SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934]
For the transition period from ___________________ to ___________________.
Commission File Number 0-27238
WESTERN PACIFIC AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 86-0758778
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
2864 SOUTH CIRCLE DRIVE, SUITE 1100
COLORADO SPRINGS, COLORADO 80906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (719) 579-7737
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
PAR VALUE $0.001 PER SHARE
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. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 15, 1997 was approximately $51,808,894.
As of March 15, 1997 there were 13,394,348 shares of Common Stock of the
registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the solicitation
of proxies to be voted at the registrant's annual meeting of stockholders to
be held on May 21, 1997, to be filed with the Commission, are incorporated by
reference into Part III of this Report on Form 10-K.
<PAGE>
PART I.
CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT CONTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL ACTIONS OR RESULTS MAY DIFFER MATERIALLY
FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. SPECIFIC FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, AVAILABILITY OF
ADEQUATE WORKING CAPITAL, COMPETITIVE REACTION TO THE COMPANY'S EXPANSION
PLANS, RISE IN FUEL COSTS, REGULATORY ACTIONS BY THE DEPARTMENT OF
TRANSPORTATION OR THE FEDERAL AVIATION ADMINISTRATION, FUTURE INCIDENTS
SIMILAR TO THE GULF WAR, FUTURE AIRLINE ACCIDENTS (PARTICULARLY IF INVOLVING A
LOW COST CARRIER), AND GENERAL ECONOMIC CONDITIONS IN THE UNITED STATES. SEE
ADDITIONAL DISCUSSION UNDER "RISK FACTORS".
ITEM 1. BUSINESS.
OVERVIEW
Western Pacific Airlines, Inc. ("Western Pacific" or "WestPac") operates a
low-cost, low-fare airline from its hub at the Colorado Springs Airport.
WestPac commenced flight operations on April 28, 1995, with two Boeing 737-300
aircraft and provided six daily round trips between Colorado Springs and five
cities. Currently, Western Pacific operates up to 37 daily round trips between
Colorado Springs and Seattle, San Francisco, Portland, Los Angeles, San Diego,
Phoenix, Houston, Dallas/Ft. Worth, Oklahoma City, Tulsa, Kansas City,
Atlanta, Indianapolis, Orlando, Chicago-Midway, Washington-Dulles and Newark.
During 1996, Western Pacific assisted in the start-up of an affiliated
regional carrier, Mountain Air Express, Inc. ("MAX") to carry traffic into and
out of Colorado ski markets and other smaller travel markets that cannot
support frequent jet aircraft service. MAX, which commenced flight operations
on December 15, 1996, is a separate company from Western Pacific with its own
operating certificate and management. Western Pacific's present ownership in
MAX is approximately 57% of the outstanding voting stock. In November 1996,
Colorado Springs Car Rental, Inc., a Thrifty Rent-A-Car franchise and a 100%
owned subsidiary of Western Pacific, commenced operations from its base in
Colorado Springs. Western Pacific, MAX, and Colorado Springs Car Rental, Inc.
are referred to collectively as the Company.
Western Pacific currently has a fleet of 15 modern, 138-passenger Boeing 737-
300 aircraft, of which 14 are subject to operating leases with original terms
of either five or ten years, and one is owned by Western Pacific. Western
Pacific has entered into a purchase agreement with The Boeing Company
("Boeing") providing for the acquisition of six new Boeing 737-300 aircraft,
firm options for six new Boeing 737-700 aircraft, and rolling options for up
to six additional new Boeing 737-700 aircraft. The new 737-300 aircraft will
be delivered to Western Pacific beginning in May 1997, and presently are
expected to be configured for 136 passengers.
During 1996, Western Pacific expanded its management team. Robert A. Peiser
joined Western Pacific as President and Chief Executive Officer, Mark J.
Coleman as Senior Vice President of Marketing, and George E. Leonard as Vice
President of Finance and Chief Financial Officer, all during the fourth
quarter of 1996. Mr. Peiser and Mr. Leonard also joined Western Pacific's
Board of Directors.
