such issue shall be presented to the
Manufacturer or Engine Manufacturer for its decision
as to the correct workscope.
(b) if Lessor agrees that such workscope and cost are
reasonable, Lessor shall so notify Lessee thereof
within 5 Business Days after Lessor's receipt of
Lessee's written submission;
(c) any work performed that is beyond the Maintenance
Program shall be at Lessee's expenses and shall not
be payable out of the reserves;
(d) after Lessor and Lessee agree on the reasonableness
of such workscope and cost, Lessee shall have the
work with respect to such Eligible Claim performed in
accordance therewith; and
-28-
<PAGE>
(e) following completion of the work with respect to such
Eligible Claim, Lessee shall present to Lessor all
original work-sheets, invoices, vouchers and/or
receipts with respect thereto and such other evidence
of and information relating to the performance of
such work as Lessor may reasonably request.
(ii) CREDITS AND PAYMENTS FROM RESERVE ACCOUNTS. Effective on the
Delivery Date, Lessor shall credit each Maintenance Reserve
Account with an amount based upon the Flight Hours, months or
cycles, as appropriate, accumulated on the Landing Gear (but
not on the Aircraft, any Engine or APU) during the period from
the date of the last overhaul thereof to the Delivery Date, as
defined in the Interim Lease (as determined from the relevant
logs and records of the prior operators thereof); PROVIDED,
HOWEVER, that the relevant Maintenance Reserve Account shall
be credited for the Flight Hours accumulated on the hard time
controlled items listed on (Annex 1) during the period from
the date of the last overhaul thereof to the Delivery Date (as
defined in the Interim Lease), as specified in such Annex. Any
credit to a Maintenance Reserve Account pursuant to this
CLAUSE (ii) shall be calculated as follows:
Pre-Delivery Usage
Credit equals __________________________________
Actual Time/Cycles Between Overhaul
where:
-29-
<PAGE>
"PRE-DELIVERY USAGE" is the Flight Hours,
months or cycles, as appropriate, accumulated during
the period from the date of the last overhaul to the
Delivery Date (as defined in the Interim Lease); and
"ACTUAL TIME/CYCLES BETWEEN OVERHAUL" is the
aggregate number of Flight Hours, months or cycles,
as appropriate, actually accumulated at the time of
overhaul under Lessee's Maintenance Program. The
amount of such credit shall be determined by Lessor
and shall be binding and conclusive, absent manifest
error.
Within 10 Business Days after receipt of the supporting
documentation referred to in Clause 5.4(i)(e) above, Lessor
will pay the amount of such Eligible Claim to the extent of,
and by making a drawdown against, the amount then in the
applicable reserve account. In the event that the amount of
such Eligible Claim exceeds the balance then in the relevant
maintenance reserve account, Lessee shall be responsible for
the payment of such excess.
In connection with Lessee's performance of a "D-Check",
amounts shall be available to Lessee in respect of Eligible
Claims for such "D-Check" from the Maintenance Reserve Account
maintained under clause 5.1(ii) ("D-Check") and clause
5.1(iii) ("Mid D-Check").
-30-
<PAGE>
Notwithstanding anything else to the contrary contained in
this Lease, (x) in no event shall Lessor be obligated to pay
any amounts with respect to Eligible Claims (whether out of
the applicable reserve account or otherwise) so long as a
Default shall have occurred and be continuing, (y) the
Maintenance Reserve Payments constitute Supplemental Rent due
from Lessee to Lessor as compensation for wear and tear on the
Aircraft and Lessee shall have no right, claim or interest
therein (except for Lessee's right to reimbursement for
Eligible Claims described above), and (z) any amounts paid or
credited to a maintenance reserve account upon termination of
this Lease for any reason shall remain the property of the
Lessor and, except as provided in the next paragraph, in no
event shall Lessor be obligated to return any such amounts to
Lessee.
If during the four month period prior to the date on which
Lessee is required to re-deliver the Aircraft to Lessor
hereunder (whether on the Expiration Date or earlier
termination), Lessee shall desire or propose to perform a
"D-Check" on the Aircraft in lieu of the "C-Check" required at
re-delivery which "D-Check" is not then required or scheduled
to be performed before such re-delivery date pursuant to
Lessee's Maintenance Program, then Lessee shall notify Lessor
of desire and state in such notice that such "D-Check" is not
so required. Lessor shall have a period of 15 days following
its receipt of such notice to object to such proposal and to
notify Lessee that such "D-Check" is not to be performed, in
which case Lessee shall not perform such "D-Check". If (i)
Lessor shall not
-31-
<PAGE>
object to Lessee's proposal to perform such D Check, (ii)
Lessee shall duly complete such "D-Check" as proposed and in
the manner required by Lessee's Maintenance Program and the
applicable manufacturer's maintenance program prior to the
required re-delivery date, and (iii) the amount then available
at the time of the completion of the applicable maintenance
check in the related Maintenance Reserve Account for
"D-Checks" exceeds the cost of such "D- Check" that
constitutes an Eligible Claim (such excess, an "ACCOUNT
EXCESS"), then, so long as no Default shall exist, Lessor
shall remit such Account Excess to Lessee in cash promptly
following Lessee's re-delivery of the Aircraft in compliance
with the terms hereof.
If Lessor shall object to Lessee's performance of such
"D-Check" then, for purposes of determining the Account Excess
(as provided above), the cost of such "D-Check" that
constitutes an "Eligible Claim" shall be the estimated invoice
amount for such "D-Check", which estimate shall be obtained
from Dee Howard (or other maintenance facility reasonably
acceptable and agreed upon by Lessor and Lessee).
In addition to the credits described above, if the Delivery
Date under this Lease shall occur, then each Maintenance
Reserve Account described above shall receive a credit in the
amount of any payment received by Lessor in respect of the
same Maintenance Reserve Account under the Interim Lease, and
Lessee hereby authorizes and directs Lessor (or ING, as the
case may be) to retain such
-32-
<PAGE>
payments theretofore made by Lessee under the Interim Lease.
(iii) FOREIGN OBJECT DAMAGE GENERATED SHOP VISIT. For the avoidance
of doubt, any work done on an Engine during a foreign object
damage generated shop visit in accordance with the Maintenance
Program for that Engine which is not directly a result of the
foreign object damage incident but otherwise qualifies as an
Eligible Claim shall be considered an Eligible Claim. Work
required in connection with foreign object damage shall be
deemed not to constitute an Eligible Claim.
CLAUSE 6. PAYMENTS
6.1 PAYMENT TO LESSOR. Except as otherwise provided herein, all payments to
be made by Lessee hereunder shall be payable in Dollars in immediately
available funds prior to 1:00 p.m. New York time on the due date to
such account as may be specified by Lessor; provided, however, that
until Lessee has been notified by ING such payments shall be payable
according to the following payment instructions:
Northern Trust International Banking Corporation, New York, USA
ABA #026001122
For credit of: ING Bank, Amsterdam
Account Number: 100628-20230
For further credit of: ING Lease Aircraft B.V.
Account Number: 5007.2188
or to such other account as ING shall specify by written notice to
Lessee.
6.2 WITHHOLDING TAXES. The payment of any Rent and other amounts to be paid
by Lessee hereunder shall be made free and clear of and without
deduction or withholding for or on
-33-
<PAGE>
account of any Taxes to the extent provided in Clause 16.2(i) hereof.
6.3 DEFAULT INTEREST. Without prejudice to any other remedies of Lessor,
Lessee hereby agrees and undertakes that in the event that Lessee fails
to make any payment of Rent or any other amount due and payable
hereunder it shall on demand pay to Lessor interest thereon from and
including the due date thereof until the same shall be paid in full
(after as well as before judgment) at the rate of 1.5% per month (or,
if such rate is in excess of the maximum allowable rate permitted by
applicable law, then the maximum rate permitted by applicable law shall
apply) calculated on the basis of the actual number of days elapsed and
a month of 30 days.
6.4 BUSINESS DAY CONVENTION. Whenever any payment hereunder shall become
due on a day which is not a Business Day, the due date thereof shall be
the immediately succeeding Business Day, unless such payment becomes
due hereunder on demand by Lessor, in which event such due date shall
be the immediately following Business Day, and (without prejudice to
Clause 6.3) the amount to be paid on such day shall not be changed
thereby.
6.5 ABSOLUTE OBLIGATION TO MAKE PAYMENTS. Lessee's obligations to pay any
Rent and all other amounts due hereunder shall be absolute and
unconditional and shall not be affected by any circumstances,
including, without limitation:
(i) any set-off, counterclaim, recoupment, defense or other right
which Lessee may have against Lessor or anyone else for any
reason whatsoever;
(ii) any defect in the title (except those caused by the act or
omission of Lessor), airworthiness, condition, design,
operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft;
(iii) any interruption or cessation in the use or possession of the
Aircraft by Lessee for any reason whatsoever except those
caused by the act or omission of Lessor; or
-34-
<PAGE>
(iv) any insolvency, bankruptcy, reorganization or similar
proceedings by or against Lessee.
6.6 APPLICATION OF PAYMENTS. At any time after a Default shall have
occurred and be continuing, all payments made to Lessor under this
Agreement shall be applied first against interest after default on any
Rent or on any other amount then due and payable hereunder, and then
against such Rent and such other amount due and payable hereunder,
unless otherwise specifically provided herein.
CLAUSE 7. CONDITIONS PRECEDENT
7.1 CONDITIONS PRECEDENT TO THE EXECUTION OF THIS AGREEMENT. The
obligations of the parties to the execution of this Agreement are
subject to the fulfillment of those conditions in paragraphs (vi)(a)
and (vii) of Clause 7.2 below to the reasonable satisfaction of Lessor
and those conditions in paragraph (ix) of Clause 7.2 below.
7.2 CONDITIONS PRECEDENT. The obligations of Lessor to the lease of the
Aircraft on the Delivery Date hereunder are subject to the fulfillment
to the satisfaction of Lessor (in the case of paragraphs (i)(a), (ii),
(iii), (iv), (v), (vi), (vii) and (viii)), in each case in its sole
discretion, of the following conditions of such conditions to be met to
its satisfaction); Lessee's obligations to lease the Aircraft hereunder
are subject to the satisfaction of the condition specified in clause
(ix) below:
(i) (a) all representations and warranties by Lessee set
forth herein or in any of the Lease Documents shall
be true and accurate on and as of the Delivery Date
as though made on and as of the Delivery Date; and
(b) [this clause is reserved];
-35-
<PAGE>
(ii) no Default shall have occurred and continue to exist on the
Delivery Date;
(iii) receipt of all necessary consents, licenses, registrations,
authorizations or approvals of, and exemptions by, such
governmental or other authorities and third parties as may be
necessary or advisable to authorize the execution, delivery
and performance of this Agreement by Lessee and to permit
payment and remittance of all payments to be made to Lessor,
at such places and in such manner as provided for under this
Agreement;
(iv) no material governmental action or proceeding which will have
a material adverse affect on the current business or financial
condition of Lessee shall be pending nor shall any
governmental action be threatened before any court or
governmental agency of competent jurisdiction, nor shall any
order, judgment or decree have been issued by any court or
governmental agency, to set aside, restrain, enjoin or prevent
the completion and consummation of this Agreement or the
transactions contemplated hereby or thereby;
(v) no Event of Loss shall have occurred in respect of the
Aircraft on or prior to the Delivery Date;
(vi) Lessor shall have received on or before the Delivery Date each
of the following, which shall be in full force and effect on
the Delivery Date:
(a) a certificate substantially in the form of Schedule
C, dated the date hereof (the content of which shall
be true both on the date hereof and on the Delivery
Date) and signed by a duly authorized officer of
Lessee, and having annexed thereto the documents
referred to therein;
(b) a favorable opinion of Lessee's counsel in a form
acceptable to Lessor;
-36-
<PAGE>
(c) the Lease Documents, duly executed;
(d) an insurance certificate signed by a firm of
independent aircraft insurance brokers, satisfactory
to Lessor, as to due compliance with the insurance
required pursuant to Clause 10 with respect to the
Aircraft together with a broker's letter of
undertaking as required by Clause 10.12 (iii);
(e) the Lease Supplement and Acceptance Certificate,
duly executed;
(f) evidence of required registrations, import licenses
if applicable, air operator's certificates and all
other licenses, certificates and permits required to
be held by Lessee in relation to, or in connection
with the operation of the Aircraft (including
Lessee's operating certificate issued by the U.S.
Secretary of Transportation under Chapter 447 of
Title 49, U.S. Code) and evidence that the Lease
Agreement has been duly registered with the FAA;
(g) certified copies of all licenses, certificates and
permits required by Lessee to operate as an airline;
(h) the Power of Attorney, executed by Lessee in favor of
ING, pursuant to which Lessee constitutes and
appoints ING as the true and lawful agent and
attorney-in-fact for Lessee for purposes of
exercising and enforcing rights and remedies
available to Lessor or ING upon and following the
occurrence of an Event of Default;
(i) the Maintenance Payments then due; and
(j) the Security Deposit required under Clause 30.
-37-
<PAGE>
(vii) Lessee's board of directors shall have authorized the
consummation of the transactions contemplated by the Lease
Documents and such approval shall be evidenced by resolutions
of such board of directors in form and substance reasonably
satisfactory to Lessor, and such resolutions shall
specifically and expressly refer to the Lease Documents, the
Lease Supplement and Acceptance Certificate and the Power of
Attorney;
(viii) Lessor shall have received such other instruments, documents,
evidence, certificates and opinions as to such other matters
as it may reasonably request and all other matters relating to
the leasing of the Aircraft and the consummation of the
transactions contemplated hereby shall be reasonably
satisfactory to Lessor;
(ix) the Delivery Date (as defined in the Interim Lease) shall have
occurred and Lessee shall have accepted the delivery of the
Aircraft under the Interim Lease (including the satisfaction
or waiver by Lessee of the conditions to its obligations
thereunder, as provided therein);
(x) a favorable opinion of Lessor's counsel to the effect that
Lessor has duly executed and delivered the Lease Documents and
any other lease agreement and each such document is legally
valid, binding and enforceable;
(xi) a copy of a currently effective airworthiness certificate for
the Aircraft;
(xii) a copy of the current registration certificate for the
Aircraft; and
(xiii) an opinion, at Lessee's expense, from Crowe and Dunlevy,
special FAA counsel, to the effect that Lessor is the owner
of record of the Aircraft and the Aircraft is duly registered
in the United States and as to such other matters as may be
reasonably requested by Lessee.
-38-
<PAGE>
CLAUSE 8. REPRESENTATIONS AND WARRANTIES
-39-
<PAGE>
8.1 (i) WARRANTIES AND DISCLAIMER OF WARRANTIES. NEITHER LESSOR NOR
ING HAS AND SHALL NOT BE DEEMED TO HAVE MADE (WHETHER BY
VIRTUE OF HAVING LEASED THE AIRCRAFT UNDER THIS LEASE, OR
HAVING ACQUIRED THE AIRCRAFT, OR HAVING DONE OR FAILED
TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE
ANY STATUS UNDER OR IN RELATION TO THIS LEASE OR
OTHERWISE), AND EACH OF LESSOR AND ING HEREBY
SPECIFICALLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE TITLE (EXCEPT AS PROVIDED IN
CLAUSE 8.4(i)), AIRWORTHINESS, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY, FREEDOM FROM CLAIMS OF INFRINGEMENT
OR THE LIKE, OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF
THE AIRCRAFT, OR AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP OF THE AIRCRAFT, THE ABSENCE THEREFROM OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE,
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY
ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR
USAGE OF TRADE), WITH RESPECT TO THE AIRCRAFT; AND LESSEE
HEREBY WAIVES, RELEASES, RENOUNCES AND DISCLAIMS
EXPECTATION OF OR RELIANCE UPON ANY SUCH WARRANTY OR
WARRANTIES. NEITHER LESSOR NOR ING SHALL HAVE ANY
RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY OTHER PERSON,
WHETHER ARISING IN CONTRACT OR TORT OUT OF ANY
NEGLIGENCE OR STRICT LIABILITY OF LESSOR OR OTHERWISE, FOR (i)
ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY
INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY
OTHER CIRCUMSTANCE IN CONNECTION THEREWITH, (ii) THE USE,
OPERATION OR
-40-
<PAGE>
PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING
THERETO, (iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS
OR ANTICIPATED PROFITS OR CONSEQUENTIAL DAMAGES OR (iv) THE
DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR,
IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT. THE WARRANTIES AND
REPRESENTATIONS OF LESSOR SET FORTH IN CLAUSE 8.4 ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS OR
WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND NEITHER LESSOR
NOR ING SHALL BE DEEMED TO HAVE MADE ANY OTHER WARRANTIES.
(ii) RESPONSIBILITY TO DETERMINE CONDITION OF AIRCRAFT, OBTAINING
BENEFIT OF WARRANTIES. It is the responsibility of Lessee to
inspect the Aircraft and to satisfy itself as to the
condition, quality, suitability and fitness of the Aircraft
for Lessee's purposes before signing and delivering the Lease
Supplement and Acceptance Certificate or accepting delivery of
the Aircraft, and to examine the logs and records and other
documents referred to in Schedule D relating to the Aircraft
on the Delivery Date, and to make arrangements for the
servicing thereof and to obtain any conditions or warranties
which Lessee may require from the manufacturers or suppliers
of the Aircraft and any part thereof.
8.2 REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents
and warrants to Lessor that:
(i) Lessee is a corporation duly organized and validly existing
under the laws of the State of Florida with full power and
authority to execute, deliver, and to perform all of its
obligations under each of the Lease Documents to which it is a
party;
(ii) each of the Lease Documents to which Lessee is a party has
been duly authorized, executed and delivered by Lessee, and
each of the Lease Documents to which it is
-41-
<PAGE>
a party, when duly executed and delivered, will constitute its
legally valid and binding obligations enforceable against it
in accordance with their respective terms;
(iii) neither the execution and delivery by Lessee of each of the
Lease Documents to which it is a party nor the performance by
it of any of its obligations thereunder, nor the compliance by
it with the terms and conditions thereof, will violate,
conflict with or result in any breach of any terms, conditions
or provisions of, or constitute a default under, any law,
administrative regulation or court judgment or decree
applicable to it or pursuant to which it was organized or any
agreement or instrument to which it is a party or by which it
or any of its property is bound, or result in the creation or
imposition of any Lien on any of its properties or assets
(other than any Lien arising pursuant to any of the Lease
Documents to which it is a party);
(iv) neither the execution and delivery nor the performance by
Lessee of any of the Lease Documents to which it is a party
requires any consent or approval of, the giving of notice to,
registration with, or taking of any other action in respect of
any governmental authority or agency in the United States or
any other jurisdiction;
(v) Lessee is not a party to any agreement or instrument or
subject to any other legal restriction which individually or
in the aggregate are likely to have a material and adverse
effect on its ability to perform its obligations under any of
the Lease Documents to which it is a party;
(vi) there are no pending or threatened actions or proceedings
before any court, governmental or administrative agency or
arbitral body, which actions or proceedings could, if
adversely determined, have a material and adverse effect on
its financial condition, business or operations or which could
have a material and
-42-
<PAGE>
adverse effect on its ability to perform its obligations under
any of the Lease Documents to which it is a party;
(vii) On the Delivery Date, Lessee will be a Certificated Air
Carrier holding all licenses, certificates and authorizations
required by applicable Law to engage in the business of
regularly scheduled carriage of persons and property within
the United States;
(viii) Lessee will furnish to ING a true and complete copy of the
business plan relating to establishment and projections of
Lessee's business operations (the "BUSINESS PLAN"). The
Business Plan was prepared for Lessee on a basis that was
reasonable at the time of such preparation and made in good
faith, and no event or circumstance has occurred or come to
the attention of Lessee which would require significant and
material revisions or supplements to the Business Plan in
order that it fairly and reasonably present, as of the date of
this Agreement, the forecast results of operations or
condition of Lessee.
8.3 COVENANTS OF LESSEE. Lessee covenants and agrees that:
(i) On the Delivery Date, Lessee shall be, and shall remain so
long as it shall be Lessee under this Agreement, duly
qualified to operate the Aircraft under applicable Law;
(ii) Lessee will pay or cause to be paid all taxes, assessments and
governmental charges or levies imposed upon it, or upon its
income or profits, or upon any property belonging to it, prior
to the date on which penalties attached thereto and prior to
the date on which any lawful claim, if not paid, would become
a Lien upon any of the material property of Lessee, provided,
however, that the failure to pay any such taxes shall not be a
default under this subclause (ii) if and for so long as the
amount or application of such tax is being contested in good
faith by
-43-
<PAGE>
Lessee by appropriate proceedings;
(iii) Without the prior written consent of Lessor, Lessee shall not
consolidate with, merge with or merge into any other
corporation or convey, transfer or lease substantially all of
its assets as an entirety to any other Person unless, after
giving effect to such transaction, the surviving entity has at
least the same net worth and gross assets as Lessee prior to
such transaction;
(iv) Lessee will notify Lessor in writing prior to any change of
its principal place of business or chief executive office;
(v) Lessee undertakes to maintain in full force and effect all
governmental consents, licenses, authorizations, approvals,
declarations, filing and registrations obtained or effected in
connection with this Agreement and every document or
instrument contemplated hereby and to take all such additional
action as may be proper or advisable in connection hereby or
therewith, including those required to maintain in full force
and effect the perfected interest of Lessor as "owner" of the
Aircraft; Lessee further undertakes to obtain or effect any
new or additional governmental consents, licenses,
authorizations, approvals, declarations, filings or
registrations as may become necessary for the performance of
any of the terms and conditions of this Agreement or any other
document or instrument contemplated hereby;
(vi) Lessee shall furnish to Lessor the following:
(A) As soon as available but in any event within 120 days
after the end of each fiscal year of Lessee, a copy of the
audited consolidated financial statements (including a balance
sheet and statements of earnings, of changes in shareholders'
equity, and of changes in financial position on a cash flow
basis) prepared as of the close of such fiscal year in
accordance with generally accepted accounting principles as in
effect in the United States ("GAAP"), together with the report
-44-
<PAGE>
thereon of Lessee's auditor to the effect that (1) the
accounting and reporting policies followed by Lessee are
appropriate and adequate in the circumstances and have been
consistently applied, and (2) the information presented in
such financial statements presents fairly Lessee's financial
position and operating results at the dates and for periods
indicated;
(B) As soon as available but in any event within 60 days after
the end of each fiscal quarter of Lessee, a copy of the
unaudited consolidated financial statements (including a
balance sheet and statements of earnings, of changes in
shareholders' equity, and of changes in financial position on
a cash flow basis) prepared as of the close of such fiscal
quarter, together with a certificate from its chief financial
officer certifying that (a) such financial statements have
been prepared in accordance with GAAP, and give a true and
adequate picture of Lessee's financial position and operating
results at the dates and for the period covered thereby, (b)
no Default and no Event of Default has occurred and is
continuing, and (c) Lessee is not in default under any other
lease agreement, loan agreement, promissory note, capitalized
or financing lease obligation, financial instrument or other
agreement relating to an obligation of Lessee in respect of
money borrowed or owed or payable by Lessee, except for
obligations to pay money that are being contested by Lessee in
good faith and by appropriate proceedings or procedures and
with respect to which adequate reserves have been established
by Lessee (as and if required by GAAP);
(C) Within 30 days after receipt by Lessee of a request by
Lessor, or such shorter period as may be set forth in any
written request by any government entity for information or
documents, Lessee shall furnish in writing to Lessor such
information and documents (or copies thereof certified as
correct by an authorized officer of Lessee) regarding the
Aircraft as may be reasonably requested by Lessor or as may be
required to enable Lessor or any affiliate thereof to file any
report or other document required to be filed by it with any
government entity
-45-
<PAGE>
because of its ownership or other interest in the Aircraft,
the Airframe or the Engines; and
(D) From time to time, such other information as Lessor may
reasonably request concerning the location, condition, use and
operation of the Aircraft or the financial condition of
Lessee.
8.4 REPRESENTATIONS AND WARRANTIES OF LESSOR. Lessor hereby represents and
warrants to Lessee that:
(i) on the Delivery Date Lessor shall have good title to the
Aircraft, free and clear of any and all Lessor Liens other
than the Security Agreement and any other Lien arising by
Lessor or ING which will not impair Lessor's right or ability
to deliver the Aircraft to Lessee hereunder or Lessee's use
and enjoyment of the Aircraft as contemplated hereby;
(ii) Lessor is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware;
(iii) Lessor has full power and authority to carry on its business
and to execute and deliver, and to perform all of its
obligations under, each of the Lease Documents to which it is
a party;
(iv) each of the Lease Documents to which Lessor is a party has
been duly authorized by all necessary action on the part of
Lessor, and each of the Lease Documents to which it is a
party, when duly executed and delivered, will constitute its
legally valid and binding obligations enforceable in
accordance with their respective terms, and will not violate
any provision of law applicable to Lessor or its articles of
incorporation or by-laws;
-46-
<PAGE>
(v) neither the execution and delivery by Lessor of each of the
Lease Documents to which it is a party nor the performance by
it of any of its obligations thereunder, nor the compliance by
it with the terms and conditions thereof, will violate,
conflict with or result in any breach of any terms, conditions
or provisions of, or constitute a default under, any law,
administrative regulation or court judgment or decree
applicable to it or pursuant to which it was organized or any
agreement or instrument to which it is a party or by which it
or any of its property is bound.
8.5 NOTICE OF BREACH OF REPRESENTATION, WARRANTY OR COVENANT. Lessor and
Lessee undertake to give notice to each other of any matter occurring
at any time which constitutes a breach of or is inconsistent with any
of its representations, warranties and covenants in Clause 8.2, 8.3 or
8.4, as the case may be, forthwith upon becoming aware of the same.
8.6 SURVIVAL OF REPRESENTATIONS, ETC. The representations, warranties,
indemnities and agreements of Lessee and Lessor provided for in this
Agreement and Lessee's and Lessor's obligations under any and all
thereof, shall survive the delivery and leasing of the Aircraft and the
expiration or other termination of this Agreement.
CLAUSE 9. LIENS
9.1 LESSEE NOT TO CREATE LIENS. Other than as to an Engine in any situation
set forth in Clause 13.5, Lessee shall not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to
the Aircraft, any Engine or any Part, title thereto or any interest
therein or in this Lease except as to the following:
(i) the respective rights of Lessor as provided herein or in any
of the other Lease Documents;
(ii) Liens for Taxes of any kind (including fees or charges of any
airport or air
-47-
<PAGE>
navigation authority) which are either not assessed, or, if
assessed, are not yet due and payable or being contested in
good faith by appropriate proceedings, so long as such
proceedings do not involve any risk of the sale, forfeiture or
loss of the Airframe, any Engine or any interest therein or
the assertion or imposition of any Lien thereon, and, in any
case, for the payment of which adequate reserves has been
provided;
(iii) materialmen's, mechanics', workmen's, repairmen's, employees'
or other like Liens arising in the ordinary course of business
payment for which is not overdue or which have been adequately
bonded, is not in default, or is being contested in good
faith, so long as such proceedings do not involve any risk of
the sale, forfeiture or loss of the Airframe, any Engine or
any interest therein or the assertion or imposition of any
Lien thereon; and
(iv) Lessor Liens which result from Lessor's own acts or from
claims against Lessor not to be paid or indemnified against by
Lessee hereunder.
9.2 LESSEE TO DISCHARGE LIENS. Lessee shall duly and promptly, at its own
cost and expense, pay or cause to be paid all sums required, or take
such action as may be necessary, to discharge duly any such Lien not
excepted in Clause 9.1 if the same shall arise at any time, and shall
at its own cost and expense protect the Aircraft against distress,
execution or seizure and shall, without prejudice to other remedies
available to Lessor hereunder, indemnify Lessor against all losses,
costs, charges, damages and expenses incurred by Lessor as a result of
the failure by Lessee to perform its obligations under Clause 9.1 or
this Clause 9.2.
-48-
<PAGE>
CLAUSE 10. INSURANCE
10.1 AVIATION LIABILITY AND PROPERTY DAMAGE INSURANCE. On or before the
Delivery Date and throughout the term of this Agreement, Lessee will
obtain or procure to be obtained and at all times maintain or procure
to be maintained in effect at its own expense public liability
(including, without limitation, third party and passenger liability,
baggage, cargo, mail, Airline General Third Party Legal Liability,
product liability and property damage including war and allied perils
to the fullest extent available) insurance with respect to the Aircraft
which is:
(i) in amounts for a combined single limit which are not less than
the greater of (x) amounts customarily carried by major or
recognized national United States airlines and (y) a combined
single limit of USD$ 500,000,000 for any one
occurrence/aircraft;
(ii) of the type usually carried by air carriers in accordance with
sound international airline practice engaged in the same or
similar business, similarly situated, and owning or operating
similar aircraft and engines and which covers risks of the
kind customarily insured against by such air carriers; and
(iii) maintained in effect with insurers and reinsurers satisfactory
to Lessor.
Any policies of insurance procured in accordance with this Clause 10.1 and any
policies taken out in substitution or replacement for any such policies:
(a) shall name Lessor, ING and their respective officers,
directors, employees, agents and successors
(collectively, the "ADDITIONAL NAMED INSUREDS") as an
Additional Named Insured as their interests may
appear;
-49-
<PAGE>
(b) shall provide that in respect of the interests of the
Additional Named Insureds in such policies the
insurance shall not be invalidated by any action or
inaction of Lessee or any other person and shall
insure each Additional Named Insured regardless of
any breach or violation of any warranty, declarations
or conditions contained in such policies by Lessee or
any other person, provided that such Additional Named
Insured has not caused, contributed to or knowingly
condoned such action or inaction;
(c) shall provide that if the insurers cancel such
insurance for any reason whatsoever, or if the same
is allowed to lapse for nonpayment of premium, or
other scope of coverage thereof is changed in any way
adverse to any Additional Named Insured, such
cancellation, lapse or change shall not be effective
as to any Additional Named Insured for 30 calendar
days (but in respect of war and allied perils such
lesser period as may be customarily available) after
delivery by such insurers to such Additional Named
Insured of written notice of such cancellation, lapse
or change;
(d) shall waive any rights of set-off, counterclaim or
other deduction (other than in respect of unpaid
premiums in respect of the Aircraft) against each
Additional Named Insured;
(e) shall waive any right of subrogation against any
Additional Named Insured;
(f) shall be primary without right of contribution from
any other insurance which is carried by the
Additional Named Insureds;
(g) shall expressly provide that all of the provisions
thereof, except the limits of liability, shall
operate in the same manner as if there were in
respect of
-50-
<PAGE>
the Aircraft a separate policy covering each insured;
(h) shall have a deductible of no more than $1,250 in
respect of passenger baggage and $10,000 in respect
of cargo with respect to any one claim;
(i) shall be reinsured in the London, U.S. or other
recognized aviation insurance market in a manner
satisfactory to Lessor; and
(j) shall otherwise be reasonably satisfactory to Lessor.
10.2 INSURANCE AGAINST LOSS OF OR DAMAGE TO THE AIRCRAFT. Lessee will at all
times maintain or procure to be maintained in effect, at its own
expense and on an agreed value basis, with insurers reasonably
satisfactory to Lessor, all-risk ground and flight aircraft hull, war
risk, confiscation and hijacking insurance covering the Aircraft
(including the Engines but only to the extent they are installed on the
Airframe) for an amount not less than the Stipulated Loss Value, and
insurance covering all risks of physical loss or damage however
occasioned in respect of Engines, engines, spare parts and equipment
forming part of the Aircraft, but which for the time being are removed
from the Aircraft, for an amount not less than their replacement cost.
Any policies carried in accordance with this Clause 10.2 covering the
Aircraft and any policies taken out in substitution or replacement for
any such policies:
(i) shall be made payable with respect to an Event of Loss
pursuant to a loss payable clause endorsed on the relevant
policies, PROVIDED that:
(a) ING and such others (and in such order) as may be
stipulated by ING shall be the sole loss payees in
the case of an Event of Loss;
(b) ING and such others (and in such order) as may be
stipulated by ING shall
-51-
<PAGE>
be the sole loss payees in the case where the amount
payable by the insurers upon any claim other than in
respect of an Event of Loss which is greater than
USD$ 250,000, and such amount shall be applied to
repair of the Aircraft after consultation by the
insurers with Lessor and Lessee; and
(c) Lessee shall be loss payee in the case where the
amount payable by the insurers upon any claim other
than in respect of an Event of Loss is less than USD$
250,000 unless and until Lessor notifies the relevant
insurance broker or the insurers that a Default has
occurred in which event the loss payees shall be
Lessor and such others (and in such order) as may be
stipulated by Lessor, and such amount shall be
applied to repair of the Aircraft after consultation
by the insurers with Lessee and, if Lessor has so
notified such broker or insurers of a Default, the
Lessor;
(ii) shall name the Additional Named Insureds as their interests
may appear;
(iii) shall provide that in respect of the interests of the
Additional Named Insureds in such policies the insurance shall
not be invalidated by any action or inaction of Lessee or any
other person and shall insure the Additional Named Insureds
regardless of any breach or violation of any warranty,
declarations or conditions contained in such policies by
Lessee or any other person, provided that such Additional
Named Insured has not caused, contributed to or knowingly
condoned such action or inaction;
(iv) shall provide that if the insurers cancel such insurance for
any reason whatsoever, or if the same is allowed to lapse for
nonpayment of premium, or the scope of coverage thereof is
changed in any way adverse to any Additional Named Insured,
such cancellation, lapse or change shall not be effective as
to each Additional Named Insured for 30 calendar days (but in
respect of war and allied perils such lesser period as may be
customarily available) after delivery by such insurers to
-52-
<PAGE>
such Additional Named Insured of written notice of such
cancellation, lapse or change;
(v) shall waive any rights of set-off, counterclaim or other
deduction (other than in respect of unpaid premiums in respect
of the Aircraft) against each Additional Named Insured;
(vi) shall waive any right of subrogation against any Additional
Named Insured;
(vii) shall be primary without right of contribution from any other
insurance which is carried by the Additional Named Insureds;
(viii) shall have a deductible (including any loss retention or
self-insurance arrangement) of no more than USD$ 250,000 in
respect of any one claim but no deductible in respect of a
claim for an Event of Loss; PROVIDED, HOWEVER, that, until
such time, and for so long thereafter, as Lessee shall operate
10 or more wide body aircraft (including the Aircraft) in its
regularly scheduled flight operations, the deductible
hereinabove described may at Lessee's option be $500,000 in
respect of any one claim (other than in respect of an Event of
Loss);
(ix) shall provide that all payments shall be made in Dollars and
shall not provide for any right of insurers to replace the
insured equipment (the Aircraft) in the event of an Event of
Loss;
(x) shall contain a 50%/50% clause provision in the form of
Lloyd's Form AVS 103, or equivalent language; and
(xi) shall otherwise be reasonably satisfactory to Lessor.
Any war risk, confiscation or hijacking insurance shall include:
-53-
<PAGE>
(i) war, invasion, acts of foreign enemies, hostilities (whether
war be declared or not), civil war, rebellion, revolution,
insurrection, martial law, military or usurped power, or
attempts at usurpation of power;
(ii) confiscation, requisition, detention (including by the country
of registration of the Aircraft in favor of Lessor),
hijacking, strikes, riots, malicious damage and civil
commotion;
(iii) any other risks excluded as per Hi-Jacking and Other Perils
Exclusion Clause (Aviation) - AVN 48B from the All Risk Hull
Insurance described above (other than paragraph (b) of AVN
48B) by any exclusion therein of these and/or similar risks;
and
(iv) such other perils which in accordance with the market practice
from time to time are customarily insured.
10.3 LESSEE TO PURSUE CLAIMS. After an Event of Loss in relation to the
Aircraft shall have occurred, Lessee shall diligently pursue or cause
to be pursued, in concert with Lessor, any and all claims against the
insurers in respect of the insurance (including any required
re-insurance) with respect to the Aircraft, subject to consultation
with Lessor and such other persons as may be stipulated by Lessor.
-54-
<PAGE>
10.4 CHANGE IN INSURANCE PRACTICE. In the event that there is a change in
the generally accepted industry-wide practice with regard to the
insurance of aircraft (whether relating to all or any of the types of
insurance required to be effected under the foregoing provisions of
this Clause 10) such that Lessor shall be of the reasonable opinion
that the insurance required pursuant to the provisions of this Clause
10 is insufficient to protect the interests of Lessor, the insurance
requirements set forth in this Clause 10 shall, if specified by Lessor,
be varied so as to include such additional or varied requirements as
may be necessary to ensure that the insurance as so varied shall
provide substantially the same protection to Lessor as it would have
done if such change in the generally accepted industry-wide practice
had not occurred.
10.5 APPLICATION OF PROCEEDS ARISING ON EVENT OF LOSS. As between Lessor and
Lessee it is agreed that all insurance payments or any other sums
received as the result of the occurrence of an Event of Loss with
respect to the Aircraft or the Airframe shall be applied to the benefit
of Lessor and such other persons having an interest in the Aircraft as
may be stipulated by Lessor and any excess shall be applied in
reduction of Lessee's obligation to pay the amounts required to be paid
by Lessee pursuant to Clause 11.1, if not already paid by Lessee, or,
if already paid by Lessee, shall be applied to reimburse Lessee for its
payment of such amount.
10.6 APPLICATION OF PROCEEDS ARISING OTHER THAN ON AN EVENT OF LOSS. The
insurance payments for any property damage loss to the Airframe or any
Engine not constituting an Event of Loss, or to any Part, will be
applied in payment of repairs or for replacement property, but may be
held by Lessor until Lessee furnishes Lessor with reasonably
satisfactory evidence that the repairs or replacement property that
Lessee is required to perform or obtain in accordance with the terms of
Clause 13 have already been paid for or obtained by Lessee. Upon
receipt of such evidence of repair or replacement, Lessor shall
promptly pay or reimburse Lessee for the amount of such insurance
payment received by Lessor with respect to such loss.
-55-
<PAGE>
10.7 RETENTION OF PROCEEDS BY LESSOR FOLLOWING DEFAULT. Any amount referred
to in Clause 10.5 or 10.6 which is otherwise payable to Lessee shall
not be paid to Lessee, or, if it has been previously paid to Lessee,
shall be delivered by Lessee to Lessor if at the time of such payment a
Default shall have occurred and be continuing. In either case, all such
amounts shall be held by Lessor as security for the obligations of
Lessee or, at the option of Lessor, applied by Lessor toward payment of
any of Lessee's obligations at the time due hereunder. At such time as
there shall not be continuing any such Default, all such amounts at the
time held by Lessor in excess of the amount, if any, which Lessor has
elected for application as provided above shall be paid to Lessee.
10.8 LESSOR AND LESSEE MAY ADDITIONALLY INSURE. Each of Lessor and Lessee
may carry at its own expense insurance with respect to its own
interests in the Aircraft provided that such insurance does not
adversely affect the coverage required to be maintained hereunder by
Lessee or the cost thereof, or shall have the effect of suspending,
impairing, defeating or invalidating or rendering unenforceable or
reducing, in whole or in part, the coverage of or the proceeds payable
under any insurance required to be provided and maintained by Lessee.
Any insurance payments received from policies maintained by Lessor
shall be retained by Lessor without reducing or otherwise affecting
Lessee's obligations hereunder. Lessor shall have no right to proceeds
of any policies other than those required to be maintained by Lessee
under this Lease.
10.9 COMPLIANCE WITH LEGAL REQUIREMENTS AS TO INSURANCE. Throughout the term
of this Agreement Lessee shall comply with all legal requirements as to
the insurance of the Aircraft which may from time be imposed by the
laws of the United States and of any other jurisdiction to, from or
over which the Aircraft shall be flown insofar as they affect or
concern the operation of the Aircraft.
10.10 LESSOR ENTITLED TO PROVIDE INSURANCES IN DEFAULT BY LESSEE. If the
insurance (including any required re-insurance) required under this
Clause 10 is not kept in full force and
-56-
<PAGE>
effect Lessor without prejudice to any other rights it may have on the
occurrence of a Default shall be entitled (but not bound) at any time
while such failure is continuing to provide such insurance and in such
event Lessee shall, upon demand, reimburse Lessor for the cost thereof
together with interest thereon at the rate specified in Clause 6.3 from
the date of any such demand for reimbursement until payment and to
require the Aircraft to remain at an airport or, as the case may be, to
proceed to and remain at an airport designated by Lessor until the
insurance is in full force and effect. Such provision of insurance by
Lessor shall not affect Lessor's right to treat such failure by Lessee
as a Default.
10.11 NEGOTIATIONS FOR RENEWAL. Lessee shall begin final negotiations for the
renewal of each required policy prior to its expiry. Upon expiry of any
required policy, Lessee shall provide Lessor with written confirmation
of completion or renewal of such policy, with certification thereof to
be issued by the relevant insurance broker within seven (7) Business
Days thereafter.
10.12 (i) INFORMATION. In addition to the information provided pursuant
to Clause 10.11 and without prejudice thereto, Lessee shall
furnish to Lessor:
(a) on request, certified copies of all documents
constituting, evidencing or regulating the terms of
any required policy;
(b) on request, evidence of payment by or, at the
direction of Lessee, each sum payable under or in
connection with any required policy; and
(c) on request, such evidence as Lessor may require of
Lessee's compliance with its obligations under this
Clause 10.
(ii) NOTIFICATION OF CLAIM EVENTS. Lessee shall forthwith notify
Lessor of any event (including but not limited to an Event of
Loss) which will or may give rise to a
-57-
<PAGE>
claim under any required policy in excess of USD$ 50,000 and
shall not (without the prior written consent of Lessor) settle
or permit the settlement of any claim arising under a required
policy unless it arises under a direct damage policy and is
for less than USD$250,000.
(iii) PROVISION OF INSURANCE BROKER'S UNDERTAKING. Lessee shall
before the Delivery Date, at its own cost and expense, cause
the relevant insurance broker or, if appropriate, the relevant
insurers to issue a written undertaking in favor of Lessor in
form and substance acceptable to Lessor.
10.13 LESSEE NOT TO PREJUDICE INSURANCE. Without prejudice to Clause 13.10,
Lessee shall not:
(i) do or omit to do or permit to be done or left undone anything
whereby any required policy would or might be expected to be
rendered in whole or in part invalid or unenforceable; or
(ii) cause or permit the Aircraft or any part thereof to be
employed in any place or in any manner or for any purpose
inconsistent with the terms of any required policy; or
(iii) create or permit to exist any Lien (save only as may be
created by Lessor or by Lessee in favor of Lessor) over the
insurances taken out in respect of the Aircraft, or its
interests therein.
10.14 CURRENCY. All insurance pursuant to this Agreement will be payable in
Dollars except as may be otherwise agreed by the Lessor; provided,
however, that the insurance as to liability claims will be payable in
the settlement currency agreed in any action relating to such claim.