Western Pacific initially selected Colorado Springs as its operating hub
because of its unique and favorable position in the Denver/Colorado Springs
market, which is the seventh largest air travel market in the United States.
Before Western Pacific began service at Colorado Springs Airport, air service
available to and from Colorado Springs was characterized by high fares and
limited flights. During 1996, Western Pacific's competitors, both at Colorado
Springs and at Denver, began to more aggressively match Western Pacific's low
fares. Additionally, two U.S. airline accidents which occurred in May and
July 1996 caused many travelers to avoid the low-cost carriers, including
Western Pacific, over the late summer and fall of 1996. These factors
contributed to the significant operating losses incurred during 1996.
Western Pacific's growth plan and business strategy had been focused on
developing its routes and expanding the markets it serves from its Colorado
Springs hub based on WestPac's low-fare, no frills, low-cost structure and a
simplified approach to airline operations. Western Pacific's initial route
structure was built around providing low frequency, scheduled service to high
density, high volume primary travel markets, such as Los Angeles, Newark and
Chicago-Midway and strong secondary travel markets such as Oklahoma City,
Phoenix and Indianapolis. In February 1997, Western Pacific initiated a
schedule change, adding flights to all cities except Houston, Miami and
Portland, while discontinuing service to Nashville, San Antonio, Ontario, and
Las Vegas. On April 6, 1997, service to Miami was discontinued. The
additional flights increased available seat miles ("ASMs") by 21% and the
average hours of daily aircraft utilization by 19%. This schedule change was
implemented to provide better aircraft utilization and to offer more flight
and connecting opportunities for both leisure and business travelers. As the
Company expands the size of its aircraft fleet, the Company's strategy will be
to increase both service frequency and the number of markets served in order
to build an efficient, low-cost hub and spoke air transportation network
targeted at the value conscious consumer and business traveler.
In developing its initial business strategy, Western Pacific had emphasized
low fares and low costs, operating efficiency, convenient non-stop schedules
and a streamlined "ticketless" reservation system. Western Pacific is now
focusing on better distribution to make the flying public more aware of its
product. To that end, Western Pacific began listing its flights on the SABRE
Computerized Reservation System ("CRS") effective March 7, 1997, allowing its
flights to be booked by travel agents worldwide. Before Western Pacific's
February 2, 1997 schedule change, all of Western Pacific's flights either
arrived in or left from Colorado Springs, and each flight operated each day.
With the new schedule, several flights now "wrap" other cities, such as Tulsa
to Oklahoma City to Colorado Springs, or Indianapolis to Chicago to Colorado
Springs. Additionally, certain flights only operate on certain days,
resulting in additional capacity that is more day of the week sensitive.
Western Pacific will continue to monitor the effectiveness of the new schedule
and make changes as needed. Also numerous Denver/Colorado Springs schedule
alternatives are currently under consideration, each of which, if implemented,
could provide favorable economic benefits for Western Pacific. Western
Pacific is considering adding other amenities that will attract more business
travelers, such as premium seating, more substantial snacks, and a frequent
flyer program. Western Pacific will continue to offer low-priced travel to
the leisure segment of the market, and will continue to focus on maintaining
its low cost nature.
Western Pacific was organized as a Delaware corporation in March 1994, by
Aviation Holdings Limited Company, an Arizona limited liability company
("AHLC"). Western Pacific's principal executive offices are located at 2864
South Circle Drive, Suite 1100, Colorado Springs, Colorado 80906 and the
telephone number is (719) 579-7737.
WESTERN PACIFIC'S LOW-FARE/LOW-COST APPROACH
WESTERN PACIFIC'S APPROACH INCLUDES:
Low fares that are intended to stimulate increased demand for air travel by
value conscious consumers and new demand by those who might otherwise have
used ground transportation or who would not have traveled at all. During the
year ended December 31, 1996, Western Pacific's average one-way segment fare
was $84.46.
Low operating costs are achieved through (i) high aircraft utilization with
the central geographic location of Colorado Springs in the United States; (ii)
using relatively inexpensive airport facilities and independent contractors;
(iii) using both full-time and part-time personnel; (iv) focusing on medium-
haul routes and faster turn-around times at airports which allow relatively
higher hours of aircraft utilization per day; and (v) maintaining wage rates
relating to the efficiency and performance of its employees. Western
Pacific's operating expenses decreased from 6.99 cents per ASM (excluding
start-up costs) for the eight months ended December 31, 1995 to 6.84 cents per
ASM for the year ended December 31, 1996.
A medium-haul route structure means that Western Pacific has fewer take-offs
and landings in comparison to miles flown than some other carriers. The
medium-haul route structure distinguishes Western Pacific's service from
Southwest Airlines and ValuJet Airlines, both of which focus on short-haul
markets and reported average stage lengths of 410 and 507 miles, respectively,
during the twelve month period ended December 31, 1996. By contrast, Western
Pacific's average stage length in December 1996 was 877 miles. Average stage
length represents the scheduled service aircraft miles flown divided by the
total number of departures.
Communication with travel agents is accomplished through monthly travel agency
information packets sent by Western Pacific to travel agents announcing new
fares and destinations, on-site visits by Western Pacific marketing and sales
personnel, and CRS messages. Most airlines generate 60-80% of their business
through travel agencies. For 1996, Western Pacific generated 36% of its
revenue through travel agents. Western Pacific believes that travel agencies
in the past have provided a smaller amount of its business because Western
Pacific was not participating in any of the industry's CRS systems. In March
1997, Western Pacific entered into agreements with several of the industry's
CRS systems so that seats on Western Pacific's flights could be booked
directly by a travel agent, without the need to telephone Western Pacific's
reservation office. Western Pacific believes that the additional expense from
participating in these CRSs will be more than offset by the incremental
revenue. Western Pacific also believes that it is not cost effective to
develop advertising to increase brand awareness in some of its larger markets
such as New York or Los Angeles. Participation in the industry's CRSs allows
Western Pacific's schedule to be listed along with other more well known
national carriers.
DENVER/COLORADO SPRINGS MARKET
Western Pacific is based in Colorado Springs as a result of the initial belief
that it could function effectively as an alternative airport to Denver
International Airport ("DIA") for the Denver/Colorado Springs market. As
scheduled air carrier operations moved from Stapleton International Airport to
DIA in February of 1995, a significant adverse public reaction developed.
This was primarily due to the combination of the increased distance to the
airport for a large portion of the metro Denver population and the increased
fares associated with the higher cost of operations at DIA. In addition, the
lower fares offered by Western Pacific not only provided significant market
stimulation in Colorado Springs, but also provided significant incentive for
Denver passengers to drive to Colorado Springs Airport. While this trend
continued throughout the balance of 1995 and well into 1996, underlying
factors surfaced which made the continued expansion of Western Pacific
Airlines at Colorado Springs Airport, to the exclusion of DIA, impractical.
With the advent of low fare service available out of DIA as a result of
Frontier Airline's (Frontier) entry into the Denver market, fewer passengers
were willing to make the drive to Colorado Springs Airport. In addition,
United Airlines began to match the fare offerings of Western Pacific and
Frontier in selected markets further reducing the incentive for passengers to
make the drive from Denver to Colorado Springs. At the same time, carriers
who had served the Colorado Springs market only on a limited basis prior to
Western Pacific's commencement of operations at Colorado Springs Airport began
to schedule additional flights. All of these factors decreased the traffic
available to Western Pacific at Colorado Springs Airport. Therefore, as
capacity increased, it became increasingly difficult to stimulate additional
traffic at acceptable fare levels. The traffic erosion occurred in spite of
the fact that average fares continued to decline on a year over year basis.
The combination of all these factors has led to management's conclusion that
given current capacity and traffic levels in Colorado Springs, Western
Pacific's prospects for significant growth in this market could be limited.
With this in mind, management is actively exploring an entry into the Denver
market. Numerous Denver/Colorado Springs schedule alternatives are currently
under consideration, each of which, if implemented, could provide favorable
economic benefits for Western Pacific.