-58-
<PAGE>
CLAUSE 11. EVENT OF LOSS
11.1 EVENT OF LOSS WITH RESPECT TO AIRCRAFT. Upon the occurrence of an Event
of Loss with respect to the Aircraft, Lessee shall forthwith (and, in
any event, within two (2) Business Days after such occurrence) give
Lessor written notice of such Event of Loss and shall pay to Lessor on
the sixtieth (60th) day following the occurrence of such Event of Loss
or, if the insurance or other proceeds have been paid for such Event of
Loss before such 60th day, upon receipt of such proceeds, the
Stipulated Loss Value and all other sums (if any) then due and payable
hereunder by Lessee to Lessor; provided further that during the period
from the occurrence of such an Event of Loss and ending on the date
that Lessee complies with its obligations under this Clause 11.1 the
Lease Term shall continue and, therefore, the Aircraft shall be deemed
to be continued to be leased by Lessor to Lessee hereunder and Lessee
shall continue to pay Rent in accordance with Clause 4.
At such time as Lessor shall have been fully compensated as required
under this Clause 11.1, Lessor shall transfer to Lessee or to Lessee's
designee, on an "as-is, where-is" basis but otherwise without recourse
or warranty except that such title shall be free and clear of all
Lessor Liens, all of such rights, title and interest as Lessor may have
in and to the Aircraft, as well as all of Lessor's right, title and
interest in and to any Engine constituting part of the Aircraft but not
installed thereon at the time of loss, free and clear of Lessor Liens,
and Lessor shall, at Lessee's expense, execute and deliver such bills
of sale and other documents and instruments as Lessee shall reasonably
request to evidence (on the public record or otherwise) such transfer
and the vesting of such right, title and interest in and to the
Aircraft in Lessee. On compliance by Lessor of its obligations under
this Clause 11.1 the Lease Term shall be deemed to terminate and Lessee
shall thereupon no longer be obliged to pay Rent in respect of the
Aircraft pursuant to Clause 4.
-59-
<PAGE>
11.2 EVENT OF LOSS WITH RESPECT TO ENGINE. Upon the occurrence (or deemed
occurrence pursuant hereto) of an Event of Loss with respect to an
Engine under circumstances in which there has not occurred an Event of
Loss with respect to the Aircraft or Airframe Lessee shall give or
cause to be given to Lessor written notice promptly after becoming
aware thereof and shall, within thirty (30) days after the occurrence
of such Event of Loss, convey or cause to be conveyed to Lessor or its
designee, as replacement for such Engine, full title, free and clear of
all Liens other than Permitted Liens, an engine of the same or an
improved model and suitable for use on the Aircraft or Airframe, but
having a value and utility at least equal to, and being in as good
operating condition as, including the same or fewer hours or Cycles (or
an equivalent combination of hours and Cycles) accumulated on such
engine, the Engine with respect to which such Event of Loss occurred
(assuming that such Engine was in the condition and repair required by
the terms hereof immediately prior to the occurrence of such Event of
Loss). Prior to or at the time of any such conveyance, Lessee at its
own expense, will:
(i) furnish Lessor with such bills of sale and other documents and
instruments as Lessor shall reasonably request to evidence (on
the public record or otherwise) the interest of Lessor in such
Replacement Engine;
(ii) execute a supplement to this Lease confirming that such
Replacement Engine is subject to this Lease;
(iii) furnish Lessor with a favorable opinion of Lessee's counsel to
the effect that good and marketable title to such Replacement
Engine has been vested in Lessor; and
(iv) furnish Lessor with a certificate of an aircraft engineer (who
may be an employee of Lessee) certifying that such Replacement
Engine has a value and utility at least equal to, and is in as
good operating condition, including no greater number of hours
or Cycles accumulated on such Engine, as the Engine so
replaced assuming
-60-
<PAGE>
such Engine was in the condition and repair required by the
terms hereof immediately prior to the occurrence of such Event
of Loss.
Lessee shall, in addition to other liabilities arising in connection hereunder,
reimburse Lessor for any legal fees and disbursements incurred by Lessor in
analyzing, monitoring and enforcing Lessor's rights and remedies in connection
with such Event of Loss.
For all purposes hereof such Replacement Engine shall, after such transfer, be
deemed part of the property leased hereunder and shall be deemed an Engine as
defined herein.
11.3 TRANSFER OF TITLE TO REPLACED ENGINE TO LESSEE. Upon full compliance by
Lessee with the terms of Clause 11.2, Lessor shall, without further
act, be deemed to have transferred to Lessee or to Lessee's designee,
title to the Engine with respect to which the Event of Loss has
occurred (the "REPLACED ENGINE"), on an "AS IS, WHERE IS" basis but
otherwise without recourse or warranty except that such title shall be
free and clear of Lessor Liens. At Lessee's request and expense, Lessor
shall execute and deliver such bills of sale and other documents and
instruments as Lessee shall reasonably request to evidence (on the
public record or otherwise) such transfer and the vesting of such
right, title and interest in and to such Replaced Engine in Lessee.
-61-
<PAGE>
CLAUSE 12. REGISTRATION
12.1 REGISTRATION. Lessee, at its sole cost and expense, shall (i) not take
or permit any action inconsistent with the Aircraft remaining duly
certified as to airworthiness at all times after the Delivery Date in
accordance with the laws of the United States; (ii) not take or permit
any action inconsistent with the continued registration of the Aircraft
at all times after the Delivery Date in the name of the Lessor as sole
owner thereof, (iii) cause this Lease to be duly filed and registered
with the FAA and with all other applicable governmental authorities
that may be necessary or advisable in order to protect and maintain the
rights and interests of Lessor hereunder and in the Aircraft, and (iv)
not register or allow the Aircraft to be registered in any other way or
manner under the laws of any other country. Lessee shall not take or
permit any action which would not maintain in full force and effect all
certifications and registrations referred to in Clauses 12.1(i), (ii)
and (iii) throughout the Lease Term.
-62-
<PAGE>
CLAUSE 13. MAINTENANCE, REPORTING, REMOVAL AND REPLACEMENT,
ALTERATIONS, POSSESSION, OPERATION, ETC.
13.1 MAINTENANCE.
(i) GENERAL OBLIGATIONS. During the Lease Term and until the
Aircraft is returned to Lessor in accordance with the terms of
this Agreement, Lessee alone has the obligation, at its sole
expense, to maintain and repair or cause an Independent
Maintenance Contractor to maintain and repair the Airframe,
Engines and all of the Parts in accordance with (a) the
Maintenance Program; (b) the rules and regulations of the FAA;
(c) the requirement to maintain a full certificate of
airworthiness from the FAA for the Aircraft; to maintain the
eligibility of the Aircraft at all times during the Lease Term
and upon return of the Aircraft to Lessor in accordance
herewith for issue of a certificate of airworthiness for
passenger category aircraft issued by the FAA and (d) (if
applicable) in the same manner and with the same care as used
by the Lessee with respect to similar aircraft and engines
operated by the Lessee and without in any way discriminating
against the Aircraft.
(ii) INDEPENDENT MAINTENANCE CONTRACTOR. The obligations of Lessee
to maintain the aircraft contained in this Clause 13.1 shall
be performed by either Lessee or by an Independent Maintenance
Contractor retained at Lessee's sole expense and approved by
the FAA.
(iii) MAINTENANCE PROGRAM. Lessor and Lessee hereby agree that the
Aircraft will be maintained in accordance with an FAA approved
maintenance program.
(iv) SPECIFIC OBLIGATIONS. Without limitation to Clause 13.1(i),
Lessee agrees that its maintenance and repair obligations
hereunder will include (but will not be limited
-63-
<PAGE>
to) each of the following specific items:
(a) performance in accordance with the Maintenance
Program of all routine and non-routine maintenance
work, including on-line maintenance on the Aircraft;
(b) incorporation in the Aircraft (including the Engines
and all Parts) of all airworthiness directives of the
FAA issued during the Lease Term and requiring
compliance or terminating action prior to the first
anniversary following the Expiration Date;
(c) without prejudice to Clause 13.1(iv)(b),
incorporation in the Aircraft of all service
bulletins of the Manufacturer, the Engine
manufacturer and other vendors which the Lessee
schedules to adopt during the Lease Term for the rest
of its aircraft fleet. The Lessee agrees not to
discriminate against the Aircraft vis-a-vis the rest
of the Lessee's fleet in service bulletin compliance
or other maintenance matters;
(d) incorporation in the maintenance schedule for the
Aircraft of a full corrosion control program, SSID
and sampling programs, as required by the
Manufacturer and mandated by the FAA; and
(e) proper maintenance of all Aircraft Documentation,
including recording the number of Block Hours, Flight
Hours and Cycles the Aircraft and Engines operate and
all maintenance and repairs performed thereon. Hard
copies of such Aircraft Documentation shall be
maintained in English.
-64-
<PAGE>
13.2 REPORTING REQUIREMENTS AND PROVISION OF INFORMATION. Commencing with a
report furnished not later than the 10th Business Day following the end
of the first Monthly Period, Lessee will furnish to Lessor not later
than the 10th Business Day following the end of each Monthly Period a
report in the form attached hereto as Schedule G which will include for
such Monthly Period (i) the hours/cycles operated for the Airframe,
(ii) the hours/cycles operated for each of the Engines (and their
location by airframe), and (iii) on a quarterly basis a list of those
service bulletins, airworthiness directives and engineering
modifications incorporated on the Aircraft during the preceding
quarter.
Furthermore, during the term of this Agreement, Lessee shall also
furnish to Lessor such additional information obtained from records
Lessee customarily maintains concerning the location, condition, use
and operation of the Aircraft as Lessor may reasonably request from
time to time.
13.3 REMOVAL OF ENGINES. If an Engine is removed for testing, service,
repair, maintenance, overhaul work, alterations or modifications, title
to such Engine will at all times remain vested in Lessor.
Lessee will be entitled (but only for reasons of maintenance or repair)
to remove any of the Engines from the Aircraft and install another
engine or engines on the Aircraft, provided that Lessee complies with
each of the following obligations:
(i) Lessee may only install CF6-50C2 engines on the Aircraft;
(ii) the insurance requirements set forth in Clause 10 are in place
in respect of such removed Engine;
(iii) Lessee shall ensure that the identification plates referred to
in Clause 13.11 are not removed from such removed Engine upon
such Engine being detached from
-65-
<PAGE>
the Aircraft; and
(iv) title to such removed Engine remains with Lessor free from all
Liens (except Permitted Liens) regardless of the location of
the Engine or its attachment to or detachment from the
Aircraft.
13.4 REPLACEMENT OF PARTS.
(i) LESSEE'S OBLIGATION TO REPLACE PARTS. Lessee, at its own
cost and expense, shall promptly replace or cause to be
replaced by the Independent Maintenance Contractor all Parts
which may from time to time be incorporated or installed in or
attached to the Airframe or any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever. In addition, Lessee
may, at its own cost and expense, remove in the ordinary
course of maintenance, service, repair, overhaul or testing,
any Parts, whether or not worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently
rendered unfit for use; provided that, with respect to any
installed part with respect to which title is not vested in
Lessor at the time of installation (as hereinbelow provided),
Lessee shall, at its own cost and expense, replace such parts
as promptly as possible in the manner contemplated by clauses
(ii) and (iii) below.
(ii) CONDITION OF REPLACEMENT PARTS. All replacement Parts shall
be free and clear of all Liens other than Permitted Liens and
shall be in as good operating condition as, and shall have a
value and utility at least equal to, the Parts replaced
assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof.
(iii) TITLE TO REPLACEMENT AND REPLACED PARTS. All Parts at any
time removed from
-66-
<PAGE>
the Airframe or any Engine shall remain the property of
Lessor, no matter where located, until such time as such Parts
shall be replaced by parts which are owned by Lessee free and
clear of any Liens and which have been incorporated or
installed in or attached to the Airframe or such Engine and
which meet the requirements for replacement Parts specified
above. Immediately upon any replacement Parts becoming
incorporated or installed in or attached to the Airframe or
such Engine as above provided, without further act:
(a) title to the replaced or removed Parts shall
thereupon vest in Lessee, free and clear of all
Lessor Liens, and shall no longer be deemed Parts
hereunder;
(b) title to such replacement or installed Parts shall
thereupon vest in Lessor; and
(c) such replacement Parts shall become subject to this
Agreement and be deemed part of the Airframe or such
Engine for all purposes hereof to the same extent as
the Parts originally incorporated or installed in or
attached to the Airframe or such Engine.
13.5 REPLACEMENT ENGINES. Lessee shall be entitled (subject to Clause 13.3),
so long as no Default shall have occurred and be continuing, to install
any engine on the Airframe or any part on the Airframe or any Engine by
way of substitution, replacement, renewal or mandatory modification
(notwithstanding that such installation is not in accordance with
Clause 13.3) in circumstances where:
(i) there shall not have been available to Lessee at the time and
in the place that such engine or other part was required to be
installed on the Airframe or, as the case may be, any Engine,
a substitute or replacement engine or part complying with the
requirements of Clause 13.3; and
-67-
<PAGE>
(ii) it would have resulted in an unreasonable disruption of the
operation of the Aircraft or the business of Lessee as an
airline or would have grounded the Aircraft if Lessee had
deferred such installation until such time as an engine or
part complying with the requirements of Clause 13.3 became
available for installation in the Aircraft.
In the case of either (i) or (ii) above, as soon as practicable after
installation of the same on the Airframe or, as the case may be, such
Engine, Lessee shall remove any such engine or part not complying with
the requirements of Clause 13.3 and replace or substitute the same with
an engine or part complying with the requirements of Clause 13.3. If,
notwithstanding the foregoing, any replacement engine or part is owned
by Lessor such replacement engine or part and the Engine or the Part
replaced thereby shall be and remain the property of Lessor. Lessee
shall assist Lessor in all reasonable respects to preserve, store,
overhaul or dispose of such replaced Parts, all as may be reasonably
directed by Lessor.
13.6 ALTERATIONS. Lessee, at its own cost and expense:
(i) may make or cause to be made such alterations and
modifications in and additions to the Airframe or any Engine
as Lessee may reasonably deem desirable in the furtherance of
any recommendations from time to time of the Manufacturer and
the engine manufacturer and the standards of the FAA, or to
comply with any law, rule, directive, bulletin, regulation or
order of any governmental entity, and
(ii) may from time to time make such alterations and modifications
in and additions to the Airframe or any Engine as Lessee may
deem desirable in the proper conduct of its business;
provided, however, that no such alteration, modification or
addition shall diminish the value or utility of the Airframe
or such Engine, or impair the condition or airworthiness
thereof, below the value, utility, condition
-68-
<PAGE>
and airworthiness thereof immediately prior to such
alteration, modification or addition assuming the Airframe or
such Engine was then of the value or utility and in the
condition and airworthiness required to be maintained by the
terms of this Agreement provided further that no such
alteration, modification, or addition with an estimated cost
in excess of $25,000 shall be made pursuant to this Clause
13.6(ii) without the prior written consent of Lessor.
(iii) Notwithstanding the foregoing, Lessee may, at its sole cost
and expense modify the interior layout of the Aircraft;
provided, however, that such modification has, in the opinion
of the Lessor, no material adverse effect on the value of the
Aircraft.
Except as otherwise provided in this Clause 13.6, title to all Parts
incorporated or installed in or attached or added to the Airframe or
such Engine as the result of such alteration, modification or addition
shall, without further act, vest in Lessor. Upon transfer of title to
Lessor of the installed Parts title to all Parts replaced or removed
from the Airframe or such Engine as the result of such alteration,
modification or addition shall vest in Lessee, free and clear of all
Lessor Liens, and shall no longer be deemed Parts hereunder.
Nothing herein shall permit Lessee to (and Lessee shall not) make any
modification or alteration that shall require the permanent removal of
any Part that is not replaced with a replacement part (with title
vested in Lessor as provided above).
13.7 LIABILITY FOR COST OF ALTERATIONS; AD COST SHARING.
(i) As used in this Clause, the following terms have the
respective meanings set forth below:
"APPLICABLE REMAINING LEASE PERIOD" means the number
of days
-69-
<PAGE>
remaining in the Lease Term including Expected
Extension Days.
"AD CALCULATION PERIOD" means with respect to any
airworthiness directive or mandatory service bulletin
with respect to which the cost of compliance is less
than $250,000 the AD Calculation Period will be with
1,825 days. In case the costs of compliance exceed
US$250,000 the AD Calculation Period will be 2,920
days.
"EXPECTED EXTENSION DAYS" means the number of days by
which the Lease can be extended by using the
Extension Options multiplied by a probability factor
of 0.5. This means that during the Lease Term the
Expected Extension Days will be (1,825 days
multiplied by 0.5) 913 days. During the First
Extension Period the Expected Extension Days will be
(913 days multiplied by 0.5) 457 days. During the
Second Extension Period the Expected Extension Days
will be 0.
"THRESHOLD AMOUNT" means US$62,000.
(ii) Lessor shall in no event bear any liability or cost for any
alteration, modification, addition, or for any grounding or
suspension of certification of the Aircraft or for loss of
revenue; PROVIDED, HOWEVER, that if the total cost (including
material and labor) of compliance with any single
airworthiness directive or mandatory service bulletin, which,
in either case, is issued during the Lease Term and requires
terminating action either (i) during the Lease Term or (ii)
during the one-year period immediately following expiration of
the Lease Term (such cost, the "AD COST") exceeds the
Threshold Amount, then (a) Lessee shall furnish Lessor with an
estimate of the work and such costs relating thereto required
to comply therewith, and (b) Lessee and Lessor shall share
such AD Cost in the following manner: Lessee shall bear and
pay the Threshold Amount of such AD Cost. Lessee shall bear
and pay the amount of such AD Cost in excess of the Threshold
-70-
<PAGE>
Amount calculated as follows:
(1) Amount of such AD Cost in excess of the
Threshold Amount divided by the lesser of
(x) the AD Calculation Period or (y) the
useful life of the alteration, modification
or addition in question (if specified in the
airworthiness directive or mandatory service
bulletin in question), expressed in days
multiplied by
(2) the Applicable Remaining Lease Period after
the date of completion of work to comply
with such airworthiness directive
or service bulletin;
PROVIDED, HOWEVER, that in no event shall Lessee be required
to pay more than 100% of such excess.
Lessee shall bear and pay the aggregate AD Cost described
above, and, within 15 days following Lessor's receipt from
Lessee of appropriate invoices for the work relating thereto,
Lessor shall reimburse Lessee for Lessor's share of the AD
Cost. Lessee shall give Lessor prior written notice of any
such airworthiness directive or mandatory service bulletin
before commencing any alteration, modification or addition of
or to the Aircraft with respect thereto. Any work that is
performed by Lessee with respect to any such airworthiness
directive or mandatory service bulletin shall be billed at
Lessee's true out-of-pocket cost and without any mark-up in
the cost of labor or materials.
13.8 POSSESSION OF AIRCRAFT; SUBLEASE OF AIRCRAFT. Lessee shall not (save as
otherwise expressly provided in this Clause 13.8 or in Clause 13.9
below), without the prior written consent of Lessor, sublease or
otherwise in any manner deliver, transfer or relinquish possession of
the Airframe or any Engine or install any Engine, or permit any Engine
to be installed, on any airframe other than the Airframe. With respect
to any transfer of
-71-
<PAGE>
possession pursuant to this Clause 13.8:
(i) Lessee shall remain primarily liable hereunder for the
performance of all of the terms of this Lease to the same
extent as if such transfer had not occurred, and no sublease
or other relinquishment of possession of the Aircraft shall in
any way discharge or diminish any of Lessee's obligations to
Lessor under this Lease or any of Lessor's rights hereunder
and such rights shall continue as if such sublease or transfer
had not occurred;
(ii) The term of any sublease (including, without limitation, any
option of the sublessee to renew or extend the sublease) or
pooling arrangement shall not continue beyond the end of the
Lease Term;
(iii) any sublease permitted by this Clause 13.8 shall in addition
expressly provide that (v) such sublease is subject and
subordinate to all of the terms of this Lease and all rights
of Lessor under this Lease, including without limitation,
Lessor's rights to repossession pursuant to Clause 17 and to
void such sublessee's right to possession upon such
repossession, whether or not any default has occurred or
exists under such sublease, (w) such sublessee consents to the
security assignment by Lessee to Lessor of all of Lessee's
right, title and interest in such sublease for purposes of
securing Lessee's obligations hereunder and such sublessee,
upon receipt of a written notice from Lessor that an Event of
Default has occurred and is continuing, will make all payments
under such sublease to, and, if this Lease has been declared
in default pursuant to Clause 17 hereof, will return the
Aircraft only to, Lessor, or as directed by Lessor, for so
long as such Event of Default shall continue, (x) the
maintenance, operation and insurance provisions of such
sublease shall be substantially the same as the provisions of
this Lease (whether by requiring such obligations to be
performed by such sublessee, by Lessee or by both), (y) the
Aircraft shall not be operated or used other than as provided
in this Lease, (z) the Lessor may void or terminate such
sublease following an Event of
-72-
<PAGE>
Default hereunder and (zz) such sublease shall be governed by
New York law;
(iv) prior to the commencement of any sublease, Lessee shall give
Lessor written notice of the proposed sublease of the
Aircraft, which notice shall include the identity of the
sublessee, the term and rental rate of the sublease and a copy
of such sublease;
(v) any such sublease shall expressly prohibit any assignment,
further sublease of the Aircraft and any of the rights under
such sublease; and
(vi) any consent by Lessor to any sublease pursuant to this Clause
13.8 may be revoked by Lessor if the executed sublease
contains terms which have not been expressly approved by
Lessor, and in the event that Lessor's consent is revoked
pursuant to this Clause 13.8(vi), the sublease shall
automatically be terminated.
At least ten days prior to entering into any sublease of the Aircraft
to a sublessee, Lessee shall execute and deliver to Lessor an
assignment of and grant of a security interest in all of Lessee's
right, title and interest in such sublease, which assignment shall be
in form and substance reasonably satisfactory to Lessor. In connection
with such a sublease of the Aircraft, Lessee shall provide to Lessor,
at Lessee's or sublessee's expense and on or before commencement of
such sublease, a legal opinion from counsel to the sublessee in form
and substance reasonably satisfactory to Lessor, as to the due
execution and delivery and enforceability of such sublease and as to
such other matters as Lessor may reasonably request. Any monies
received by Lessor pursuant to the exercise of its rights under the
assignment of any sublease shall be held by Lessor as additional
security for the performance by Lessee of its obligations under this
Lease and, to the extent not applied against amounts due and owing by
Lessee hereunder and the exercise of remedies hereunder, shall be
returned to Lessee at such time as no Event of Default shall be
continuing.
-73-
<PAGE>
13.9 DELIVERY OF AIRFRAME OR ENGINES TO MANUFACTURER OR REPAIRER; POOLING
ARRANGEMENTS. Notwithstanding Clause 13.8, so long as no Default shall
have occurred and be continuing, Lessee may, without the prior written
consent of Lessor:
(i) DELIVERY FOR SERVICE OR REPAIR. Deliver possession of the
Airframe or any Engine to the manufacturer thereof for testing
or other similar purposes or to any organization for service,
repair, maintenance or overhaul work on the Airframe, such
Engine or any part thereof or for alterations or modifications
in or additions to the Airframe or such Engine to the extent
required or permitted by the terms of Clause 13.6;
(ii) POOLING OF ENGINES. Subject any Engine to normal interchange
or pooling agreements or arrangements in each case customary
in the airline industry and entered into by Lessee in the
ordinary course of its business with an air carrier approved
by Lessor; provided that if any interest of Lessee or Lessor
in or to any such Engine shall be divested under any such
agreement or arrangement, such divestiture shall be deemed to
be an Event of Loss with respect to such Engine and Lessee
shall comply with Clause 11.2 in respect thereof;
(iii) POOLING OF PARTS. Subject any part removed from the Airframe
or an Engine as provided herein to a normal pooling
arrangement customary in the airline industry entered into in
the ordinary course of Lessee's business with an air carrier
approved by Lessor, provided the part replacing such removed
Part shall be incorporated or installed in or attached to the
Airframe or Engine in accordance with Clause 13.4 as promptly
as possible after the removal of such removed Part. In
addition, any replacement part when incorporated or installed
in or attached to the Airframe or any Engine in accordance
with Clause 13.4 may be owned by an air carrier approved by
Lessor subject to such a normal pooling arrangement, provided
Lessee, at its expense, as promptly thereafter as possible
either (a) causes title to such replacement part to vest in
Lessor in accordance with Clause
-74-
<PAGE>
13.4 by Lessee acquiring title thereto for the benefit of, and
transferring such title to, Lessor free and clear of all
Liens, or (b) replaces such replacement part by incorporating
or installing in or attaching to the Airframe or Engine a
further replacement part owned by Lessee free and clear of all
Liens and causing title to such further replacement part to
vest in the Lessor in accordance with Clause 13.4.
No pooling agreement, sublease or other relinquishment of possession of
the Aircraft or any Engine shall in any way discharge or diminish any
of Lessee's obligations to Lessor hereunder.
13.10 OPERATION. In addition to the undertakings set out in Clause 10.13,
Lessee hereby undertakes:
(i) neither to operate nor to use the Aircraft at any time that
the full amount of insurance required by the terms of Clause
10 shall not be in effect;
(ii) not to operate, use, keep or locate nor to permit the
operation, use, keeping or location of the Aircraft or any
part thereof (i) for any purpose, in any manner or in any
place not covered by the insurances required pursuant to
Clause 10, or (ii) in any recognized or threatened area of
hostilities unless fully covered to Lessor's reasonable
satisfaction by war risk insurance; provided, however, that
the Aircraft or any Engine located in an area at the time it
becomes a recognized or threatened area of hostility may be
flown from and through such area to an area outside such area
of recognized or threatened hostility;
(iii) that the Aircraft shall not be maintained, used or operated in
violation of any mandatory law, rule, regulation or order of
any government or governmental authority having jurisdiction
(domestic or foreign), or in violation of any airworthiness
certificate, license or registration relating to the Aircraft
issued by
-75-
<PAGE>
any such authority.
13.11 NAMEPLATE. Lessee agrees to affix and maintain in the cockpit of the
Airframe in a prominent place, and on each Engine next to the engine
data plate, a metal nameplate having dimensions of not less than four
and a half inches by three inches bearing the inscription "This
Aircraft/Engine is owned by EAL (DELAWARE) VIII CORP. and leased to PAN
AMERICAN AIRWAYS, INC. AND IS SUBJECT TO A MORTGAGE TO ING LEASE
(NEDERLAND) B.V.-AMSTERDAM, THE NETHERLANDS."
Except as provided above, Lessee shall not allow the name or other
indication of any person, association or corporation to be placed on
the Aircraft or any Engine which name or other indication could be
interpreted as a claim of ownership or other interest therein.
13.12 LESSEE'S LIABILITY AS TO COSTS OF USE AND OPERATION. Save as
otherwise expressly provided herein, Lessee shall pay all costs,
expenses, fees and charges incurred in connection with the use,
operation, maintenance, repair and insurance of the Aircraft or any
Engine, including but not limited to repairs, maintenance, storage,
transport, housing, servicing and all airport and airspace use fees,
taxes and charges.
13.13 ENTITLEMENT TO ENFORCE WARRANTIES. So long as no Default shall have
occurred and be continuing, Lessee shall have the benefit of and shall
be entitled to enforce, either in its own name or in the name of Lessor
(at the cost of Lessee and in respect to which enforcement Lessee
hereby indemnifies Lessor) for the use and benefit of Lessee, any and
all dealer's, manufacturer's or subcontractor's warranties, if any, in
respect of the Aircraft or such Engine, to the extent such warranties
are assignable, and, so far as it is reasonably able, Lessor agrees to
do, execute and deliver such further acts, deeds, matters or things as
may be necessary to enable Lessee to obtain customary warranty services
furnished for the Aircraft or such Engine by such dealer, manufacturer
or subcontractor. Lessee shall at all times promptly and effectively
enforce its and Lessor's rights under any warranty hereinabove
mentioned.
-76-
<PAGE>
CLAUSE 14. REGISTRATION OF AIRCRAFT
Lessor shall prior to Delivery of the Aircraft hereunder cause the
Aircraft to be duly registered (if previously registered in a foreign
country) in the name of Lessor with the FAA in accordance with all
applicable laws of the United States.
CLAUSE 15. RETURN OF AIRCRAFT
15.1 REDELIVERY. Except as otherwise provided herein, at the expiration of
the Lease Term or upon the sooner termination of this Agreement, Lessee
shall return the Aircraft to Lessor at the Return Location by
delivering the same to Lessor together with the items identified in the
Technical Data and Manuals List attached hereto as Schedule D, the
Loose Equipment List attached hereto as Schedule E-1 and the Emergency
Equipment List attached hereto as Schedule E-2 at the Return Location.
At the time of return to Lessor, the Aircraft shall be fully equipped
with Engines or (subject to Clause 15.3) other engines owned by Lessee
(and complying with Clause 15.3) properly installed thereon and shall
comply in all respects with the Redelivery Conditions stated in
Schedule F hereto.
Lessee shall bear all costs arising from the transport of the Aircraft
to the Return Location, including the costs of flight crews, fuel,
insurance, landing charges, navigational charges, engine and
maintenance costs.
If Lessee shall fail to return the Aircraft to Lessor at the time and
in the condition required by this Lease (whether at the expiration or
any termination of Lessee's right to lease the Aircraft hereunder or
otherwise), then, in addition to any other right or remedy available to
Lessor in respect thereof, Lessee shall continue to maintain and insure
the Aircraft as provided in this Agreement until such time as the
Aircraft is returned to Lessor and is in the condition required by this
Lease. Lessee's obligation under the preceding sentence shall survive
the termination or any expiration of this Lease.
-77-
<PAGE>
15.2 ENGINE CONDITION. In the event any engine not owned by Lessor shall be
delivered with the Airframe, such engine shall be satisfactory to
Lessor, free and clear of Liens, suitable for use on such Airframe and
shall have the value and utility at least equal to, and be in as good
operating condition (including no greater number of Flight Hours or
Cycles accumulated on such engine) as the Engine that should have been
returned, assuming such Engine which should have been returned was in
the condition and repair as required by the terms hereof immediately
prior to such required return. At its own expense and concurrently with
such delivery, Lessee shall furnish Lessor with a bill of sale, in form
and substance satisfactory to Lessor, for each such engine and with
evidence of Lessee's title to such engine (including, if requested, an
opinion of Lessee's counsel) and shall take such other action as Lessor
may reasonably request in order that title to such engine shall be duly
and properly vested in Lessor. Upon full compliance with this Clause
15.2 and passage of title to such engine to Lessor, such engine shall
be an Engine for all purposes of this Agreement and Lessor will
transfer to Lessee all right, title and interest that Lessor may have
in an Engine constituting part of the Aircraft so returned but not
installed on such Aircraft at the time of such return, without any
representation, warranty or recourse of any kind whatsoever, express or
implied, except a warranty that such Engine is free and clear of Lessor
Liens; provided, however, that if Lessor requires in its absolute
discretion, Lessee shall redeliver to Lessor any Engine not installed
on the Aircraft at the time of redelivery hereunder notwithstanding any
of the foregoing and in such circumstances Lessee shall not (if it has
not already done so) be required to transfer to Lessor or other
designee of Lessor right, title and interest in and to the engine then
installed on the Airframe which shall remain vested in Lessee and
Lessor shall not be required to transfer any right, title or interest
in or to the Engine not so installed on the Airframe to Lessee as
otherwise required by this Clause 15.2.
15.3 GENERAL CONDITION. The Aircraft when delivered to Lessor shall (without
prejudice to paragraph 2 of Schedule F) be clean by international
commercial airline operating standards, and (save as otherwise provided
in Clause 15.2) shall have installed thereon all
-78-
<PAGE>
Engines, equipment, accessories or parts installed thereon at the
commencement of the Lease Term therefor or improvements thereto made in
accordance with the provisions of this Agreement. The Aircraft shall be
in the same condition as when delivered to Lessee under the Interim
Lease, ordinary wear and tear (subject to the obligations set forth in
Clauses 5 and 13 and alterations and modifications properly made and
documented by Lessee as permitted under this Agreement) excepted.
Without prejudice to paragraph 4 of Schedule F, should Lessee be
granted any variances or extensions from the FAA with respect to any
airworthiness directives applicable to Lessee or should the FAA
approved maintenance program for Lessee permit carry-over or deferral
of maintenance items, performance of which, but for such deferral or
carry-over, would have otherwise been required thereby, Lessee shall
perform or cause to be performed, at Lessee's expense (subject to
Clause 13), all such items and airworthiness directives prior to return
of the Aircraft to Lessor. Without prejudice to paragraph 10 of
Schedule F, there shall be no untreated or uncorrected corrosion as
determined by the pre-delivery inspection by Lessor, including
corrosion within the fuel tanks.
Without prejudice to Schedule F, a borescope inspection, engine power
runs and systems functional checks shall be performed at Lessee's
expense immediately prior to return of the Aircraft to Lessor, and
Lessee shall provide evidence satisfactory to Lessor reflecting the
correction of any non-compliance found during such inspection with the
Maintenance Program.
Lessor shall have the right, at least seven days prior to the
expiration date of the Lease Term, to inspect the Aircraft to determine
whether the Aircraft will be in compliance with the requirements for
return at the expiration of the Lease Term. Immediately prior to the
date of re-delivery, Lessor shall be permitted to conduct a walk around
inspection, and a systems ground check. An engine power run shall be
performed by Lessee in accordance with the Maintenance Program. Lessee,
at its expense, shall correct, or cause to be corrected, all defects
exceeding Maintenance Program limitations. Lessor's right of inspection
shall include the right to conduct a separate inspection flight by
Lessor
-79-
<PAGE>
utilizing Lessee's flight crew or its designated representative of the
Aircraft of not more than 2 hours duration (the cost of which shall be
borne by Lessee). At all times during such inspection flight Lessee's
flight crew shall be in command of the Aircraft; PROVIDED, HOWEVER,
that Lessor's qualified pilots may operate the controls. If Lessor
determines that repairs are required to cause the Aircraft to comply
with the return requirements provided herein, such repairs shall be
performed at an FAA approved facility in the United States at Lessee's
sole cost and expense. Lessee and Lessor shall use commercially
reasonable efforts to combine such inspection flight with the ferry
flight to a secondary location.
15.4 REMOVAL OF INSIGNIA; TRANSFER OF WARRANTIES, ETC. At the time of such
return, Lessee shall at its own expense (a) remove all names, insignia
and other indications of Lessee from the exterior and interior of the
Aircraft and (b) transfer to Lessor to the extent transferable all
warranties and indemnifications obtained by Lessee with respect to the
Aircraft together with all documents relative thereto which may be
required to effect such transfer.
15.5 FUEL AND OIL. Upon the return of the Aircraft, either at the end of the
Lease Term, pursuant to Clause 17 or pursuant to any other termination
of this Agreement, each fuel tank and oil tank shall contain the same
quantity of fuel or oil as was contained in the fuel and oil tanks when
the Aircraft was delivered to Lessee under the Interim Lease, or, in
the case of differences in any such qualities, an appropriate
adjustment will be made by payment according to the then current market
price of fuel or oil, as the case may be.
15.6 RETURN ACCEPTANCE CERTIFICATE. Upon return of the Aircraft in
accordance with the terms of this Agreement, Lessee will prepare and
execute two (2) Return Acceptance Certificates substantially in the
form of Schedule H and Lessor will countersign and return one such
Return Acceptance Certificate to Lessee.
15.7 INDEMNITIES AND INSURANCE. The insurance and indemnities requirements
set forth in
-80-
<PAGE>
Clauses 10 and 16 will apply to Lessor's representatives during return
of the Aircraft, including the ground inspection, inspection flight and
demonstration flight. With respect to the inspection flight and
demonstration flight, Lessee shall assure that Lessor's representatives
will receive the same protection as Lessee on Lessee's Aviation and
Airline General Third Party Liability Insurance.
15.8 AIRPORT AND NAVIGATION CHARGES. Lessee will ensure that at return of
the Aircraft any and all airport, navigation and other charges which
give rise or may if unpaid give rise to any Lien, right of detention,
right of sale or other Lien in relation to the Airframe, Engine or any
Part, whether incurred in respect of the Aircraft or any other aircraft
operated by Lessee, have been paid and discharged in full (whether or
not due) and will at Lessor's request produce evidence thereof
satisfactory to Lessor.
15.9 RECTIFICATION OF RE-DELIVERY CONDITION. To the extent that, at the time
of redelivery, the condition of the Aircraft or records does not comply
with the provisions hereof, Lessee at its own expense shall cause such
rectification to be carried out as soon as possible. In the event that
such rectification extends beyond the end of the Lease Term, the Lease
Term shall, at the option of Lessor, be extended and the provisions of
this Agreement, including the requirement to pay Rent during the period
the Lease Term is so extended (prorated on a daily basis), shall remain
in force until such rectification has been accomplished; provided
however, that Lessor shall have the right, after the date on which the
Lease Term would otherwise have ended but for this Clause 15.9, to take
possession of the Aircraft and demand compensation for costs incurred
by Lessor in connection with such repossession.
15.10 EXPORT AND DE-REGISTRATION OF AIRCRAFT. Lessee will, at Lessor's cost,
(i) assist in obtaining a Certificate of Airworthiness for Export and
all other authorizations and approvals for export of the Aircraft from
the United States to any country designated by Lessor (and Lessee and
Lessor shall, 90 days in advance of the date of any re- delivery, work
together to determine the workscope required therefor), (ii) assist
with de-
-81-
<PAGE>
registration of the Aircraft from the records of the FAA, (iii) assist
Lessor or its designee(s) in securing such new registration of the
Aircraft as may be determined by Lessor, which assistance shall
include, without limitation, preparation or provision of documents
necessary or desirable to be obtained from Lessee in connection with
such new registration, and (iv) perform any other acts reasonably
required by Lessor in connection with the foregoing.
-82-
<PAGE>
CLAUSE 16. INDEMNIFICATION
-83-
<PAGE>
16.1 GENERAL INDEMNITY. Subject only to the limitations described in the
last paragraph of this Clause 16.1, Lessee agrees to indemnify,
reimburse and hold harmless each Indemnitee from and against any and
all claims, damages, losses, liabilities, demands, suits, judgments,
causes of action, legal proceedings, whether civil or criminal,
penalties, fines and other sanctions, and any reasonable attorney's
fees and other reasonable costs and expenses in connection herewith or
therewith, including any of the foregoing arising or imposed with or
without Lessor's fault or negligence (whether passive or active) or
under the doctrine of strict liability (any and all of which are
hereafter referred to as "CLAIMS") which in any way may result from,
pertain to or arise in any manner out of, or are in any manner related
to (i) the Aircraft, this Agreement or any other Lease Document, any
interest herein or any document executed in connection herewith or
therewith, or the breach of any representation, warranty or covenant
made by Lessee hereunder or under any other such document, or (ii) the
condition, manufacture, re-delivery, lease, acceptance, rejection,
possession, return, disposition, maintenance, repair, use or operation
of the Aircraft either in the air or on the ground at any time after
the Delivery Date and before the Redelivery of the Aircraft to Lessor
as and when required hereby, or (iii) any defect in the Aircraft
(whether or not discovered or discoverable by Lessee or Lessor) arising
from the material or any articles used therein or from the design,
testing or use thereof or from any maintenance, service, repair,
overhaul or testing of the Aircraft, whether or not the Aircraft is in
the possession of Lessee, and regardless of where the Aircraft may then
be located, or (iv) any transaction, approval or document contemplated
by this Agreement or any Lease Document or given or entered into in
connection herewith or therewith, (v) any payments required under any
Lease Document, or (vi) otherwise in connection with the transactions
contemplated by the Lease Documents; provided, however, that Lessee
shall be subrogated to all rights and remedies which Lessor may have
against the Manufacturer of the Aircraft and its subcontractors as to
any such Claims, but only to the extent that Lessee satisfies its
indemnification to Lessor with respect to such Claims. Lessee shall not
be required to pay or discharge any Claim brought by a third party so
long as the validity or the amount thereof shall be diligently
contested in good faith and on reasonable grounds by Lessee, at no cost
or
-84-
<PAGE>
expense to Lessor.
Lessee hereby waives, and releases each Indemnitee from, any Claims
(whether existing now or hereafter arising) for or on account of or
arising or in any way connected with injury to or death of personnel of
Lessee or loss or damage to property of Lessee or the loss of use of
any property which may result from or arise in any manner out of or in
relation to the ownership, leasing, condition, use or operation of the
Aircraft, either in the air or on the ground, or which may be caused by
any defect in the Aircraft from the material or any article used
therein or from the design or testing thereof, or use thereof, or from
any maintenance, service, repair, overhaul or testing of the Aircraft
regardless of when such defect may be discovered, whether or not the
Aircraft is at the time in the possession of Lessee, and regardless of
the location of the Aircraft at any such time.
The indemnities contained in this Clause 16.1 shall continue in full
force and effect notwithstanding the expiration or other termination of
this Lease and are expressly made for the benefit of and shall be
enforceable by each Indemnitee; provided, however, that Lessee shall
not be obligated to pay any indemnity pursuant to this Clause 16.1 with
respect to any amount to the extent that such amount arises out of or
is measured by acts, failures to act, events or periods of time (or any
combination of the foregoing) that occur after the Aircraft has been
redelivered to Lessor pursuant to Clause 15 hereof (under circumstances
not involving a repossession pursuant to Clause 17.2 hereof) and is no
longer subject to this Agreement and all obligations of Lessee under
this Agreement have been discharged (other than obligations which by
their express terms survive the expiration of the Lease Term) unless
any such act or event shall itself result from or be attributable to an
act or omission of Lessee which occurred prior to the redelivery of the
Aircraft and the discharge of Lessee's obligations under this
Agreement.
Notwithstanding the foregoing provisions of this Clause 16.1, Lessee
shall not be obligated to make any payment by way of indemnity to any
Indemnitee (i) in respect of any Claims to the extent such Claims
result from the willful misconduct or gross
-85-
<PAGE>
negligence of any Indemnitee; or (ii) any Claim arising out of the
period before delivery of the Aircraft to Lessee except to the extent
relating to a matter required to be corrected by Lessee hereunder; or
(iii) to the extent such Claims are for Taxes (whether or not Lessee is
required to indemnify against such Taxes pursuant to Clause 16.2)
16.2 TAX INDEMNITY.
(i) WITHHOLDING TAXES. All payments required to be made by Lessee
under this Lease shall be made free and clear of, and without
deduction for or on account of, any present or future Taxes of
any nature whatsoever now or hereafter imposed by any
governmental entity or taxing authority in any jurisdiction.
If any Taxes are required to be withheld or deducted from any
such payments, Lessee shall (i) within the period for payment
permitted by applicable Law pay to the appropriate government
entity or taxing authority the full amount of such Taxes (and
any additional Taxes in respect of the payment required under
clause (ii) hereof) and make such reports and filings in
connection therewith at the time and in the manner required by
applicable Law, and (ii) pay to Lessor an additional amount
which (after deduction of all Taxes of any nature incurred by
reason of the payment or receipt of such additional amount)
will be sufficient to yield to the relevant Indemnitee the
full amount which would have been received by such Indemnitee
had no deduction or withholding been made.