SIZE AND DESCRIPTION OF DENVER/COLORADO SPRINGS MARKET
The overall Denver area air travel market, including Colorado Springs, ranked
seventh largest in the United States for enplaning and deplaning passengers,
serving nearly 32.3 million passengers for the twelve month period ending
December 31, 1996. The Colorado Springs Airport served approximately 2.8
million passengers from January 1, 1995 through December 31, 1995 and
approximately 4.8 million passengers during the same period of 1996, in each
case based on passenger enplanements and deplanements, which represents a 72%
increase.
The Denver/Colorado Springs area, including El Paso County and the six
counties comprising the Denver Standard Metropolitan Statistical Area, had a
combined population of approximately 2,500,000 in 1994, and has experienced
substantial population growth over the past five years. For the five-year
period from 1992 to 1996, the Denver/Colorado Springs area population growth
was 12%. Denver serves as an important financial center for the Rocky
Mountain region. Western Pacific believes that the leisure traffic alone into
and out of Colorado Springs will not be sufficient to support the airline's
growth plan, and is adding flights and features to appeal to the business
traveler. Western Pacific is actively exploring the addition of service into
and out of DIA, to take advantage of the larger Denver area population, and
the relative lack of low fare service in the Denver market.
COLORADO SPRINGS AIRPORT
The physical acreage of Colorado Springs Airport and its taxi and take-off
facilities are much larger than required for the current level of passenger
traffic at the airport. The airport has three runways, including the longest
commercial runway (13,500 feet) in the continental United States, is a joint
use facility with the United States Air Force, and is situated on 7,000 acres.
Colorado Springs Airport opened a new commercial passenger terminal in October
1994. The terminal is a modern and efficient design with 15 gates on a single
concourse with ample ramp and apron space for future expansion. Western
Pacific built a new six gate concourse at the airport which opened in December
1996. Western Pacific has full use of five of these gates, as well as four
gates at the original facility, while MAX uses one gate on the new concourse.
The City of Colorado Springs has announced plans to build a permanent
connecting walkway to the new facility from the original structure. From time
to time, Western Pacific uses the gates of other airlines.
DENVER INTERNATIONAL AIRPORT
DIA opened on February 28, 1995 and was designed to serve the heavy air
traffic demands of the Denver area. The terminal is highly automated and
includes moving walkways and trains to mitigate the long walking distances
necessary in a high capacity airport. The cost of the new facility was
financed through public borrowings and is to be repaid from the proceeds of
passenger facilities charges included in airline ticket prices for flights
originating and departing from DIA. While costs at DIA are higher than at
Colorado Springs Airport, they are not prohibitive when considering the
Company's anticipated aircraft utilization along with generally higher fares
experienced in the Denver market. Other carriers operating out of DIA have
aggressively matched or reduced the spread from their prices to Western
Pacific's prices, leaving less incentive for Denver customers to drive south
to Colorado Springs. Consequently, management believes that the potential
additional volume of traffic from this market could be substantial.
FARES, ROUTE SYSTEM AND SCHEDULING
SIMPLIFIED FARES
Western Pacific's pricing structure offers discounts for those able to
purchase tickets in advance of travel, and relatively low unrestricted, or
"walk-up", fares. Separate discounts apply for off-peak travel times (which
currently are Monday afternoons, all day Tuesday and Wednesday and Saturday
and Sunday mornings). All fares are available for one-way travel and round
trip purchase is not required. Reservations for travel on Western Pacific's
flights are generally non-cancelable and are charged to the passenger's credit
card when the reservation is made. Changes in travel plans may be made only
prior to scheduled departure for a $50.00 change fee ($35 in 1996 and $25 in
1995) plus any fare increase. Unlike many advertised fares on major airlines,
Western Pacific's fares do not require any minimum, maximum or day of week
(e.g., Saturday night) stay.
Western Pacific's currently published non-stop fares range from a low of $69
one-way for 21-day advance purchase (non-peak travel) to a high of $219 for
unrestricted one-way travel at peak times to its shortest distance markets and
from a low of $117 one-way for 21-day advance purchase (non-peak travel) to a
high of $349 for unrestricted one-way travel at peak times to its longest
distance market. These fares may be reduced by various promotions, such as
Western Pacific's recent sale of "PeakPacs" for $299 which offered a customer
four one way segments originating or terminating in Colorado Springs, and
"Pack USAs" which offered a customer four one-way through flights for prices
ranging from $399 to $449.
Western Pacific's policy is to initially price its unrestricted full fare so
that it will generally be lower than other carriers' competitive discount
fares. Western Pacific believes that its one-way unrestricted fares as well as
its advance purchase fares are attractive to both the business and the leisure
traveler. Additionally, corporate customers that are able to commit in advance
to a specified volume are able to reduce their costs based on guaranteed rates
that correlate to the advance purchase fares.
Western Pacific establishes separate fares for through-service that are
generally less than the sum of the fares for the component segments. This
policy affords Western Pacific the opportunity to price fares for such
through-service markets at rates that are appropriate to the unique
competitive environment and other characteristics of each specific through-
service market.
Western Pacific's discounted fares are "capacity controlled," which means that
Western Pacific allocates a specific number of seats on each flight to each
fare category in order to accommodate projected demand for seats at each fare
level leading up to flight time. Consequently, customers calling for
reservations may find that they fulfill the advance purchase restrictions but
that the lowest fare is unavailable even though seats remain available at
higher fares. However, it is Western Pacific's policy to allocate a
significant percentage of seat inventory on each flight to advance purchase,
discounted fares. Western Pacific's system-wide average segment fare for the
year ended December 31, 1996 was $84.46.
Management believes that its fare structure allows Western Pacific to capture
those passengers who want low fares but are unable to plan ahead. While the
advance purchase fares are capacity controlled, there are no other
restrictions on Western Pacific's advance purchase fares other than the
advance purchase requirement itself. No special overnight stay or length of
stay is required on any fare.
In the past, Western Pacific did not participate in interline agreements.
These agreements result in an airline receiving a pro-rated fare for
passengers connecting with other carriers that is sometimes less than the fare
it would receive on the same segments for passengers traveling only on its
flights. Western Pacific has now entered into an interline agreement with
TWA, and other agreements are expected to follow.
Effective January 1, 1996, a 10% federal excise tax on all passenger and cargo
base fares was eliminated, due to the federal government's failure to re-enact
the legislation. The excise tax was later re-enacted by Congress in August
1996, and expired again on January 1, 1997. The tax was re-enacted on March
7, 1997, and is due to expire on September 30, 1997. In each case when the
excise tax expired, Western Pacific kept its gross fares at the same level as
prior thereto, effectively increasing its base fares by 10%. In each case,
there was been no appreciable effect on advance bookings as a result of this
action.
ROUTE SYSTEM AND SCHEDULING
Currently, Western Pacific's route system includes non-stop service between
Colorado Springs and 17 other cities in the United States. A majority of
Western Pacific's customers originate or terminate their air travel at
Colorado Springs, although one-stop connecting service is available through
Colorado Springs between many of the cities served by Western Pacific.
Western Pacific believes that increasing the frequency of its flights into its
various markets will allow for more connecting opportunities and increase the
amount of its business traveler traffic. This strategy has proven to be
effective with the percentage of connecting traffic increasing from 8.7% in
1996 to 32.5% in February 1997, after Western Pacific initiated a schedule
change increasing such frequencies on February 2, 1997.