(ii) GENERAL TAX INDEMNITY. In addition, except as set forth in
Clause 16.2(iii), Lessee agrees for the express benefit of
each Indemnitee to pay promptly when due, and to indemnify and
hold harmless such Indemnitee from, all Taxes (whether imposed
upon such Indemnitee, the Aircraft, the Airframe, the Engines
or otherwise), by any government entity or taxing authority in
any jurisdiction or by any international taxing authority,
upon or with respect to, based upon or measured by any of the
following:
-86-
<PAGE>
(a) the Aircraft, the Airframe, any Engine or any Part
thereof, or interest therein, this Lease or any of the other
Lease Documents or any interest therein; the importation,
exportation, condition, ownership, delivery, redelivery,
failure to redeliver, acceptance, possession, repossession,
return, use, performance, operation, control, settlement of
any insurance or other claim, leasing, subleasing, financing,
mortgaging, Liens, rental, retirement, abandonment,
preparation, installation, modification, repair, testing,
maintenance, replacement, transportation, storage, location,
condition, registration, re-registration, deregis- tration,
and the sale, transfer of title or other application or
disposition of the Aircraft, the Airframe, any Engine or any
Part thereof or any interest therein; or the rentals, receipts
or earnings arising therefrom (including without limitation
the Rent) and any other amounts paid or payable with respect
thereto;
(b) the Lease or the other Lease Documents; or
(c) otherwise with respect to or in connection with the
transactions contemplated by the Lease and other Lease
Documents.
(iii) EXCEPTIONS TO INDEMNITY. The indemnity provided for in Clause
16.2(ii) does not extend to any of the following Taxes:
(a) Taxes on, based on, or measured by the net income, profit,
capital gain, capital or net worth of any Indemnitee in any
jurisdiction in which such Indemnitee is incorporated or has
its principal place of business or is subject to such Taxes
solely as a result of transactions or activities unrelated to
the transactions contemplated by the Lease Documents (except
that there shall not be excluded any increase in such Taxes
resulting directly from the presence of the Lessee in the
relevant taxing jurisdiction or the presence, registration,
use or operation of the Aircraft in whole or in part in such
jurisdiction);
-87-
<PAGE>
(b) Taxes (1) imposed as a result of a voluntary or
involuntary transfer or other disposition of the Aircraft or
this Lease or any other Lease Document or any interest in any
of the foregoing by Lessor or any other Indemnitee other than
a transfer or disposition in connection with an exercise of
remedies following an Event of Default, or (2) to the extent
such Taxes exceed the amount of taxes which would have been
payable had there not been such a transfer or disposition;
(c) Taxes to the extent attributable to events or
circumstances occurring or arising after return of the
Aircraft to Lessor in accordance with this Lease, excluding
any period in which the Lessor is exercising remedies pursuant
to Clause 17.2 hereof; or
(d) Taxes resulting solely as a direct result of any gross
negligence or willful misconduct of the relevant Indemnitee or
any breach by such Indemnitee of its obligations hereunder or
under any other Lease Document or the breach or accuracy of
any representation, covenant, or warranty given by such
Indemnitee herein or therein.
(iv) AFTER-TAX BASIS. The amount which Lessee is required to pay
or indemnify against with respect to any amounts required to
be paid or indemnified against under Clause 16.1 or this
Clause 16.2 shall include an additional amount necessary to
hold the recipient of the payment or indemnity harmless on an
after-tax basis from all Taxes (whether or not such Taxes are
excluded under Clause 16.2(iii)) required to be paid or
credited by such recipient with respect to such payment or
indemnity, so as to restore the recipient on an after-tax
basis to the same position such recipient would have been in
had such amounts not been incurred or payable.
(v) TIMING OF PAYMENT. Any amount due and payable to the relevant
Indemnitee pursuant to Clause 16.2(ii) shall be paid within 10
days after receipt of a written
-88-
<PAGE>
demand therefor from such Indemnitee accompanied by a written
statement describing in reasonable detail the basis for such
indemnity and the computation of the amount so payable;
provided, however, that such amount need not be paid by Lessee
prior to the later of (a) five days prior to the date the
applicable Tax is payable to the appropriate government entity
or taxing authority or (b) in the case of amounts which are
being contested by Lessee in good faith or by Lessor pursuant
to Clause 16.2(vi) the date such contest is finally resolved.
(vi) CONTESTS. If written claim is made against an Indemnitee for
Taxes with respect to which Lessee is or may be liable for a
payment or indemnity hereunder, such Indemnitee will promptly
give Lessee notice in writing of such claim; provided,
however, that such Indemnitee's failure to give notice will
not relieve Lessee of its obligations hereunder, except to the
extent the failure to give such notice precludes a contest of
such claim in the manner contemplated herein. So long as (a) a
contest of such Taxes does not involve any danger of the sale,
forfeiture or loss of the Aircraft or any interest therein,
(b) Lessee has provided the relevant Indemnitee with an
opinion of independent tax counsel acceptable to such
Indemnitee that a meritorious basis exists for contesting such
claim, (c) Lessee has made adequate reserves for such Taxes
or, if required by the relevant Indemnitee, an adequate bond
has been posted by Lessee, and (d) Lessee has acknowledged in
writing its obligation to indemnify for such Taxes, then such
Indemnitee at Lessee's written request will in good faith,
with due diligence and at Lessee's sole cost and expense,
contest (or, if permitted by Law, permit Lessee to contest in
the name of such Indemnitee) the validity, applicability or
amount of such Taxes. If such contest is to be initiated by
the payment of, and the claiming of a refund for, any Taxes,
Lessee shall advance to the relevant Indemnitee sufficient
funds (on an interest-free basis) to make such payments and
shall indemnify such Indemnitee for any tax consequences
resulting from such advance of funds. Although the relevant
Indemnitee may consult in good faith with Lessee concerning
the conduct of any contest, such Indemnitee shall control the
conduct of all proceedings
-89-
<PAGE>
relating to any such contest which is brought by or on behalf
of such Indemnitee. Any contest initiated hereunder may be
settled or discontinued at any time provided that the relevant
Indemnitee shall have waived any right to indemnification for
the Taxes being contested.
(vii) REFUNDS. Upon receipt by the relevant Indemnitee of a refund
of all or any part of any Taxes (including any deductions or
withholdings referred to in Clause 16.2(i)) which Lessee has
paid, such Indemnitee will pay to Lessee the net amount of
such Taxes refunded, together with any interest receive by
such Indemnitee with respect thereto; provided, however, that
no amount shall be payable to the Lessee hereunder if a
Default or an Event of Default shall have occurred and be
continuing or prior to the time that Lessee shall have paid to
the relevant Indemnitee all amounts then due and owing to such
Tax Indemnitee under this Clause 16.
(viii) COOPERATION IN FILING TAX RETURNS. In case any report or
return is required with respect to any Taxes which are subject
to indemnification by Lessee under this Clause 16.2, Lessee
will either make such report or return in such manner as will
show the respective interests of Lessor and ING in the
Aircraft, and send a copy of such report or return to Lessor,
or will notify the Lessor of such requirement and make such
report or return in such manner as shall be reasonably
satisfactory to the Lessor or ING.
CLAUSE 17. EVENTS OF DEFAULT
17.1 EVENTS OF DEFAULT. Any one or more of the following shall constitute
an Event of Default hereunder:
(i) Lessee shall fail to accept delivery of the Aircraft hereunder
(as contemplated by CLAUSE 2.2(IV) above) on the Expiration
Date (as defined in the Interim Lease), if
-90-
<PAGE>
the Delivery Date (as defined in the Interim Lease) shall have
occurred;
(ii) Lessee shall fail to make any payment hereunder of any Rent
or Supplemental Rent within five Business (5) Days of its due
date; or
(iii) Lessee shall fail to carry and maintain insurance as required
under the provisions of Clause 10 of this Agreement; or
(iv) Lessee shall (A) create Liens or fail to discharge Liens as
set forth in Clause 9 of this Agreement, or (B) fail or return
the Aircraft upon the Expiration Date or any earlier
termination of this Lease; or
(v) Lessee shall fail to perform or observe in any material
respect any other obligation, covenant, undertaking, condition
or agreement to be performed or observed by it under any of
the Lease Documents (including, without limitation, the
Adjustment Agreement, the Spare Parts Lease and the First
Refusal Purchase Agreement) and such failure continues without
remedy for a period of thirty (30) days from the earlier to
occur of the date of Lessor's written notice thereof or the
date on which Lessee otherwise first has knowledge thereof; or
(vi) any material representation or warranty made by Lessee in any
of the Lease Documents or in any document or certificate
furnished by Lessee in connection therewith or pursuant
thereto shall at any time prove to have been false at the time
made and such condition shall continue unremedied for a period
of thirty (30) days from the earlier to occur of the date of
Lessor's written notice thereof or the date on which Lessee
otherwise first has knowledge thereof; or
(vii) Lessee shall consent to the appointment of a receiver, trustee
or liquidator of itself or a substantial part of its assets,
or Lessee shall admit in writing its inability to pay its
debts generally as they come due or makes a general assignment
for the
-91-
<PAGE>
benefit of creditors; or
(viii) Lessee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization or relief from
creditors in a proceeding under any bankruptcy laws (as now or
hereafter in effect) or an answer admitting the material
allegations of a petition filed against Lessee in any such
proceedings, or Lessee shall by voluntary petition, answer, or
consent seek relief under the provisions of any bankruptcy or
other similar law providing for the reorganization or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors; or
(ix) an order, judgment or decree is entered by any court, with or
without the consent of Lessee, appointing a receiver, trustee
or liquidator for Lessee of all or any substantial part of its
property, or all or any substantial part of the property if
Lessee is sequestered, and any such order, judgment or decree
of appointment or sequestration remains in effect,
undismissed, unstayed or unvacated for a period of sixty (60)
days after the date of entry thereof; or
(x) a petition (other than a petition which Lessee demonstrates
to the reasonable satisfaction of Lessor has been presented or
filed on any vexatious or frivolous grounds provided such
petition is discharged within fourteen days of such
presentation or filing) against Lessee in a proceeding under
any bankruptcy, insolvency or other similar laws (as now or
hereafter in effect) shall be filed, or if, under the
provisions of any law providing for reorganization or
winding-up of corporations which may apply to Lessee any court
of competent jurisdiction shall assume jurisdiction, custody
or control of Lessee; or
(xi) a final judgment or judgments for the payment of money not
covered by insurance in excess of $250,000 shall be rendered
against Lessee and the same shall remain undischarged for a
period of ninety (90) days during which execution thereof
shall
-92-
<PAGE>
not be effectively stayed by agreement of the parties
involved, stayed by court order or adequately bonded; or
(xii) attachments or other Liens shall be issued or entered against
substantially all of the property of Lessee and shall remain
undischarged or unbonded for sixty (60) days except for
security interests created in connection with monies borrowed
or obligations agreed to by Lessee in the ordinary course of
its business; or
(xiii) failure by Lessee to perform any term, condition or covenant
of any bond, note, debenture, loan agreement, indenture,
guaranty, trust agreement, mortgage or other instrument or
agreement in any material respect in connection with the
borrowing of money or the obtaining of advances or credit to
which the Borrower or any Subsidiary is a party or by which it
is bound, or by which any of its properties or assets may be
affected (a "DEBT INSTRUMENT"), so that, as a result of any
such failure to perform (regardless of the satisfaction of any
requirement for the giving of appropriate notice thereof or
the lapse of time), the indebtedness included therein or
secured or covered thereby may be declared due and payable
prior to the date on which such indebtedness would otherwise
become due and payable; or any indebtedness included in any
Debt Instrument or secured or covered thereby is not paid when
due, provided, however, that the failure to pay any such
indebtedness shall not be an Event of Default under this
subclause (xi) if and for so long as such indebtedness is
contested in good faith by Lessee by appropriate proceedings;
or
(xiv) Lessee shall default in the payment or performance of any
obligation under any loan agreement, conditional sale
agreement or lease agreement relating to the use, operation or
financing of any aircraft in Lessee's fleet, and such default
shall entitle the lender, mortgagee, seller or lessor
thereunder to exercise remedies in respect thereof and such
lender, mortgagee, seller or lessor has commenced the exercise
of remedies or declared such obligation to be in default;
-93-
<PAGE>
(xv) Lessee voluntarily suspends all or substantially all of its
airline operations, or Lessee's certificate issued to it by
the U.S. Department of Transportation under the Federal
Aviation Act is suspended, canceled or revoked, or Lessee
shall otherwise at any time cease to be a Certificated Air
Carrier or the franchises, concessions, permits, rights or
privileges required for the conduct of the business and
operations of Lessee shall be revoked, canceled or otherwise
terminated or the free and continued use and exercise thereof
curtailed or prevented, and as a result of any of the
foregoing the predominant business activity of Lessee shall
cease to be that of a commercial airline; or
(xvi) any of the Lease Documents becomes null and void or invalid
or unenforceable, for any reason as a result of any action or
inaction of Lessee; or
(xvii) an "Event of Default" (as defined in any Other Lease, or in
the Spare Parts Lease) shall occur.
17.2 ACTION ON OCCURRENCE OF EVENT OF DEFAULT. Upon the occurrence of any
Event of Default and at any time thereafter so long as the same shall
be continuing, Lessor may, at its option, declare by written notice to
Lessee this Lease Agreement to be in default and at any time
thereafter, so long as any such Event of Default shall not have been
remedied, Lessor may do one or more of the following with respect to
all or any part of the Aircraft as Lessor in its sole discretion shall
elect, to the extent available and permitted by, and subject to
compliance with any mandatory requirements of, applicable law then in
effect; provided, however, that nothing herein shall impair or limit
any right or remedy otherwise available hereunder or at law in
connection with any Event of Default:
(i) terminate Lessee's rights to the use and possession of the
Aircraft hereunder and, upon the written demand of Lessor and
at Lessee's expense, cause Lessee to
-94-
<PAGE>
return promptly, and Lessee shall return promptly, all or any
part of the Aircraft as Lessor may so demand, to Lessor, or to
the location directed by Lessor, in the manner and condition
required by, and otherwise in accordance with all the
provisions of, Clause 15 as if such Aircraft was being
returned at the end of the Lease Term (including, without
limitation, the items identified in the Technical Data and
Manuals List attached hereto as Schedule D all fully updated
and supplemented as required hereby), or, at its option and to
the extent permitted by applicable law, 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 (and, at Lessor's option, store the
same at Lessee's premises until disposal thereof by Lessor);
PROVIDED, HOWEVER, that Lessor shall return to Lessee all
personal property of Lessee which was on board the Aircraft
promptly following the time Lessor re-takes possession of the
Aircraft.
(ii) sell all or any part of the Aircraft at public or private
sale, as Lessor may determine, or otherwise dispose of, hold,
use, operate or lease to others, as Lessor, in its sole
discretion, may determine, all free and clear of any rights of
Lessee, except as hereinafter set forth in this Clause 17;
(iii) effect the immediate cancellation or termination of the U.S.
registration of the Aircraft, and, in connection therewith,
prepare, execute, deliver (in Lessor's own name or in the name
of Lessee pursuant to the power of attorney hereinbelow or
elsewhere set forth) and file with the FAA, any request,
consent or other instrument necessary or advisable in order to
effect such cancellation, termination or de-registration;
(iv) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under
Clause 17.2(i) or 17.2(ii) above with respect to the Aircraft,
the Airframe or any Engine, Lessor, by written notice to
Lessee specifying a payment date which shall be the Rent
Payment Date not earlier than
-95-
<PAGE>
ten days from the date on which such notice is received by
Lessee, may demand that the Lessee pay to Lessor, and Lessee
shall pay Lessor, on the payment date so specified, any unpaid
Basic Rent and Maintenance Payments due on any date prior to
the payment date so specified, and all Deferred Rent;
(v) in the event that Lessor shall have sold the Aircraft,
Airframe or any Engine pursuant to Clause 17.2(ii) above,
Lessor, in lieu of exercising its rights under Clause 17.2(iv)
above with respect to such Aircraft, Airframe or any Engine,
may, if it shall so elect, demand that Lessee pay Lessor, and
Lessee shall pay to Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty,
all Basic Rent (including all Deferred Rent) and Maintenance
Payments with respect to the Aircraft which would have been
payable for the Lease Term if no Event of Default had
occurred;
(vi) liquidate or draw upon the Security Deposit and any other
cash, securities, letter of credit or other right or property
held hereunder or under any Other Lease as collateral for
Lessee's performance hereunder or thereunder, and apply any or
all of the proceeds thereof to the satisfaction of Lessee's
obligations or liabilities hereunder; and/or
(vii) Lessor may rescind or terminate this Lease Agreement as to the
Aircraft, Airframe or any Engine and/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 hereof or to recover damages for breach hereof.
In addition, Lessee shall be liable, except as otherwise provided above and
without duplication of amounts payable hereunder, for any and all unpaid Rent
due hereunder before, after or during the exercise of any of the foregoing
remedies, and for all reasonable and actual legal fees and other costs and
expenses incurred by Lessor in connection with the enforcement hereof, the
return of the Airframe or any Engine in accordance with the terms of Clause 15
or in placing
-96-
<PAGE>
such Airframe or Engine in the condition and airworthiness required by such
Clause. Without limiting the foregoing, if an Event of Default occurs, then
Lessee shall, in addition to other liabilities arising in connection therewith,
reimburse Lessor for any legal fees and disbursements incurred by Lessor in
analyzing, monitoring and enforcing Lessor's rights and remedies in connection
with such Event of Default.
Lessee hereby constitutes and appoints each of Lessor and ING as the true and
lawful agent and attorney-in-fact for Lessee (with full power of substitution)
in the name, place and stead of, and at the expense of, Lessee, in connection
with the enforcement of the rights, powers, privileges and remedies provided for
in this Clause or otherwise available to Lessor or ING hereunder, at law or in
equity, in connection with, upon or following the occurrence of an Event of
Default (i) to collect, receive, pay, disburse, enforce and apply, any monies,
collateral, assets or property held or available hereunder or in respect hereof,
or under any other Lease Document or in respect thereof, (ii) to effect any
grant, conveyance, lease or other transfer or application of any collateral,
assets or property, (iii) to effect the cancellation and de- registration of the
Aircraft from the Aircraft Registry of the FAA or any other civil aviation
authority on which the Aircraft may at any time be registered during the Lease
Term; (iv) to export and remove from the United States of America the Aircraft
and all related or installed aircraft engines, parts and equipment and all
related maintenance, repair, overhaul and operating records, logs, books and
other data; (v) to negotiate, complete, execute, deliver, present, file and
record any agreement, demand, request, consent, document or instrument referred
to, contemplated by or otherwise incident to the de-registration, repossession,
removal and export of the Aircraft or the exercise of any other right, power,
privilege or remedy under this Lease or available to either Lessor or ING at law
or in equity; and (vi) to take any other action incidental to, or in furtherance
of, the exercise of any right, power, privilege or remedy available to Lessor or
ING hereunder or at law or in equity; PROVIDED, HOWEVER, that nothing herein
shall relieve Lessee of any obligation to execute, deliver or do, and Lessee
shall execute, deliver and do, any of the foregoing documents or acts at upon
the demand of Lessor or ING to do so.
Except as otherwise expressly provided above, no remedy referred to in this
Clause 17 is
-97-
<PAGE>
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise by Lessor
of any or all of such other remedies. No express or implied waiver by Lessor of
any Event of Default shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
CLAUSE 18. ASSIGNMENT
18.1 BENEFIT OF AGREEMENT. The terms and provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
18.2 ASSIGNMENT BY LESSEE. Lessee shall not, without the prior written
consent of Lessor, assign any of its rights or obligations hereunder.
18.3 ASSIGNMENT BY LESSOR.
(i) Lessor may, at Lessor's sole expense, having given prior
written notice to Lessee, assign all or part of its rights
hereunder without the prior written consent of Lessee;
PROVIDED, HOWEVER, that any such assignment shall not affect
Lessee's rights, powers, obligations, privileges, options and
benefits available to Lessee hereunder and shall not
invalidate the U.S. Registration of the Aircraft.
(ii) Lessee hereby acknowledges and consents to the Security
Agreement and to the creation of the security interest
evidenced thereby. Pursuant to the Security Agreement, ING has
succeeded to, and has the exclusive right to exercise, all
rights, powers, privileges, options and other benefits
available to the Lessor hereunder, including all rights to
make and to give any demands, waivers and agreements under any
such Lease, to make determinations, to give and receive
-98-
<PAGE>
notices and other communications, to take such action upon the
occurrence of an Event of Default hereunder, including all
rights to exercise remedies, to assert powers and privileges,
and to make demands in connection herewith. Lessee will
furnish to ING counterparts of all writings of any kind
required to be delivered hereunder by Lessee to Lessor and
until Lessee has been notified by ING that the lien of the
Security Agreement on the Aircraft has been released (x)
Lessee shall make all payments of Basic Rent and Supplemental
Rent, Monthly Maintenance Reserve Payments and the Security
Deposit and all other amounts payable hereunder, to ING as
specified in Clause 6.1 and (y) ING shall be entitled to the
exclusion of the Lessor to succeed to and exercise all of the
rights, remedies, powers and privileges of the Lessor under
this Lease and, in this respect, the Lessee shall not, and
shall not be required to, recognize the exercise of any such
right, remedy, power or privilege by the Lessor, as
applicable. In furtherance thereof, the Lessee and the Lessor
also agree that, with respect to any instructions, directions,
consents, waivers and other communications that the Lessor is
entitled to deliver to the Lessee under this Lease, the Lessee
shall only accept, and shall only act (or refrain from acting)
in accordance with, such instructions, directions, consents,
waivers and other communications that are given by ING until
Lessee has been otherwise notified by ING. Each payment made
by Lessee pursuant to the second preceding sentence shall, to
the extent actually received by ING, be deemed, as between
Lessor and Lessee, to satisfy Lessee's obligations hereunder
to make such payments. This Lease shall be subject and
subordinate to the Security Agreement, but neither Lessor nor
any Person deriving from Lessor shall in the absence of an
Event of Default, take any action contrary to Lessee's rights
under this Lease, including, without limitation, the right to
use and possession of the Aircraft, except in accordance with
the provisions of this Lease. The Lessee also acknowledges
that any obligations which the Lessor shall have under this
Lease shall be non-recourse to the Lessor and that for
satisfaction thereof, Lessee shall look only to Lessor's
interest in the Aircraft and/or ING. To the extent that ING
satisfies any such obligation, such
-99-
<PAGE>
amount shall, to the extent permitted by the Security
Agreement and applicable law be added to the amounts secured
by the Security Agreement.
(iii) In the event this Lease is assigned, sold, encumbered or
re-encumbered by Lessor, any assignee, transferee or mortgagee
shall agree as a condition precedent thereto not to disturb or
otherwise interfere with the quiet enjoyment by Lessee of the
Aircraft so long as no Event of Default shall have occurred
and be continuing, and Lessee shall have received confirmation
in writing, reasonably acceptable to Lessee, that such
transferee accepts all responsibilities of Lessor under this
Lease, including but not limited to, confirmation of Lessee's
right to quiet enjoyment of the Aircraft.
CLAUSE 19. FURTHER ASSURANCES
19.1 FURTHER ASSURANCES. Lessee shall cause to be done, executed,
acknowledged and delivered all and every such further acts, conveyances
and assurances as Lessor shall reasonably require for accomplishing the
purposes of each of the Lease Documents to which Lessor or ING is a
party, and shall promptly furnish to Lessor such information as may be
reasonably required by Lessor to enable Lessor timely to file any
reports required to be filed by it with any governmental authority
because of Lessor's ownership of the Aircraft.
19.2 PERFECTION OF LESSOR'S ETC. INTERESTS. Lessee shall, at its own
expense, take such steps as are reasonably requested by Lessor which
are necessary or appropriate to perfect or keep perfected the interests
of Lessor created or intended to be created under this Agreement and
any other document with respect to the Aircraft.
-100-
<PAGE>
CLAUSE 20. PROTECTION OF LESSOR'S INTERESTS
If the rights of Lessor and such other persons as Lessor may specify in
the Aircraft shall be in danger, or shall be attacked directly or
indirectly, or if any legal proceedings are instituted against Lessee,
Lessor, or such other persons as Lessor may specify with respect
thereto, Lessee shall promptly give written notice thereof (to the
extent known to it) to Lessor so that all steps deemed by Lessor to be
necessary or appropriate for the defense and protection of each of
their respective rights in the Aircraft can be taken. All reasonable
costs in connection with the foregoing will be borne by Lessor or any
such other person (as the case may be), unless the foregoing results
from the act or omission of Lessee or from a breach of the terms of
this Agreement by Lessee in which event such costs shall be borne by
Lessee.
CLAUSE 21. COSTS AND EXPENSES
21.1 PREPARATION AND NEGOTIATION OF LEASE DOCUMENTS. Except as otherwise
provided herein, each of Lessor and Lessee will be responsible for its
own costs and expenses incurred in connection with the preparation,
negotiation and execution of each of the Lease Documents, including
without limitation, the fees, expenses and disbursements of legal
counsel to such party.
21.2 ENFORCEMENT AND PRESERVATION OF RIGHTS. Lessee agrees to pay within 30
days of Lessor's first written demand all of the costs and expenses
incurred by Lessor or on its behalf incidental to the enforcement,
protection or preservation of any right or claim of Lessor under each
of the Lease Documents to which it is a party.
21.3 NON-DELIVERY DUE TO EVENT OF LOSS. In the event the Aircraft shall
not have been delivered on the Delivery Date by reason of its loss or
destruction, Lessor's commitment to lease the Aircraft hereunder shall
automatically terminate on and as of the date of such loss or
destruction.
-101-
<PAGE>
CLAUSE 22. INSPECTION
Lessee shall arrange that, at all reasonable times during the Lease
Term, Lessor or ING or, in either case, its authorized representatives
may, during the normal business hours of Lessee inspect the Aircraft or
any part thereof and the logs, books and other records maintained
Lessee relative thereto; provided, however, that no such inspection
shall interfere with Lessee's quiet, peaceful use and enjoyment
thereof.
In addition, Lessee shall give Lessor not less than five days' prior
notice of the performance of any "C-Check" or "D-Check" of the Airframe
so that Lessor can arrange to have a representative present during such
checks.
Notwithstanding the foregoing, Lessor shall have no duty to make any
such inspection, and Lessor shall not incur any liability, obligation
or other detriment by reason of not making any such inspection.
CLAUSE 23. NOTICES AND LANGUAGE
23.1 NOTICES. All notices, requests, demands or other communications to or
upon any party hereto shall be made in writing in English and shall be
deemed to have been duly given or made:
(a) if delivered by hand, at the time of delivery to a
duly authorized person;
(b) if made by letter, seven (7) days after having been
deposited in the mail, registered airmail postage
prepaid;
(c) if given by telex, when sent with confirmed
answerback (if received during the business hours of
the recipient, otherwise by 9:30 a.m. on the
-102-
<PAGE>
next Business Day);
(d) if given by facsimile, when transmitted and receipt
of same has been confirmed by telephone or facsimile
machine printed confirmation;
(e) if given by international courier, two (2) Business
Days after having been sent.
Such notices, requests, demands or other communications shall be
dispatched to or given at:
(i) If to Lessee:
Pan American Airways, Inc.
Address: 9300 N.W. 36th Street
Miami, Florida 33178
Telephone: (305) 873-2625
Facsimile: (305) 873-7158
(ii) If to Lessor:
EAL (Delaware) VIII Corp.
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
with a copy to:
ING Lease (Nederland) B.V.
Address:
Karspeldreef 14
P.O. Box 1971
1101 CK Amsterdam-Zuidoost,
The Netherlands
Telephone: +31-20-652-5701
Facsimile: +31-20-652-5704
-103-
<PAGE>
with a copy of all notices relating to delivery, maintenance or return
delivery matters with respect to the Aircraft to:
Mr. Rickki D. Soverns
911 N.W. 209th Avenue
Pembroke Pines, Florida 33029
Telephone: 954-450-7050
Facsimile: 954-450-7070
or such other addresses or number as Lessor or Lessee may specify in
writing to the other.
CLAUSE 24. LESSOR'S RIGHTS TO PERFORM FOR LESSEE
If Lessee fails to perform any of its obligations contained herein,
Lessor may perform or discharge such obligation, and the amount of the
reasonable expenses of Lessor incurred in connection with such
performance of or compliance shall be payable to Lessor by Lessee upon
demand.
CLAUSE 25. APPLICABLE LAW AND JURISDICTION
25.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT CLAUSE
30 (SECURITY DEPOSIT) SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF FLORIDA.
25.2 SUBMISSION TO JURISDICTION. Lessee irrevocably consents that any legal
action or proceeding against it under, arising out of or in any manner
in connection herewith or any other Lease Document may be brought in
any court of the State of New York or in the United States District
Court for the Southern District of New York. Lessee, by the execution
and delivery of this Lease, expressly and irrevocably assents and
submits to the
-104-
<PAGE>
personal jurisdiction of any of such courts in any such action or
proceeding. Lessee further irrevocably consents to the service of any
complaint, summons, notice or other process relating to any such action
or proceeding by delivery thereof to it by hand or by registered or
certified mail, return receipt requested, in the manner provided for in
Clause 23 hereof. Lessee hereby expressly and irrevocably waives any
claim or defense in any such action or proceeding based on any alleged
lack of personal jurisdiction, improper venue or FORUM NON CONVENIENS
or any similar basis. Nothing in this Paragraph shall affect or impair
in any manner or to any extent the right of Lessor or ING to commence
legal proceedings or otherwise proceed against the Lessee in any
jurisdiction or to serve process in any manner permitted by law. LESSEE
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT. THIS WAIVER IS IRREVOCABLE, AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. In the event of litigation, this Agreement may be filed
as a written consent to a trial by the court.
Lessee hereby irrevocably designates, appoints and empowers CT
Corporation, the present address of which is 1633 Broadway, New York,
New York 10019, as its authorized agent to receive, for and on behalf
of Lessee and its property, service of process, when and as any legal
actions or proceedings may be brought in the courts of the United
States of America for the Southern District of New York, and such
service of process shall be deemed completed upon the date of delivery
thereof to such agent, whether or not such agent gives notice thereof
to Lessee, or upon the earliest of any other date permitted by
applicable law. A copy of such process served on the agent so
designated above will be forwarded promptly by Lessor to Lessee, at its
address referred to in Clause 23, but the failure to receive such copy
shall not affect in any way the service of process on such agent as
agent. Lessee agrees that it will, at all times during the Lease Term,
continuously maintain an agent to receive service of process on behalf
of
-105-
<PAGE>
itself and its properties with respect to this Agreement, and in the
event that, for any reason, the agent named above or its successor
shall no longer serve as agent of Lessee, to receive service of process
in the State of New York on its behalf, it shall promptly appoint a
successor so to serve and shall advise Lessor, thereof. Nothing herein,
however, shall limit the right of the parties to serve process in any
other manner permitted by applicable law.
CLAUSE 26. ALTERATIONS TO AGREEMENT
26.1 ENTIRE AGREEMENT. This Agreement, together with the Consulting
Agreement, and the other Lease Documents, contains the entire agreement
between the parties as of the date hereof and supersedes any previous
understanding, commitment, agreement or representation whatsoever, oral
or written.
26.2 VARIATION ONLY IN WRITING. This Agreement shall not be varied except by
an instrument in writing of even date herewith or subsequent hereto
executed by both parties by their respective duly authorized
representatives.
26.3 ENGLISH LANGUAGE. In the event that this Agreement is translated into
any language other than English, the English version of this Agreement
shall be controlling.
-106-
<PAGE>
CLAUSE 27. CURRENCY INDEMNITY
All amounts to be paid hereunder to Lessor or Lessee shall be paid in
Dollars, in immediately available funds. Lessee acknowledges that the
specification of Dollars in this transaction is of the essence and that
Dollars shall be the currency of account in any and all events. The
obligations of Lessee or Lessor hereunder, to Lessor or Lessee,
respectively, shall not be discharged by an amount paid in another
currency, whether pursuant to a judgment or otherwise, to the extent
that the amount so paid on prompt conversion to Dollars under normal
banking procedures does not yield the amount of Dollars owing to
Lessor. In the event that any payment by Lessee or Lessor,
respectively, whether pursuant to judgment or otherwise to Lessor or
Lessee, respectively, upon conversion does not yield such amount of
Dollars, Lessor or Lessee, as the case may be, shall have a separate
cause of action against Lessee or Lessor, as the case may be, for the
additional amount necessary to yield the amount of Dollars due and
owing to Lessor or Lessee, as the case may be.
CLAUSE 28. QUIET ENJOYMENT OF AIRCRAFT
Lessor hereby covenants that, so long as no Default and no Event of
Default shall have occurred and so long as this Agreement shall not
have been otherwise breached by Lessee, Lessor shall not disturb or
interfere with Lessee's quiet and peaceful use and enjoyment of the
Aircraft and all revenues, profits and income related thereto in
accordance with the terms hereof without interference by Lessor or by
any person claiming by or through Lessor.
-107-
<PAGE>
CLAUSE 29. SEVERABILITY
Should any one or more provisions of this Agreement be determined to be
illegal or unenforceable by a court of any jurisdiction, such
provisions shall, as to such jurisdiction, be ineffective to the extent
of such illegality or enforceability, without invalidating the
remaining provisions hereof; provided, however, that validity or
enforceability of such provisions in any other jurisdiction shall not
be affected. Lessee agrees, as to any such jurisdiction, to replace any
provision of this Agreement which is so determined to be illegal or
unenforceable by a valid provision which has as nearly as possible the
same effect.
-108-
<PAGE>
CLAUSE 30. SECURITY DEPOSIT
-109-
<PAGE>
Lessee shall provide Lessor with a security deposit in the aggregate
amount of USD$ 150,000 (the "SECURITY DEPOSIT") to be paid as set forth
herein as security for the timely and faithful performance by Lessee of
all of Lessee's obligations under this Lease. Prior to the execution of
this Agreement, Lessee shall have provided to Lessor a good faith cash
deposit in the amount of USD$ 50,000. On or prior to the Delivery Date
(as defined in the Interim Lease), Lessee shall provide to Lessor an
additional cash deposit of USD$ 100,000; PROVIDED, HOWEVER, that Lessee
shall satisfy the requirement to deposit such $150,000 required hereby
by the delivery thereof to Lessor at or prior to the Delivery Date (as
defined in the Interim Lease), and Lessee hereby authorizes and directs
Lessor to retain such amount after the Expiration Date of the Lease
Term (as defined in the Interim Lease) as the Security Deposit under
this Lease Agreement. Lessee hereby creates and grants to Lessor and to
ING a lien on and security interest in all monies, securities,
accounts, and investments from time to time comprising the Security
Deposit, as security for the full and timely payment and performance of
its obligations hereunder and under the other Lease Documents and the
Other Leases. Lessee agrees to execute and file with the appropriate
governmental entities any and all documents necessary or reasonably
requested by Lessor to evidence and perfect such security assignment in
favor of Lessor. If Lessee fails to pay Rent hereunder when due or to
pay any other sums due or to perform any of the other terms and
provisions of this Lease, any other Lease Document or any Other Lease,
or is otherwise in default hereunder or thereunder, in addition to all
other rights Lessor or ING shall have hereunder or under applicable
law, Lessor or ING may use, apply or retain all of any portion of the
Security Deposit in partial payment for sums due to Lessor or ING by
Lessee, to compensate Lessor or ING for any sums it may in its
discretion advance as a result of a default by Lessee or to apply
toward losses or expenses Lessor or ING may suffer or incur as a result
of Lessee's default hereunder or otherwise in satisfaction of Lessee's
obligations. If Lessor or ING uses or applies all of any portion of
such Security Deposit, such application shall not be deemed a cure of
any Defaults, and Lessee shall within five (5) days after written
demand therefor provide ING with an additional cash deposit in an
amount sufficient to restore the Security Deposit to USD$ 150,000 and
otherwise issued on such terms as are
-110-
<PAGE>
approved by Lessor and failure of Lessee to do so shall be a material
breach of this Lease by Lessee. Provided no Default shall have
occurred, such Security Deposit, less only those costs directly
incurred by Lessor in connection with the termination of the Lease or
return of the Aircraft, which cost by the terms hereof are the
obligation of Lessee or for the account of Lessee, shall be terminated
and released by Lessor upon Lessee's return of the Aircraft at the end
of the Lease Term in compliance with Clause 15 hereof. Lessee shall not
be entitled to any interest earned on any Security Deposit.
CLAUSE 31. MISCELLANEOUS
31.1 RECORDATION AND FILING. Forthwith upon the execution and delivery of
this Lease and each Lease Supplement from time to time required by the
terms hereof and upon the execution and delivery of any amendment or
other supplement to this Lease, Lessee will cause this Lease and such
Lease Supplement and Acceptance Certificate or amendment or other
supplement to be duly filed and recorded, and maintained of record, in
accordance with the applicable laws of the government of registry of
the Aircraft. In addition, Lessee will promptly and duly execute and
deliver to Lessor such further documents and take such further action
as Lessor may from time to time reasonably request in order more
effectively to carry out the intent and purpose of this Lease and to
establish and protect the rights and remedies created or intended to be
created in favor of Lessor hereunder, including, without limitation, if
requested by Lessor, at the expense of Lessee to the extent resulting
from Lessee's act or omission, the execution and delivery of
supplements or amendments hereto, each in recordable form, and all
financing statements and continuation statements, and all similar
notices required by applicable law at all times to be kept recorded and
filed in such manner and such places as the Lessor may reasonably
request.
31.2 NO BROKERS. Each of Lessor and Lessee represents that it has not
retained any broker or finder in connection with the transactions
contemplated by the Lease Documents.
-111-
<PAGE>
31.3 AGREEMENTS RELATING TO SECTION 1110.
(i) Lessee represents and warrants that, on the Delivery Date,
Lessee will be an "air carrier" within the meaning of the
Federal Aviation Act, operating under valid and subsisting
certificates issued by the U.S. Secretary of Transportation
under Chapter 447, Title 49, U.S. Code, and that Lessee is and
on the Delivery Date will be a "citizen of the United States"
as defined in Section 40102(15) of the Federal Aviation Act.
Lessee represents that, on the Delivery Date, it will be, and
covenants that thereafter it shall maintain its status at all
times as, a Certificated Air Carrier, including, without
limitation, maintaining its status as holder of a valid and
subsisting certificate, issued under Chapter 447, Title 49, of
the U.S. Code, within the purview of, and entitling Lessor to
the benefits and protection of, Section 1110.
(ii) The parties agree that Lessor and ING shall at all times be
entitled to the benefits and protections of Section 1110, and
Lessee shall take such actions and effect such filings as may
be necessary to enable Lessor and ING to continue to be
entitled to such benefits and protections at all times from
the Delivery Date until such time as the Aircraft is returned
to Lessor or ING in compliance with the return conditions
herein and this Lease is terminated.
(iii) It is expressly agreed that the title of Lessor to, and the
interest of Lessor and ING in, the Aircraft, and any right of
Lessor and/or ING to take possession of the Aircraft in
compliance with the provisions of this Lease, shall not be
affected by Sections 362 and 363 of the federal Bankruptcy
Code.
(iv) Lessee acknowledges that this Clause is of fundamental
importance to the transactions contemplated hereby and that
neither Lessor nor ING would have entered into this Lease but
for the rights intended to be conveyed to Lessor and ING by
this Clause and the protection and benefits of Section 1110.
-112-
<PAGE>
31.4 EXECUTION AND COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts which, taken together, shall
constitute one and the same instrument. This Agreement shall be deemed
executed and delivered by Lessee and Lessor when the signature page
hereof is executed and delivered by facsimile by each party to the
other party or to its counsel or delivered by hand; PROVIDED that if
delivered by facsimile, each party shall within two Business Days,
deliver an originally executed copy hereof by courier.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-113-
<PAGE>
IN WITNESS WHEREOF the duly authorized representatives of the parties hereto
have executed this Agreement as of the date and year first above written.
PAN AMERICAN AIRWAYS, INC.,
LESSEE
By
Name:
Title:
EAL (DELAWARE) VIII CORP.,
LESSOR
By
Name:
Title:
<PAGE>
This original counterpart has been received by Lessor.
September 26, 1996
EAL (DELAWARE) VIII CORP.
By:
Name:
Title:
<PAGE>
SCHEDULE A
ADDITIONAL DELIVERY CONDITIONS
THE AIRCRAFT SHALL BE DELIVERED BY LESSOR TO LESSEE ON THE DELIVERY
DATE "AS IS," AND "WHERE IS" AS PROVIDED IN THIS LEASE, IT BEING THE AGREEMENT
OF THE PARTIES THAT, SO LONG AS LESSEE ACCEPTS DELIVERY OF THE AIRCRAFT ON THE
DELIVERY DATE (as defined in and pursuant to the Interim Lease), THE AIRCRAFT
SHALL BE DEEMED TO HAVE MET THE REQUIRED DELIVERY CONDITIONS; NOTWITHSTANDING
ANY OTHER PROVISION OF ANY AGREEMENT OR DOCUMENT, IF THE DELIVERY DATE (as
defined in the Interim Lease) SHALL OCCUR, THEN LESSEE SHALL THEREUPON BECOME
IRREVOCABLY OBLIGATED TO ACCEPT DELIVERY OF THE AIRCRAFT UNDER THIS AGREEMENT.
<PAGE>
SCHEDULE B
FORM OF LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE
LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE, dated August , 1996,
between EAL (DELAWARE) VIII CORP., a Delaware corporation ("LESSOR"), and PAN
AMERICAN AIRWAYS, INC., a Florida corporation ("LESSEE").
R E C I T A L S:
A. Lessor and Lessee have entered into that certain Lease Agreement
dated as of August 26, 1996 (the "LEASE AGREEMENT") (the defined terms therein
being hereinafter used with the same meaning), relating to the lease of one
Airbus A300B4-203 aircraft described below.
B. The Lease Agreement provides for the execution and delivery by
Lessee of a Lease Supplement and Acceptance Certificate, substantially in the
form hereof, as a condition to Lessor's obligation to deliver the Aircraft.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee under the Lease
Agreement, and Lessee hereby accepts and leases from Lessor under the Lease
Agreement, the following described airframe, engines and equipment:
AIRFRAME
One Airbus Model A300B4-203 airframe consisting of the following:
One airframe bearing FAA Registration Mark N862PA and Manufacturer's
Serial Number 211;
<PAGE>
ENGINES
Two General Electric Model CF6-50C2 aircraft engines bearing
Manufacturer's Serial Numbers _______ and _______ (each having 750 or
more rated takeoff horsepower or the equivalent thereof);
together in each case with all parts, accessories, components, modules,
appliances and other items of equipment installed on or attached to the
above-described airframe and engines (such airframe, engines, parts,
accessories, components, modules, appliances and other items of equipment are
referred to collectively herein as the "AIRCRAFT").
2. The Delivery Date of the Aircraft is the date of this Lease
Supplement and Acceptance Certificate, as set forth in the opening paragraph
hereof.