The following table sets forth certain information with respect to Western
Pacific's route system based upon Western Pacific's schedule in effect as of
March 31, 1997:
ROUND TRIP
AIR DATE FLIGHTS
MILEAGE FROM SERVICE SCHEDULED
CITY SERVED COLORADO SPRINGS COMMENCED PER WEEK
- --------------------------- ---------------- --------- ----------
Atlanta, Georgia 1,185 1/8/96 12
Chicago-Midway, Illinois 911 6/1/95 20
Dallas/Ft. Worth, Texas 592 6/1/95 20
Houston, Texas 809 8/1/95 7
Indianapolis, Indiana 988 8/1/95 13
Kansas City, Missouri 538 4/28/95 13
Los Angeles, California 833 4/28/95 26
New York-Newark, New Jersey 1,623 11/15/95 13
Oklahoma City, Oklahoma 458 4/28/95 14
Orlando, Florida 1,422 9/1/96 12
Phoenix, Arizona 551 4/28/95 27
Portland, Oregon 952 5/1/96 7
San Diego, California 816 8/1/95 19
San Francisco, California 963 5/8/95 20
Seattle, Washington 1,067 6/1/95 14
Tulsa, Oklahoma 517 11/15/95 14
Washington, D.C.-Dulles 1,464 12/15/95 13
Western Pacific discontinued service to Miami effective with its April 6, 1997
schedule, primarily due to poor advance bookings.
Western Pacific's schedule presently provides for one to four round-trip
flights per day in each market that Western Pacific serves. Western Pacific's
objective is to provide sufficient capacity in each market to satisfy demand
for Western Pacific's low-fare service. On February 2, 1997 Western Pacific
initiated a schedule change whereby some flights do not operate every day of
the week. This new schedule facilitates more connecting opportunities for all
types of travelers, but particularly appeals to the business traveler. The
expanded schedule also greatly expands Western Pacific's presence in its
various markets.
The relatively small size of Western Pacific's aircraft fleet and Western
Pacific's objective of maintaining high utilization of its aircraft present
challenges in scheduling convenient service on its routes. Western Pacific
schedules its flights to facilitate one-stop through service between pairs of
markets it serves to the east and west of Colorado Springs, and to appeal to
business travelers who would prefer to travel early or late in the day.
Therefore, it is necessary, in some cases, to schedule departures in certain
markets at times that might not be considered optimal from the perspective of
travelers. However, based upon Western Pacific's operating experience, many
travelers are often willing to forego convenient departure times in exchange
for low fares. As the size of Western Pacific's fleet and the frequency of its
departures increases, Western Pacific will be able to offer a variety of more
convenient departure times.
AUTOMATION/RESERVATION
Western Pacific was originally using only a proprietary ticketless passenger
reservation and revenue accounting system which required passengers and travel
agents to telephone Western Pacific's reservation office to book flights. In
early 1997 following the announcement of the February 2 schedule change, the
Company began listing its flight schedules in several CRS systems on a "view
only" capability. This allowed travel agents to view Western Pacific's flight
and fare schedules but still required them to telephone Western Pacific's
reservation office to actually book the flights. Telephone call volume to the
Western Pacific reservation center increased from an average of 20,000 calls
per day in January 1997 to in excess of 150,000 telephone calls per day, of
which only about 10,200 per day could be answered by Western Pacific's
reservation staff using its internal reservation system. As a result of this
dramatic increase in telephone volume, certain design flaws were identified in
Western Pacific's computer based reservation system. Following a
comprehensive review of various alternative solutions to the reservation
system design flaws, Western Pacific determined that the most expedient and
cost effective solution was to join the SABRE multi-host system, effective
March 7, 1997, giving Western Pacific's flights connectivity to travel agents
worldwide. This connectivity allows travel agents to ticket on Western
Pacific without telephoning the Company's reservation office. While Western
Pacific is still reviewing its distribution strategies, the demand for Western
Pacific's product on the CRS systems has been much greater than anticipated.
Sales in February 1997 exceeded actual travel in February 1997 by over $11
million. Western Pacific expects that this additional demand will add several
percentage points to its load factors and yields during the spring and summer
of 1997, and also positively impact its cash flows. Western Pacific believes
that the costs of participating in a CRS will be offset by the additional
revenue from these bookings. Western Pacific intends to convert all of its
reservations systems to the SABRE multi-host CRS during the second quarter of
1997, as the present solution splits Western Pacific's inventory between its
proprietary system and SABRE.