3. Lessee hereby confirms to Lessor that:
(a) Lessee has on the date hereof received from Lessor possession of
the Aircraft and all Technical Data and Manuals relating thereto specified in
SCHEDULE D to the Lease Agreement and all Loose Equipment specified in SCHEDULE
E-1 to the Lease Agreement and all Emergency Equipment specified in SCHEDULE E-2
to the Lease Agreement.
(b) The Aircraft conforms with the description and is in the condition
and equipped as required at Delivery by the Lease Agreement. The execution and
delivery of this Lease Supplement and Acceptance Certificate by Lessee
constitute presumptively conclusive evidence that the Lessee has accepted the
Aircraft for the purposes of the Lease, that as between Lessor and Lessee, the
Aircraft is satisfactory in all respects, and that the Aircraft complies with
the requirements of the Lease, except for those discrepancies, if any, described
in a written instrument signed by a representative of Lessee and by a
representative of Lessor on the date of this Lease Supplement and Acceptance
Certificate.
(c) The Aircraft is in all technical respects acceptable to and
accepted by the undersigned on behalf of Lessee without further inspection
and/or acceptance flights and the Aircraft is hereby unconditionally accepted by
Lessee for lease under the Lease Agreement.
(d) All representations and warranties of Lessee set forth in the Lease
Agreement or any of the other Lease Documents are true and complete on the date
hereof to the same extent and with the same effect as if made again on and as of
the date hereof. Lessee has complied with and performed all of the agreements
and obligations of Lessee that are required to be complied
B-2
<PAGE>
with and performed on or prior to the date hereof. Without limiting the
generality of the foregoing, Lessee has effected the insurance and re-insurance
policies required by the Lease Agreement.
(e) No Default and no Event of Default has occurred and is continuing
under the Lease Agreement.
(f) All necessary consents, licenses, authorizations or approvals of,
and exemptions by, such governmental or other authorities as may be necessary or
advisable to authorize the execution, delivery and performance of the Lease
Agreement by Lessee and to permit payment and remittance of all payments to be
made to Lessor in such currency or currencies, at such time, at such places and
in such manner as provided for under the Lease Agreement have been obtained and
are in full force and effect.
(g) No material adverse change has occurred with respect to Lessee or
its financial condition, business, affairs, operations or prospects since the
date of the most recent audited financial information of Lessee delivered to
Lessor.
6. The aggregate Pre-Delivery Cost referred to in Clause 4.3 of the
Lease is US$____________, and the amount of each monthly installment payable by
Lessee to Lessor pursuant to such Clause in reimbursement therefore is
US$______________.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereto have executed this Lease Supplement and Acceptance Certificate as of the
day and year first above written.
EAL (DELAWARE) VIII CORP., Lessor
By ___________________________________
Name: _______________________________
Title: ______________________________
PAN AMERICAN AIRWAYS, INC.,
Lessee
By __________________________________
Name: ______________________________
Title: _____________________________
B-3
<PAGE>
SCHEDULE C
LESSEE'S CORPORATE CERTIFICATE
In connection with the Lease Agreement, dated as of August 26,
1996 (the "LEASE AGREEMENT"), between EAL (DELAWARE) VIII CORP. ("LESSOR") and
PAN AMERICAN AIRWAYS, INC. ("LESSEE"), the undersigned hereby certifies to
Lessor, its successors and assigns, as follows:
(a) Attached hereto as ANNEX 1 is a true, complete and correct
copy of the charter documents and the current by-laws of Lessee, each as amended
to and in effect on the date hereof.
(b) Attached hereto as ANNEX 2 is a true, complete and correct
copy of all resolutions of the board of directors of Lessee, pursuant to which
each officer executing a Lease Document on behalf of Lessee is authorized to
enter into the transactions contemplated by the Lease to execute the Lease
Agreement and other documents contemplated by the Lease Agreement, including the
Lease Supplement and Acceptance Certificate and the Power of Attorney; such
resolutions were duly adopted by such board of directors at a meeting at which a
quorum was present and acted throughout; and such resolutions are unamended and
remain in full force and effect.
IN WITNESS WHEREOF, this Certificate has been duly executed as
of the day and year first above written by an officer of Lessee, thereunto duly
authorized.
PAN AMERICAN AIRWAYS, INC., Lessee
By ____________________________
Name: ________________________
Title: Corporate Secretary
<PAGE>
SCHEDULE D
TECHNICAL DATA AND MANUALS LIST
If the Delivery Date (as defined in the Interim Lease) shall have occurred, then
the Lessor shall be deemed to have delivered to Lessee the manuals and Aircraft
(including Engine) records and historical documents set forth below for all
purposes of this Lease.
1. AIRCRAFT DOCUMENTS
1.1 C of A for Export delivered by manufacturer/country
of origin
1.2 Current C of A
1.3 Certificate of DeRegistration (previous and current)
1.4 Weight and Balance manual
1.5 Manufacturers delivery inventory of readiness log.
1.6 Letter detailing that aircraft was maintained
according to an approved maintenance program
1.7 Certificate of Sanitation (if applicable)
2. ENGINE STATUS AND TECHNICAL RECORDS
2.1 Engines last overhaul/Shop reports
2.2 Engines LLP records (traceability to birth or to
Continental or acceptable to the FAA)
2.3 Engines AD & SD status
2.4 Engines components list
2.5 Engine logbooks or acceptable records
2.6 Engines last month trend monitoring sheets (if
available)
3. AUXILIARY POWER UNIT STATUS AND TECHNICAL RECORDS
3.1 APU last overhaul/Shop report
3.2 APU LLP records (traceability to birth or to
Continental)
<PAGE>
3.3 APU components list
3.4 APU AD & SB status
3.5 APU logbook or acceptable records
4. LANDING GEAR STATUS AND TECHNICAL RECORDS
4.1 Landing gear last overhaul report
4.2 Landing Gear Components records
4.3 Landing gear records (traceability to birth or to
Continental)
4.4 Landing gear to have data plates affixed
5. AIRCRAFT ENGINEERING DATA AND TECHNICAL RECORDS DOCUMENTS
5.1 Approved interior configuration drawing
5.2 List and copy of Supplemental Type Certifications
(STC)
5.3 Airworthiness Directives (AD) current and repetitive
Inspection list
5.4 Airworthiness Directives (AD) compliance sheets and
alternate means of compliance sheets
5.5 Rotables, Components current inventory list (DUJX)
5.6 Maintenance Program status report of routine
inspections (DUJX)
5.7 List of major repairs and alterations; with repair
certifications data acceptable to the FAA
5.8 Time Controlled Components list (HT) with last
accomplishment data, including serviceable tags
5.9 List Components change during operation, Serviceable
TAG's
5.10 Certificate of Conformity for interior with FAR
121.317 AC-198 (with Burn test)
5.11 Copy of Maintenance and Inspection Manual (Procedure)
5.12 Last Hydraulic System Oil analysis report
5.13 Aircraft Reliability Program (engines, airframe and
components) if available
5.14 "C" & "D" checks worksheets, tally lists and 337
Forms
5.15 Emergency Equipment Drawing and location drawings
5.16 Corrosion Prevention and Control Program (CPCP)
status
D-2
<PAGE>
5.17 Aging Aircraft Program (SSI) status
5.18 Fleet Leader Program (Sampling) status
5.19 Letter of QA inspector detailing procedures of
computerized records syst.
5.20 Letter of QA inspector that all "RECORDS" data are
within accomplished
5.21 Letter detailing any major INCIDENTS/ACCIDENTS with
certification data
5.22 Flight Recorder calibration sheet (if applicable)
5.23 Last calibration check Altimeters, Airspeed incl.
and ATC Transponder test
5.24 Status of (SB's, EA, EO) as provided by previous
operator information must include method of
compliance, date of accomplishment and signature
of person accomplishing work
5.25 Worksheets for last check accomplished
5.26 Last year's Log Book pages
5.27 Avionics equipment list
6. WEIGHT AND BALANCE DATA
6.1 Last Weight and Balance report
6.2 Weight and Balance current status and current
equipment listing
7. PLANNING DATA
7.1 Maintenance Program work cards, related documents
and forms
7.2 Maintenance Inspection Specifications (Maintenance
Program)
7.3 Copy of Repair station Procedure manual
7.4 Copy of Repair station Inspection Manual if work
being done by outside agency
7.5 Corrosion Prevention and Control Program (CPCP)
7.6 Aging Aircraft Program (SSID)
7.7 Sampling Program
7.8 Fleet Leader Program (FLP)
D-3
<PAGE>
8. GENERAL INFORMATION
8.1 Dents and Patches List
8.2 Cross-reference from Continental part nos. to
Manufacturer's part nos. (Lessor's best efforts to
deliver).
9. AIRCRAFT MANUALS
9.1 FAA Approved Aircraft Flight Manual (AFM)
9.2 Quick Reference Handbook
9.3 Minimum Equipment List (MMEL) Manufacturer
9.4 Weight & Balance Control and Loading Manual
9.5 Fueling Manual
9.6 Illustrated Parts Catalog (IPC) EAL microfilm (as provided
from previous operator)
9.7 Aircraft Maintenance Manual (AMM) microfilm (as provided from
previous operator)
9.8 Aircraft Wiring Manual (AWM) microfilm (as provided from
previous operator)
9.9 Aircraft Schematics Manual (ASM) microfilm (as provided from
previous operator)
9.10 Aircraft Wiring List (AWL) microfilm number (as provided
from previous operator)
9.11 Structural Repair Manual (SRM) microfilm (as provided from
previous operator)
9.12 Powerplant Illustration Parts Catalog (IPC) microfilm (as
provided from previous operator)
9.13 Powerplant Maintenance Manual (MM) microfilm (as provided from
operator)
9.14 Powerplant Standard Practices microfilm (as provided
from previous operator)
9.15 CAL S/A Figure Drawings
9.16 Typical Repair Manual
9.17 Component Maintenance & Overhaul Manual
9.18 NDT Manual
9.19 Tool & Equipment Manual
9.20 Interior Furnishings (Continental tapes)
9.21 Temporary Revisions for microfilms
9.22 Fault Isolation Manual/FRM (FIM)
9.23 R.T.O.L.W. Charts A300B4
D-4
<PAGE>
9.24 Electrical load analysis manual (if available to Lessor with
reasonable efforts)
D-5
<PAGE>
SCHEDULE E-1
LOOSE EQUIPMENT LIST
QTY
Ovens 19
Oven Inserts 114
Oven Racks 19
M/S Trolleys 3
Ice Drawers 3
Soda Drawers 3
Plastic Drawer (Yellow, Blue)
Food Containers 22
Waste Containers 5
LD3 Containers 20
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE E-2 - EMERGENCY EQUIPMENT LIST
<S> <C> <C>
==================================================================================================================
QTY LOCATION
- ------------------------------------------------------------------------------------------------------------------
COCKPIT
- ------------------------------------------------------------------------------------------------------------------
First Aid Kit 1 Cockpit
- ------------------------------------------------------------------------------------------------------------------
Fire Axe 1 F/E Station
- ------------------------------------------------------------------------------------------------------------------
Smoke Goggles 5 Crew Seats
- ------------------------------------------------------------------------------------------------------------------
Fire Extinguisher (Kidde 1211) 1 Cockpit
- ------------------------------------------------------------------------------------------------------------------
Life Jackets 5 Crew Seats
- ------------------------------------------------------------------------------------------------------------------
Smokehood 1 Cockpit
- ------------------------------------------------------------------------------------------------------------------
Portable 02 Bottle & Full Face Mask 1 Cockpit
- ------------------------------------------------------------------------------------------------------------------
Landing Gear Pins 3 Cockpit
- ------------------------------------------------------------------------------------------------------------------
AVIONIC COMPARTMENT
- ------------------------------------------------------------------------------------------------------------------
Fire Extinguisher (Kidde 1211) 1 Avionic Comp.
- ------------------------------------------------------------------------------------------------------------------
CABIN
- ------------------------------------------------------------------------------------------------------------------
First Aid Kits 2 First Bin LH/RH
- ------------------------------------------------------------------------------------------------------------------
First Aid Kits 2 Last Bin LH/RH
- ------------------------------------------------------------------------------------------------------------------
Emergency Automatic Radio Beacons 2 First/Last Bin RH
- ------------------------------------------------------------------------------------------------------------------
Hand Megaphones 2 First/Last Bin RH
- ------------------------------------------------------------------------------------------------------------------
Fire Extinguishers (Kidde 1211) 4 1L, 2L, 3L, 4L
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Fire Extinguishers H20 3 1R, 2R, 4R
- ------------------------------------------------------------------------------------------------------------------
Smokehoods (PBE) 4 1L, 2L, 3L, 4L
- ------------------------------------------------------------------------------------------------------------------
Portable 02 Bottles and Masks 9 Att. 1L, 1R, 2L, 2R, 3L,
4L, 4R
- ------------------------------------------------------------------------------------------------------------------
P.S.U.'s Tools 6 Att. 4R
- ------------------------------------------------------------------------------------------------------------------
Seatbelts Extension Pouch 1 First Bin LH
- ------------------------------------------------------------------------------------------------------------------
Emergency Portable Flashlights 9 Att. 1L, 1R, 2L, 2R, 3L,
3R, 4L, 4R
- ------------------------------------------------------------------------------------------------------------------
Safety Strap Flags 8 1L, 1R, 2L, 2R, 3L, 3R,
4L, 4R
- ------------------------------------------------------------------------------------------------------------------
Safety Pins 8 1L, 1R, 2L, 2R, 3L, 3R,
4L, 4R
- ------------------------------------------------------------------------------------------------------------------
Cockpit Door Key 1 Galley 1
- ------------------------------------------------------------------------------------------------------------------
Seatbelts Pax 254 Each seat
- ------------------------------------------------------------------------------------------------------------------
Life Jackets Crew 9 Crew Seats
- ------------------------------------------------------------------------------------------------------------------
Life Jackets Pax 254 Each Seat
- ------------------------------------------------------------------------------------------------------------------
Life Jackets Spare (Adults) 24 Fwd Bin, 3R, Aft Bins
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
E-2
<PAGE>
SCHEDULE F
REDELIVERY CONDITION
The condition of the Aircraft on redelivery shall be as
follows:
1. The Aircraft shall be in good operating condition by
international commercial airline standards (normal wear and
tear excepted), airworthy and with all systems fully
operational, including category 3 operating equipment
(certification not required).
2. The Aircraft shall be stripped and painted white, shall have
all names, insignias and other indications of Lessee removed
from the interior and exterior and shall be clean by
international commercial operating standards.
3. The Aircraft shall be zero time out of its C-Check.
4. The Aircraft, its associated records, manuals and documents
shall be eligible immediately to receive a current, valid FAA
Certificate of Airworthiness for FAR Part 121 operations, as
such Part 121 relates to the Aircraft. The Airframe, Engines
and installed components shall be in compliance with all
FAR's, airworthiness directives and engine manufacturers
mandatory service bulletins. The Aircraft shall have all
deferred maintenance items, pilot logbooks, MEL/CDL and other
such deferred items rectified on a terminating action basis,
unless otherwise agreed between Lessor and Lessee.
5. All required time controlled and life limited components
including (but not limited to) Landing Gear checks, overhauls,
inspections, actions and hard time components shall be cleared
for one C-Check cycle (which is anticipated to be one year or
3,325 hours or 1,000 cycles) unless (i) a specific check,
overhaul, inspection, component or action does have a life
which is anticipated to be shorter than one C-Check cycle or
(ii) otherwise agreed between Lessor and Lessee.
6. The Aircraft shall be equipped with two General Electric
CF6-50C2 engines with short nozzle thrust reversers in a
condition suitable for operation within the manufacturer's
maintenance manual limits. The Engines have been maintained to
an AVIALL build standard pursuant to the AVIALL Engine
Maintenance and Pooling Contract or an equivalent standard to
be agreed upon by Lessor and Lessee.
7. Each Engine shall have completed a hot and cold section
borescope inspection of the Engines in accordance with the
Maintenance Manual. Each such borescope shall be conducted
after completion of an MPA (maximum power assurance) run
observed by a Lessor representative.
8. Each Engine shall be within the AVIALL specified limits (or
equivalent limits
<PAGE>
agreed upon by Lessor and Lessee) without waiver or exemption
and no Engine shall be "under watch" or have any overservice
limit extensions.
9. The APU has been maintained by in accordance with the Revima
APU Maintenance and Pooling Contract and shall be delivered
within the parameters set forth in such Contract or shall have
been maintained to an equivalent standard to be agreed upon by
Lessor and Lessee.
10. The Aircraft shall have been maintained on an FAA approved
maintenance and corrosion program. A hard copy of the program
shall be provided to Lessor and a method shall be provided to
trace all tasks and functions of the maintenance program to
its corresponding work cards. Maintenance and corrosion
control program documents, including work cards, shall be in
English unless otherwise accepted by Lessee; or
ING and Lessor shall be entitled to use (and to make available
to subsequent lessees) the Pan Am Maintenance Program for the
Aircraft, and Lessee shall cooperate with ING and Lessor in
connection therewith, subject, however, to the execution by
such lessee of an appropriate indemnity in favor of Lessor and
Lessee for the use of such Maintenance Program and actions and
omissions by such lessee.
11. The Aircraft shall be free of hydraulic, pneumatic, water,
fuel and waste system leaks in accordance with the
manufacturers maintenance manual. This is to be demonstrated
by filling the tanks and reservoirs to capacity as per the
then-current procedure under the manufacturer's manual and
performance of a functional and leak check of all related
systems. All repairs will be per the manufacturer's
maintenance manual.
12. All floor, cargo and compartment panels shall be in good
condition by airline standards (normal wear and tear
excepted). All repairs to floor, cargo, ceiling and sidewalls
shall be in accordance with the manufacturer's maintenance
procedures, and will be permanent repairs reworked to "C
Check" standards.
13. All cargo compartments and the currently installed associated
cargo loading systems shall be clean and in good operating
condition by airline standards. All repairs will be permanent
and in accordance with manufacturer's standards, reworked to
"C-Check" standards.
14. Tires and brakes shall be in good condition.
15. The Aircraft interior configuration shall be 24/230 (total
254) with 6 lavatories and galleys G-1, G-2, G-3, G-4 and G-5
installed. The Aircraft interior shall be as follows and in
good condition to "C Check" standards:
(a) All lavatories shall be in good operating condition.
The trim and decor finish shall be in good condition.
F-2
<PAGE>
(b) All carpeting shall be in good condition.
(c) Sidewalls, vertical surfaces, ceilings, bins, floor
boards, window shades, tray tables, PSU's, PCU's and aiming of
reading lights shall be inspected and reworked as necessary.
Door liners and slide raft packs shall be in good condition.
(d) All seat bottom cushions shall be freshly cleaned and seat
back cushions shall be in very good condition.
(e) All seat covers shall be freshly cleaned. Documentation
certifying the retained flammability and fire blocking
characteristics shall be provided.
16. The galleys and the associated inserts shall be in acceptable
cosmetic condition and shall have a certificate of sanitary
construction issued by the U.S. Public Health Department.
17. The cockpit shall be "touched up" in accordance with standard
international airline practices.
18. All FAR required interior and exterior markings and placards
shall be current, in place and legible. All placards shall be
FAA approved.
19. Fuselage shall be free of major dents, corrosion and abrasions
or any loose, pulled or missing rivets. External patches shall
be of a type consistent with the structural repair manual.
Each repair shall have proper documentation or structural
repair manual reference and/or FAA approved engineering repair
drawings as applicable.
20. All doors including cargo doors and service doors shall be
free moving, correctly rigged and fitted with serviceable
seals in accordance with the Maintenance Manual and acceptable
to the FAA.
21. All leading edges shall be serviceable and clean in accordance
with the Manufacturer's Maintenance Manual. Any repairs to the
leading edges shall be in accordance with the Manufacturer's
Maintenance Manual and Structural Repair Manual or acceptable
to the FAA.
22. All control surfaces shall be clean by airline standards and
free of delamination in accordance with the Manufacturer's
Maintenance Manual and Structural Repair Manual or acceptable
to the FAA.
23. All unpainted cowlings and fairings shall be clean by airline
standards and tightly fitted in accordance with the
Maintenance Manual limits and acceptable to the FAA.
24. All fuel tanks shall be free of contaminants.
F-3
<PAGE>
25. Engine cowls will be brightened aluminum rather than white
paint.
26. One full set of loose equipment shall be delivered with the
Aircraft, including LD3 containers delivered at a place agreed
upon as specified in Schedule E-1.
27. A Honeywell dual global positioning system will be installed
on the Aircraft.
28. Standard emergency equipment including smoke detectors and
escape slide rafts shall be installed.
29. Lessee shall provide all technical documents relating to the
Aircraft as listed in Schedule D and received by Lessee at
Delivery including copies of all engineering orders, complete
records of AD and Service Bulletin compliance and up-to-date
copies of manufacturers manuals (including supplements)
relating to the Airframe, Engines, interior configurations,
components and APU, all in compliance with FAA regulations.
All airframe, engine and component records shall be as
required by FAR Part 121.380 and shall be provided with the
Aircraft.
30. The Aircraft shall be free from all Liens (except for Lessor
Liens). In the event any engine not owned by Lessor shall be
delivered with the Airframe, such engine shall be satisfactory
to Lessor, free and clear of Liens, suitable for use on such
Airframe and shall have the value and utility at least equal
to, and be in as good operating condition (including no
greater number of Flight Hours or Cycles accumulated on such
engine) as the Engine that should have been returned, assuming
such Engine which should have been returned was in the
condition and repair as required by the terms of the Lease
immediately prior to such required return.
31. The Aircraft shall have installed all optional no charge
vendors' and manufacturers' service bulletin kits theretofore
received by Lessee for the Aircraft and to the extent received
but not installed, such kits shall be furnished free of charge
to Lessor at redelivery.
32. The Aircraft (other than the Engines and the APU subject to
the AVIALL Engine Maintenance and Pooling Agreement and the
Revima APU Maintenance and Pooling Contract, respectively) (or
other equivalent standard agreed upon by Lessor and Lessee)
shall have been maintained until redelivery in accordance with
the Lessee's approved Maintenance Program and treated at a
standard equal to all other aircraft (if any) in Lessee's
fleet.
33. The Engines and APU shall be serviced with Mobil Jet 2 oil;
the gears shall be serviced with Hy-Jet IV, unless otherwise
specified by Lessor reasonably in advance of re-delivery.
34. The Aircraft will have a current weight and balance report
in form acceptable to the FAA.
F-4
<PAGE>
SCHEDULE G
FORM OF MONTHLY STATUS REPORT
From:
A/C Type: Registration: Month of _______ 19__
S/N:
AIRCRAFT TOTAL TIME SINCE NEW ________________________
TOTAL CYCLES SINCE NEW ________________________
HOURS FLOWN DURING MONTH ________________________
CYCLES/LANDING DURING MONTH ________________________
TIME REMAINING TO D CHECK ________________________
TIME REMAINING UNTIL MID-D CHECK ________________________
TIME REMAINING TO C-CHECK ________________________
TYPE: NO. ONE ENGINE POSITION NO. 2 ENGINE POSITION
SERIAL NUMBER
PRESENT LOCATION
TOTAL TIME SINCE NEW HRS: MIN: HRS: MIN:
TOTAL CYCLES SINCE NEW
HOURS FLOWN DURING MON HRS: MIN: HRS: MIN:
CYCLES DURING MONTH
NOTE: AN ENGINE IS REMOVED OR INSTALLED ON
ANOTHER AIRCRAFT IT MUST BE REPORTED
MONTHLY ON THIS FORM.
<PAGE>
SCHEDULE H
FORM OF RETURN ACCEPTANCE CERTIFICATE
Date____________, 199
1. PAN AMERICAN AIRWAYS, INC., Lessee, and EAL (DELAWARE)
VIII CORP., Lessor, have entered into that certain Lease
Agreement dated as of [ ], 1996 (the "Lease Agreement").
Words used herein with capital letters and not otherwise
defined will have the meanings set forth in the Lease
Agreement.
2. Lessor has this day of , 199 (Time: ) at
received from Lessee possession of:
(a) One (1) Airbus A300B4-203 aircraft,
bearing Manufacturer's Serial Number
____, together with two (2) General
Electric CF6-50C2 engines bearing
Manufacturer's Serial Numbers [ ]
and [ ], all Parts attached
thereto and thereon in an airworthy
condition; and
(b) All Aircraft Documentation, including
the usual and customary manuals,
logbooks, flight records and historical
information regarding the Aircraft,
Engines and Parts, as specified in
Schedule D to the Lease Agreement.
3. Lessee represents that the Airframe, Engines and Parts
have the following hours/Cycles:
(a) Airframe:
Total hours __________ Total
Landings ______ _____ hours/_____
Cycles since last "D-Check" _____
hours/_____Cycles since last "Mid-D
Check" _____ hours/_____Cycles since
last "C-Check" _____ hours/_____Cycles
since last "A-Check"
(b) Engines:
SERIAL TOTAL TOTAL HOURS/CYCLES
POSITION NO HOURS SINCE LAST SHOP VISIT
<PAGE>
(c) APU: MSN _____
Total hours _________ Total Cycles __________
(d) Landing Gears:
HOURS/CYCLES SINCE LAST
SERIAL TOTAL HOURS/CYCLES OVERHAUL
POSITION NO HOURS/CYCLES TO NEXT SCHEDULED REMOVAL
Nose
Right Main
Left Main
(e) Status of components or Parts with time/Cycle and calendar
limits:
(f) Fuel on board at return: pounds ( gallons)
4. Physical possession of the above specified Airframe, Engines, Parts
and documentation relating thereto are hereby accepted by Lessor as
being in compliance with the Redelivery Conditions specified in
Schedule F to the Lease; provided, however, that such acceptance by
Lessor is based upon certain statements of Lessee, including
information contained in the manuals and log books relating to the
Aircraft maintained by Lessee or its agents, and by this acceptance
Lessor does not waive any right or remedy it may have if such
information is later discovered to have been inaccurate or
incomplete.
5. This Return Acceptance Certificate is executed and delivered by the
parties at [location].
H-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Return
Acceptance Certificate to be executed on behalf of Lessor as of the day and year
first above written.
EAL (DELAWARE) VIII CORP., LESSOR
By:
Name:
Title:
PAN AMERICAN AIRWAYS, INC.,
LESSEE
By:
Name:
Title:
H-3
<PAGE>
SCHEDULE I
POWER OF ATTORNEY
The undersigned, PAN AMERICAN AIRWAYS, INC., a corporation
with an office located at 9300 NW 36th Street, Miami, Florida 33178 (together
with its successors and assigns, the "GRANTOR"), by this instrument, DOES HEREBY
CONSTITUTE AND APPOINT ING LEASE (NEDERLAND) B.V., a corporation existing under
the laws of the Kingdom of the Netherlands, with its principal office at
Karspeldreef 14, 1101 CK Amsterdam-Zuidoost, 1000 BZ Amsterdam, The Netherlands,
together with its successors and assigns (the "GRANTEE"), as the true and lawful
agent and attorney-in-fact for Grantor, with full power of substitution, to do
any of the following in connection with the following described aircraft and
related property and assets (herein collectively called the "AIRCRAFT"):
The Airbus Industrie model A300B4-200 aircraft bearing manufacturer's
serial number 211 and the two General Electric model CF6-50C2
aircraft engines bearing manufacturer's serial numbers _______ and
_____, together with all parts, components, accessories, equipment
related thereto, and all additions thereto and replacements thereof,
and all operating, maintenance, repair and overhaul manuals, logs,
records and data;
all pursuant to the Lease Agreement, dated as of August 26, 1996 (as
supplemented, amended or otherwise in effect from time to time, the "LEASE"),
between Grantee, as lessee, and EAL (Delaware) VIII Corp., as lessor ("LESSOR"):
(i) to collect, receive, pay, disburse, enforce and apply, any monies,
collateral, assets or property held or available hereunder or in respect hereof,
or under any other Lease Document or in respect thereof, (ii) to effect any
grant, conveyance, lease or other transfer or application of any collateral,
assets or property, (iii) to effect the cancellation and de-registration of the
Aircraft from the Aircraft Registry of the United States Federal Aviation
Administration or any other civil aviation authority on which the Aircraft may
at any time be registered during the Lease Term; (iv) to export and remove from
the United States of America the Aircraft and all related or installed aircraft
engines, parts and equipment and all related maintenance, repair, overhaul and
operating records, logs, books and other data; (v) to negotiate, complete,
execute, deliver, present, file and record any agreement, demand, request,
consent, document or instrument referred to, contemplated by or otherwise
incident to the de-registration, repossession, removal and export of the
Aircraft or the exercise of any other right, power, privilege or remedy under
the Lease or available to any Grantee at law or in equity; and (vi) to take any
other action incidental to, or in furtherance of, the exercise of any right,
power, privilege or remedy available to Lessor or ING hereunder or at law or in
equity.
Each Grantee, acting either alone or with the other Grantee,
is hereby authorized and empowered to take and to perform all actions that it
reasonably deems necessary or appropriate
<PAGE>
This Power of Attorney is coupled with an interest and is not
revocable by the Grantor for any reason or under any circumstance whatsoever,
and shall not expire until the payment, performance and satisfaction in full of
all of Grantor's obligations and liabilities under the Lease, which payment,
performance and satisfaction may be evidenced only by the written instrument
signed by the Grantees acknowledging such payment, performance and satisfaction.
This Power of Attorney shall be governed and construed in
accordance with the laws of the State of New York, United States of America.
IN WITNESS WHEREOF, this Power of Attorney has been duly
executed by or on behalf of Grantor this _____ day of _______________, 1996.
PAN AMERICAN AIRWAYS, INC.
By:
Name:
Title:
I-2
<PAGE>
SCHEDULE J
CERTAIN HARD TIME CONTROLLED ITEMS
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
CLAUSE NUMBER PAGE NUMBER
<S> <C> <C>
CLAUSE 1. DEFINITIONS AND INTERPRETATION....................................................... 2
CLAUSE 2. AGREEMENT TO LEASE................................................................... 16
2.1 AGREEMENT TO LEASE................................................................... 16
2.2 (i) DELIVERY...................................................................... 16
(ii) [This clause is reserved.].................................................... 16
(iii) [This clause is reserved.].................................................... 16
(iv) ACCEPTANCE OF DELIVERY........................................................ 16
(v) EXCLUSION OF LIABILITY........................................................ 17
(vi) CASUALTY TO THE AIRCRAFT PRECEDING DELIVERY................................... 17
CLAUSE 3. LEASE TERM........................................................................... 17
3.1 LEASE TERM. ......................................................................... 17
3.2 LEASE EXTENSION OPTION............................................................... 17
CLAUSE 4. BASIC RENT........................................................................... 18
4.1 BASIC RENT........................................................................... 18
4.2 DEFERRED RENT........................................................................ 20
4.3 ADDITIONAL RENT FOR PRE-DELIVERY WORK................................................ 21
CLAUSE 5. MAINTENANCE AND OTHER PAYMENTS....................................................... 23
5.1 MAINTENANCE RESERVE ACCOUNTS......................................................... 23
5.2 CONSTITUTION OF MAINTENANCE PAYMENTS................................................. 25
5.3 ADJUSTMENT TO MAINTENANCE PAYMENTS................................................... 27
5.4 (i) CONDITIONS PRECEDENT TO REIMBURSEMENT FOR ELIGIBLE CLAIMS..................... 29
(ii) CREDITS AND PAYMENTS FROM RESERVE ACCOUNTS.................................... 30
(iii) FOREIGN OBJECT DAMAGE GENERATED SHOP VISIT.................................... 34
CLAUSE 6. PAYMENTS............................................................................. 34
6.1 PAYMENT TO LESSOR.................................................................... 34
6.2 WITHHOLDING TAXES.................................................................... 35
6.3 DEFAULT INTEREST..................................................................... 35
6.4 BUSINESS DAY CONVENTION.............................................................. 35
6.5 ABSOLUTE OBLIGATION TO MAKE PAYMENTS................................................. 35
6.6 APPLICATION OF PAYMENTS.............................................................. 36
CLAUSE 7. CONDITIONS PRECEDENT................................................................. 36
7.1 CONDITIONS PRECEDENT TO THE EXECUTION OF THIS AGREEMENT.............................. 36
7.2 CONDITIONS PRECEDENT................................................................. 36
CLAUSE 8. REPRESENTATIONS AND WARRANTIES....................................................... 40
8.1 (i) WARRANTIES AND DISCLAIMER OF WARRANTIES....................................... 40
(ii) RESPONSIBILITY TO DETERMINE CONDITION OF AIRCRAFT, OBTAINING
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
BENEFIT OF WARRANTIES......................................................... 41
8.2 REPRESENTATIONS AND WARRANTIES OF LESSEE............................................. 42
8.3 COVENANTS OF LESSEE.................................................................. 44
8.4 REPRESENTATIONS AND WARRANTIES OF LESSOR............................................. 47
8.5 NOTICE OF BREACH OF REPRESENTATION, WARRANTY OR COVENANT............................. 48
8.6 SURVIVAL OF REPRESENTATIONS, ETC..................................................... 48
CLAUSE 9. LIENS................................................................................ 48
9.1 LESSEE NOT TO CREATE LIENS........................................................... 48
9.2 LESSEE TO DISCHARGE LIENS............................................................ 49
CLAUSE 10. INSURANCE............................................................................ 49
10.1 AVIATION LIABILITY AND PROPERTY DAMAGE INSURANCE..................................... 49
10.2 INSURANCE AGAINST LOSS OF OR DAMAGE TO THE AIRCRAFT.................................. 52
10.3 LESSEE TO PURSUE CLAIMS.............................................................. 55
10.4 CHANGE IN INSURANCE PRACTICE......................................................... 55
10.5 APPLICATION OF PROCEEDS ARISING ON EVENT OF LOSS..................................... 56
10.6 APPLICATION OF PROCEEDS ARISING OTHER THAN ON AN EVENT OF LOSS....................... 56
10.7 RETENTION OF PROCEEDS BY LESSOR FOLLOWING DEFAULT.................................... 56
10.8 LESSOR AND LESSEE MAY ADDITIONALLY INSURE............................................ 57
10.9 COMPLIANCE WITH LEGAL REQUIREMENTS AS TO INSURANCE................................... 57
10.10 LESSOR ENTITLED TO PROVIDE INSURANCES IN DEFAULT BY LESSEE........................... 57
10.11 NEGOTIATIONS FOR RENEWAL............................................................. 58
10.12 (i) INFORMATION................................................................... 58
(ii) NOTIFICATION OF CLAIM EVENTS.................................................. 58
(iii) PROVISION OF INSURANCE BROKER'S UNDERTAKING................................... 59
10.13 LESSEE NOT TO PREJUDICE INSURANCE.................................................... 59
10.14 CURRENCY............................................................................. 59
CLAUSE 11. EVENT OF LOSS.............................................................................. 59
11.1 EVENT OF LOSS WITH RESPECT TO AIRCRAFT............................................... 59
11.2 EVENT OF LOSS WITH RESPECT TO ENGINE................................................. 60
11.3 TRANSFER OF TITLE TO REPLACED ENGINE TO LESSEE....................................... 62
CLAUSE 12. REGISTRATION............................................................................... 62
12.1 REGISTRATION......................................................................... 62
CLAUSE 13. MAINTENANCE, REPORTING, REMOVAL AND REPLACEMENT,
ALTERATIONS, POSSESSION, OPERATION, ETC..................................................... 63
13.1 MAINTENANCE.......................................................................... 63
(i) GENERAL OBLIGATIONS........................................................... 63
(ii) INDEPENDENT MAINTENANCE CONTRACTOR............................................ 63
(iii) MAINTENANCE PROGRAM........................................................... 63
(iv) SPECIFIC OBLIGATIONS.......................................................... 64
13.2 REPORTING REQUIREMENTS AND PROVISION OF INFORMATION.................................. 65
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
13.3 REMOVAL OF ENGINES................................................................... 65
13.4 REPLACEMENT OF PARTS................................................................. 66
(i) LESSEE'S OBLIGATION TO REPLACE PARTS.......................................... 66
(ii) CONDITION OF REPLACEMENT PARTS................................................ 66
(iii) TITLE TO REPLACEMENT AND REPLACED PARTS....................................... 67
13.5 REPLACEMENT ENGINES.................................................................. 67
13.6 ALTERATIONS.......................................................................... 68
13.7 LIABILITY FOR COST OF ALTERATIONS; AD COST SHARING................................... 70
13.8 POSSESSION OF AIRCRAFT; SUBLEASE OF AIRCRAFT......................................... 72
13.9 DELIVERY OF AIRFRAME OR ENGINES TO MANUFACTURER OR REPAIRER;
POOLING ARRANGEMENTS................................................................. 74
(i) DELIVERY FOR SERVICE OR REPAIR................................................ 74
(ii) POOLING OF ENGINES............................................................ 74
(iii) POOLING OF PARTS.............................................................. 75
13.10 OPERATION............................................................................ 75
13.11 NAMEPLATE............................................................................ 76
13.12 LESSEE'S LIABILITY AS TO COSTS OF USE AND OPERATION.................................. 76
13.13 ENTITLEMENT TO ENFORCE WARRANTIES.................................................... 77
CLAUSE 14. REGISTRATION OF AIRCRAFT............................................................. 77
CLAUSE 15. RETURN OF AIRCRAFT......................................................................... 77
15.1 REDELIVERY........................................................................... 77
15.2 ENGINE CONDITION..................................................................... 78
15.3 GENERAL CONDITION.................................................................... 79
15.4 REMOVAL OF INSIGNIA; TRANSFER OF WARRANTIES, ETC..................................... 81
15.5 FUEL AND OIL......................................................................... 81
15.6 RETURN ACCEPTANCE CERTIFICATE........................................................ 81
15.7 INDEMNITIES AND INSURANCE............................................................ 81
15.8 AIRPORT AND NAVIGATION CHARGES....................................................... 81
15.9 RECTIFICATION OF RE-DELIVERY CONDITION............................................... 82
15.10 EXPORT AND DE-REGISTRATION OF AIRCRAFT............................................... 82
CLAUSE 16. INDEMNIFICATION............................................................................ 83
16.1 GENERAL INDEMNITY.................................................................... 83
16.2 TAX INDEMNITY........................................................................ 85
(i) WITHHOLDING TAXES............................................................. 85
(ii) GENERAL TAX INDEMNITY......................................................... 85
(iii) EXCEPTIONS TO INDEMNITY....................................................... 86
(iv) AFTER-TAX BASIS............................................................... 87
(v) TIMING OF PAYMENT............................................................. 88
(vi) CONTESTS...................................................................... 88
(vii) REFUNDS....................................................................... 89
(viii) COOPERATION IN FILING TAX RETURNS............................................ 89
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CLAUSE 17. EVENTS OF DEFAULT.......................................................................... 90
17.1 EVENTS OF DEFAULT.................................................................... 90
17.2 ACTION ON OCCURRENCE OF EVENT OF DEFAULT............................................. 93
CLAUSE 18. ASSIGNMENT................................................................................. 97
18.1 BENEFIT OF AGREEMENT................................................................. 97
18.2 ASSIGNMENT BY LESSEE................................................................. 97
18.3 ASSIGNMENT BY LESSOR................................................................. 98
CLAUSE 19. FURTHER ASSURANCES.........................................................................100
19.1 FURTHER ASSURANCES...................................................................100
19.2 PERFECTION OF LESSOR'S ETC. INTERESTS................................................100
CLAUSE 20. PROTECTION OF LESSOR'S INTERESTS...........................................................100
CLAUSE 21. COSTS AND EXPENSES.........................................................................101
21.1 PREPARATION AND NEGOTIATION OF LEASE DOCUMENTS.......................................101
21.2 ENFORCEMENT AND PRESERVATION OF RIGHTS...............................................101
21.3 NON-DELIVERY DUE TO EVENT OF LOSS....................................................101
CLAUSE 22. INSPECTION.................................................................................101
CLAUSE 23. NOTICES AND LANGUAGE.......................................................................102
23.1 NOTICES..............................................................................102
CLAUSE 24. LESSOR'S RIGHTS TO PERFORM FOR LESSEE......................................................104
CLAUSE 25. APPLICABLE LAW AND JURISDICTION............................................................104
25.1 GOVERNING LAW........................................................................104
25.2 SUBMISSION TO JURISDICTION...........................................................104
CLAUSE 26. ALTERATIONS TO AGREEMENT...................................................................106
26.1 ENTIRE AGREEMENT.....................................................................106
26.2 VARIATION ONLY IN WRITING............................................................106
26.3 ENGLISH LANGUAGE.....................................................................106
CLAUSE 27. CURRENCY INDEMNITY.........................................................................106
CLAUSE 28. QUIET ENJOYMENT OF AIRCRAFT................................................................107
CLAUSE 29. SEVERABILITY...............................................................................107
CLAUSE 30. SECURITY DEPOSIT...........................................................................107
CLAUSE 31. MISCELLANEOUS..............................................................................109
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
31.1 RECORDATION AND FILING...............................................................109
31.2 NO BROKERS...........................................................................109
31.3 AGREEMENTS RELATING TO SECTION 1110..................................................109
31.4 EXECUTION AND COUNTERPARTS...........................................................110
</TABLE>
SCHEDULES
A. ADDITIONAL DELIVERY CONDITIONS
B. FORM OF LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE
C. FORM OF LESSEE'S CORPORATE CERTIFICATE
D. TECHNICAL DATA AND MANUALS LIST
E-1 LOOSE EQUIPMENT LIST
E-2 EMERGENCY EQUIPMENT LIST
F. REDELIVERY CONDITION
G. FORM OF MONTHLY STATUS REPORT
H. FORM OF RETURN ACCEPTANCE CERTIFICATE
I. FORM OF POWER OF ATTORNEY
J. CERTAIN HARD TIME CONTROLLED ITEMS
K. CONSULTING SERVICES AGREEMENT
L. RIGHT OF FIRST REFUSAL PURCHASE AGREEMENT
v
<PAGE>
----------------------------------
CONSULTING SERVICES AGREEMENT
----------------------------------
This CONSULTING SERVICES AGREEMENT, dated as of February 20,
1996 (this "AGREEMENT"), between ING Aviation Lease B.V., a corporation formed
and existing under the laws of The Kingdom of the Netherlands ("ING"), and Pan
American Airways, Inc., a corporation formed and existing under the
laws of the State of Florida ("PAN AM").
R E C I T A L S :
A. ING Lease (Nederland) B.V. ("ING LEASE"), an affiliate of
ING, and Pan Am are parties to the Letter of Agreement, dated February 5, 1996
(the "LOI"), pursuant to which the parties have set forth their understanding of
the principal terms by which ING Lease will (subject to the conditions therein
and to the execution and delivery of definitive lease and other agreements
contemplated thereby) lease or cause to be leased to Pan Am three Airbus
Industrie model A300B4-200 aircraft (the "AIRCRAFT"), pursuant to one or more
aircraft lease agreements and such other agreements as may be required to
reflect such terms and conditions (herein called the "TRANSACTION DOCUMENTS");
and
B. In connection with the transactions contemplated by the
LOI, Pan Am has requested that ING provide certain consulting services to Pan
Am, as hereinafter set forth, on the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned hereby
agree as follows:
Section 1. CONSULTING SERVICES.