Effective April 1, 1997 ("Effective Date"), the Company entered into a
Information Technology Services Agreement ("Technology Agreement") with Perot
Systems Corporation ("Perot") pursuant to which Perot will deliver an
integrated suite of technology related services to the Company over a five
year period in support of the Company's strategic plan. The Company
originally provided these services internally. These services are to include
business process re-engineering, call center infrastructure, data mining,
networking, total system management and the application of emerging
technologies. Base monthly service fees under the Technology Agreement, which
excludes pass-through expenses for which Perot will be reimbursed by the
Company, are as follows:
Months Monthly Fee
------ -----------
1-12 $317,000
13-24 461,600
25-36 981,800
37-48 975,500
49-60 934,400
During the first six months of the Technology Agreement, the Company may elect
to issue shares of its common stock in lieu of cash for up to three months of
base monthly service fees and pass-through expenses not to exceed $2.0 million
in the aggregate. The number of shares to issued is to be determined by
dividing the amount of the base monthly service fees by the average closing
bid price for the Company's common stock for the five trading days ending two
days prior to the date the shares are to be delivered. If Perot decides to
sell the shares of common stock within thirty calendar days after receiving
such shares or is unable to sell the shares for specified reasons, Perot can
require the Company to pay an amount equal to the excess of the applicable
monthly base service fees over the actual proceeds from such sale and will
return any unsold shares to the Company. This option is available to Perot
only during the thirty day following the issuance of the shares.
During March 1997, Western Pacific became a member of the Airline Reporting
Corporation, which acts as a financial clearing house for travel agent
transactions including the collection of cash based reservations booked by
travel agents. Prior to this time, Western Pacific billed the travel agents
directly based on sales information generated through its reservations system
and was responsible for collecting its billings directly from travel agents.
Western Pacific believes that the fees charged for participating in the
Airline Reporting Corporation will be offset by the additional bookings and
increase in cash flow, as the travel agents can now book Western Pacific's
flights without having to telephone Western Pacific's reservation office.
MARKETING
Western Pacific markets its services primarily through radio, newspapers,
magazine advertisements, and the CRS. Western Pacific has provided sponsorship
for various promotional events in several of its larger markets. Western
Pacific maintains a nationwide toll-free telephone number for consumers to
directly book and confirm reservations and to pay for air travel by credit
card. Western Pacific also employs a full time sales force who market Western
Pacific's services directly to travel agents, corporations and large
professional/social organizations.
The primary objectives of Western Pacific's marketing activities are to
develop brand recognition in Western Pacific's markets and to portray Western
Pacific as an aggressive, innovative, modern provider of affordable high-
quality air transportation services. This is in contrast to the traditional,
institutionalized personality portrayed by many other airlines, including the
large "system" carriers.
ADVERTISING
Western Pacific's advertising typically emphasizes Western Pacific's low-
fares, attractive destinations served on a non-stop or one-stop basis,
simplified fare structure and certain characteristics that distinguish Western
Pacific's service from that of traditional airlines. Western Pacific has used
advertising slogans such as "The System says you should pay high fares,
Western Pacific says Beat the System" and "There's a new attitude in the air"
to reinforce its product identity.
PROMOTIONS
Western Pacific has run promotions during periods of low travel and in
coordination with its inauguration of service into new markets. These
promotions have included reduced introductory promotional fares, special
commission programs for travel agents and other promotional activities such as
the recent "Mystery Fares" program which offered low promotional fares to
destinations unknown to passengers until they checked-in at the gate and the
"PeakPac" program which permitted passengers to pay $299 for four one way
tickets originating or terminating in Colorado Springs to any of Western
Pacific's destinations during 1997. Western Pacific's "Pack USA" promotion
allowed travelers four tickets from any of Western Pacific's destinations to
any of its other destinations for a price of $399 to $449. Western Pacific
also offers games on flights in which one or more of the passengers may win a
prize, such as a Western Pacific tee shirt or a coffee mug.