(a) Subject to the terms and conditions hereinafter set forth,
ING shall make available to Pan Am during the Term (as defined below), the
services of one or more persons designated from time to time by ING (herein
referred to individually as the "CONSULTANT") on a non-exclusive basis for
purposes of rendering the services (the "CONSULTING SERVICES") described on
attached ANNEX 1. ING hereby designates Mr. John Schildroth as the Consultant
<PAGE>
under this Agreement, effective from the date hereof until such time as this
Agreement expires or is terminated or ING designates another individual as
Consultant or the Consultant's employment or consulting relationship with ING
expires or is terminated.
(b) Promptly following a request from Pan Am to provide
Consulting Services, ING shall use its commercially reasonable efforts to cause
the Consultant to provide such services at the times or within the periods
specified by Pan Am; PROVIDED, HOWEVER, that Pan Am acknowledges that the
Consulting Services are to be provided by the Consultant on a non-exclusive
basis and the Consultant may not be immediately available under all
circumstances, at the specific times, or for the specific periods requested;
PROVIDED FURTHER, HOWEVER, that ING will use reasonable efforts to advise Pan Am
of any anticipated delay in the performance of requested Consulting Services.
Section 2. COSTS AND EXPENSES.
(a) As reimbursement by Pan Am to ING for the out-of-pocket
costs and expenses incurred by any Consultant in connection with the performance
by such Consultant or ING in connection with any Consulting Services that are
rendered by such Consultant, Pan Am shall pay ING the fixed sum of US$200 per
day up to US$1,000 per week for each day full time during which the Consultant
renders Consulting Services. Such reimbursement shall be made by Pan Am within
30 days following its receipt of an invoice therefor from ING.
(b) ING shall be responsible for, and shall indemnify Pan Am
for, the payment and provision of any Consultant's salary, benefits and other
compensation. Pan Am shall effect any such reimbursement to ING hereunder by
payment to ING in immediately available U.S. dollar funds within 15 days after
receipt by Pan Am of an invoice therefor from ING setting forth in reasonable
detail the costs and expenses for which reimbursement is sought.
Section 3. NATURE OF RELATIONSHIP;
INDEMNIFICATION.
(a) ING shall provide the Consulting Services hereunder as an
independent contractor, and nothing herein shall constitute a partnership,
agency or affiliation between ING and Pan Am. Any Consultant shall be an
employee of, or consultant retained by, ING or an affiliate thereof, and no
Consultant shall be a representative of Pan Am, nor shall he hold himself out or
be held out by Pan Am as an employee, agent or representative of Pan Am for any
purpose.
(b) Neither ING nor any Consultant makes any
-2-
<PAGE>
representation, warranty or guarantee (express or implied) with respect to any
Consulting Services rendered hereunder, the performance thereof or the efficacy
of any Consulting Services. Pan Am is and shall remain solely responsible for
assessing the Consulting Services (including any advice rendered as part
thereof) and to determine whether to use information or follow advice furnished
by the Consultant hereunder, and neither ING nor any Consultant shall have any
liability for special, incidental or consequential damages arising form the
Consulting Services.
(c) Pan Am shall indemnify, hold harmless, protect and defend,
each of ING, its officers, directors, employees, representatives and affiliates,
including any Consultant (each an "INDEMNITEE"), for, from and against, any and
all losses, claims, suits, demands, damages, costs and expenses (including
attorneys' fees and expenses) of any kind or nature whatsoever, relating to,
arising out of, or caused by, the Consulting Services and any course of action
taken or omitted to be taken by Pan Am or any affiliate thereof on the basis
thereof or in reliance thereon or in connection therewith.
Section 4. CONFIDENTIALITY. Each of ING and Pan Am recognizes
that either party hereto (the "DISCLOSING PARTY") may from time to time provide
the other party (the "RECEIVING PARTY") with documents or information that
relate to the business, affairs or operations of the Disclosing Party, some of
which may contain information that is confidential in nature ("CONFIDENTIAL
INFORMATION"). The Disclosing Party shall use commercially reasonable efforts to
label any such information "CONFIDENTIAL" in a conspicuous manner. Each party
agrees that it will maintain as strictly confidential and (except with the
consent or at the request of the Disclosing Party) will not, directly or
indirectly, disclose, use or exploit such Confidential Information for any
purpose other than the good faith performance of its duties and responsibilities
under this Agreement and the other agreements to which ING (or any affiliate or
trustee thereof) and Pan Am may become party, including, in the case of ING,
monitoring the performance by Pan Am of its agreements under any Transaction
Documents and enforcing the rights of ING in connection therewith. No Receiving
Party will distribute copies of any Confidential Information to any person, firm
or entity other than the Receiving Party's personnel, auditors, accountants and
counsel who have a need to know such information. The term "Confidential
Information" shall not include information that is (i) in the public domain
through no fault of the Receiving Party, (ii) already known to the Receiving
Party, as evidenced by written documentation supporting such prior knowledge,
(iii) disclosed to the Receiving Party by a third party that is not under a duty
of confidentiality to the Disclosing Party, or (iv) disclosed in an action,
proceeding
-3-
<PAGE>
or lawsuit between the parties.
Section 5. TERM AND CANCELLATION.
(a) The term of this Agreement (the "TERM") shall commence on
February 20, 1996 and shall expire on the earlier to occur of (1) August 20,
1996, (2) the expiration or any termination of any Lease Agreement relating to
the lease of any Aircraft or the termination of the applicable lease term
thereunder, and (3) the termination or cessation at any time of the employment
or consulting relationship between ING and the Consultant designated by ING at
such time, subject to earlier termination, as hereinbelow set forth.
(b) ING may terminate this Agreement and its obligations
hereunder at any time by giving notice to Pan Am of such termination.
(c) Pan Am may terminate this Agreement by giving notice to
ING of such termination.
(d) Neither the expiration nor any termination of this
Agreement shall terminate, relieve or diminish Pan Am's obligations under
SECTIONS 3 and 4, which obligations shall survive any such expiration or
termination. ING's obligations under SECTION 4 shall survive the expiration or
any termination hereof.
Section 6. REPRESENTATIONS AND WARRANTIES. Each
of the parties to this Agreement represents and warrants to
the other party hereto that:
(a) It is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation (as indicated in
the first paragraph of this Agreement), and has the power and authority to carry
on its business and to enter into and perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized by all necessary
corporate action on the part of such party and does not require any approval of
shareholders of such party (or if such approval is required, such approval has
been obtained). This Agreement has been duly executed and delivered by it and
constitutes the valid and legally binding obligation of such party, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally or by general principles of equity.
Section 7. NOTICES. All notices and other
-4-
<PAGE>
communications provided for in, or effected under, this Agreement shall be in
writing and shall be delivered and effective as follows: (a) delivered by hand
(effective at delivery); (b) mailed, first class postage prepaid, return receipt
requested (effective on the third business day after deposit in the mail); (c)
sent by overnight courier (effective on the business day following the business
day on which it is delivered to a recognized courier service); or (d) sent by
facsimile transmission and confirmed by hand- delivered, mailed or overnight
courier copy (effective when sent by facsimile transmission and confirmed by the
sender's facsimile machine printout). Any such notice or other communication
shall be addressed as follows:
(a) if to ING, addressed as follows:
ING Aviation Lease B.V.
Karspeldreef 14
1101 CK Amsterdam-Zuidoost
P.O. Box 1971
1000 BZ Amsterdam
The Netherlands
Attention: Managing Director-Operating Lease
Telephone: 011-31-20-6525-701
Facsimile: 011-31-20-6525-704
(b) if to Pan Am, addressed as follows:
Pan American Airways, Inc.
9300 N.W. 36th Street
Miami, Florida 33178
Attention: President & CEO
Telephone: 305-873-2625
Facsimile: 305-873-7158
or, in either case, at such other address as the party to receive such
communication may hereafter designate by notice given as provided herein to the
other party.
Section 8. MISCELLANEOUS.
(a) Nothing herein shall constitute a commitment by ING or ING
Lease to consummate any transaction or to enter into any Transaction Document,
except on such terms and conditions as are acceptable to it, consistent with the
LOI.
(b) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
(c) All covenants and agreements in this
-5-
<PAGE>
Agreement by or on behalf of the respective parties hereto shall bind and inure
to the benefit of their respective successors and permitted assigns.
(d) Nothing in this Agreement, either express or implied, is
intended to confer upon any person or entity (other than the parties hereto and
their respective successors and permitted assigns) any benefits, rights or
remedies, except that any Indemnitee is an intended third party beneficiary of
the agreements of Pan Am herein and may enforce the same directly against Pan
Am.
(e) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WITHIN SUCH STATE.
(f) No party hereto may assign this Agreement or its rights or
obligations hereunder to any other person without the prior written consent of
the other parties hereto, except that ING may assign its rights hereunder to one
or more affiliates of ING or to any Indemnitee.
(g) The terms of this Agreement may be waived, modified,
altered or amended only by an instrument in writing and signed by a duly
authorized representative of each party hereto.
(h) The waiver of any breach or violation of any term or
provision hereof shall not constitute a waiver of any subsequent breach or
violation of the same or any other term or provision.
(i) This Agreement embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements, letters of intent and
understandings relating to the subject matter hereof.
(j) The subdivision headings in this Agreement have been
inserted for the convenience of reference only and shall not limit or otherwise
affect the meaning, interpretation or construction of any provision hereof.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first above written.
ING AVIATION LEASE B.V.
By: _______________________
Name: _____________________
Title: ____________________
By: _______________________
Name: _____________________
Title: ____________________
PAN AMERICAN AIRWAYS, INC.
By: _______________________
Name: _____________________
Title: ____________________
-7-
<PAGE>
ANNEX 1
CONSULTING SERVICES
Advice relating to Pan Am's efforts to obtain any permits and
approvals from the United States Department of Transportation (the "DOT") and
the United States Federal Aviation Administration (the "FAA") that are necessary
to enable Pan Am to engage in the business of a U.S. air carrier in the
regularly scheduled transportation of persons and property, including advice
relating to airline operations and the approval and implementation of the ING
Lease maintenance program for the Aircraft, all in the context of seeking and
obtaining such permits and approvals.
<PAGE>
SCHEDULE L
----------------------------------
RIGHT OF FIRST REFUSAL PURCHASE AGREEMENT RELATING TO
AIRBUS MODEL A300B4-200 AIRCRAFT MSN 211
----------------------------------
This RIGHT OF FIRST REFUSAL AGREEMENT, dated as of April 15,
1996 (this "AGREEMENT"), among ING Lease Aircraft B.V., a corporation formed and
existing under the laws of The Kingdom of the Netherlands ("ING"), EAL
(Delaware) VIII Corp., a corporation formed and existing under the laws of the
State of Delaware ("EAL") and Pan American Airways, Inc., a corporation formed
and existing under the laws of the State of Florida ("PAN AM").
R E C I T A L S :
A. Contemporaneously with the execution and delivery of this
Agreement, Pan Am, as lessee, and EAL, as lessor, are executing and delivering a
Lease Agreement (such agreement, as amended, restated or otherwise in effect
from time to time with respect to the aircraft, the "LEASE") relating to the
lease by EAL to Pan Am of the Airbus Industrie Model A300B4-200 Aircraft bearing
the manufacturer's serial number described above (as more particularly described
in the Lease, the "AIRCRAFT"); and
B. In connection with the transactions contemplated by the
Lease, EAL, ING and Pan Am desire to set forth herein certain additional
agreements with respect to the Lease, as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned hereby
agree as follows (capitalized terms not defined herein shall have the meanings
set forth in the Lease):
Section 1. RIGHT OF FIRST REFUSAL, RELATING TO A SALE OF THE
AIRCRAFT.
(a) So long as no Event of Default shall have occurred and be
continuing, Seller agrees that it shall not, at any time during the Lease Term
(including any Extension Lease Term with respect to which Pan Am has exercised
the Extension Option in accordance with the Lease) Sell the Aircraft to any
person without notifying Pan Am of such proposed Sale and giving Pan Am the
opportunity to purchase the Aircraft pursuant to the terms of such proposed
Sale, as provided below. If during the Lease Term, Seller shall receive and be
willing to accept and consummate a bona fide offer from a third party to
purchase the Aircraft in a Sale
<PAGE>
transaction, including the acceptance by any prospective purchaser of a
solicitation by Seller for such offer (herein called an "OFFER"), Seller shall
deliver written notice to Pan Am in which Seller shall set forth in reasonable
detail the terms and conditions of such Offer ("SELLER'S OFFER NOTICE"),
whereupon Pan Am shall have the right (as used in this SECTION 1, the "RIGHT OF
FIRST REFUSAL"), exercisable as provided below, to purchase the Aircraft upon
the same terms and conditions as set forth in the Seller's Offer Notice. To
exercise the Right of First Refusal, Pan Am shall, prior to the 15th day
following its receipt of Seller's Offer Notice, deliver written notice to ING
and EAL (the "EXERCISE NOTICE") stating that Pan Am has elected to purchase the
Aircraft upon the same terms and conditions (including without limitation the
terms therein, if any, relating to purchase price, closing date, security
deposits, down payments, residual value sharing), as are set forth in Seller's
Offer Notice; PROVIDED, HOWEVER, that if ING and EAL shall not have received the
Exercise Notice corresponding to any Seller's Offer Notice before such 15th day,
then Seller may consummate the Sale transaction described in such Seller's Offer
Notice and Pan Am's rights with respect thereto shall terminate. Upon receipt by
ING or EAL of any Exercise Notice, Pan Am shall become unconditionally and
irrevocably obligated to purchase the Aircraft pursuant to the terms and
conditions set forth in the related Seller's Offer Notice.
(b) Seller shall not be required to notify Pan Am of any Offer
or Sale from and after the occurrence of an Event of Default, and the Right of
First Refusal shall terminate automatically upon the occurrence of any Event of
Default.
(c) As used herein, the following terms have the respective
meanings specified below:
"AFFILIATE" means, with respect to any specified person, any
other person controlling, controlled by, or under common control with such
specified person.
"SELLER" means ING or EAL, as the case may be, or both ING and
EAL, in any case, in the context of a Sale or proposed Sale of the Aircraft.
"SALE" means (1) the sale of the Aircraft in a transaction in
which all right, title and interest of Seller thereto is transferred to a person
that is not an Affiliate of ING or EAL or a trustee for ING or EAL or an
Affiliate of either thereof, and (2) the assignment or transfer of the entire
beneficial interest in the Aircraft to a person that is not an Affiliate of ING
or EAL or a trustee for ING or EAL or an Affiliate of either thereof, whether or
not any such Sale includes the transfer of all right, title and
-2-
<PAGE>
interest in the Aircraft or is in the form of a conditional sale of the Aircraft
or is in the form of a financing lease in which the parties thereto do not treat
such lease as a lease for Federal income tax purposes; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, the following transactions shall not constitute a
"Sale" for purposes hereof or for purposes of Pan Am's Right of First Refusal:
(a) any assignment or other transfer by ING of its rights or interests in the
Aircraft, or in or under the Security Agreement, the Lease or any other document
relating thereto or in or to the Aircraft at any time prior to the foreclosure
by ING of title to the Aircraft shall not constitute a "Sale", (b) any
assignment or other transfer by ING of any right or interest in or under the
Lease or any other document relating thereto, so long as such assignment or
transfer is not effected in connection with the assignment or transfer of legal
title or the beneficial interest in the Aircraft, (c) any assignment or transfer
of any interest to any Affiliate of either ING or EAL, (d) any assignment or
transfer of any interest to a trustee acting as trustee for the benefit of ING
or EAL or any Affiliate of either thereto, (e) any sale, merger, consolidation,
liquidation, winding up or other restructuring of EAL, or the transfer of any
capital stock or securities thereof and (f) any assignment or other transfer of
EAL's or ING's interest in a transaction in which EAL or ING (or an Affiliate
thereof or trustee therefor) retains an interest therein or any other
restructuring, re-financing or re- booking of EAL's or ING's interest in the
Aircraft, and (g) any assignment or transfer of EAL's interest in the Aircraft
or in or under the Lease to ING or any Affiliate thereof or any trustee for ING
or any Affiliate thereof.
"SELL" means to sell, convey or transfer the
Aircraft in a Sale transaction.
(d) If Pan Am shall fail to accept the Offer by written
notice, as provided above, then Seller shall be free to consummate the Sale
transaction described in the Offer, but only on the terms contained in the Offer
as presented to Pan Am. If Pan Am is notified of a Sale transaction that is not
consummated, then Seller shall remain obligated hereunder to notify Pan Am of
subsequent Offers in the same manner as provided above, whether or not Pan Am
has rejected or failed to respond to any notice of any prior Offer.
Section 2. PROCEDURE UPON PURCHASE.
In any Sale transaction in which Pan Am has exercised the
Right of First Refusal, Seller shall effect the transfer to Pan Am of such
interest in the Aircraft as is contemplated by the Offer, without recourse,
representation or warranty of any kind, except that such interest is free and
clear of any Lien created by or through
-3-
<PAGE>
Seller.
Section 3. MISCELLANEOUS.
(a) This Agreement shall constitute a Lease Document, as
defined in the Lease, for all purposes thereof, including for purposes of CLAUSE
6 (payments) and CLAUSE 25 (jurisdiction). Breach by Lessee of its obligations
hereunder shall constitute an Event of Default (as defined in the Lease).
Notices, requests, demands and other communications contemplated by or made
pursuant to this Agreement shall be made and be effective in the manner
prescribed in the Lease.
(b) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
(c) The provisions of this Agreement shall benefit and bind
ING, EAL, Pan Am and their respective successors and permitted assigns;
PROVIDED, HOWEVER, that Pan Am may not assign or delegate any of its rights or
obligations hereunder without the prior written consent of EAL and ING.
(d) THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WITHIN SUCH STATE.
[The remainder of this page is intentionally left blank.]
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first above written.
ING AVIATION LEASE B.V.
By: _______________________
Name: _____________________
Title: ____________________
By: _______________________
Name: _____________________
Title: ____________________
EAL (DELAWARE) VIII CORP.
By: _______________________
Name: _____________________
Title: ____________________
PAN AMERICAN AIRWAYS, INC.
By: _______________________
Name: _____________________
Title: ____________________
-5-
EXHIBIT 10.8
ACQUISITION AGREEMENT
March 20, 1997
among
PAN AM CORPORATION
("Pan Am")
and
CAL ACQUISITION CORPORATION
("Acquisition")
and
AIR HOLDING COMPANY
("AHC")
and
CARNIVAL AIR LINES, INC.
("Carnival")
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Page
ARTICLE I Definitions.......................................................................... 1
ARTICLE II The Merger........................................................................... 6
ARTICLE III Representations and Warranties of AHC and Carnival................................... 6
3.1 Organization......................................................................... 6
3.2 Authorization; Enforceability........................................................ 6
3.3 No Violation or Conflict............................................................. 6
3.4 Consent of Governmental Authorities.................................................. 7
3.5 Carnival Statements.................................................................. 7
3.6 Compliance with Laws................................................................. 7
3.7 Legal Proceedings.................................................................... 8
3.8 Brokers.............................................................................. 8
3.9 Absence of Material Adverse Changes.................................................. 8
3.10 Articles of Incorporation, Bylaws and Minute Books................................... 9
3.11 Capitalization....................................................................... 9
3.12 Rights, Warrants, Options............................................................ 9
3.13 Properties........................................................................... 10
3.14 Governmental Authorizations.......................................................... 11
3.15 Insurance............................................................................ 11
3.16 Employment Matters................................................................... 11
3.17 Material Agreements.................................................................. 13
3.18 List of Accounts..................................................................... 14
3.19 Major Customers and Suppliers........................................................ 14
3.20 Related Party Transactions........................................................... 14
3.21 Tax Matters.......................................................................... 14
3.22 Guaranties........................................................................... 15
3.23 Absence of Certain Business Practices................................................ 15
3.24 RWDR Transaction..................................................................... 15
3.25 AHC Spinoff and RWDR Transaction Liability........................................... 15
3.26 Intentionally Omitted................................................................ 15
3.27 Registration Statement and Proxy Statement........................................... 15
3.28 Pooling-of-Interests................................................................. 16
3.29 Intentionally Left Blank............................................................. 16
3.30 Investment Representations........................................................... 16
3.31 Disclosure........................................................................... 17
ARTICLE IV Representations and Warranties of Pan Am and Acquisition............................. 17
4.1 Organization......................................................................... 17
4.2 Authorization; Enforceability........................................................ 17
4.3 No Violation or Conflict............................................................. 17
4.4 Consent of Governmental Authorities.................................................. 18
4.5 Exchange Act Reports; Financial Statements........................................... 18
4.6 Compliance with Laws................................................................. 18
4.7 Legal Proceedings.................................................................... 19
4.8 Brokers.............................................................................. 19
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
4.9 Absence of Material Adverse Changes.................................................. 19
4.10 Articles of Incorporation, Bylaws and Minute Books................................... 20
4.11 Capitalization....................................................................... 20
4.12 Rights, Warrants, Options............................................................ 20
4.13 Properties........................................................................... 20
4.14 Governmental Authorizations.......................................................... 22
4.15 Insurance............................................................................ 22
4.16 Employment Matters................................................................... 22
4.17 Material Agreements.................................................................. 24
4.18 Related Party Transactions........................................................... 24
4.20 Tax Matters.......................................................................... 25
4.21 Guaranties........................................................................... 26
4.22 Validity of Pan Am Common Stock...................................................... 26
4.23 Absence of Certain Business Practices................................................ 26
4.24 Opinion of Financial Advisor......................................................... 26
4.25 Registration Statement and Proxy Statement........................................... 26
4.26 Pooling-of-Interests................................................................. 27
4.27 Disclosure........................................................................... 27
ARTICLE V Covenants............................................................................ 27
5.1 Interim Operations of Pan Am and AHC................................................. 27
5.2 Access............................................................................... 29
5.3 Confidentiality...................................................................... 29
5.4 Notification......................................................................... 30
5.5 Consent of Governmental Authorities and Others....................................... 30
5.6 Reasonable Efforts................................................................... 30
5.7 Publicity............................................................................ 30
5.8 Acquisition Proposals................................................................ 30
5.9 Carnival and Pan Am Shareholder Approval............................................. 31
5.10 Proxy Statement; Registration........................................................ 31
5.11 Affiliates' Letters.................................................................. 31
5.12 Nonsolicitation of Employees......................................................... 33
5.13 Certain Post-Closing Notifications................................................... 33
ARTICLE VI Additional Agreements................................................................ 33
6.1 Investigation; Notices............................................................... 33
6.2 Survival of the Representations and Warranties....................................... 33
6.3 Indemnification...................................................................... 33
6.4 General Release...................................................................... 35
6.5 Noncompetition....................................................................... 35
6.6 Confidentiality; Name Use............................................................ 36
6.7 Continuing Obligations............................................................... 36
6.8 AHC Spinoff and RWDR Transaction..................................................... 37
6.9 Voting Agreements.................................................................... 37
6.10 Accountants' Comfort Letters......................................................... 37
6.12 Intentionally Left Blank............................................................. 37
6.13 Use of the Carnival Name............................................................. 37
6.14 Board Representation................................................................. 38
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
6.15 Additional Capital Contribution...................................................... 38
6.16 Registration Rights Agreement........................................................ 38
6.17 Intentionally Left Blank............................................................. 38
6.18 Wertheim Consulting Arrangement...................................................... 38
ARTICLE VII Closing; Conditions Precedent; Termination........................................... 39
7.1 Closing.............................................................................. 39
7.2 Mutual Conditions Precedent.......................................................... 39
7.3 Conditions Precedent to the Obligations of AHC and Carnival.......................... 39
7.4 Conditions Precedent to the Obligations of Pan Am and Acquisition.................... 40
7.5 Termination.......................................................................... 41
ARTICLE VIII Miscellaneous............................................................................. 42
8.1 Notices.............................................................................. 42
8.2 Entire Agreement..................................................................... 42
8.3 Assignment........................................................................... 42
8.4 Waiver and Amendment................................................................. 42
8.5 No Third Party Beneficiary........................................................... 43
8.6 Severability......................................................................... 43
8.7 Expenses............................................................................. 43
8.8 Headings............................................................................. 43
8.9 Counterparts......................................................................... 43
8.10 Litigation; Prevailing Party......................................................... 43
8.11 Injunctive Relief.................................................................... 43
8.12 Remedies Cumulative.................................................................. 43
8.13 Participation of Parties; Construction............................................... 44
8.14 Governing Law........................................................................ 44
8.15 Jurisdiction and Venue............................................................... 44
-iii-
</TABLE>
<PAGE>
ACQUISITION AGREEMENT
This Acquisition Agreement ("AGREEMENT") is entered into as of March
20, 1997, among Pan Am Corporation, a Florida corporation ("PAN AM"), CAL
Acquisition Corporation, a Florida corporation ("ACQUISITION"), Air Holding
Company, a Florida corporation ("AHC"), and Carnival Air Lines, Inc., a Florida
corporation ("CARNIVAL").
PRELIMINARY STATEMENTS
1. Pan Am and AHC believe that it is in their respective best interests
and in the best interests of their respective shareholders for Acquisition to
merge with and into Carnival upon the terms and subject to the conditions of
this Agreement.
2. Prior to the Closing (as defined herein), AHC shall sell or
otherwise transfer all of its assets other than the capital stock of Carnival
(the "AHC SPINOFF").
3. Prior to the Closing, AHC will merge with and into Carnival (the
"RWDR TRANSACTION").
AGREEMENT
In consideration of the preliminary statements and the respective
covenants, representations and warranties contained in this Agreement, the
parties agree as set forth below.
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"ACQUISITION COMMON STOCK" means the common stock of Acquisition, par
value $.0001 per share.
"ADDITIONAL CAPITAL CONTRIBUTION" has the meaning set forth in SECTION
6.15 of this Agreement.
"AFFILIATE" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"AGREEMENT" means this Acquisition Agreement, together with all
exhibits and schedules referred to herein.
"AHC COMMON STOCK" means the common stock of AHC, par value $1.00 per
share.
"AHC MATERIAL AGREEMENTS" has the meaning set forth in SECTION 3.17 of
this Agreement.
"AHC PENSION PLAN" has the meaning set forth in SECTION 3.16(D) of this
Agreement.
"AHC PLANS" has the meaning set forth in SECTION 3.16(D) of this
Agreement.
<PAGE>
"AHC RELATED PARTY" and "AHC RELATED PARTIES" have the meanings set
forth in SECTION 3.20 of this Agreement.
"AHC WELFARE PLAN" has the meaning set forth in SECTION 3.16(D) of this
Agreement.
"AIRWORTHINESS DIRECTIVES" has the meaning set forth in SECTION 3.13(B)
of this Agreement.
"AMEX" means the American Stock Exchange.
"ANCA" has the meaning set forth in SECTION 3.13(B) of this Agreement
"ARTICLES AND AGREEMENT OF MERGER" means the Agreement and Plan of
Merger in the form of EXHIBIT A hereto, which sets forth the matters required to
be contained in a plan of merger under the Florida BCA.
"AVERAGE PRICE" means the average closing price for the Common Stock as
reported on AMEX for the twenty (20) trading days immediately preceding the day
prior to the date the Proxy Statement is ready to be mailed to the shareholders
of Pan Am.
"CARNIVAL COMMON STOCK" means the common stock of Carnival, par value
$.0002105 per share.
"CARNIVAL CRUISE" means Carnival Corporation.
"CARNIVAL FINANCIAL STATEMENTS" has the meaning set forth in SECTION
3.5 of this Agreement.
"CARNIVAL MARKS" has the meaning set forth in SECTION 3.13(C) of this
Agreement.
"CARNIVAL MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION
3.1 of this Agreement.
"CARNIVAL RELATED MARK" has the meaning set forth in SECTION 6.13 of
this Agreement.
"CARNIVAL SPECIAL MEETING" has the meaning set forth in SECTION 5.9 of
this Agreement.
"CERCLA" has the meaning set forth in SECTION 3.6(B) of this Agreement.
"CLAIM" has the meaning set forth in SECTION 3.13(C) of this Agreement.
"CLOSING" has the meaning set forth in SECTION 7.1 of this Agreement.
"CLOSING DATE" has the meaning set forth in SECTION 7.1 of this
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock of Pan Am, par value $.0001 per
share.
"DOT" means the United States Department of Transportation or any
successor agency.
-2-
<PAGE>
"ENCUMBRANCES" mean any and all liens, encumbrances, mortgages,
security interests, pledges, claims, equities and other restrictions or charges
of any kind or nature whatsoever.
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or wastes into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of chemicals,
pollutants, contaminants, or industrial, toxic or hazardous substances or
wastes, as well as all authorizations, codes, decrees, demands or demand
letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved
thereunder.
"ERISA" has the meaning set forth in SECTION 3.16(D) of this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXCHANGE SHARES" has the meaning set forth in ARTICLE II of this
Agreement.
"EXCHANGE VALUATION" means $8.40 per share of Common Stock.
"FAA" means the United States Federal Aviation Administration or any
successor agency.
"FEDERAL AVIATION LAWS" means Subtitle VII of Title 49 of the United
States Code, as amended, and the rules and regulations promulgated thereunder.
"FLORIDA BCA" means the Business Corporation Act of the State of
Florida, as amended.
"GUARANTY" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such indebtedness, liabilities or
obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, liabilities or obligations
against loss.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFYING PARTY" and "INDEMNIFIED PARTY" have the meaning set forth
in SECTION 6.3(C) of this Agreement.
"INTANGIBLE PROPERTY" means, as to any Person, all foreign and domestic
trademarks, trademark rights, trade names, trade dress, trade name rights,
service marks, brands and copyrights (or pending registrations and applications
therefor) owned, used or controlled by such Person, and all other intellectual
property and proprietary rights, including trade secrets, technology, know-how
and other information owned, held or used by such Person.
"IRS" means the Internal Revenue Service or any successor agency.
-3-
<PAGE>
"KNOWLEDGE" or "KNOWN" means, with respect to any representation or
warranty or other statement in this Agreement qualified by the knowledge of any
party, that such party has made a reasonable investigation as to the matters
that are the subject of such representation, warranty or other statement. Where
reference is made to the knowledge of any party, such reference shall mean (i)
with respect to Pan Am, the actual knowledge of any of Martin R. Shugrue, Jr.,
John J. Ogilby, Jr., Robert Coile or John J. Sicilian following such
investigation and (ii) with respect to AHC or Carnival, shall mean the actual
knowledge of any of Micky Arison, Reuven Wertheim, Ray Vecci, Lew Graham or
Howard Frank following such investigation. All of the parties referenced in
items (i) and (ii) in the preceding sentence shall be deemed to have conducted
the investigation required by this definition.
"LIABILITIES" has the meaning set forth in SECTION 6.3(A) of this
Agreement.
"LICENSES" has the meaning set forth in SECTION 3.14 of this Agreement.
"MARKS" has the meaning set forth in SECTION 4.13(C) of this Agreement.
"MERGER" has the meaning set forth in Article II of this Agreement.
"PAN AM FINANCIAL STATEMENTS" has the meaning set forth in SECTION
4.5(B) of this Agreement.
"PAN AM FINANCINGS AND ACQUISITIONS" means the borrowing of money,
incurrence of debt, leasing of property or equipment, issuance of securities
(including, without limitation, pursuant to the Private Placement Memorandum),
acquisition of real property, equipment, or other assets, or the merger
consolidation or acquisition of other businesses by, or on behalf of, or
otherwise involving Pan Am or any Subsidiary. Pan Am Financings and Acquisitions
shall also include the taking of action relating to corporate governance issues,
such as classifying Pan Am Board of Directors and adopting various anti-takeover
provisions.
"PAN AM MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION
4.1 of this Agreement.
"PAN AM MATERIAL AGREEMENTS" has the meaning set forth in SECTION 4.17
of this Agreement.
"PAN AM PENSION PLAN" has the meaning set forth in SECTION 4.16(D) of
this Agreement.
"PAN AM PLANS" has the meaning set forth in SECTION 4.16(D) of this
Agreement.
"PAN AM RELATED PARTY" and "PAN AM RELATED PARTIES" have the meanings
set forth in SECTION 4.18 of this Agreement.
"PAN AM SEC REPORTS" has the meaning set forth in SECTION 4.5(A) of
this Agreement.
"PAN AM SPECIAL MEETING" has the meaning set forth in SECTION 5.9 of
this Agreement.
"PAN AM WELFARE PLAN" has the meaning set forth in SECTION 4.16(D) of
this Agreement.
"PBGC" has the meaning set forth in SECTION 3.16(D) of this Agreement.
"PERSON" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or government, or any agency or political subdivision of any government,
or any other entity.
-4-
<PAGE>
"PRIVATE PLACEMENT MEMORANDUM" means that certain Private Placement
Memorandum of Pan Am, pursuant to which Pan Am is anticipated to seek to raise
funds for Pan Am.
"PROXY STATEMENT" means the proxy statement of Pan Am relating to the
Common Stock to be issued in connection with the Merger.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION
6.16 of this Agreement.
"REGISTRATION STATEMENT" means the registration statement(s) of Pan Am
on Form S-3 (or such other form available) filed to register the Shareholders'
resale of the Exchange Shares under the Securities Act.
"REVOLVING LINE OF CREDIT" has the meaning set forth in SECTION 7.3(F)
of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHAREHOLDERS" mean Reuven Wertheim, A. Daniel Ratti, Micky Arison and
the Trust.
"SUBSIDIARY" of any Person means any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of 50% or more, or any Person which may be controlled, directly or
indirectly, by such Person, whether through the ownership of voting securities,
by contract, or otherwise.
"TAX" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, transportation, transportation excise, registration, value added,
documentary stamp, excise, natural resources, severance, stamp, occupation,
premium, windfall profit, environmental, customs, duties, real property,
personal property, capital stock, social security, unemployment, disability,
payroll, license, employee or other withholding, or other tax or governmental
charge, of any kind whatsoever, including any interest, penalties or additions
to tax or additional amounts in respect of the foregoing; the foregoing shall
include any transferee or secondary liability for a Tax and any liability
assumed by agreement or arising as a result of being (or ceasing to be) a member
of any affiliated group (or being included (or required to be included) in any
tax return relating thereto).
"TERMINATION DATE" has the meaning set forth in SECTION 7.5 of this
Agreement.
"TRUST" means the Micky Arison 1995 Air Holding Trust, which is the
sole shareholder of AHC.
"VOTING AGREEMENTS" has the meaning set forth in SECTION 6.9 of this
Agreement.
-5-
<PAGE>
ARTICLE II
THE MERGER
Subject to the terms and conditions of this Agreement, Acquisition will
be merged with and into Carnival (the "MERGER") in accordance with the Florida
BCA. Carnival shall be the surviving corporation of the Merger. The Merger shall
become effective upon the filing of the Articles and Agreement of Merger,
substantially in the form set forth in EXHIBIT A hereto, with the Secretary of
State of the State of Florida in accordance with Section 607.1105 of the Florida
BCA.
The consideration for the Merger shall consist of the delivery of
9,523,810 shares of Common Stock upon the Merger (the "EXCHANGE SHARES").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AHC AND CARNIVAL
In order to induce Pan Am and Acquisition to enter into this Agreement
and to consummate the transactions contemplated hereby, AHC and Carnival make
the representations and warranties set forth below to Pan Am and Acquisition.
3.1 ORGANIZATION. Each of AHC and its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
state or country of incorporation. Each of AHC and its Subsidiaries is duly
qualified to transact business as a foreign corporation in all jurisdictions
where the ownership or leasing of its properties or the conduct of its business
requires such qualification except where the failure to be so qualified would
not have a material adverse effect on the financial condition, results of
operations, assets, liabilities, prospects or business of AHC and its
Subsidiaries on a consolidated basis (a "CARNIVAL MATERIAL ADVERSE EFFECT").
Each jurisdiction in which AHC or any of its Subsidiaries is qualified to
transact business as a foreign corporation is listed on SCHEDULE 3.1. Each of
AHC and its Subsidiaries has the corporate authority to (i) own or lease and
operate its properties and (ii) conduct its business as presently conducted.
Each of AHC and Carnival has the corporate authority to execute, deliver and
perform this Agreement and the Articles and Agreement of Merger. Carnival is a
"citizen of the United States" within the meaning of 49 U.S.C. ss. 40102(a)(15)
and is an "air carrier" certified under Chapter 411 and Section 44705 of 49
U.S.C.
3.2 AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance of this Agreement and the Articles and Agreement of Merger by AHC
and Carnival and the consummation by AHC and Carnival of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of AHC and Carnival. Each of the Shareholders is
authorized to execute and deliver this Agreement. This Agreement and the
Articles and Agreement of Merger have been duly executed and delivered by AHC
and Carnival, and constitute the legal, valid and binding obligations of AHC,
Carnival and each of the Shareholders, enforceable against them in accordance
with their terms, except to the extent that their enforcement is limited by
bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights generally or by general principles of
equity.
3.3 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 3.3, the
execution, delivery and performance by the Shareholders, AHC and Carnival of
this Agreement, and the Articles and Agreement of Merger by AHC and Carnival,
and the consummation by AHC and Carnival of the
-6-
<PAGE>
transactions contemplated hereby and thereby: (i) do not and will not (subject
to obtaining the consents contemplated by SECTION 3.4 hereof) violate or
conflict with any provision of law or regulation, the result of which could
reasonably be expected to cause, individually or in the aggregate, a Carnival
Material Adverse Effect or any writ, order, judgment or decree of any court or
governmental or regulatory authority specifically naming AHC or any of its
Subsidiaries or any Shareholder, or any provision of AHC's or Carnival's
Articles of Incorporation or Bylaws; and (ii) do not and will not, with or
without the passage of time or the giving of notice, result in the breach of, or
constitute a default, cause the acceleration of performance, permit the
unilateral modification or termination of, or require any consent under, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of any of the Shareholders, AHC or any of its Subsidiaries pursuant to,
any material instrument or agreement to which any Shareholder, AHC or any of its
Subsidiaries is a party or by which any Shareholder, AHC or any of its
Subsidiaries or their respective properties may be bound or affected.
3.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Other than in connection with
the HSR Act, the laws and regulations of the FAA and the DOT, and the state
securities laws of any jurisdiction, no consent, approval or authorization of,
or registration, qualification or filing with any federal, state or local
governmental or regulatory authority is required to be made by any Shareholder,
AHC or any of its Subsidiaries in connection with the execution, delivery or
performance by any Shareholder, AHC or Carnival of this Agreement or the
Articles and Agreement of Merger or the consummation by AHC and Carnival of the
transactions contemplated hereby and thereby.
3.5 CARNIVAL STATEMENTS. AHC has previously delivered to Pan Am and
Acquisition a true and complete copy of the balance sheets of Carnival as of
June 30, 1995 and 1996, and the statements of income, cash flows and retained
earnings of Carnival for the fiscal years ended June 30, 1994, 1995 and 1996,
including any related notes, audited for the 1996, 1995 and 1994 fiscal years by
Carnival's independent certified public accountants pursuant to their audit of
the financial records of Carnival and the unaudited statement of income, cash
flows and retained earnings of Carnival for the period commencing June 30, 1996
and ending on January 31, 1997 (collectively, the "CARNIVAL FINANCIAL
STATEMENTS"). Except as indicated on SCHEDULE 3.5, the Carnival Financial
Statements fairly present in all material respects Carnival's financial
condition, assets, liabilities, equity and results of operations at the dates
and for the periods specified in those statements in accordance with generally
accepted accounting principles consistently applied with prior periods (subject
in the case of the unaudited statement, to normal nonmaterial year-end audit
adjustments and the absence of notes). Other than as disclosed by the Carnival
Financial Statements, or on SCHEDULE 3.5, SCHEDULE 3.17 or executory contractual
obligations not required to be disclosed on SCHEDULE 3.17 hereto, neither AHC
nor Carnival has any liabilities, commitments or obligations (which reasonably
could be expected to be material to AHC and Carnival on a consolidated basis) of
any nature whatsoever, whether accrued, contingent or otherwise (other than
liabilities, commitments or obligations incurred since January 31, 1997 in the
ordinary course of business consistent with past practices to Persons other than
Affiliates of AHC), and, to Carnival's knowledge, there is no reasonable basis
for assertion against AHC or Carnival or any of its Subsidiaries of any such
liability, commitment or obligation.
3.6 COMPLIANCE WITH LAWS.
(a) Except as set forth on SCHEDULE 3.6(A), each of AHC and
its Subsidiaries is in compliance in all material respects with all federal,
state, local and foreign laws, ordinances, regulations, judgments, rulings,
orders and other legal requirements applicable to it, its operations or its
properties, including, without limitation, those relating to employment,
building, zoning, safety and health, and environmental matters. Except as
otherwise disclosed to Pan Am in writing, neither AHC nor any of its
Subsidiaries has received notification from any governmental or regulatory
authority asserting that it may
-7-
<PAGE>
not be in compliance with or may have violated any of the laws or regulations
which said governmental or regulatory authority enforces, or threatening to
revoke any authorization, consent, approval, franchise, license or permit, and
neither AHC nor any of its Subsidiaries is subject to any agreement or consent
decree with any governmental or regulatory authority arising out of previously
asserted violations. Pan Am has been furnished with, or AHC or Carnival has made
available to Pan Am, true and correct copies of all records of inspections,
notices, reports, or audits of any of AHC's or its Subsidiaries' businesses and
properties during the last three years under applicable federal, state, foreign
and local laws and regulations or conducted by insurance companies, consultants
or other Persons, including without limitation, any conducted by the FAA, the
DOT or the Department of Defense; and all deficiencies noted therein have been
corrected. Pan Am has been furnished with, or AHC or Carnival has made available
to Pan Am, true and correct copies of all correspondence and other filings made
to or received from any governmental regulatory agency or authority (including,
but not limited to, the FAA and the DOT) regarding AHC or any of its
Subsidiaries within the last three years.
(b) Without limiting the generality of SECTION 3.6(A), except
as disclosed by the environmental audits and reports listed on SCHEDULE 3.6,
copies of which have heretofore been delivered to Pan Am and Acquisition, or as
otherwise set forth on SCHEDULE 3.6, there are, with respect to AHC and its
Subsidiaries, no past or present violations of any laws or regulations
promulgated by the FAA or the DOT or of any Environmental Laws, releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents or contractual obligations which could reasonably be expected
to give rise to any common law or other legal liability in excess of $50,000,
including, without limitation, liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder ("CERCLA"), or similar state or local laws.
3.7 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 3.7, neither AHC
nor any of its Subsidiaries is, nor during the past three years has been, a
party to any pending or, to the knowledge of AHC, threatened, legal,
administrative or other proceeding, arbitration or investigation, which could
reasonably be expected to result in such party expending in excess of $100,000,
and neither AHC nor any Shareholder has any knowledge of any set of facts which
could reasonably be expected to result in any legal, administrative or other
proceeding, arbitration or investigation involving AHC or any of its
Subsidiaries. Except as set forth on SCHEDULE 3.7, neither any Shareholder, AHC
nor any of its Subsidiaries is subject to any order, injunction or other
judgment of any court or governmental authority. Each of the Shareholders, AHC
and its Subsidiaries is in compliance with the terms of each order, injunction
or other judgment set forth on SCHEDULE 3.7. None of the items set forth on
SCHEDULE 3.7 could, individually or in the aggregate, reasonably be expected to
have a Carnival Material Adverse Effect.
3.8 BROKERS. Except as set forth in SCHEDULE 3.8 hereto, neither AHC
nor any of its Subsidiaries nor any Shareholder has employed any financial
advisor, broker or finder and none has incurred and none will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses
to any other party in connection with the transactions contemplated by this
Agreement that could become an obligation of AHC or any Subsidiary or utilize
any of their respective funds in connection with payment thereof.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
SCHEDULE 3.9, from January 31, 1997 to the date hereof: (i) Carnival has in all
material respects conducted its business in the ordinary and usual course
consistent with past practices; (ii) there has been no material adverse change
in the financial condition, results of operations, assets, liabilities or
business of AHC or Carnival; and
-8-
<PAGE>
(iii) AHC or Carnival has not engaged or agreed to engage in any of the actions
described in SECTION 5.1 (except as otherwise specifically permitted in SECTION
5.1).
3.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True and
complete copies of the Articles of Incorporation, as amended to date, Bylaws, as
amended to date, and minute book of Carnival has been delivered or made
available by AHC to Pan Am. Such documents contain complete and accurate records
in all material respects and have embodied therein copies of minutes of all
meetings and actions by written consent of the incorporators, boards of
directors (and committees thereof) and shareholders of such entities from the
date of incorporation to the date hereof.
3.11 CAPITALIZATION. As of the date hereof, all issued and outstanding
shares of AHC Common Stock are legally owned by the Trust and beneficially owned
by Micky Arison, free and clear of all Encumbrances subject to an Encumbrance
granted in connection with the Revolving Line of Credit, which Encumbrance will
be released at Closing. All of the outstanding shares of Carnival Common Stock
are owned by the Persons set forth on SCHEDULE 3.11 hereto, free and clear of
all Encumbrances subject to an Encumbrance granted in connection with the
Revolving Line of Credit, which Encumbrance will be released at Closing. As of
the Closing, all issued and outstanding shares of Carnival Common Stock will be
legally and beneficially owned by the Persons set forth on SCHEDULE 3.11 hereto,
free and clear of all Encumbrances. The authorized capital stock of Carnival
consists of 20,000,000 shares of Carnival Common Stock, of which 3,166,667
shares are issued and outstanding. All shares of AHC's and each of its
Subsidiaries' outstanding capital stock have been duly authorized, are validly
issued and outstanding, and are fully paid and nonassessable. No securities
issued by AHC or any of its Subsidiaries from the date of its incorporation to
the date hereof were issued in violation of any statutory or common law
preemptive rights or the registration requirements of federal or state
securities laws. There are no dividends which have accrued or been declared but
are unpaid on the capital stock of AHC or any of its Subsidiaries. All Taxes
required to be paid in connection with the issuance by AHC or any of its
Subsidiaries' capital stock have been paid. All of the outstanding shares of
capital stock of each of AHC's Subsidiaries other than Carnival are owned by
either AHC or another of its Subsidiaries, free and clear of all Encumbrances.
SCHEDULE 3.11 lists all Subsidiaries of AHC, their jurisdictions of
incorporation or organization, the number of shares of their respective capital
stock or other equity interests issued and outstanding, and the record owners
and the amounts and percentage of ownership of such shares of capital stock or
equity interests. Carnival has no Subsidiaries. Except as set forth on SCHEDULE
3.11, neither AHC nor any of its Subsidiaries has any equity investment in any
other corporation, association, partnership, joint venture or other entity.
Except as noted on SCHEDULE 3.11, each of AHC and its shareholders is a "citizen
of the United States" within the meaning of 49 U.S.C. ss. 40102(a)(15).
3.12 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 3.12,
there are no outstanding: (i) securities or instruments convertible into or
exercisable for any of the capital stock or other equity interests of AHC or
Carnival issued by AHC or Carnival or any other Person or to which AHC or
Carnival or any shareholder thereof is a party; (ii) options, warrants,
subscriptions or other rights to acquire capital stock or other equity interests
of AHC or Carnival issued by AHC or Carnival or any other Person; or (iii)
commitments, agreements or understandings of any kind to which AHC or Carnival
or any shareholder thereof is a party, including employee benefit arrangements,
relating to the issuance or repurchase by AHC or Carnival of any capital stock
or other equity interests of AHC or Carnival, any such securities or instruments
convertible into or exchangeable for capital stock or other equity interests of
AHC or Carnival or any such options, warrants or rights.
-9-
<PAGE>
3.13 PROPERTIES.
(a) Except as set forth on SCHEDULE 3.13(A), Carnival has
valid title to all properties, interests in properties and assets (real and
personal) as reflected in the balance sheet of Carnival as of January 31, 1997
or acquired after January 31, 1997 (except nonmaterial properties, interests in
properties and assets sold or otherwise disposed of since January 31, 1997, in
the ordinary course of business to Persons other than Affiliates of AHC), free
and clear of all Encumbrances. Carnival does not own any real property. SCHEDULE
3.13(A) lists each piece of real property leased or utilized by Carnival, with
obligations remaining in excess of $50,000, including the owner or lessor
thereof, the location thereof and the use to which it is put by Carnival. On the
Closing Date, AHC will have no assets other than Carnival Common Stock. The
facilities and equipment of Carnival necessary to the operations of its business
are in good operating condition and repair sufficient for the operation of its
business as presently conducted, normal wear and tear excepted. Except for those
assets leased or licensed by Carnival, Carnival owns all assets used in its
business. All aircraft, engines, spare engines and spare parts owned, leased or
in the possession or control of Carnival are in sound operating condition,
normal wear and tear excepted, except for those engines, spare engines and spare
parts under repair or overhaul pursuant to Carnival's FAA approved maintenance
programs. A certificate of airworthiness for each aircraft of Carnival has been
duly issued pursuant to the Federal Aviation Laws and is in full force and
effect (except for the period of time any aircraft may be out of service and
such certificate is suspended in connection therewith), and each aircraft,
engine and spare engine, and spare part having a value, individually or together
with similar spare parts, in excess of $15,000, complies with all applicable FAA
airworthiness standards and is maintained in accordance with all applicable FAA-
approved maintenance programs. Each aircraft owned by Carnival is duly
registered in the name of Carnival in accordance with the Federal Aviation Laws,
and is not registered under the laws of any other country. Each aircraft used by
Carnival but owned by a third party is duly registered in the name of such third
party in accordance with all applicable Federal Aviation Laws and Carnival is
authorized to use such aircraft under all applicable Federal Aviation Laws.
Carnival's chief executive office and the location of its books and records is
set forth on SCHEDULE 3.13(A).
(b) SCHEDULE 3.13(B) sets forth a list of all owned and leased
aircraft, or aircraft under contract for future purchase or lease, a description
of the type and aircraft number of each such aircraft, the date of manufacture
of each such aircraft, the date Carnival placed such aircraft in service or
proposes to place such aircraft in service, the lease expiration date of such
aircraft, and a notation as to whether the aircraft (i) is owned or leased; (ii)
complies with Stage 3 noise level requirements of the Airport Noise and Capacity
Act of 1990 ("ANCA"); and (iii) requires refitting or repair to bring it into
compliance with any outstanding FAA aircraft requirements mandated by certain
Airworthiness Directives promulgated by the FAA (the "AIRWORTHINESS
DIRECTIVES"). SCHEDULE 3.13(B) also contains a list of all airline slots owned
or leased by Carnival and the terms upon which Carnival utilizes such slots. No
event has occurred which would subject any of such slots to recall by the FAA.
(c) SCHEDULE 3.13(C) sets forth a complete and accurate list
of all of Carnival's material owned Intangible Property registered with or
pending registration in the United States Patent and Trademark Office (the
"CARNIVAL MARKS"). AHC has delivered or made available to Pan Am correct and
complete copies of all material written documents in the possession of AHC and
its Subsidiaries or any of their Affiliates evidencing the Carnival Marks.
SCHEDULE 3.13(C) sets forth, to the knowledge of AHC, all material unresolved
claims or conflicts with the rights of others (individually, a "CLAIM") relating
to any Intangible Property owned or used by Carnival. Except as set forth on
SCHEDULE 3.13(C), no interest in any such Intangible Property has been assigned,
transferred, licensed or sublicensed by AHC or Carnival to any other party
(including any Affiliates of AHC or Carnival), and, to the knowledge of AHC or
Carnival, no other license of any of such Intangible Property exists. Except as
set forth on SCHEDULE
-10-
<PAGE>
3.13(C), to AHC's knowledge, (i) Carnival possesses all right, title and
interest in and to the Carnival Marks free and clear of any and all Encumbrances
and have rights to all other Intangible Property and (ii) the Intangible
Property is not subject to any outstanding order or Claim, nor is there any
action, suit, proceeding or investigation pending with respect thereto.
3.14 GOVERNMENTAL AUTHORIZATIONS. AHC and its Subsidiaries have in full
force and effect all authorizations, consents, approvals, franchises,
certificates, operating authorities, takeoff and landing authorizations
(including "slots" at United States airports), licenses and permits required
under applicable law or regulation (collectively referred to as "LICENSES") for
the ownership of Carnival's properties and operation of its business as
presently operated. Except as set forth on SCHEDULE 3.14, none of the
transactions contemplated hereby could reasonably be expected to have an adverse
effect on the status of any such License or require AHC or any of its
Subsidiaries or Affiliates to obtain any additional License to continue to
operate the business of Carnival as presently conducted.
3.15 INSURANCE. SCHEDULE 3.15 sets forth a list and description of all
insurance policies existing as of the date hereof providing insurance coverage
of any nature to Carnival. All such policies are in full force and effect.
3.16 EMPLOYMENT MATTERS.
(a) LABOR RELATIONS. Except as set forth on SCHEDULE 3.16(A),
none of the employees of AHC or any of its Subsidiaries is represented by any
labor union, and neither AHC nor any of its Subsidiaries is subject to any labor
or collective bargaining agreement. Except as set forth on SCHEDULE 3.16(A),
none of the employees of AHC or any of its Subsidiaries is known by AHC to be
engaged in organizing any labor union or other employee group that is seeking
recognition as a bargaining unit. AHC and its Subsidiaries have not experienced
any strike, work stoppage or labor disturbance with any group of employees, and
to AHC's knowledge, no set of facts exists which could reasonably be expected to
lead to any of the foregoing events.
(b) EMPLOYMENT POLICIES. Except as set forth on SCHEDULE
3.16(B), AHC has provided to Pan Am and Acquisition all of AHC's and its
Subsidiaries' employee policies (written or otherwise), employee manuals or
other written statements of rules or policies concerning employment.
(c) EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE
3.16(C), there are no employment, consulting, severance or indemnification
arrangements, agreements, or to the knowledge of Carnival, material
understandings between AHC or any of its Subsidiaries and any officer, director,
consultant or employee. Except as set forth on SCHEDULE 3.16(C) or as required
by the WARN Act, the terms of employment or engagement of all employees, agents,
consultants and professional advisors of AHC or any of its Subsidiaries are such
that their employment or engagement may be terminated by not more than two
weeks' notice given at any time without liability for payment of compensation or
damages and neither AHC nor any of its Subsidiaries has entered into any
agreement or arrangement for the management of its business or any part thereof
other than with its directors or employees.
(d) EMPLOYEE BENEFIT PLANS. SCHEDULE 3.16(D) sets forth a
complete list of all pension, retirement, stock purchase, stock bonus, stock
ownership, stock option, profit sharing, savings, medical, disability,
hospitalization, insurance, deferred compensation, bonus, incentive, welfare or
any other employee benefit plan, policy, agreement, commitment or arrangement
maintained by or binding upon AHC or any or all of its Subsidiaries for any of
their directors, officers, consultants, employees or former employees (the "AHC
PLANS"). SCHEDULE 3.16(D) also identifies each AHC Plan which constitutes an
"employee pension benefit plan" ("AHC PENSION PLAN") or an "employee welfare
benefit plan" ("AHC
-11-
<PAGE>
WELFARE PLAN"), as such terms are defined in the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA"). None of the AHC Plans is a "multiemployer plan," as such
term is defined in ERISA, or is subject to Title IV of ERISA.
AHC and its Subsidiaries have delivered to Pan Am or its Subsidiaries
current, accurate and complete copies of each AHC Plan (including all other
instruments relating thereto) and summary plan descriptions therefor and, to the
extent applicable, copies of their most recent (i) IRS determination letter and
any outstanding request for a determination letter; (ii) Form 5500 and attached
Schedule B (including any related actuarial valuation report) with respect to
the last three plan years for each AHC Plan; (iii) certified financial
statements; (iv) attorney's response to an auditor's request for information;
(v) collective bargaining agreements or other such contracts; (vi) Form 5310 and
any related filings with the Pension Benefit Guaranty Corporation or any
successor agency (the "PBGC") with respect to the last three plan years for each
AHC Plan subject to Title IV of ERISA; (vii) ruling letter and any outstanding
request for a ruling letter with respect to the tax-exempt status of any
voluntary employees' beneficiary association which is implementing such AHC
Plan; and (viii) general notification to employees of their rights under Code
Section 4980B and form of letter(s) distributed upon the occurrence of a
qualifying event described in Code Section 4980B, in the case of a AHC Plan that
is a "group health plan" as defined in Code Section 5000(b)(1).
Each AHC Pension Plan purporting to be is qualified under Section
401(a) of the Code, and each such plan remains so qualified; and to AHC's
knowledge, no facts or circumstances exist which could result in the revocation
of such qualification. Each AHC Welfare Plan which is intended to meet the
requirements for tax-favored treatment under Subchapter B of Chapter 1 of the
Code meets such requirements. Each AHC Plan has been administered in all
materials respects in accordance with its terms and the Code, and each AHC
Pension Plan and AHC Welfare Plan has been administered in all material respects
in accordance with ERISA. No facts or circumstances exist which could reasonably
to be expected to give rise to any liability of AHC or any of its Subsidiaries
to the PBGC or which could reasonably be anticipated to result in any claims
being made against AHC, Pan Am or any Subsidiary thereof by the PBGC. The assets
of each AHC Plan are at least equal in value to the present value of the accrued
benefits of participants of such Plan. No facts or circumstances exist which
could reasonably be expected to give rise to any liability of any AHC Plan, AHC,
Pan Am or any Subsidiary thereof to any other Person. AHC has paid all amounts
required under applicable law, any AHC Pension Plan and any AHC Welfare Plan to
be paid as a contribution to each AHC Pension Plan and AHC Welfare Plan through
the date hereof. To the extent required by law, AHC has set aside adequate
reserves to meet contributions which are not yet due under any AHC Pension Plan
or AHC Welfare Plan. Neither AHC, any of its Subsidiaries, nor any other Person
has engaged in any transaction or taken any other action with respect to any AHC
Plan which would subject AHC, Pan Am or any Subsidiary thereof to: (i) any Tax,
penalty or liability for prohibited transactions under ERISA or the Code; (ii)
any Tax under Code Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty
under ERISA Sections 502(c) or 502(l). None of AHC or any of its Subsidiaries,
or any director, officer or employee of AHC or any of its Subsidiaries, to the
extent it or he is a fiduciary with respect to any AHC Pension Plan or AHC
Welfare Plan, has breached any of its or his responsibilities or obligations
imposed upon fiduciaries under ERISA or the Code or which could result in any
claim being made under, by or on behalf of any AHC Pension Plan or AHC Welfare
Plan or any participant or beneficiary thereof. Each AHC Welfare Plan which is a
group health plan within the meaning of Code Section 5000(b)(1) complies in all
material respects with and in each and every case has complied in all material
respects with the applicable requirements of Code Section 4980B and Part 6 of
Title I of ERISA and does not benefit retirees, except as otherwise required by
law. As of the date thereof, there was no accrued vacation or sick leave payable
to the employees of AHC or any Subsidiary which is not reflected in the AHC
Financial Statements.
-12-
<PAGE>
(e) PERSONNEL. SCHEDULE 3.16(E) sets forth: (i) the names of
all directors and officers of Carnival; and (ii) the names and job designations
of all employees of Carnival whose cash compensation exceeds $75,000 per annum.
Except as disclosed in the Carnival Financial Statements and except for unpaid
base compensation accrued in the ordinary course of business consistent with
past practice since January 31, 1997, there are no material sums due to any of
Carnival's employees.
3.17 MATERIAL AGREEMENTS.
(a) SCHEDULE 3.17 sets forth a list of all written and oral
agreements, arrangements or commitments (collectively, the "AHC MATERIAL
AGREEMENTS") to which Carnival is a party or by which it or any of its
respective assets are bound which are material to the financial position or
results of operations of Carnival on a consolidated basis, including, but not
limited to: (i) contract, commitment, agreement or relationship resulting in a
commitment or potential commitment for expenditure or other obligation or
potential obligation, or which provides for the receipt or potential receipt,
involving in excess of $100,000; (ii) contract or commitment for the employment
or retention of any employee, consultant or agent or any other type of contract
with any employee, consultant or agent providing for annual payments in excess
of $100,000; (iii) indenture, mortgage, promissory note, loan agreement,
guarantee or other agreement or commitment relating to the borrowing of money,
or encumbrance of assets; (iv) licensing or royalty agreements or agreements
providing for other similar rights or agreements with third parties relating to
the supply or use of products or materials or any intellectual property; (v) any
plan of a type referenced in SECTION 3.16(D); (vi) agreements which restrict
Carnival from engaging in any line of business or from competing with any other
Person anywhere in the world; (vii) arrangements for the sale of any of the
assets, property or rights of Carnival, in excess of $100,000, except for
agreements to sell products or services in the ordinary course of business
consistent with past practices; (viii) agreement, contract or arrangement with
any Affiliate of AHC or any of its Subsidiaries or any Affiliate of any officer,
director or employee of AHC or any of its Subsidiaries which is nonterminable
without penalty and without greater than 30 days notice; (ix) lease of or
agreement to purchase real property; (x) any material indemnification,
contribution or similar agreement or arrangement pursuant to which AHC or any of
its Subsidiaries may be required to make any indemnification or contribution to
any other Person except to the extent provided in the Articles of Incorporation
or Bylaws of AHC or Carnival as in effect on the date hereof; (xi) agreement
relating to the lease or purchase of aircraft, material travel agency
arrangements, agreements relating to procuring reservations, code sharing
arrangements, interline arrangements, interchange arrangements, baggage
handling, chartering of airlines, purchase of fuel, maintenance of aircraft
equipment or any other outsourcing agreement; or (xii) any other material
contract, agreement or instrument which cannot be terminated without penalty to
AHC and its Subsidiaries, upon the provision of not greater than 30 days notice.
(b) Except as set forth on SCHEDULE 3.17, all AHC Material
Agreements have been entered into on an "arms-length" basis with parties who are
not Affiliates of AHC. The AHC Material Agreements are each in full force and
effect and are the valid and legally binding obligations of AHC or the
applicable Subsidiary which is a party to same and, to AHC's knowledge, have not
been breached by any of the other parties thereto and are valid and binding
obligations of the other parties thereto. Neither AHC nor any of its
Subsidiaries is in default under its Articles or Certificate of Incorporation or
Bylaws or in default or alleged default under any Material Agreement to which it
is a party, and no event has occurred which with the giving of notice or lapse
of time or both would constitute such a default. Except as set forth on SCHEDULE
3.17, consummation of the transactions contemplated hereby will not constitute a
breach or default of any Material Agreements or require any consent thereunder.
-13-
<PAGE>
3.18 LIST OF ACCOUNTS. SCHEDULE 3.18 sets forth, as of the date hereof:
(i) the name and address of each bank or other institution in which Carnival
maintains an account (cash, securities or other) or safe deposit box; (ii) the
name and phone number of the contact person at such bank or institution; (iii)
the account number of the relevant account and a description of the type of
account; and (iv) the persons authorized to transact business in such accounts.
3.19 MAJOR CUSTOMERS AND SUPPLIERS. Carnival has delivered to Pan Am a
list of its five largest customers and suppliers (measured by dollar volume)
during the fiscal year ended June 30, 1996, and the six months ended December
31, 1996, and with respect to each, the name and address, dollar volume involved
and nature of the relationship. None of the five largest customers or suppliers
of AHC or any of its Subsidiaries during the fiscal year ended June 30, 1996,
and the six months ended December 31, 1996, has (i) cancelled, suspended or
otherwise terminated its relationship with Carnival or (ii) to the knowledge of
Carnival, advised Carnival or any Affiliate of Carnival of its intention to
cancel, suspend or terminate its relationship or to significantly decrease its
purchases from or sales to Carnival or to materially and adversely change the
terms upon which it purchases or sells products or services to or from Carnival.
SCHEDULE 3.19 sets forth, for each of the last three full fiscal years of AHC
and the six months ended December 31, 1996, the revenues and percentage of
revenues of Carnival (on a consolidated basis) arising directly from package
bookings with Carnival Cruise and from arrangements with other Affiliates of
Carnival Cruise or AHC.
3.20 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 3.20
or reflected in the Carnival Financial Statements, no director, officer or
shareholder of AHC or any of its Subsidiaries, or to AHC's knowledge, any
employee of AHC or any of its Subsidiaries (individually an "AHC RELATED PARTY"
and collectively the "AHC RELATED PARTIES") or any Affiliate of any AHC Related
Party: (i) owns, directly or indirectly, any interest in any Person which is a
competitor of Carnival, or a supplier of Carnival, except for the ownership of
not more than 2% of the outstanding stock of any company listed by a national
stock exchange or the Nasdaq National Market; (ii) owns, directly or indirectly,
in whole or in part, any material property, asset (other than cash) or right,
real, personal or mixed, tangible or intangible, which is associated with or
necessary in the operation of the business of Carnival, as presently conducted;
or (iii) has an interest in or is, directly or indirectly, a party to any
contract, agreement, lease or arrangement to which Carnival is bound or is a
party.
3.21 TAX MATTERS.
(a) All federal, state, local and foreign Tax returns and Tax
reports, if any, required to be filed with respect to the business or assets of
AHC and its Subsidiaries have been filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed; all of the foregoing as filed are true, correct and complete, and
reflect accurately all liability for Taxes of AHC and its Subsidiaries for the
periods for which such returns relate; and all amounts shown as owing thereon
have been paid. Except as set forth on SCHEDULE 3.21, none of such returns or
reports have been audited by any governmental authority.
(b) All Taxes, if any, payable by AHC and its Subsidiaries or
relating to or chargeable against any of their assets, revenues or income
through December 31, 1996, were fully paid by such date or provided for by
adequate reserves in the AHC Financial Statements, and all similar items due
through the Closing will have been fully paid by that date or provided for by
adequate reserves on the books of AHC and its Subsidiaries.
(c) None of AHC or any of its Subsidiaries will have any
liability with respect to any such Taxes including, but not limited to, interest
and/or penalties, in excess of the amount so paid or the
-14-
<PAGE>
reserves so established on the books of AHC and its Subsidiaries. Neither AHC
nor any of its Subsidiaries is delinquent in the payment of any Tax. No
deficiencies for any Tax have been asserted against AHC or any of its
Subsidiaries with respect to any Taxes which have not been paid, settled or
adequately provided for and there exists no basis for the making of any such
deficiency, assessment or charge.
(d) Neither AHC nor any of its Subsidiaries has waived any
restrictions on assessment or collection of Taxes or consented to the extension
of any statute of limitations relating to federal, state, local or foreign
taxation.
3.22 GUARANTIES. Except as set forth on SCHEDULE 3.20, neither AHC nor
any of its Subsidiaries is a party to any Guaranty.
3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. No officer, director or
shareholder of AHC or any of its Subsidiaries and, to AHC's knowledge, no
employee or agent of AHC or any of its Subsidiaries and no other Person acting
at the direction of any of the foregoing or associated or Affiliated with AHC or
any of its Subsidiaries and no other Person for whom AHC or any of its
Subsidiaries may be responsible, acting alone or together, has (i) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type
from any customer, supplier, trading company, shipping company, governmental
employee or other Person with whom AHC or any of its Subsidiaries has done
business directly or indirectly, or (ii) directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other Person who is or may be in a
position to help or hinder the business of AHC and any of its Subsidiaries (or
assist AHC or any of its Subsidiaries in connection with any actual or proposed
transaction), in either event which (a) could reasonably be expected to subject
AHC or any of its Subsidiaries to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, or (b) if not given, could reasonably
be expected to have a material adverse effect on the results of operations,
assets, business, operations or prospects of AHC or any of its Subsidiaries or
may lead to suit or penalty in any private or governmental litigation or
proceeding.
3.24 RWDR TRANSACTION. Immediately prior to the RWDR Transaction, AHC's
sole asset will be Carnival Common Stock which shall be owned by AHC free and
clear of any and all Encumbrances, and which will be fully paid and
nonassessable. Immediately prior to the RWDR Transaction, AHC will have no
liabilities, commitments or obligations of any nature whatsoever whether
accrued, contingent or otherwise, and Carnival shall not acquire any such
liabilities, commitments or obligations of any nature whatsoever, whether
actual, contingent or otherwise, by virtue of or arising from such transaction.
No asset or right utilized by Carnival in connection with its operations is or
has been owned by AHC.
3.25 AHC SPINOFF AND RWDR TRANSACTION LIABILITY. Neither the AHC
Spinoff nor the RWDR Transaction has nor will it result in or impose any
liability, commitment or obligation of any nature whatsoever, whether accrued,
contingent or otherwise, to or upon Carnival, including without limitation, any
Tax liability.
3.26 INTENTIONALLY OMITTED.
3.27 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information relating to AHC or Carnival to be supplied by Carnival for use in
the Proxy Statement and/or the Registration Statement, at the respective times
that the Registration Statement, the Proxy Statement or any amendment thereto is
filed with the Commission, or is declared effective by the Commission, or at the
respective times that
-15-
<PAGE>
the Proxy Statement is mailed to Pan Am's shareholders and at the time the Pan
Am shareholders' meeting takes place (subject, if required, to a reasonable
period of time for the parties hereto to take such action necessary to
supplement or amend the Proxy Statement), will contain any untrue statement of a
material fact or will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the Closing Date, an event or circumstance relating to AHC or Carnival, or
any of their respective officers, directors or shareholders, should be
discovered by AHC that should be set forth in an amendment or a supplement to
the Registration Statement or Proxy Statement, AHC shall promptly inform Pan Am.
3.28 POOLING-OF-INTERESTS. Except as set forth on SCHEDULE 3.28, no
facts or circumstances exist with respect to AHC, Carnival or any Subsidiary
which could reasonably be expected to disqualify Pan Am's acquisition of
Carnival pursuant to this Agreement for pooling-of-interests accounting
treatment.
3.29 INTENTIONALLY LEFT BLANK.
3.30 INVESTMENT REPRESENTATIONS.
(a) The Shareholders understand and acknowledge that the
Common Stock which is to be received by them has not been registered under the
Securities Act. The Shareholders hereby represent and warrant that (i) the
Common Stock is being acquired for investment for the Shareholders' own account,
and not as a nominee or agent and not with a view to the resale or distribution
of all or any part of such shares, and the Shareholders have no present
intention of selling, granting any participation in or otherwise distributing
any of the Common Stock within the meaning of the Securities Act and (ii) the
Shareholders do not have any contracts, understandings, agreements or
arrangements with any Person to sell, transfer or grant participations to such
Person, with respect to any such Common Stock, in each case except for and as
contemplated by the Registration Rights Agreement.
(b) The Shareholders have knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the investment in the Common Stock. The Shareholders understand that an
investment in Pan Am represents a relatively high degree of risk and there is no
assurance that Pan Am's business or operations will be successful. The
Shareholders have considered carefully the risk factors attendant to an
investment in Pan Am and that, as a consequence of such risks, the Shareholders
could lose their entire investment in Pan Am.
(c) The Shareholders understand that they must bear the
economic risk of an investment in Pan Am for an indefinite period of time. The
Shareholders understand that the shares of Common Stock are characterized as
"restricted securities" under applicable securities laws since they are being
acquired in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. The
Shareholders hereby represent that they understand the resale limitations
imposed by the Securities Act and the rules and regulations promulgated
thereunder and that as a consequence thereof it may not be possible for the
Shareholders to liquidate their investment in Pan Am or to transfer any of the
shares of Common Stock except pursuant to the Registration Rights Agreement.
(d) The Shareholders understand and agree that the
certificates evidencing the shares of Common Stock will bear an appropriate
legend evidencing the restricted nature of such shares and indicating that no
transfer of any of such shares may be made unless they are registered under the
Securities Act or an exemption from such registration is available, and that Pan
Am may instruct its
-16-
<PAGE>
transfer agent not to transfer any such shares unless such transfer shall be
made in compliance with such legend.
3.31 DISCLOSURE. The representations and warranties of AHC and Carnival
contained in this Agreement together with the Schedules hereto and the
information specifically reflected therein, taken as a whole, do not contain and
will not contain any untrue statement of a material fact and do not omit and
will not omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PAN AM AND ACQUISITION
In order to induce AHC and Carnival to enter into this Agreement and to
consummate the transactions contemplated hereby, Pan Am and Acquisition make the
representations and warranties set forth below to AHC and Carnival.
4.1 ORGANIZATION. Each of Pan Am and its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
state or country of incorporation. Each of Pan Am and its Subsidiaries is duly
qualified to transact business as a foreign corporation in all jurisdictions
where the ownership or leasing of its properties or the conduct of its business
requires such qualification except where the failure to be so qualified would
not have a material adverse effect on the financial condition, results of
operations, assets, liabilities, prospects or business of Pan Am and its
Subsidiaries on a consolidated basis (a "PAN AM MATERIAL ADVERSE EFFECT"). Each
jurisdiction in which Pan Am or any of its Subsidiaries is qualified to transact
business as a foreign corporation is listed on SCHEDULE 4.1. Each of Pan Am and
its Subsidiaries has the corporate authority to (i) own or lease and operate its
properties and (ii) conduct its business as presently conducted.
4.2 AUTHORIZATION; ENFORCEABILITY. Each of Pan Am and Acquisition has
the corporate authority to execute, deliver and perform this Agreement and the
Articles and Agreement of Merger. The execution, delivery and performance of
this Agreement and the Articles and Agreement of Merger by Pan Am and
Acquisition and the consummation by Pan Am and Acquisition of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of Pan Am and Acquisition. This Agreement and the
Articles and Agreement of Merger have been duly executed and delivered by Pan Am
and Acquisition and constitute the legal, valid and binding obligations of Pan
Am and Acquisition, enforceable against them in accordance with their terms,
except to the extent that their enforcement is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally or by general principles of equity.
4.3 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.3, the
execution, delivery and performance by Pan Am and Acquisition of this Agreement
and the Articles and Agreement of Merger and the consummation by Pan Am and
Acquisition of the transactions contemplated hereby and thereby: (i) do not and
will not (subject to obtaining the consents contemplated by SECTION 4.4 hereof)
violate or conflict with any provision of law or regulation, the result of
which, individually or in the aggregate, could reasonably be expected to cause a
Pan Am Material Adverse Effect, or any writ, order, judgment or decree of any
court or governmental or regulatory authority specifically naming Pan Am or any
of its Subsidiaries, or any provision of Pan Am's or Acquisition's Certificate
or Articles of Incorporation or Bylaws; and (ii) do not and will not, with or
without the passage of time or the giving of notice, result in the breach of, or
constitute a default, cause the acceleration of performance, permit
-17-
<PAGE>
the unilateral modification or termination of, or require any consent under, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of Pan Am or any of its Subsidiaries pursuant to, any material instrument
or agreement to which Pan Am or any of its Subsidiaries is a party or by which
Pan Am or any of its Subsidiaries or their respective properties may be bound or
affected.
4.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Other than in connection with
the HSR Act, the laws and regulations of the FAA and the DOT, and the state
securities laws of any jurisdiction, no consent, approval or authorization of,
or registration, qualification or filing with any federal, state or local
governmental or regulatory authority is required to be made by Pan Am or
Acquisition in connection with the execution, delivery or performance by Pan Am
or Acquisition of this Agreement or the Articles and Agreement of Merger or the
consummation by Pan Am or Acquisition of the transactions contemplated hereby
and thereby.
4.5 EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS.
(a) The Common Stock is registered under Section 12(b) of the
Exchange Act. Since January 1, 1995, Pan Am has timely filed all reports and
other documents required to be filed by it with the Commission under the
Exchange Act, including but not limited to proxy statements and reports on Form
10-KSB, Form 10-QSB and Form 8-K (collectively, with the Registration Statement
on Form S-4 (File No. 333-4350) of Frost Hanna Mergers Group, Inc., the "PAN AM
SEC REPORTS"). As of the respective dates they were filed with the Commission,
the Pan Am SEC Reports, including all documents incorporated by reference into
such reports, complied in all material respects with the rules and regulations
of the Commission and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) Pan Am has delivered to AHC a true and complete copy of
its consolidated unaudited balance sheet, statement of income and cash flow as
of and for the fiscal year ended December 31, 1996 (the "PAN AM FINANCIAL
STATEMENTS"). Except as indicated in SCHEDULE 4.5, the Pan Am Financial
Statements fairly present in all material respects Pan Am's and its
Subsidiaries' financial condition, assets, liabilities, and equity and results
of operations, at the dates and for the period specified in that statement in
accordance with generally accepted accounting principles consistently applied
with prior periods, (subject to normal nonmaterial year-end audit adjustments
and the absence of notes). Other than as disclosed by the Pan Am Financial
Statements, the Pan Am SEC Reports or on SCHEDULE 4.5 or on SCHEDULE 4.17 or
executory contractual obligations not required to be disclosed on SCHEDULE 4.17
hereto, neither Pan Am nor any of its Subsidiaries has any liabilities,
commitments or obligations (which reasonably could be expected to be material to
Pan Am and its Subsidiaries on a consolidated basis) of any nature whatsoever,
whether accrued, contingent or otherwise (other than liabilities, commitments or
obligations incurred since December 31, 1996 in the ordinary course of business
consistent with past practices to Persons other than Affiliates of Pan Am), and,
to Pan Am's knowledge, there is no reasonable basis for assertion against Pan Am
or any of its Subsidiaries of any such liability, commitment or obligation.
4.6 COMPLIANCE WITH LAWS.
(a) Each of Pan Am and its Subsidiaries is in compliance in
all material requests with all federal, state, local and foreign laws,
ordinances, regulations, judgments, rulings, orders and other legal requirements
applicable to it, its operations or its properties, including, without
limitation, those relating to employment, building, zoning, safety and health,
and environmental matters. Neither Pan Am nor any of its Subsidiaries has
received notification from any governmental or regulatory authority
-18-
<PAGE>
asserting that it may not be in compliance with or may have violated any of the
laws or regulations which said governmental or regulatory authority enforces, or
threatening to revoke any authorization, consent, approval, franchise, license
or permit, and neither Pan Am nor any of its Subsidiaries is subject to any
agreement or consent decree with any governmental or regulatory authority
arising out of previously asserted violations. AHC has been furnished with or
Pan Am has made available to AHC true and correct copies of all records of
inspections, notices, reports or audits of any of Pan Am's or any of its
Subsidiaries' businesses or properties since incorporation under applicable
federal, state, foreign and local laws and regulations or conducted by insurance
companies, consultants or other Persons; and all deficiencies noted therein have
been corrected. AHC has been furnished with or Pan Am has made available to AHC
true and correct copies of all correspondence and other filings made to or
received from any governmental regulatory agency or authority (including, but
not limited to, the FAA and the DOT) regarding Pan Am or any of its Subsidiaries
since their incorporation.
(b) Without limiting the generality of SECTION 4.6(A), except
as disclosed by the environmental audits and reports listed on SCHEDULE 4.6 or
the Pan Am SEC Reports, copies of which have heretofore been delivered to AHC,
or as otherwise set forth on SCHEDULE 4.6, there are, with respect to Pan Am and
its Subsidiaries, no past or present violations of any laws or regulations
promulgated by the FAA or the DOT or any Environmental Laws, releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents or contractual obligations which could reasonably be expected
to give rise to any common law or other legal liability in excess of $50,000,
including, without limitation, under CERCLA or similar state or local laws.
4.7 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 4.7 or the Pan
Am SEC Reports, neither Pan Am nor any of its Subsidiaries is, nor since
incorporation has been, a party to any pending or, to the knowledge of Pan Am,
threatened, legal, administrative or other proceeding, arbitration or
investigation, which could reasonably be expected to result in such party
expending in excess of $100,000, and Pan Am has no knowledge of any set of facts
which could reasonably be expected to result in any legal, administrative or
other proceeding, arbitration or investigation involving Pan Am or any of its
Subsidiaries. Except as set forth on SCHEDULE 4.7, neither Pan Am nor any of its
Subsidiaries is subject to any order, injunction or other judgment of any court
or governmental authority. Each of Pan Am and its Subsidiaries is in compliance
with the terms of each order, injunction or other judgment set forth on SCHEDULE
4.7. Except as set forth on SCHEDULE 4.7, none of the items set forth on
SCHEDULE 4.7 could, individually or in the aggregate, reasonably be expected to
have a Pan Am Material Adverse Effect.
4.8 BROKERS. Except for Lazard Freres & Co. and other financial
advisors of whom Pan Am shall advise AHC and Carnival, neither Pan Am nor any of
its Subsidiaries has employed any financial advisor, broker or finder and none
has incurred and none will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses to any other party in connection with the
transactions contemplated by this Agreement.
4.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
SCHEDULE 4.9 or the Pan Am SEC Reports, from December 31, 1996 to the date
hereof: (i) each of Pan Am and its Subsidiaries has in all material respects
conducted its businesses in the ordinary and usual course consistent with past
practices; (ii) there has been no material adverse change in the financial
condition, results of operations, assets, liabilities or business of Pan Am and
its Subsidiaries on a consolidated basis; and (iii) neither Pan Am nor any of
its Subsidiaries has engaged or agreed to engage in any of the actions described
in SECTION 5.1 (except as otherwise specifically permitted in SECTION 5.1).
-19-
<PAGE>
4.10 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. True and
complete copies of the Articles of Incorporation, as amended to date, Bylaws, as
amended to date, and minute books of Pan Am and its Subsidiaries have been
delivered or made available by Pan Am to AHC. Such documents contain complete
and accurate records in all material respects and have embodied therein copies
of minutes of all meetings and actions by written consent of the incorporators,
boards of directors (and committees thereof) and shareholders of such entities
from the date of incorporation to the date hereof.
4.11 CAPITALIZATION. As of the date hereof, the authorized capital
stock of Pan Am consists of 100,000,000 shares of Pan Am Common Stock, of which
10,920,191 shares are issued and outstanding. All shares of Pan Am's and each of
its Subsidiary's outstanding capital stock have been duly authorized, are
validly issued and outstanding, and are fully paid and nonassessable. No
securities issued by Pan Am or any of its Subsidiaries from the date of its
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights or the registration requirements of federal or
state securities laws. There are no dividends which have accrued or been
declared but are unpaid on the capital stock of Pan Am or any of its
Subsidiaries. All Taxes required to be paid in connection with the issuance by
Pan Am or any of its Subsidiaries of Pan Am's and each of its Subsidiaries'
capital stock have been paid. All of the outstanding shares of capital stock of
each of Pan Am's Subsidiaries are owned by either Pan Am or another of its
Subsidiaries, free and clear of all Encumbrances. SCHEDULE 4.11 lists all
Subsidiaries of Pan Am, their jurisdictions of incorporation or organization,
the number of shares of their respective capital stock or other equity interests
issued and outstanding, and the record owners and the amounts and percentage of
ownership of such shares of capital stock or equity interests. Except as set
forth on SCHEDULE 4.11, neither Pan Am nor any of its Subsidiaries has any
equity investment in any other corporation, association, partnership, joint
venture or other entity. Pan Am has delivered to Carnival a true and correct
listing of its record shareholders as of approximately March 1, 1997.
4.12 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.12 or
the Pan Am SEC Reports, there are no outstanding: (i) securities or instruments
convertible into or exercisable for any of the capital stock or other equity
interests of Pan Am or any of its Subsidiaries or any other Person issued by Pan
Am or any of its Subsidiaries or to which Pan Am or any of its Subsidiaries is a
party; (ii) options, warrants, subscriptions or other rights to acquire capital
stock or other equity interests of Pan Am or any of its Subsidiaries issued by
Pan Am or any of its Subsidiaries; or (iii) commitments, agreements or
understandings of any kind to which Pan Am or any of its Subsidiaries is a
party, including employee benefit arrangements, relating to the issuance or
repurchase by Pan Am or any of its Subsidiaries of any capital stock or other
equity interests of Pan Am or any of its Subsidiaries, any such securities or
instruments convertible into or exchangeable for capital stock or other equity
interests of Pan Am or any such options, warrants or rights. As of the date
hereof, Pan Am had reserved not more than 2,124,589 shares of Common Stock for
issuance upon exercise of outstanding stock options.
4.13 PROPERTIES.
(a) Except as set forth in SCHEDULE 4.13(A) hereof, Pan Am or
one of its Subsidiaries has valid title to all properties, interests in
properties and assets (real and personal) as reflected in the consolidated
balance sheet of Pan Am as of December 31, 1996 or acquired after December 31,
1996 (except nonmaterial properties, interests in properties and assets sold or
otherwise disposed of since December 31, 1996 in the ordinary course of business
to Persons other than Affiliates of Pan Am), free and clear of all Encumbrances,
except for those Encumbrances listed on SCHEDULE 4.13(A) hereto. Neither Pan Am
nor any of its Subsidiaries own any real property. SCHEDULE 4.13(A) lists each
piece of real property, leased or utilized by Pan Am or any of its Subsidiaries,
with obligations remaining in excess of $50,000, including the owner or lessor
thereof, the location thereof and the use to which it is put by
-20-
<PAGE>
Pan Am and/or any of its Subsidiaries. The facilities and equipment of Pan Am
and its Subsidiaries necessary to the operations of Pan Am's business are in
good operating condition and repair sufficient for the operation of the business
as presently conducted, normal wear and tear excepted. Except for those assets
leased or licensed by Pan Am or its Subsidiaries and required to be listed on
SCHEDULE 4.13(A), Pan Am or its Subsidiaries own all assets used in their
business. All aircraft, engines, spare engines and spare parts owned, leased or
in the possession or control of Pan Am or any of its Subsidiaries are in sound
operating condition, normal wear and tear excepted, except for those engines,
spare engines and spare parts under repair or overhaul pursuant to Pan Am's FAA
approved maintenance programs. A certificate of airworthiness for each aircraft
of Pan Am has been duly issued pursuant to the Federal Aviation Laws and is in
full force and effect (except for the period of time any aircraft may be out of
service and such certificate is suspended in connection therewith), and each
aircraft, engine and spare engine, and spare part having a value, individually
or together with similar spare parts, in excess of $15,000, of Pan Am or any of
its Subsidiaries complies with all applicable FAA airworthiness standards and is
maintained in accordance with all applicable FAA-approved maintenance programs.
Each aircraft owned by Pan Am is duly registered in the name of Pan Am in
accordance with the Federal Aviation Laws, and is not registered under the laws
of any other country. Each aircraft used by Pan Am but owned by a third party is
duly registered in the name of such third party in accordance with all
applicable Federal Aviation Laws and Pan Am is authorized to use such aircraft
under all applicable Federal Aviation Laws. Pan Am's chief executive office and
the location of its books and records is set forth on SCHEDULE 4.13(A).
(b) SCHEDULE 4.13(B) sets forth a list of all owned and leased
aircraft, or aircraft under contract for future purchase or lease, a description
of the type and aircraft number of each such aircraft, the date of manufacture
of each such aircraft, the date Pan Am placed such aircraft in service or
proposes to place such aircraft in service, the lease expiration date of such
aircraft, and a notation as to whether the aircraft (i) is owned or leased; (ii)
complies with Stage 3 noise level requirements of the ANCA; and (iii) requires
refitting or repair to bring it into compliance with any outstanding FAA
aircraft requirements mandated by certain Airworthiness Directives promulgated
by the FAA. SCHEDULE 4.13(B) also contains a list of all airline slots owned or
leased by Pan Am or any of its Subsidiaries, and the terms upon which Pan Am or
its Subsidiaries utilize such slots. No event has occurred which would subject
any of such slots to recall by the FAA.
(c) SCHEDULE 4.13(C) sets forth a complete and accurate list
of all of Pan Am's and its Subsidiaries' material owned Intangible Property
registered with or pending registration in the United States Patent and
Trademark Office (the "MARKS"). Pan Am has delivered or made available to AHC
correct and complete copies of all material written documents in the possession
of Pan Am and its Subsidiaries or any of their Affiliates evidencing the Marks.
SCHEDULE 4.13(C) sets forth, to the knowledge of Pan Am, all material unresolved
Claims relating to such Intangible Property owned or used by Pan Am. Except as
set forth on SCHEDULE 4.13(C), no interest in any such Intangible Property has
been assigned, transferred, licensed or sublicensed by Pan Am or its
Subsidiaries to any other party (including any Affiliates of Pan Am or its
Subsidiaries), and, to the knowledge of Pan Am and its Subsidiaries, no other
license of any of such Intangible Property exists. Except as set forth on
SCHEDULE 4.13(C), to the knowledge of Pan Am, no other Person is infringing,
violating or misappropriating any interest it acquired to the Intangible
Property by virtue of an assignment from Eclipse Holdings, Inc. Except as set
forth on SCHEDULE 4.13(C), to Pan Am's knowledge, (i) Pan Am or its Subsidiaries
possess all right, title and interest in and to the Marks free and clear of any
and all liens, security interests or encumbrances and have rights to all other
Intangible Property and (ii) the Intangible Property is not subject to any
outstanding order or Claim, nor is there any action, suit, proceeding or
investigation pending with respect thereto. Notwithstanding the foregoing, the
parties hereto acknowledge and understand that neither Pan Am nor its
Subsidiaries have registered, renewed or maintained registration for such
Intangible Property in many foreign territories and/or jurisdictions and that
certain of the
-21-
<PAGE>
registrations of such Intangible Property may be vulnerable to cancellation for
various reasons in certain foreign jurisdictions.
4.14 GOVERNMENTAL AUTHORIZATIONS. Pan Am and its Subsidiaries have in
full force and effect all Licenses for the ownership of Pan Am's and its
Subsidiaries' properties and operation of their businesses as presently
operated. Except as set forth on SCHEDULE 4.14, none of the transactions
contemplated hereby could reasonably be expected to have an adverse effect on
the status of any such License. Except as set forth on SCHEDULE 4.14, none of
the transactions contemplated hereby could reasonably be expected to have an
adverse effect on the status of any such License or require Pan Am or any of its
Subsidiaries or Affiliates to obtain any additional License to continue to
operate the business of Pan Am and its Subsidiaries as presently conducted.
4.15 INSURANCE. SCHEDULE 4.15 sets forth a list and description of all
insurance policies existing as of the date hereof providing insurance coverage
of any nature to Pan Am or any of its Subsidiaries. All such policies are in
full force and effect.
4.16 EMPLOYMENT MATTERS.
(a) LABOR RELATIONS. Except as set forth on SCHEDULE 4.16(A),
none of the employees of Pan Am or any of its Subsidiaries is represented by any
labor union, and neither Pan Am nor any of its Subsidiaries is subject to any
labor or collective bargaining agreement. Except as set forth on SCHEDULE
4.16(A), none of the employees of Pan Am or any of its Subsidiaries is known by
Pan Am to be engaged in organizing any labor union or other employee group that
is seeking recognition as a bargaining unit. Pan Am and its Subsidiaries have
not experienced any strike, work stoppage or labor disturbance with any group of
employees, and to Pan Am's knowledge, no set of facts exists which could
reasonably be expected to lead to any of the foregoing events.
(b) EMPLOYMENT POLICIES. Except as set forth on SCHEDULE
4.16(B), Pan Am has provided to AHC all of Pan Am's and its Subsidiaries'
employee policies (written or otherwise), employee manuals or other written
statements of rules or policies concerning employment.
(c) EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE
4.16(C), there are no employment, consulting, severance or indemnification
arrangements, agreements, or, to the knowledge of Pan Am, material
understandings between Pan Am or any of its Subsidiaries and any officer,
director, consultant or employee. Except as set forth on SCHEDULE 4.16(C) or as
required by the WARN Act, the terms of employment or engagement of all
employees, agents, consultants and professional advisors of Pan Am and its
Subsidiaries are such that their employment or engagement may be terminated by
not more than two weeks' notice given at any time without liability for payment
of compensation or damages and neither Pan Am nor any of its Subsidiaries has
entered into any agreement or arrangement for the management of its business or
any part thereof other than with its directors or employees.
(d) SCHEDULE 4.16(D) sets forth a complete list of all
pension, retirement, stock purchase, stock bonus, stock ownership, stock option,
profit sharing, savings, medical, disability, hospitalization, insurance,
deferred compensation, bonus, incentive, welfare or any other employee benefit
plan, policy, agreement, commitment or arrangement maintained by or binding upon
Pan Am or any or all of its Subsidiaries for any of their directors, officers,
consultants, employees or former employees (the "PAN AM PLANS"). SCHEDULE
4.16(D) also identifies each Pan Am Plan which constitutes an "employee pension
benefit plan" ("PAN AM PENSION PLAN") or an "employee welfare benefit plan"
("PAN AM WELFARE PLAN"), as such terms are defined in ERISA. None of the Pan Am
Plans is a "multiemployer plan," as such term is defined in ERISA, or is subject
to Title IV of ERISA.
-22-
<PAGE>
Pan Am and its Subsidiaries have delivered to AHC or Carnival current,
accurate and complete copies of each Pan Am Plan (including all other
instruments relating thereto) and Summary Plan Descriptions therefor and, to the
extent applicable, copies of their most recent (i) IRS determination letter and
any outstanding request for a determination letter; (ii) Form 5500 and attached
Schedule B (including any related actuarial valuation report) with respect to
the last three plan years for each Pan Am Plan; (iii) certified financial
statements; (iv) attorney's response to an auditor's request for information;
(v) collective bargaining agreements or other such contracts; (vi) Form S-8
(including any amendments thereto) and Form S-11; (vii) Form 5310 and any
related filings with the PBGC with respect to the last three plan years for each
Pan Am Plan subject to Title IV of ERISA; (viii) ruling letter and any
outstanding request for a ruling letter with respect to the tax-exempt status of
any voluntary employees' beneficiary association which is implementing such Pan
Am Plan; and (ix) general notification to employees of their rights under Code
Section 4980B and form of letter(s) distributed upon the occurrence of a
qualifying event described in Code Section 4980B, in the case of a Pan Am Plan
that is a "group health plan" as defined in Code Section 5000(b)(1).
Except as noted on SCHEDULE 4.16(D), each Pan Am Pension Plan
purporting to be is qualified under Section 401(a) of the Code, and each such
plan remains so qualified; and to Pan Am's knowledge, no facts or circumstances
exist which could result in the revocation of such qualification. Each Pan Am
Welfare Plan which is intended to meet the requirements for tax-favored
treatment under Subchapter B of Chapter 1 of the Code meets such requirements.
Each Pan Am Plan has been administered in all material respects in accordance
with its terms and the Code, and each Pan Am Pension Plan and Pan Am Welfare
Plan has been administered in all material respects in accordance with ERISA. No
facts or circumstances exist which could reasonably be expected to give rise to
any liability of Pan Am or any of its Subsidiaries to the PBGC or which could
reasonably be anticipated to result in any claims being made against Pan Am or
any Subsidiary thereof by the PBGC. The assets of each Pan Am Plan are at least
equal in value to the present value of the accrued benefits of participants of
such Plan. No facts or circumstances exist which could reasonably be expected to
give rise to any liability of any Pan Am Plan, Pan Am or any Subsidiary thereof
to any other Person. Pan Am has paid all amounts required under applicable law,
any Pan Am Pension Plan and any Pan Am Welfare Plan to be paid as a contribution
to each Pan Am Pension Plan and Pan Am Welfare Plan through the date hereof. To
the extent required by law, Pan Am has set aside adequate reserves to meet
contributions which are not yet due under any Pan Am Pension Plan or Pan Am
Welfare Plan. Neither Pan Am, any of its Subsidiaries, nor any other Person has
engaged in any transaction or taken any other action with respect to any Pan Am
Plan which would subject Pan Am or any Subsidiary thereof to: (i) any Tax,
penalty or liability for prohibited transactions under ERISA or the Code; (ii)
any Tax under Code Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty
under ERISA Sections 502(c) or 502(l). None of Pan Am or any of its
Subsidiaries, or any director, officer or employee of Pan Am or any of its
Subsidiaries, to the extent it or he is a fiduciary with respect to any Pan Am
Pension Plan or Pan Am Welfare Plan, has breached any of its or his
responsibilities or obligations imposed upon fiduciaries under ERISA or the Code
or which could result in any claim being made under, by or on behalf of any Pan
Am Pension Plan or Pan Am Welfare Plan or any participant or beneficiary
thereof. Each Pan Am Welfare Plan which is a group health plan within the
meaning of Code Section 5000(b)(1) complies in all material respects with and in
each and every case has complied in all material respects with the applicable
requirements of Code Section 4980B and Part 6 of Title I of ERISA and does not
benefit retirees, except as otherwise required by law. As of the date thereof,
there was no accrued vacation or sick leave payable to the employees of Pan Am
or any Subsidiary which is not reflected in the Pan Am Financial Statements.
(e) PERSONNEL. SCHEDULE 4.16(E) sets forth: (i) the names of
all directors and officers of Pan Am and each of its Subsidiaries; and (ii) the
names and job designations of all employees of Pan Am and each of its
Subsidiaries whose cash compensation exceeds $75,000 per annum. Except as
-23-
<PAGE>
disclosed in the Pan Am Financial Statements and except for unpaid base
compensation accrued in the ordinary course of business since December 31, 1996,
there are no material sums due to any of Pan Am's or any of its Subsidiary's
employees.
4.17 MATERIAL AGREEMENTS.
(a) SCHEDULE 4.17 sets forth a list of all written and oral
agreements, arrangements or commitments (collectively, the "PAN AM MATERIAL
AGREEMENTS") to which either Pan Am or any of its Subsidiaries is a party or by
which it or any of their respective assets are bound which are material to the
financial position or results of operations of Pan Am and its Subsidiaries on a
consolidated basis including, but not limited to: (i) contract, commitment,
agreement or relationship resulting in a commitment or potential commitment for
expenditure or other obligation or potential obligation, or which provides for
the receipt or potential receipt, involving in excess of $100,000; (ii) contract
or commitment for the employment or retention of any employee, consultant or
agent or any other type of contract with any employee, consultant or agent
providing for annual payments in excess of $100,000; (iii) indenture, mortgage,
promissory note, loan agreement, guarantee or other agreement or commitment
relating to the borrowing of money, or encumbrance of assets; (iv) licensing or
royalty agreements or agreements providing for other similar rights or
agreements with third parties relating to the supply or use of products or
materials or any intellectual property; (v) any plan of a type referenced in
SECTION 4.16(D); (vi) agreements which restrict Pan Am or any of its
Subsidiaries from engaging in any line of business or from competing with any
other Person anywhere in the world; (vii) agreements or arrangements for the
sale of any of the assets, property or rights of Pan Am or any of its
Subsidiaries, in excess of $100,000, except for agreements to sell products or
services in the ordinary course of business consistent with past practices;
(viii) agreement, contract or arrangement with any Affiliate of Pan Am or any of
its Subsidiaries or any Affiliate of any officer, director or employee of Pan Am
or any of its Subsidiaries which is nonterminable without penalty and without
greater than 30 days notice; (ix) lease or agreement to purchase real property;
(x) any material indemnification, contribution or similar agreement or
arrangement pursuant to which Pan Am or any of its Subsidiaries may be required
to make any indemnification or contribution to any other Person except to the
extent provided in the Articles of Incorporation or Bylaws of Pan Am; (xi)
agreement relating to the lease or purchase of aircraft, material travel agency
arrangements, agreements relating to procuring reservations, code sharing
arrangements, interline arrangements, interchange arrangements, baggage
handling, chartering of airlines, purchase of fuel, maintenance of aircraft
equipment or any other outsourcing agreement; or (xii) any other material
contract, agreement or instrument which cannot be terminated without penalty to
Pan Am and its Subsidiaries, upon the provision of not greater than 30 days
notice.
(b) Except as set forth on SCHEDULE 4.17 or in the Pan Am SEC
Reports, all Pan Am Material Agreements have been entered into on an
"arms-length" basis with parties who are not Affiliates of Pan Am. The Pan Am
Material Agreements are each in full force and effect and are the valid and
legally binding obligations of Pan Am or the applicable Subsidiary which is a
party to same and, to Pan Am's knowledge, have not been breached by any of the
other parties thereto and are valid and binding obligations of the other parties
thereto. Neither Pan Am nor any of its Subsidiaries is in default under its
Articles or Certificate of Incorporation or Bylaws or in default under any Pan
Am Material Agreement to which it is a party, and no event has occurred which
with the giving of notice or lapse of time or both would constitute such a
default. Except as set forth on SCHEDULE 4.17, the consummation of the
transactions contemplated hereby will not constitute a breach or default of any
Material Agreements or require any consent thereunder.
4.18 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 4.18
or reflected in the Pan Am Financial Statements or in the Pan Am SEC Reports, no
director or officer of Pan Am or any
-24-
<PAGE>
of its Subsidiaries or, to Pan Am's knowledge, any shareholder or employee of
Pan Am or any of its Subsidiaries (individually a "PAN AM RELATED PARTY" and
collectively the "PAN AM RELATED PARTIES") or any Affiliate of any Pan Am
Related Party: (i) owns, directly or indirectly, any interest in any Person
which is a competitor of Pan Am, or a supplier of Pan Am, except for the
ownership of not more than 2% of the outstanding stock of any company listed by
a national stock exchange or the Nasdaq stock market; (ii) owns, directly or
indirectly, in whole or in part, any material property, asset (other than cash)
or right, real, personal or mixed, tangible or intangible, which is associated
with or necessary in the operation of the business of Pan Am, as presently
conducted; or (iii) has an interest in or is, directly or indirectly, a party to
any contract, agreement, lease or arrangement to which Pan Am is bound or is a
party.
4.19 MAJOR CUSTOMERS AND SUPPLIERS. Pan Am has delivered to Carnival a
list of its five largest customers and suppliers (measured by dollar volume)
during the fiscal year ended December 31, 1996, and, with respect to each, the
name and address, dollar volume involved and nature of the relationship. None of
the five largest customers or suppliers of Pan Am or any of its Subsidiaries
during the fiscal year ended December 31, 1996, has (i) cancelled, suspended, or
otherwise terminated its relationship with Pan Am or any of its Subsidiaries or
(ii) to the knowledge of Pan Am, advised Pan Am or any of its Subsidiaries of
its intention to cancel, suspend or terminate its relationship or to
significantly decrease its purchases from sales to Pan Am or any of its
Subsidiaries or to materially and adversely change the terms upon which it
purchases or sells products or services to or from Pan Am or any of its
Subsidiaries.
4.20 TAX MATTERS.
(a) All federal, state, local and foreign Tax returns and Tax
reports, if any, required to be filed with respect to the business or assets of
Pan Am and its Subsidiaries have been filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed; all of the foregoing as filed are true, correct and complete, and
reflect accurately all liability for Taxes of Pan Am and its Subsidiaries for
the periods for which such returns relate; and all amounts shown as owing
thereon have been paid. Except as set forth on SCHEDULE 4.20, none of such
returns or reports have been audited by any governmental authority.
(b) All Taxes, if any, payable by Pan Am and its Subsidiaries
or relating to or chargeable against any of their assets, revenues or income
through December 31, 1996 were fully paid by such date or provided for by
adequate reserves in the Pan Am Financial Statements and all similar items due
through the Closing will have been fully paid by that date or provided for by
adequate reserves on the books of Pan Am and its Subsidiaries.
(c) None of Pan Am or any of its Subsidiaries will have any
liability with respect to any such Taxes including, but not limited to, interest
and/or penalties, in excess of the amount so paid or the reserves so established
on the books of Pan Am and its Subsidiaries. Neither Pan Am nor any of its
Subsidiaries is delinquent in the payment of any Tax. No deficiencies for any
Tax have been asserted against Pan Am or any of its Subsidiaries with respect to
any Taxes which have not been paid, settled or adequately provided for and there
exists no basis for the making of any such deficiency, assessment or charge.
(d) Neither Pan Am nor any of its Subsidiaries has waived any
restrictions on assessment or collection of Taxes or consented to the extension
of any statute of limitations relating to federal, state, local or foreign
taxation.
-25-
<PAGE>
4.21 GUARANTIES. Except as set forth on SCHEDULE 4.21, neither Pan Am
nor any of its Subsidiaries is a party to any Guaranty.
4.22 VALIDITY OF PAN AM COMMON STOCK. The Pan Am Common Stock to be
issued in the Merger will, when issued in accordance with this Agreement and the
Articles and Agreement of Merger, be validly issued, fully paid and
non-assessable.
4.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. No officer or director of
Pan Am or any of its Subsidiaries, and to Pan Am's knowledge, no employee or
agent of Pan Am or any of its Subsidiaries and no other Person acting at the
direction of any of the foregoing or associated or Affiliated with Pan Am or any
of its Subsidiaries, and no other Person for whom Pan Am or any of its
Subsidiaries may be responsible, acting alone or together, has (i) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type
from any customer, supplier, trading company, shipping company, governmental
employee or other Person with whom Pan Am or any of its Subsidiaries has done
business directly or indirectly, or (ii) directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other Person who is or may be in a
position to help or hinder the business of Pan Am and its Subsidiaries (or
assist Pan Am or its Subsidiaries in connection with any actual or proposed
transaction), in either event which (a) could reasonably be expected to subject
Pan Am or its Subsidiaries to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, or (b) if not given, could reasonably be
expected to have a material adverse effect on the results of operations, assets,
business, operations or prospects of Pan Am or any of its Subsidiaries or may
lead to suit or penalty in any private or governmental litigation or proceeding.
4.24 OPINION OF FINANCIAL ADVISOR. Pan Am's financial advisor has
delivered to the Board of Directors of Pan Am its oral opinion to the effect
that, as of the date hereof, the Merger is fair to the holders of the Common
Stock (other than AHC and its Affiliates) from a financial point of view.
4.25 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information relating to Pan Am and its Subsidiaries to be supplied by Pan Am for
use in the Proxy Statement and/or the Registration Statement, at the respective
times that the Registration Statement, the Proxy Statement or any amendment
thereto is filed with the Commission or is declared effective by the Commission,
or at the respective times that the Proxy Statement is mailed to Pan Am's
shareholders and at the time the Pan Am shareholders' meeting takes place
(subject, if required, to a reasonable period of time for the parties hereto to
take such action necessary to supplement or amend the Proxy Statement), will
contain any untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Closing Date, an event or circumstance
relating to Pan Am or any Subsidiary, or any of their respective officers or
directors, should be discovered by Pan Am that should be set forth in an
amendment or a supplement to the Registration Statement or Proxy Statement, Pan
Am shall promptly inform AHC. The Proxy Statement, including any amendments
thereto, will comply with and be distributed to the Pan Am shareholders in
accordance with Pan Am's Articles of Incorporation and Bylaws and all applicable
laws and regulations, including the Florida BCA, the Securities Act and the
Exchange Act, and the rules and regulations of the AMEX. Pan Am understands that
an investment in Carnival represents a relatively high degree of risk and there
is no assurance that Carnival's business or operations will be successful. Pan
Am has considered carefully the risk factors attendant to an investment in
Carnival and that, as a consequence of such risks, Pan Am could lose its entire
investment in Carnival.
-26-
<PAGE>
4.26 POOLING-OF-INTERESTS. Except as set forth on SCHEDULE 4.26, no
facts or circumstances exist with respect to Pan Am or any Subsidiary which
could reasonably be expected to disqualify Pan Am's acquisition of Carnival
pursuant to this Agreement for pooling-of-interests accounting treatment.
4.27 DISCLOSURE. The representations and warranties of Pan Am or
Acquisition contained in this Agreement together with the Schedules hereto and
the information specifically reflected therein, taken as a whole, do not contain
and will not contain any untrue statement of a material fact and do not omit and
will not omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE V
COVENANTS
During the period from the date of this Agreement to the Closing Date,
Pan Am and AHC, as applicable, agree to perform the covenants set forth below.
5.1 INTERIM OPERATIONS OF PAN AM AND AHC. Each of Pan Am and AHC shall,
and shall cause their respective Subsidiaries to, operate their respective
businesses only in the ordinary and usual course consistent with past practices
and shall use its reasonable efforts to (i) preserve intact its business
organization and the goodwill of its customers, suppliers, employees and others
having business relations with it and (ii) continuously maintain insurance
coverage substantially equivalent to the insurance coverage in existence on the
date hereof. Except as otherwise expressly contemplated herein or set forth on
SCHEDULE 5.1, without the written consent of AHC (which shall not be
unreasonably withheld), Pan Am shall not, nor shall it cause or permit any of
its Subsidiaries to: (i) amend its Articles or Certificate of Incorporation or
Bylaws, except in connection with any Pan Am Financings and Acquisitions; (ii)
issue, sell or authorize for issuance or sale, shares of any class of its
securities (including, but not limited to, by way of stock split or dividend) or
any subscriptions, options, warrants, rights or convertible securities, or enter
into any agreements or commitments of any character obligating it to issue or
sell any such securities except in connection with any Pan Am Financings or
Acquisitions; (iii) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or the capital stock of any
Affiliate or any option, warrant or other right to purchase or acquire any of
its shares or the shares of any Affiliate, except in connection with any Pan Am
Financings and Acquisitions; (iv) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with respect to its
capital stock; (v) voluntarily sell, transfer, surrender, abandon or dispose of
any of its material assets or property rights (tangible or intangible); (vi)
grant or make any mortgage or pledge or subject itself or any of its properties
or assets to any Encumbrances, except Encumbrances listed in SCHEDULE 4.13(A)
hereto, or Encumbrances not exceeding $100,000 in the aggregate and except in
connection with any Pan Am Financings or Acquisitions; (vii) create, incur or
assume any liability or indebtedness for borrowed money (including purchase
money financing), except in the ordinary course of business consistent with past
practices, but in no event in an aggregate amount exceeding $250,000 and except
in connection with any Pan Am Financings or Acquisitions; (viii) make or commit
to make any capital expenditures in excess of $250,000 in the aggregate, except
in connection with any Pan Am Financings and Acquisitions; (ix) grant any
increase in the compensation payable or to become payable to directors, officers
or employees, other than merit increases to officers and employees in the
ordinary course of business; (x) enter into any agreement, arrangement or
commitment that, if it existed on the date hereof, would be a Pan Am Material
Agreement, or amend or terminate any of same or any existing Pan Am Material
Agreement, except in connection with any Pan Am Financings or Acquisitions; (xi)
alter the manner of keeping its books, accounts or records, or change in any
manner the accounting practices therein reflected; (xii) apply any
-27-
<PAGE>
of its assets to the direct or indirect payment, discharge, satisfaction or
reduction of any amount payable directly or indirectly to or for the benefit of
any Affiliate (except for salary and benefits as currently in effect and except
in accordance with existing agreements and arrangements which have been
disclosed to AHC in writing); (xiii) knowingly or negligently take or omit to
take any action which could reasonably be expected to disqualify Pan Am's
acquisition of Carnival pursuant to this Agreement for pooling-of-interests
accounting treatment (it being recognized that due to the importance of this
matter, Pan Am should consult regularly with its accountants and AHC's
accountants with respect to the ramifications of various acts or omissions on
pooling-of-interests accounting treatment); or (xiv) agree, whether in writing
or otherwise, to do any of the foregoing. Except as otherwise expressly
contemplated herein or set forth on SCHEDULE 5.1, without the written consent of
Pan Am (which shall not be unreasonably withheld), AHC shall not, nor shall it
cause or permit any of its Subsidiaries to: (i) amend its Articles or
Certificate of Incorporation or Bylaws; (ii) issue, sell or authorize for
issuance or sale, shares of any class of its securities (including, but not
limited to, by way of stock split or dividend) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any agreements or
commitments of any character obligating it to issue or sell any such securities;
(iii) redeem, purchase or otherwise acquire, directly or indirectly, any shares
of its capital stock or the capital stock of any Affiliate or any option,
warrant or other right to purchase or acquire any of its shares or the shares of
any Affiliate; (iv) declare or pay any dividend or other distribution (whether
in cash, stock or other property) with respect to its capital stock; (v)
voluntarily sell, transfer, surrender, abandon or dispose of any of its assets
or property rights (tangible or intangible) having an aggregate value in excess
of $25,000; (vi) grant or make any mortgage or pledge or subject itself or any
of its properties or assets to any Encumbrances, except Encumbrances listed in
SCHEDULE 3.13(A) hereto, or Encumbrances not exceeding $25,000 in the aggregate;
(vii) create, incur or assume any liability or indebtedness for borrowed money
(including purchase money financing) or otherwise make expenditures in an
aggregate amount exceeding $50,000; (viii) make or commit to make any capital
expenditures in excess of $50,000 in the aggregate; (ix) grant any increase in
the compensation payable or to become payable to directors, officers or
employees; (x) enter into any agreement, arrangement or commitment that, if it
existed on the date hereof, would involve the expenditure or potential
expenditure of funds, individually or in the aggregate, in excess of $50,000 or
be an AHC Material Agreement, or amend or terminate any of same or any existing
AHC Material Agreement; (xi) alter the manner of keeping its books, accounts or
records, or change in any manner the accounting practices therein reflected;
(xii) apply any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any Affiliate (except for salary and benefits as currently in
effect and except in accordance with existing agreements and arrangements which
have been disclosed to Pan Am in writing); (xiii) knowingly or negligently take
or omit to take any action which could reasonably be expected to disqualify Pan
Am's acquisition of Carnival pursuant to this Agreement for pooling-of-interests
accounting treatment (it being recognized that due to the importance of this
matter, AHC should consult regularly with its accountants and Pan Am's
accountants with respect to the ramifications of various acts or omissions on
pooling-of-interests accounting treatment); or (xiv) agree, whether in writing
or otherwise, to do any of the foregoing. Notwithstanding any provisions
contained herein to the contrary, AHC and Carnival shall regularly consult with
Pan Am with respect to all operational aspects of the business of Carnival
(except for pricing of fares issues), including without limitation, the
day-to-day operations of Carnival. Notwithstanding anything to the contrary set
forth in this Agreement, it is recognized that each of Carnival and Pan Am has
experienced significant operating losses, and that each may continue to do so.
In connection therewith, it is contemplated that Pan Am, Carnival and their
respective Subsidiaries shall, between the date of this Agreement and the
Closing Date, continue to experience significant losses, and with respect to Pan
Am, engage in one or more Pan Am Financings and Acquisitions, and the parties
hereto agree that notwithstanding any provisions contained in this Agreement to
the contrary, the incurrence of any such significant losses or the effectuation
of any such transactions (regardless of the materiality thereof) will not
constitute a breach of any representation, warranty, covenant or other
-28-
<PAGE>
agreement of a party contained herein or provide the basis for the
nonfulfillment of a condition precedent to the other party's obligations
hereunder. Nothing contained herein shall prohibit the cancellation by Micky
Arison at Closing of that certain Contribution Agreement between him and
Carnival, described in SCHEDULE 3.17 hereof.
5.2 ACCESS.
(a) PAN AM ACCESS. Pan Am shall: (i) afford to AHC and its
agents and representatives reasonable access to the properties, books, records
and other information of Pan Am and its Subsidiaries, provided that such access
shall be granted upon reasonable notice and at reasonable times during normal
business hours in such a manner as to not unreasonably interfere with normal
business operations; (ii) use its reasonable efforts to cause Pan Am's
personnel, without unreasonable disruption of normal business operations, to
assist AHC in its investigation of Pan Am and its Subsidiaries pursuant to this
SECTION 5.2(A); and (iii) furnish promptly to AHC all information and documents
concerning the business, assets, liabilities, properties and personnel of Pan Am
and its Subsidiaries as AHC may from time to time reasonably request. In
addition, from the date of this Agreement until the Closing Date, Pan Am shall
cause one or more of its officers to confer on a regular basis with officers of
AHC and to report on the general status of its ongoing operations.
(b) AHC ACCESS. AHC shall: (i) afford to Pan Am and its agents
and representatives full access to the properties, books, records and other
information of AHC and its Subsidiaries; (ii) use its reasonable efforts to
cause AHC's personnel, without unreasonable disruption of normal business
operations, to assist Pan Am in its investigation of AHC and its Subsidiaries
pursuant to this SECTION 5.2(B); and (iii) furnish promptly to Pan Am all
information and documents concerning the business, assets, liabilities,
properties and personnel of AHC and its Subsidiaries as Pan Am may from time to
time reasonably request. In addition, from the date of this Agreement until the
Closing Date, AHC and Carnival shall cause one or more of their respective
officers to confer on a regular basis with officers of Pan Am and to report on
the general status of Carnival's ongoing operations.
5.3 CONFIDENTIALITY. The parties acknowledge that all confidential or
proprietary information with respect to the business and operations of the other
party and their respective Subsidiaries is valuable, special and unique. The
parties shall not disclose, directly or indirectly, to any Person, or use or
purport to authorize any Person to use any confidential or proprietary
information with respect to the other party or any of their respective
Subsidiaries, without the prior written consent of the other party, including
without limitation, information as to the financial condition, results of
operations, customers, suppliers, products, products under development,
services, services under development, inventions, sources, leads or methods of
obtaining new business, pricing methods or formulas, costs, marketing strategies
or any other information relating to Carnival or Pan Am or any of their
respective Subsidiaries, which could reasonably be regarded as confidential or
proprietary, but not including information which (i) is or shall become
generally available to the public other than as a result of an unauthorized
disclosure by any of the parties or any of its Affiliates, (ii) becomes
available to the other party on a nonconfidential basis from a source other than
a party to this Agreement, provided such source is not in violation of a
confidentiality agreement with the party providing such information or (iii) is
required to be disclosed by law or by the rules and regulations of AMEX. The
covenants of the parties contained in this SECTION 5.3 shall survive any
termination of this Agreement. AHC and Carnival specifically consent to the
disclosure of all information relating to Carnival and its Subsidiaries
reasonably required to be disclosed in the Private Placement Memorandum, the
Registration Statement and the Proxy Statement. The foregoing notwithstanding,
Pan Am agrees to provide AHC and Carnival with a reasonable opportunity to
review and comment on the Private Placement Memorandum, the Registration
Statement, the Proxy Statement or any other documents pursuant to which
securities of Pan Am will be offered for sale by Pan
-29-
<PAGE>
Am, prior to the distribution thereof, to the extent that such sale will be
closed prior to the Closing Date. In the event that the Merger is consummated,
Pan Am's obligations under this SECTION 5.3 with respect to Carnival shall
terminate.
5.4 NOTIFICATION. Each party to this Agreement shall promptly notify
the other parties in writing of the occurrence, or threatened occurrence, of:
(i) any event that, with the lapse of time or notice or both, would constitute a
breach of this Agreement by such party; (ii) any event that would cause any
representation or warranty made by such party in this Agreement to be false or
misleading in any respect; and (iii) any event which would have been required to
be disclosed herein had such event occurred on or prior to the date of this
Agreement. The updating of any schedule pursuant to this SECTION 5.4 shall not
be deemed to release any party for the breach of any representation, warranty or
covenant hereunder or of any other liability arising hereunder.
5.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of AHC and Pan
Am agrees to cooperate with each other, file, submit or request promptly after
the date of this Agreement and to prosecute diligently any and all applications
or notices required to be filed or submitted to any governmental authorities,
including those specified in SECTIONS 3.4 and 4.4. Each of AHC and Pan Am shall
promptly make available to the other such information as each of them may
reasonably request relating to its business, assets, liabilities, properties and
personnel as may be required by each of them to prepare and file or submit such
applications and notices and any additional information requested by any
governmental authority, and shall update by amendment or supplement any such
information given in writing. Each of AHC and Pan Am represents and warrants to
the other that such information, as amended or supplemented, shall be true and
not misleading. Each of AHC and Pan Am shall promptly provide the other with
copies of all filings made with governmental authorities in connection with this
Agreement.
5.6 REASONABLE EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties shall use its reasonable efforts in good faith to
take or cause to be taken as promptly as practicable all reasonable actions that
are within its control to cause to be fulfilled those conditions precedent to
its obligations to consummate the Merger. The parties shall use reasonable
efforts to obtain all consents and approvals required in connection with the
consummation of the transactions contemplated by this Agreement.
5.7 PUBLICITY. The parties agree to reasonably cooperate in issuing any
press release or other public announcement or making any governmental filing
concerning this Agreement or the transactions contemplated hereby. Nothing
contained herein shall prevent any party from at any time furnishing any
information to any governmental authority which it is by law or pursuant to the
rules and regulations of AMEX so obligated to disclose or from making any
disclosure which its independent outside counsel (which may be such party's
regularly engaged outside counsel) deems (in the case of non-governmental
filings, in writing) necessary in order to fulfill such party's disclosure
obligations under applicable law, or the rules and regulations of AMEX.
5.8 ACQUISITION PROPOSALS. Except for the transactions contemplated by
this Agreement, unless and until this Agreement shall have been terminated,
neither Carnival nor AHC shall (nor shall either of them permit any of their
officers, directors, agents or Affiliates to): directly or indirectly solicit,
encourage, initiate or participate in any negotiations or discussions with
respect to any offer or proposal to acquire all or substantially all of the
business and properties or capital stock of AHC or any of its Subsidiaries,
whether by merger, purchase of assets or otherwise, or to sell any capital stock
or debt of AHC or any of its Subsidiaries in a public offering or otherwise. In
the event AHC or any of its
-30-
<PAGE>
Subsidiaries shall receive any such offer or proposal, AHC shall promptly inform
Pan Am as to any such offer.
5.9 CARNIVAL AND PAN AM SHAREHOLDER APPROVAL. Each of Carnival and Pan
Am shall take all such action as may be necessary to call, notice and convene as
promptly as practicable a special meeting of its shareholders (the "CARNIVAL
SPECIAL MEETING" or the "PAN AM SPECIAL MEETING") to consider and vote upon, in
the case of Carnival, this Agreement and the Merger and, in the case of Pan Am,
authorizing the issuance of shares of Common Stock in connection with the
Merger. The Carnival Board of Directors has adopted resolutions approving the
Agreement, the Articles and Agreement of Merger and the Merger and will submit
the Agreement, the Articles and Agreement of Merger and the Merger to Carnival's
shareholders for approval thereof as promptly as practicable. The Pan Am Board
of Directors has adopted resolutions approving the Agreement, the Articles and
Agreement of Merger, and the Merger, and will submit to its shareholders for
approval the authorization of the issuance of the shares of Common Stock in
connection with the Merger as promptly as practicable. The Board of Directors of
Carnival and Pan Am have determined that the Merger is advisable and in the best
interests of Carnival and Pan Am and each shall recommend in the Proxy Statement
and otherwise that the Carnival shareholders approve this Agreement, the
Articles and Agreement of Merger and the Merger, and that the Pan Am
shareholders approve the issuance of shares of Common Stock in connection with
the Merger and otherwise use their best efforts to obtain shareholder approval
of the issues set forth above.
5.10 PROXY STATEMENT; REGISTRATION. AHC shall cooperate with Pan Am in
the preparation by Pan Am of the Proxy Statement and the Private Placement
Memorandum and the Registration Statement, as well as any necessary amendments
and post-effective amendments thereto. Pan Am shall (i) file the Proxy Statement
with the Commission as soon as practicable, (ii) mail the Proxy Statement to its
shareholders after completion of the Private Placement Memorandum and the
closing of the raising of funds contemplated thereby, (iii) use its best efforts
to cause the Proxy Statement to be cleared by the Commission, and (iv) prepare
and, as soon as practicable after the closing of the Private Placement
Memorandum, file the Registration Statement with the Commission, as well as any
necessary amendments and post-effective amendments thereto and use its best
efforts to cause the Registration Statement to be declared effective as soon as
practicable on or after the Closing Date. If at any time after the Proxy
Statement is mailed to Pan Am's shareholders any event shall occur which shall
require an amendment or supplement to the Proxy Statement, or which would cause
the Proxy Statement to contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements contained therein not
misleading, the party having knowledge of such event shall promptly notify the
other party and the parties shall prepare and file such amendments or
supplements as may be necessary.
5.11 AFFILIATES' LETTERS.
(a) SCHEDULE 5.11(A) sets forth a list of names and addresses
of those persons who, to the best knowledge of Carnival, may be deemed
Affiliates of AHC or from whom a letter in the form of EXHIBIT B hereto (the
"CARNIVAL AFFILIATE LETTER") could reasonably be expected to be necessary in
order for the Merger to qualify as a pooling-of-interests transaction. Carnival
shall provide Pan Am such information and documents as Pan Am shall reasonably
request for purposes of reviewing such list. There shall be added to such list
the names and addresses of any other person who becomes an Affiliate of Carnival
at any time after the date hereof up to and including the time of the Carnival
Special Meeting, or who Pan Am reasonably identifies (by written notice to
Carnival) as being a Person who may be deemed to be an Affiliate of Carnival.
Provided that the Merger would otherwise qualify for pooling of interests
accounting treatment, Carnival shall use its best efforts to deliver or cause to
be delivered to Pan
-31-
<PAGE>
Am, concurrent herewith, or as promptly as practicable after the date hereof,
from each of the Affiliates identified on SCHEDULE 5.11 (as the same may be
supplemented as aforesaid), a Carnival Affiliate Letter.
If an Affiliate of Carnival refuses to provide a Carnival Affiliate
Letter, Pan Am shall in lieu of receipt of such letter be entitled to place
appropriate legends on the certificates evidencing the Common Stock to be
received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stock transfer instructions to the transfer agent for the
Common Stock, to the effect that the shares of the Common Stock received or to
be received by such Affiliate pursuant to the terms of this Agreement may only
be sold, transferred or otherwise conveyed, and the holder thereof may only
reduce his interest in or risks relating to such shares of Common Stock,
pursuant to an effective registration statement under the Securities Act or in
accordance with the provisions of Rule 144 promulgated under the Securities Act
or pursuant to an exemption provided from registration under the Securities Act
and, in any event, only after financial results covering at least 30 days of
combined operations of Pan Am and Carnival after the Closing Date shall have
been published. The foregoing restrictions on the transferability of the Common
Stock shall apply to all purported sales, transfers and other conveyances of the
shares of Common Stock received or to be received by such Affiliate pursuant to
this Agreement and to all purported reductions in the interest in or risks
relating to such shares of the Common Stock whether or not such Affiliate has
exchanged the certificates previously evidencing such Affiliate's shares of the
Carnival Common Stock for certificates evidencing the shares of Common Stock
into which such shares of Carnival Common Stock were converted. The Proxy
Statement and the Registration Statement shall each disclose the foregoing in a
reasonably prominent manner.
(b) SCHEDULE 5.11(B) sets forth a list of names and addresses
of those persons who, to the best knowledge of Pan Am, may be deemed Affiliates
of Pan Am or from whom a letter in the form of EXHIBIT B hereto (the "PAN AM
AFFILIATE LETTER") could reasonably be expected to be necessary in order for the
Merger to qualify as a pooling-of-interests transaction. Pan Am shall provide
Carnival such information and documents as Carnival shall reasonably request for
purposes of reviewing such list. There shall be added to such list the names and
addresses of any other person who becomes an Affiliate of Pan Am at any time
after the date hereof up to and including the time of the Pan Am Special
Meeting, or who Carnival reasonably identifies (by written notice to Pan Am) as
being a Person who may be deemed to be an Affiliate of Pan Am. Provided that the
Merger would otherwise qualify for pooling of interests accounting treatment,
Pan Am shall use its best efforts to deliver or cause to be delivered to
Carnival, concurrent herewith, or as promptly as practicable after the date
hereof, from each of the Affiliates identified on SCHEDULE 5.11(B) (as the same
may be supplemented as aforesaid), a Pan Am Affiliate Letter.
If an Affiliate of Pan Am refuses to provide a Pan Am Affiliate Letter,
Pan Am shall, in lieu of receipt of such letter, be entitled to issue
appropriate stock transfer instructions to the transfer agent for the Common
Stock, to the effect that the shares of the Common Stock held by such Affiliate
may only be sold, transferred or otherwise conveyed and the holder thereof may
only reduce his interest in or risks relating to such shares of Common Stock,
pursuant to an effective registration statement under the Securities Act or in
accordance with the provisions of Rule 144 promulgated under the Securities Act
or pursuant to an exemption provided from registration under the Securities Act
and, in any event, only after financial results covering at least 30 days of
combined operations of Pan Am and Carnival after the Closing date shall have
been published. The foregoing restrictions on the transferability of the Common
Stock shall apply to all purported sales, transfers and other conveyances of the
shares of Common Stock held by such Affiliate and to all purported reductions in
the interest in or risks relating to such shares of the Common Stock. The Proxy
Statement and the Registration Statement shall each disclose the foregoing in a
reasonably prominent manner.
-32-
<PAGE>
5.12 NONSOLICITATION OF EMPLOYEES. Each of Pan Am and Carnival agrees
that, for a period of two years following the date hereof, it shall not,
directly or indirectly, solicit for employment any employee of the other whose
responsibilities or duties relate to the operation of a commercial airline;
provided however, that the provisions of this SECTION 5.12 shall not apply to
any general solicitation for employment made by any party to the public at large
by means of a newspaper advertisement or other similar means of mass
communication, and provided further that this provision shall not prohibit the
hiring of non-executive employees where no solicitation has occurred. This
SECTION 5.12 shall not survive the Closing, but shall survive the termination of
this Agreement.
5.13 CERTAIN POST-CLOSING NOTIFICATIONS. If, at any time on or after
the Closing, the employees of either of Pan Am or Carnival would be entitled to
receive any notice or notification pursuant to the WARN Act for activities
occurring on or after the Closing Date, then Pan Am shall bear sole
responsibility for delivering such notices or causing such notices to be
delivered to any employees entitled thereto.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 INVESTIGATION; NOTICES. The representations, warranties, covenants
and agreements set forth in this Agreement shall not be affected or diminished
in any way by the receipt of any notice pursuant to SECTION 5.4 or by any
investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties and covenants were
made.
6.2 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties set forth in this Agreement shall survive the
Closing to the extent provided in SECTION 6.3.
6.3 INDEMNIFICATION.
(a) BY AHC. Subject to the limitations set forth in SECTION
6.3(D), the Shareholders severally (in accordance with SCHEDULE 6.3) agree to
indemnify and hold harmless Pan Am and Acquisition from, against and in respect
of, the full amount of any and all liabilities, damages, claims, deficiencies,
fines, assessments, losses, Taxes, penalties, interest, costs and expenses,
including, without limitation, reasonable fees and disbursements of counsel
(collectively, the "LIABILITIES"), arising from, in connection with, or incident
to: (i) (provided that the Closing occurs) any breach or violation of any of the
representations or warranties of either of AHC, Carnival or any Shareholder
contained in this Agreement as modified by any Schedule hereto; (ii) any breach
or violation of any of the covenants or agreements of either AHC, Carnival or
any Shareholder contained in this Agreement as modified by any Schedule hereto
which, in the case of pre-Closing breaches, continues after notice and a
reasonable opportunity to cure; and (iii) any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses incidental to
any of the foregoing. Notwithstanding the foregoing, Micky Arison and the Trust
shall be jointly and severally liable for the indemnification obligations of
each Shareholder arising under this SECTION 6.3.
(b) BY PAN AM AND ACQUISITION. Subject to the limitations set
forth in SECTION 6.3(D), Pan Am and Acquisition agree to indemnify and hold
harmless Carnival and the Shareholders from, against and in respect of, the full
amount of any and all Liabilities arising from, in connection with, or incident
to (i) (provided that the Closing occurs) any breach or violation of any of the
representations or warranties of Pan Am and Acquisition contained in this
Agreement as modified by any Schedule hereto; (ii) any breach or violation of
any of the covenants or agreements of either Pan Am or Acquisition
-33-
<PAGE>
contained in this Agreement as modified by any Schedule hereto which, in the
case of pre-Closing breaches, continues after notice and a reasonable
opportunity to cure; and (iii) any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses incidental to any of the foregoing.
(c) INDEMNITY PROCEDURE. A party or parties responsible for
indemnifying another party against any matter pursuant to this Agreement is
referred to herein as the "INDEMNIFYING PARTY," and a party or parties entitled
to indemnity is referred to as the "INDEMNIFIED PARTY."
An Indemnified Party under this Agreement shall, with respect to claims
asserted against such party by any third party, give written notice to each
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty business days of the receipt of any
written claim from any such third party, and with respect to other matters for
which the Indemnified Party may seek indemnification, give prompt written notice
to each Indemnifying Party of any liability which might give rise to a claim for
indemnity; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced.
As to any claim, action, suit or proceeding by a third party, the
Indemnifying Party shall be entitled, together with the Indemnified Party, to
participate in the defense, compromise or settlement of any such matter through
the Indemnifying Party's own attorneys and at its own expense. The Indemnified
Party shall provide such cooperation and such access to its books, records and
properties as the Indemnifying Party shall reasonably request with respect to
such matter; and the parties hereto agree to cooperate with each other in order
to ensure the proper and adequate defense thereof, it being understood that the
Indemnified Party shall control any such defense.
Neither an Indemnified Party nor an Indemnifying Party shall make any
settlement of any claims without the written consent of the other party, which
consent shall not be unreasonably withheld. Without limiting the generality of
the foregoing, it shall not be deemed unreasonable to withhold consent to a
settlement involving injunctive or other equitable relief against the other
party or its assets, employees or business.
With regard to claims of third parties for which indemnification is
payable hereunder, such indemnification shall be paid by the Indemnifying Party
upon the earliest to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five days prior to the date that the judgment creditor has the right to
execute the judgment or if earlier the date that the Indemnified Party must post
any bond with respect to any judgment or other judicial ruling; (ii) the entry
of an unappealable judgment or final appellate decision against the Indemnified
Party; (iii) a settlement of the claim; or (iv) with respect to indemnities for
Tax liabilities, upon the issuance of any resolution by a taxation authority.
Notwithstanding the foregoing, expenses of counsel to the Indemnified Party
shall be reimbursed on a current basis by the Indemnifying Party if such
expenses are a liability of the Indemnifying Party. With regard to other claims
for which indemnification is payable hereunder, such indemnification shall be
paid promptly by the Indemnifying Party upon demand by the Indemnified Party.
(d) LIMITATIONS. Except as otherwise expressly set forth
herein, no party shall have any obligation under the indemnification provisions
set forth in SECTIONS 6.3(A) OR 6.3(B): (i) unless notice of a claim for
indemnity in respect of any such matter has been given to such party on or
before the date which is the earlier of one year after the Closing Date or the
date that audited financial statements showing the combined operations of
Carnival and Pan Am are published; provided, however, that with respect to a
breach of any of the representations and warranties contained in SECTIONS 3.21
OR 4.20, notice
-34-
<PAGE>
of a claim for indemnity must be given on or before the date on which the
statute of limitations expires for each respective tax year; (ii) until and
except to the extent that the aggregate of all such claims for which such party
is responsible under such indemnification provisions with respect to any breach
of a representation or warranty (but not any covenant or agreement except the
covenants set forth in SECTIONS 5.4 AND 5.10 hereof) exceeds $1,000,000 (the
"BASKET LIMITATION"); and (iii) in excess of $7,500,000 (inclusive of the Basket
Limitation). Except for specific performance, the provisions of this SECTION 6.3
shall be the sole remedy for the breach of any representations or warranties
contained in this Agreement. None of the limitations of clauses (ii) and (iii)
of this SECTION 6.3(D) shall apply with respect to indemnification obligations
of a party arising in connection with the breach of any representation or
warranty set forth in SECTIONS 3.2, 3.8, 3.11, 3.12, 3.24, 3.25, 3.30, 4.2, 4.8,
4.11, 4.12 OR 4.18 of this Agreement, and none of the limitations of this
SECTION 6.3(D) shall apply with respect to any action based upon intentional or
fraudulent actions, misrepresentations or breaches of any party. Notwithstanding
anything to the contrary contained herein, no party shall have any obligation
under the indemnification provisions set forth in SECTIONS 6.3(A) or 6.3(b) for
a breach of any representation or warranty contained in SECTION 3.20 or 4.18
hereunder, until and except to the extent the aggregate of all such claims for
which such party is responsible for such breach exceeds $50,000. 773,810
Exchange Shares (90% of which shall be deposited by Micky Arison, 6% of which
shall be deposited by Reuven Wertheim, and 4% of which shall be deposited by A.
Daniel Ratti) shall be placed in escrow pursuant to a mutually agreeable Escrow
Agreement to secure the indemnification obligations of the Shareholders
hereunder. The Shareholders' indemnity obligations hereunder shall be satisfied
by application by Pan Am of Exchange Shares held in escrow in satisfaction
thereof in accordance with the preceding sentence prior to pursuit of any
additional indemnity claims. Such Exchange Shares shall be valued for such
purposes at the Exchange Valuation.
6.4 GENERAL RELEASE. Other than as set forth on SCHEDULE 6.4, each of
the Shareholders hereby unconditionally and irrevocably releases and forever
discharges, effective as of the Closing, AHC, Carnival and each of its
Subsidiaries and their respective officers, directors, employees and agents,
from any and all rights, claims, demands, judgments, obligations, liabilities
and damages, whether accrued or unaccrued, asserted or unasserted, and whether
known or unknown, relating directly or indirectly to AHC and/or any of its
Subsidiaries which ever existed, now exist, or may hereafter exist, by reason of
any tort, breach of contract, violation of law or other act or failure to act
which shall have occurred at or prior to the Closing. Each Shareholder expressly
intends that the foregoing release shall be effective regardless of whether the
basis for any claim or right hereby released shall have been known to or
anticipated by the Shareholders. Micky Arison will use his best efforts, subject
to his fiduciary duties, to cause Carnival Cruise to deliver on the Closing Date
a general release to AHC, Carnival and its Subsidiaries identical to the release
granted by the Shareholders pursuant to this SECTION 6.4. If subsequent to the
Closing, a Shareholder incurs damages by reason of his serving as a director or
officer of Carnival prior to the Closing, then, for a two-year period following
the Closing Date, Pan Am agrees to indemnify such Shareholder to the fullest
extent permitted by law and provided that the matters for which indemnification
is sought would not in and of themselves be deemed a breach of any
representation or warranty contained herein.
6.5 NONCOMPETITION. For a period of five years beginning as of the
Closing Date, each of the Shareholders (other than A. Daniel Ratti and Reuven
Wertheim) agrees to not, directly or indirectly, engage or have an interest,
anywhere in the United States or any other geographic area where AHC, Carnival
or any of their respective Subsidiaries do business or in which any of their
products or services are marketed, alone or in association with others, as
principal, officer, agent, employee, director, partner or shareholder, or
through the investment of capital, lending of money or property, rendering of
services or otherwise, in the operation of a commercial airline. For a period of
five years beginning on the Closing Date, each of the Shareholders and their
Affiliates will not directly or indirectly permit any of
-35-
<PAGE>
his employees, agents or others under his control to, directly or indirectly,
recruit or otherwise solicit or induce any person who is an employee of, or
otherwise engaged by, Pan Am, AHC, Carnival or any of their respective
Subsidiaries or any successor to the business thereof, to terminate his or her
employment or other relationship thereof, or hire any person who has left the
employ or engagement thereof during the preceding one year regardless of whether
such person was involuntarily terminated or terminated such employment on his
own volition. The ownership or control of up to five percent of the outstanding
voting securities or securities of any class of a company with a class of
securities which are traded on a national stock exchange or the Nasdaq stock
market shall not be deemed to be a violation of the provisions of this SECTION
6.5.
6.6 CONFIDENTIALITY; NAME USE. Each of the Shareholders acknowledges
that all confidential or proprietary information with respect to the business
and operations of each of Carnival, Pan Am and their respective Subsidiaries is
valuable, special and unique. Each Shareholder shall not, at any time after the
Closing, disclose, directly or indirectly, to any Person, or use or purport to
authorize any Person to use any confidential or proprietary information with
respect to Carnival or Pan Am or any of their respective Subsidiaries, without
the prior written consent of Pan Am, including without limitation, information
as to the financial condition, results of operations, customers, suppliers,
products, products under development, services, services under development,
inventions, sources, leads or methods of obtaining new business, pricing methods
or formulas, costs, marketing strategies or any other information relating to
Carnival or Pan Am or any of their respective Subsidiaries, which could
reasonably be regarded as confidential or proprietary, but not including
information which (i) is or shall become generally available to the public other
than as a result of an unauthorized disclosure by AHC or any of its Affiliates,
(ii) relates to Pan Am (and not Carnival) and was in the possession of such
Shareholder prior to its receipt from Pan Am, (iii) becomes available to such
Shareholder on a nonconfidential basis from a source other than a party to this
Agreement, provided such source is not in violation of a confidentiality
agreement with the party providing such information or (iv) is required to be
disclosed by law. AHC and each of the Shareholders acknowledge that Pan Am would
not enter into this Agreement without the assurance that all such confidential
and proprietary information will be used for the exclusive benefit of Carnival
and Pan Am. In addition, Micky Arison agrees to use his best efforts to cause
each of his Affiliates (and with respect to Carnival Cruise, subject to his
fiduciary duties), for a period of five years from the Closing Date, not to use,
license or otherwise authorize the use, directly or indirectly, of the name
"Carnival" or any similar name, mark, logo or other identifying words or images
in connection with the operation of any commercial airline, whether for its own
direct or indirect benefit or otherwise. Micky Arison will use his best efforts,
to cause Carnival Cruise (subject to his fiduciary duties) or the legal and
beneficial owner of the trademark or tradename "Carnival" if Carnival Cruise is
not such owner to agree to the foregoing in a document reasonably satisfactory
to Pan Am on or prior to the Closing Date.
6.7 CONTINUING OBLIGATIONS. The restrictions set forth in SECTIONS 5.3,
6.5 AND 6.6 are considered by the parties to be reasonable for the purposes of
protecting the value of the business and goodwill of Pan Am and Carnival. The
parties acknowledge that Pan Am and Carnival would be irreparably harmed and
that monetary damages would not provide an adequate remedy to Pan Am in the
event the covenants contained in SECTIONS 5.3, 6.5 AND 6.6 were not complied
with in accordance with their terms. Accordingly, each of the Shareholders
agrees that any breach or threatened breach of any provision of SECTIONS 5.3,
6.5 AND 6.6 shall entitle Pan Am to injunctive and other equitable relief to
secure the enforcement of these provisions, in addition to any other remedies
which may be available to Pan Am, and that Pan Am shall be entitled to receive
from each of the Shareholders reimbursement for all attorneys' fees and expenses
incurred by Pan Am in enforcing these provisions. In addition to its other
rights and remedies, Pan Am shall have the right to require each of the
Shareholders to account for and pay over to Pan Am, all compensation, profits,
money, accruals and other benefits derived or
-36-
<PAGE>
received, directly or indirectly, by any party breaching such provisions from
the action constituting such breach. It is the desire and intent of the parties
that the provisions of SECTIONS 5.3, 6.5 AND 6.6 be enforced to the fullest
extent permissible under the laws and public policies of each jurisdiction in
which enforcement is sought. If any provisions of SECTIONS 5.3, 6.5 OR 6.6
relating to the time period, scope of activities or geographic area of
restrictions is declared by a court of competent jurisdiction to exceed the
maximum permissible time period, scope of activities or geographic area, the
maximum time period, scope of activities or geographic area, as the case may be,
shall be reduced to the maximum which such court deems enforceable. If any
provisions of SECTIONS 5.3, 6.5 OR 6.6 other than those described in the
preceding sentence are adjudicated to be invalid or unenforceable, the invalid
or unenforceable provisions shall be deemed amended (with respect only to the
jurisdiction in which such adjudication is made) in such manner as to render
them enforceable and to effectuate as nearly as possible the original intentions
and agreement of the parties.
6.8 AHC SPINOFF AND RWDR TRANSACTION. AHC and Carnival shall effectuate
the AHC Spinoff and the RWDR Transactions as described herein prior to the
Closing in accordance with all applicable laws, and pursuant to documentation
which has been approved by Pan Am, which approval shall not be unreasonably
withheld. Any obligations of AHC arising under this Agreement shall, after
effectuation of the RWDR Transaction, be deemed to be obligations of Carnival.
Each of the Shareholders agree to take any action required, including without
limitation, to vote in his capacity as a director and/or a shareholder for such
transactions.
6.9 VOTING AGREEMENTS. Certain of the respective shareholders of AHC
and Pan Am will execute and deliver Voting Agreements (the "VOTING AGREEMENTS")
simultaneously herewith, in the form of EXHIBIT C, pursuant to which, among
other things, they will agree to vote their shares of AHC or Pan Am, as the case
may be, in favor of the Merger.
6.10 ACCOUNTANTS' COMFORT LETTERS. Each of Pan Am and AHC shall each
use its best efforts to cause to be delivered to itself and the other a
so-called "comfort" letter of its independent public accountants, in form
reasonably acceptable to the recipients thereof, dated not more than two
business days prior to each of the effectiveness of the Registration Statement
and the mailing of the Proxy Statement with the Commission.
6.11 INTENTIONALLY LEFT BLANK.
6.12 INTENTIONALLY LEFT BLANK.
6.13 USE OF THE CARNIVAL NAME. Pan Am agrees that after Closing it
shall not use the name "Carnival" or any related mark or logo or other
identifying words or images specifically relating to the name "Carnival" (a
"CARNIVAL RELATED MARK") in the promotion of its ongoing business; provided,
however, that the foregoing shall not be deemed to restrict Pan Am and its
Affiliates from describing the operations of Pan Am or Carnival prior to such
date and, provided, further, to the extent required by law or by the rules and
regulations of any national securities exchange, as reasonably determined by Pan
Am's counsel, Pan Am and its Affiliates shall be entitled to utilize the name
"Carnival" with respect to all Licenses until such Licenses have been
appropriately amended to delete such name, and to fly and otherwise utilize such
aircraft and other equipment and material which have affixed thereon the name
"Carnival" and other Carnival Related Marks as set forth herein. Pan Am agrees
to use all reasonable efforts to promptly amend the above-mentioned Licenses and
to make such revisions to such existing aircraft and other equipment and
material during its ordinary maintenance schedule so as to eliminate the use of
the "Carnival" name and the Carnival Related Marks. Until such time as such
amendments and revisions have been effectuated, Pan Am and its Affiliates shall
be granted a royalty-free license to utilize
-37-
<PAGE>
the name "Carnival" and the Carnival Related Marks for the limited purposes
described above. Micky Arison shall use his best efforts, subject to his
fiduciary duties, to cause Carnival Cruise to grant such license for a period of
two years in a document reasonably satisfactory to Carnival Cruise and Pan Am.
Over twelve equal monthly installments commencing one month after the Closing
Date, Carnival shall pay any fees due and payble under the terms and conditions
of that certain Nonexclusive License Agreement, dated March 25, 1989, by and
between Carnival Airlines and Carnival.
6.14 BOARD REPRESENTATION. Upon the request of Micky Arison at any time
or from time to time, Pan Am shall, after the Closing Date, use its best efforts
to cause Micky Arison and/or Howard Frank to be nominated to the Board of
Directors of Pan Am, and shall use reasonable efforts consistent with and no
less than are taken with respect to all other nominees to the Board of Directors
to have such persons elected to its Board of Directors for so long as Micky
Arison and/or the Trust beneficially owns more than 5% of Pan Am's issued and
outstanding Common Stock. If either or both of such persons are elected to the
Board of Directors, each will be given indemnification agreement protections by
Pan Am in the same form as currently in effect for Pan Am's current directors.
6.15 ADDITIONAL CAPITAL CONTRIBUTION. It is agreed and understood, as
provided in SECTION 7.3(F) of this Agreement, that a condition to Carnival's and
AHC's obligations to close the transactions contemplated hereby is the
procurement of the release of Micky Arison's personal guaranty and AHC's limited
recourse guaranty of that certain Amended and Restated Revolving Line of Credit
Agreement, dated as of October 2, 1996 between Carnival Airlines, Inc. and
Barnett Bank of South Florida, N.A., a national banking association (the
"REVOLVING LINE OF CREDIT"). Micky Arison hereby agrees to make a capital
contribution of Thirty Million Dollars ($30,000,000) prior to the Closing (the
"ADDITIONAL CAPITAL CONTRIBUTION") in exchange for 1,900,000 shares of Carnival
Common Stock. Micky Arison further agrees to take any and all additional actions
which may be required (including the payment of money in addition to the
Additional Capital Contribution) to discharge, pay in full and cancel the
Revolving Line of Credit and to procure the release of his personal guaranty of
the Revolving Line of Credit and the release of AHC's limited recourse guaranty.
6.16 REGISTRATION RIGHTS AGREEMENT. Pan Am will contemporaneously
herewith execute and deliver the Registration Rights Agreement (the
"REGISTRATION RIGHTS AGREEMENT") granting certain registration rights to the
Shareholders, in the form of EXHIBIT D, effective as of the Closing.
6.17 INTENTIONALLY LEFT BLANK.
6.18 WERTHEIM CONSULTING ARRANGEMENT. Carnival and Reuven Wertheim
shall enter into a Consulting Agreement providing for compensation in the
aggregate amount of Three Hundred Thousand Dollars ($300,000) payable over four
quarterly installments, commencing one hundred twenty (120) days from the
Closing Date, in the form of EXHIBIT E, and containing the other terms and
conditions set forth therein.
ARTICLE VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
7.1 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Stearns Weaver
Miller Weissler Alhadeff & Sitterson, P.A. as promptly as practicable and in any
event within 15 days after the satisfaction or waiver of the conditions
precedent to the obligations of the parties set forth in this Article VII (the
"CLOSING DATE"),
-38-
<PAGE>
or on such other date and at such other place as may be agreed to by the
parties, but in no event beyond June 30, 1997, as such date may be extended
pursuant to the provisions of Section 7.5 hereof. At the Closing, the parties
shall deliver to each other such customary documents as may be specified, or
required to satisfy the conditions set forth, in SECTIONS 7.2, 7.3 and 7.4, and
such other documents and instruments as each party may reasonably request from
the other parties. On the Closing Date, the parties shall cause to be filed the
appropriate Articles and Agreement of Merger with the Secretary of State of the
State of Florida. The Closing shall be effective upon 5:00 P.M., Eastern Time,
on the date such Articles and Agreement of Merger are filed. All proceedings to
be taken and all documents to be executed at the Closing shall be deemed to have
been taken, delivered and executed simultaneously, and no proceeding shall be
deemed taken nor documents deemed executed or delivered until all have been
taken, delivered and executed.
7.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions.
(a) GOVERNMENTAL CONSENTS. All material consents and approvals
required by governmental authorities for the consummation of the transactions
contemplated by this Agreement shall have been obtained, including without
limitation, the expiration or termination of any notice and waiting period under
the HSR Act. All of such consents and approvals shall have been obtained without
the imposition of any conditions which would materially adversely affect Pan
Am's ability to operate Carnival or its business following the Closing.
(b) NO LITIGATION. No litigation, arbitration or other
proceeding shall be pending or, to the knowledge of the parties, threatened by
or before any court, arbitration panel or governmental authority; no law or
regulation shall have been enacted after the date of this Agreement; and no
judicial or administrative decision shall have been rendered; in each case,
which enjoins, prohibits or materially restricts, or seeks to enjoin, prohibit
or materially restrict, the consummation of the transactions contemplated by
this Agreement and which, in the case of non-governmental proceedings, has a
reasonable likelihood of success.
(c) CORPORATE APPROVALS. The shareholders of Carnival and Pan
Am shall have respectively approved the matters set forth in SECTION 5.9 hereof
in accordance with the Articles of Incorporation and Bylaws of Carnival and Pan
Am and all applicable laws and regulations.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF AHC AND CARNIVAL. The
obligations of AHC and Carnival to consummate the transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions.
(a) INTENTIONALLY LEFT BLANK.
(b) COVENANTS PERFORMED. The covenants of Pan Am and
Acquisition contained in this Agreement to be performed or complied with on or
prior to the Closing Date shall have been duly performed or complied with in all
material respects.
(c) OPINION OF COUNSEL. AHC shall have received from Stearns
Weaver Miller Weissler Alhadeff & Sitterson, P.A., legal counsel to Pan Am, an
opinion letter, dated the Closing Date, in form and substance reasonably
satisfactory to AHC, with respect to the matters set forth on EXHIBIT F.
-39-
<PAGE>
(d) CERTIFICATE OF PAN AM. Pan Am shall have delivered to AHC
a certificate executed by its President, dated the Closing Date, to the effect
that the conditions specified in SECTION 7.3 above have been fulfilled.
(e) REASONABLE ASSURANCES AS TO THE EFFECTIVENESS OF
REGISTRATION STATEMENT. Counsel for the Shareholders shall have received
reasonable assurances that the Registration Statement will be declared effective
upon the Closing Date or within five business days thereafter.
(f) RELEASE OF PERSONAL GUARANTY. The release and termination
of the personal guaranty of Micky Arison and AHC's limited recourse guaranty of
the Revolving Line of Credit shall have been procured.
(g) REGISTRATION RIGHTS AGREEMENT. Pan Am shall have executed
and delivered the Registration Rights Agreement.
7.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PAN AM AND ACQUISITION.
The obligations of Pan Am and Acquisition to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing of the following conditions.
(a) INTENTIONALLY LEFT BLANK.
(b) COVENANTS PERFORMED. The covenants of AHC and Carnival
contained in this Agreement to be performed or complied with on or prior to the
Closing Date shall have been duly performed or complied with in all material
respects.
(c) CONSENTS. All material consents and approvals required to
effectuate the transactions contemplated herein should have been obtained, each
of which shall have been obtained without the imposition of any materially
adverse terms or conditions; provided, however, with regard to those consents
and approvals set forth on SCHEDULE 7.4(C)(I) hereof, if the sole reason that
such consents or approvals are not obtained is Pan Am's failure to provide
certain security such as a letter of credit or other type of financial security
required to maintain an agreement or arrangement, in the same nature and amount
as currently required by Carnival, then the securing of such consent or approval
shall not be considered a condition precedent hereunder and provided, further
that the procurement of the consents for those agreements set forth on SCHEDULE
7.4(C)(II) hereof shall not be considered a condition precedent to Pan Am's
obligations hereunder.
(d) OPINION OF COUNSEL. Pan Am shall have received from
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., AHC's counsel, an
opinion letter, dated the Closing Date, in form and substance reasonably
satisfactory to Pan Am, with respect to the matters set forth in EXHIBIT G.
(e) CERTIFICATE OF AHC. AHC shall have delivered to Pan Am a
certificate executed by its President, dated the Closing Date, to the effect
that the conditions specified in SECTIONS 7.4(B) and (I) have been fulfilled.
(f) AGREEMENT OF CARNIVAL CRUISE. Micky Arison shall have
delivered to Pan Am the agreement of Carnival Cruise contemplated by the last
sentence of SECTION 6.6 hereof.
(g) GENERAL RELEASE OF CARNIVAL CRUISE; AGREEMENT NOT TO USE
NAME. Micky Arison shall have delivered to Pan Am the general release of
Carnival Cruise contemplated by SECTION 6.4 hereof
-40-
<PAGE>
and the agreement not to permit the "Carnival" name to be utilized in connection
with a commercial airline contemplated by SECTION 6.6 hereof.
(h) LICENSE OF CARNIVAL NAME. Micky Arison shall have
delivered to Pan Am the license to be granted by Carnival Cruise contemplated by
SECTION 6.13 hereof.
(i) ADDITIONAL CAPITAL CONTRIBUTION. Micky Arison shall have
made the Additional Capital Contribution and complied with the other provisions
of SECTION 6.15 hereof.
(j) NO IMPOSITION OF RESTRICTIONS. There shall not have
occurred any imposition by any governmental agency or the promulgation or
proposal of any new law, regulations or directive which imposition of any
additional restrictions or conditions upon the operation of or the business of
Carnival which has or could reasonably be expected to (i) have a material
adverse impact on the operations of the business of Carnival as presently
conducted, (ii) materially impede or restrict the operations of Carnival as
presently conducted, (iii) materially delay the consummation of the transactions
contemplated hereby, and (iv) materially increase the cost of operating by Pan
Am of the Carnival business as presently conducted.
(k) STANDSTILL AGREEMENT. The Standstill Agreement shall have
been executed and delivered by Micky Arison and the Trust.
(l) ENCUMBRANCES RELATING TO REVOLVING LINE OF CREDIT. All
Encumbrances relating to the Revolving Line of Credit shall be released.
7.5 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated prior to the Closing: (i) at any time by mutual consent
of the parties; (ii) by either party if the Closing has not occurred on or prior
to June 30, 1997 (the "TERMINATION DATE"), provided the failure of the Closing
to occur by such date is not the result of the failure of the party seeking to
terminate this Agreement to perform or fulfill any of its material obligations
hereunder and provided further that either party may automatically extend the
Termination Date for an additional thirty day period by providing written notice
to that effect to the other party on or prior to the Termination Date (the
"EXTENDED TERMINATION DATE"); (iii) by AHC at any time in its sole discretion if
any of the representations or warranties of Pan Am or Acquisition in this
Agreement are not in all material respects true and accurate or if Pan Am or
Acquisition breaches in any material respect any covenant contained in this
Agreement, provided that if such misrepresentation or breach is curable, it is
not cured following notice and a reasonable opportunity to cure, which shall in
no event extend beyond the Extended Termination Date or, if later, ten days
after such notice of breach, or such other date as the parties may agree in
writing; (iv) by Pan Am at any time in its sole discretion if any of the
representations or warranties of AHC in this Agreement are not in all material
respects true and accurate or if AHC or Carnival breaches in any material
respect any covenant contained in this Agreement, provided that if such
misrepresentation or breach is curable, it is not cured following notice and a
reasonable opportunity to cure, which shall in no event extend beyond the
Extended Termination Date or, if later, ten days after such notice of breach, or
such other date as the parties may agree in writing; or (v) by AHC if the
Average Price falls below $6.00 per share, provided that if this right to
terminate is not exercised by AHC prior to the date the Proxy Statement is
mailed to the shareholders of Pan Am, then such right to terminate shall be
deemed to have been waived by AHC; and provided, further, that Pan Am shall
provide AHC at least five business days prior notice of such mailing. If this
Agreement is terminated pursuant to this SECTION 7.5, written notice thereof
shall promptly be given by the party electing such termination to the other
party and, subject to the expiration of the cure periods provided in clauses
(iii) and (iv) above, if any, this Agreement shall terminate without further
actions by the parties and no party shall have any further
-41-
<PAGE>
obligations under this Agreement; provided that any termination of this
Agreement pursuant to this SECTION 7.5 shall not relieve any party from any
liability for any breach or violation hereof. Notwithstanding the termination of
this Agreement, the respective obligations of the parties under SECTIONS 5.3,
8.7, 8.10, 8.11, 8.12, 8.13, 8.14 AND 8.15 shall survive the termination of this
Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice). Such notices, demands, claims and
other communications shall be deemed given when actually received or (i) in the
case of delivery by overnight service with guaranteed next day delivery, the
next day or the day designated for delivery or (ii) in the case of registered
U.S. mail, five days after deposit in the U.S. mail. A copy of any notices
delivered to AHC shall also be sent to Arnaldo Perez, Esq., 3655 N.W. 36th
Street, Miami, Florida, 33178 and to Bruce Macdonough, Esq., Greenberg Traurig
Hoffman Lipoff Rosen & Quentel, P.A., 1221 Brickell Avenue, Suite 2100, Miami,
Florida, 33131. A copy of any notices delivered to Pan Am shall also be sent to
John J. Ogilby, Jr., Esq., 9300 N.W. 36th Street, Miami, Florida, 33178 and to
Teddy D. Klinghoffer, Esq., Stearns Weaver Miller Weissler Alhadeff & Sitterson,
P.A., Suite 2200, 150 West Flagler Street, Miami, Florida, 33130.
8.2 ENTIRE AGREEMENT. This Agreement and the Articles and Agreement of
Merger contain every obligation and understanding between the parties relating
to the subject matter hereof and merge all prior discussions, negotiations and
agreements, if any, between them, and none of the parties shall be bound by any
representations, warranties, covenants, or other understandings, other than as
expressly provided or referred to herein.
8.3 ASSIGNMENT. This Agreement may not be assigned by any party without
the written consent of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, heirs, personal representatives, legal
representatives, and permitted assigns.
8.4 WAIVER AND AMENDMENT. Any representation, warranty, covenant, term
or condition of this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time. Any such waiver, extension or
amendment shall be evidenced by an instrument in writing executed on behalf of
the appropriate party by a person who has been authorized by its Board of
Directors to execute waivers, extensions or amendments on its behalf. No waiver
by any party hereto, whether express or implied, of its rights under any
provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party hereto to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach or default by such other party.
-42-
<PAGE>
8.5 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the parties hereto and their respective successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
8.6 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
8.7 EXPENSES. All expenses (including, without limitation, legal fees
and expenses, investment banking fees, fees and expenses of accountants)
incurred by AHC or Carnival in connection with the transactions contemplated
hereby will be borne by Carnival and all expenses (including, without
limitation, legal fees and expenses, investment banking fees, fees and expenses
of accountants) incurred by Pan Am or Acquisition in connection with the
transactions contemplated hereby will be borne by Pan Am, except that (i)
neither AHC, Carnival nor any of its Subsidiaries shall directly or indirectly
pay and/or have paid more than $150,000 in the aggregate of its or its
Affiliates' legal fees and expenses in connection with the transactions
contemplated hereby (and such excess shall be borne by the Affiliate of AHC or
Carnival who incurred such expenses but not by AHC or Carnival) and (ii) Pan Am
and AHC shall each pay for one-half of any filing fee or similar fee made by
such party or any Affiliate under the HSR Act.
8.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Any telecopied version of
any manually executed signature page shall be deemed a manually executed
original.
8.10 LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
8.11 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.12 REMEDIES CUMULATIVE. Other than as expressly set forth in SECTION
6.3, no remedy made available by any of the provisions of this Agreement is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity.
8.13 PARTICIPATION OF PARTIES; CONSTRUCTION. The parties hereto
acknowledge that this Agreement and all matters contemplated herein, have been
negotiated among all parties hereto and their respective legal counsel and that
all such parties have participated in the drafting and preparation of this
Agreement from the commencement of negotiations at all times through the
execution hereof. This Agreement shall be construed and interpreted without
regard to presumption or other rule or interpretation against the party who may
have had primary responsibility for drafting this Agreement.
-43-
<PAGE>
8.14 GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
8.15 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction of the courts of Dade County, Florida, which shall be the
exclusive jurisdiction and venue for disputes, actions or lawsuits arising out
of or relating to this Agreement or the transactions contemplated hereby. The
parties to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of Florida by
virtue of a failure to perform an act required to be performed in the State of
Florida and irrevocably and expressly agree to submit to the jurisdiction of the
courts of the State of Florida for the purpose of resolving any disputes among
the parties relating to this Agreement or the transactions contemplated hereby.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in the State of Florida,
and further irrevocably waive any claim that any suit, action or proceeding
brought in the State of Florida has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
-44-
<PAGE>
AIR HOLDING COMPANY
By: _______________________________
Name: ____________________
Title: ___________________
Address:
CARNIVAL AIR LINES, INC.
By: _______________________________
Name: ____________________
Title: ___________________
Address:
PAN AM CORPORATION
By: _______________________________
Name: ____________________
Title: ___________________
Address:
CAL ACQUISITION CORPORATION
By: _______________________________
Name: ____________________
Title: ___________________
Address:
-45-
<PAGE>
With respect to
the following
Sections: Article
III, 6.3, 6.4,
6.5, 6.6, 6.7,
6.8, 6.9, 6.12,
6.13 6.15, Article
VII and Article
VIII
_______________________________
MICKY ARISON
REUVEN WERTHEIM
_______________________________
A. DANIEL RATTI
_______________________________
MICKY ARISON 1995 AIR HOLDING TRUST
By: JMD Delaware, Inc., as Trustee
______________________
Name:
Title:
-46-
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
EXHIBITS DESCRIPTION
A Articles and Agreement of Merger
B Forms of Affiliate Letters
C Forms of Voting Agreements
D Form of Registration Rights Agreement
E Form of Wertheim Consulting Agreement
F Form of Opinion of Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A.
G Form of Opinion of Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A.
SCHEDULES
SECTION DESCRIPTION
3.1 Schedule of AHC Foreign Qualifications
3.3 Schedule of AHC Violations and Conflicts
3.5 Schedule of AHC Financial Statements
3.6 Schedule of AHC Compliance with Laws
3.7 Schedule of AHC Legal Proceedings
3.8 Schedule of AHC Brokers
3.9 Schedule of AHC Material Adverse Changes
3.11 Schedule of AHC Capitalization and Subsidiaries
3.12 Schedule of AHC Rights, Warrants and Options
3.13(a) Schedule of AHC Real Properties
3.13(b) Schedule of AHC Aircraft Properties
3.13(c) Schedule of AHC Intellectual Properties
3.14 Schedule of AHC Governmental Authorizations
3.15 Schedule of AHC Insurance Policies
3.16(a) Schedule of AHC Labor Relations
3.16(b) Schedule of AHC Employment Policies
3.16(c) Schedule of AHC Employment Agreements
3.16(d) Schedule of AHC Employee Benefit Plans
3.16(e) Schedule of AHC Personnel
3.17 Schedule of AHC Material Agreements
3.18 Schedule of AHC Accounts
3.19 Schedule of AHC Customers and Suppliers
3.20 Schedule of AHC Related Party Transactions
3.21 Schedule of AHC Tax Matters
3.28 Schedule of AHC Pooling of Interests Matters
4.1 Schedule of Pan Am Foreign Qualifications
4.3 Schedule of Pan Am Violations and Conflicts
4.5 Schedule of Pan Am Financial Statements
4.6 Schedule of Pan Am Compliance with Laws
4.7 Schedule of Pan Am Legal Proceedings
4.9 Schedule of Pan Am Material Adverse Changes
4.11 Schedule of Pan Am Subsidiaries
4.12 Schedule of Pan Am Rights, Warrants and Options
4.13(a) Schedule of Pan Am Real Properties
4.13(b) Schedule of Pan Am Aircraft Properties
4.13(c) Schedule of Pan Am Intellectual Properties
<PAGE>
4.14 Schedule of Pan Am Governmental Authorizations
4.15 Schedule of Pan Am Insurance Policies
4.16(a) Schedule of Pan Am Labor Relations
4.16(b) Schedule of Pan Am Employment Policies
4.16(c) Schedule of Pan Am Employment Agreements
4.16(d) Schedule of Pan Am Employee Benefit Plans
4.16(e) Schedule of Pan Am Personnel
4.17 Schedule of Pan Am Material Agreements
4.18 Schedule of Pan Am Related Party Transactions
4.20 Schedule of Pan Am Tax Matters
4.21 Schedule of Pan Am Guaranties
4.26 Schedule of Pan Am Pooling-of-Interests Matters
5.1 Schedule of Interim Operations
5.11(a) Schedule of AHC Affiliates
5.11(b) Schedule of Pan Am Affiliates
6.3 Schedule of Shareholder Indemnification
6.4 Schedule of Shareholders' General Release
7.4(c) Schedule of Consents
EXHIBIT 21
PAN AM CORPORATION SUBSIDIARIES
EAL ASSET COMPANY NO. 1, INC., a Florida corporation
EAL ASSET COMPANY NO. 2, INC., a Florida corporation
PAN AMERICAN AIRBRIDGE HOLDINGS, INC., a Florida corporation
PAN AMERICAN WORLD AIRWAYS, INC., a Florida corporation
PAWA HOLDINGS, INC., a Florida corporation
PAN AMERICAN WORLD AIRWAYS, INC., a Delaware corporation
PAN AMERICAN WORLD SERVICES, INC., a Florida corporation
PADRE, INC., a Florida corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-16383 of Pan Am Corporation on Form S-3 of our reports dated April 24, 1996
and March 31, 1997, appearing in this Annual Report on Form 10-K of Pan Am
Corporation for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,005,669
<SECURITIES> 0
<RECEIVABLES> 3,233,068
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,123,841
<PP&E> 2,346,375
<DEPRECIATION> (280,067)
<TOTAL-ASSETS> 26,544,650
<CURRENT-LIABILITIES> 13,928,629
<BONDS> 0
0
0
<COMMON> 1,092
<OTHER-SE> 11,658,955
<TOTAL-LIABILITY-AND-EQUITY> 26,544,650
<SALES> 10,441,485
<TOTAL-REVENUES> 10,441,485
<CGS> 38,781,447
<TOTAL-COSTS> 38,781,447
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,748
<INCOME-PRETAX> (27,399,410)
<INCOME-TAX> (155,421)
<INCOME-CONTINUING> (27,554,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,554,831)
<EPS-PRIMARY> (3.89)
<EPS-DILUTED> (3.89)
</TABLE>
EXHIBIT 99
FOR IMMEDIATE RELEASE CONTACT:
Jeff Kreindler, Pan Am
305-866-2115; or
Gabriel Gabor, Carnival Air Lines
954-923-8672 ext. 2238
PAN AM TO ACQUIRE CARNIVAL AIR LINES
MIAMI, March 21 - Pan American World Airways (ASE: PAA) announced today
that it has reached a definitive agreement to acquire all of the shares of
Carnival Air Lines. The definitive agreement further provides that, assuming
certain conditions are met, Micky Arison, Carnival Air's primary shareholder,
will make a $30 million capital investment. As a result of these transactions,
Mr. Arison would hold approximately 9.5 million shares of Pan Am stock which
would constitute approximately 42% of the outstanding shares of Pan Am stock.
Pan Am has arranged for a private placement of up to $30 million in an
new series of Convertible Preferred stock. This non-contingent financing, when
combined with the additional investment from Mr. Arison, will provide the new
company with some $60 million in additional liquidity.
"The Carnival Air acquisition elevates Pan Am to a stronger competitive
position and provides significant benefits of critical mass in an expedited, yet
controlled manner," said Martin R. Shugure, Jr., Pan Am's President and Chief
Executive Officer. "We were earlier attracted to Carnival Air by its excellent
route system, modern fleet and experienced work force and now believe even more
fervently that the well-known Pan Am brand, coupled with Carnival Air's
substantial assets, will result in a world-class airline," he added.
Commenting on the proposed acquisition, Mr. Arison said, "We are proud
of the accomplishments of Carnival Air Lines and are confident that its future
value will be greatly enhanced in combination with Pan Am which has demonstrated
its commitment to providing top-quality service to the traveling public. As a
future shareholder of Pan Am, I shall continue to have a personal stake in the
Company's success and am pleased that Carnival Air's loyal work force will have
new opportunities with the expanded Pan Am."
Pan Am began operations on September 26, 1996 operating two Airbus
Industrie A300's between New York's John F. Kennedy International Airport and
both Miami and Los Angeles. Now offering service with a fleet of four A300's,
with two more to be delivered in the next two months, Pan Am currently flies
between New York and Los Angeles, New York and Miami, New York and San Juan, and
between Miami and Chicago, as well as Miami and San Juan. The airline has also
announced that it will begin service between New York and Santo Domingo on April
6.
Carnival Air, formed in 1988, currently operates a fleet of 27 jet
aircraft, including nine A300's, between South Florida, the Northeast,
California and the Caribbean. The airline's revenues were approximately $270
million in 1996. Carnival Air Lines is privately held by the Air Holding
Corporation and not part of publicly-held Carnival Corporation.
Both Pan Am and Carnival Air Lines have been separately developing
globally-integrated marketing and customer service alliances which would be
combined in the new carrier. Known as the Pan Am Alliance, the grouping of these
international carriers is designed to provide marketing and service benefits
which will enable Pan Am to compete effectively with other major carrier
alliances formed in recent years. Alliance members will cooperate in one or more
of a range of programs, including schedule coordination, interline passenger
connection facilitation, airport check-in and lounge sharing arrangements, Pan
Am's WorldPass Frequent Flyer program, code sharing and other customer service
oriented programs.
The transaction has been approved by the board of directors of both
companies, and is only subject to the approval of Pan Am's shareholders and the
appropriate regulatory agencies.