AIRCRAFT
The following table summarizes the lease term, date of manufacture, engine
type and date placed in service of Western Pacific's current aircraft fleet:
LEASE DATE
REGISTRATION EXPIRATION MANUFACTURE ENGINE PLACED IN
NUMBER DATE DELIVERY DATE TYPE SERVICE
------------ ---------- ------------- -------- ---------
N945WP 4/13/05 Nov. 14, 1988 CFM563B2 4/28/95
N947WP 4/30/05 Nov. 19, 1986 CFM563B1 4/28/95
N948WP 5/31/05 July 15, 1985 CFM563B2 5/08/95
N949WP 5/18/05 May 23, 1985 CFM563B1 6/01/95
N951WP 5/31/05 Nov. 27, 1985 CFM563B2 6/05/95
N946WP 4/30/00 April 12, 1985 CFM563B1 7/03/95
N952WP 7/31/00 Feb. 9, 1987 CFM563B2 8/01/95
N950WP 7/31/05 May 20, 1985 CFM563B1 8/09/95
N960WP 10/31/00 May 1985 CFM563B2 11/15/95
N961WP 10/31/00 June 1985 CFM563B2 11/15/95
N953WP 12/14/00 Aug. 14, 1987 CFM563B2 12/15/95
N962WP 4/1/01 May 1, 1987 CFM563B2 12/15/95
N375TA 4/30/06 April 24, 1987 CFM563B2 3/29/96
N955WP NA* April 28, 1989 CFM563B2 6/15/96
N956WP 6/22/06 Nov. 1, 1988 CFM563B2 7/1/96
* Western Pacific owns this aircraft
Western Pacific's Boeing 737-300 aircraft are all modern, twin-engine, two-
pilot crew, jet aircraft equipped with quiet (Stage III) and fuel-efficient
General Electric CFM engines. The Boeing 737-300 aircraft is widely used
throughout the world on medium-haul flights similar to those flown by Western
Pacific. All of Western Pacific's current aircraft provide 138 passenger seats
configured for all coach service, while Western Pacific's new Boeing aircraft
scheduled to be delivered during 1997 will be configured for 136 seats. The
average age of Western Pacific's fleet is 9.5 years.
CERTAIN PHYSICAL CHARACTERISTICS AT COLORADO SPRINGS AIRPORT AND DENVER
INTERNATIONAL AIRPORT
Colorado Springs Airport is located at an elevation of 6,183 feet above sea
level. Such elevation requires engine settings that often result in higher
operating temperatures and possibly more frequent maintenance than in lower
elevation operations. Western Pacific's fleet includes aircraft with General
Electric CFM56 engines designated as "B1" and "B2." The B2 engine is better
suited to longer stage lengths where the take-off weight is generally higher
and the B1 engine is better suited to shorter stage lengths where the take-off
weight is generally lower. On typical summer days (ambient temperature up to
80 F.), Western Pacific's Boeing 737-300 aircraft have a maximum practical
non-stop operating range of 1,780 miles (from Colorado Springs to beyond New
York or Washington, D.C.) when departing from Colorado Springs with a full
load of passengers, baggage, cargo and fuel. Flights departing on very hot
days (ambient temperature exceeding 80 degrees Fahrenheit) or departing on
non-stop flights to destinations beyond 1,780 miles from Colorado Springs may
require reduction of take-off weight by limiting cargo, baggage and, in some
cases, passengers. The new Boeing 737-300 aircraft to be delivered in 1997
will have "C1" engines, which have a longer flight range from the "B1" or "B2"
engines. Management believes that Western Pacific can serve all the markets
in Western Pacific's long-term expansion plan with the Boeing 737 series
aircraft without being adversely affected by the take-off weight restrictions
or other operational limitations of the aircraft.
Denver International Airport is located approximately 35 miles east of the
western slope of the Rocky Mountains at an elevation of 5,280 feet. Although
this altitude also affects engine performance, Western Pacific's aircraft are
not subjected to any weight or load restrictions at this airport for the
anticipated schedule.
COMPETITION
The airline industry is highly competitive. Western Pacific competes with
other airlines which are larger and have substantially greater name
recognition and greater resources. Western Pacific may also face competition
from other airlines which may also begin serving the markets that Western
Pacific currently serves and markets it may serve in the future, and from new
low-cost airlines that may be formed to compete in the low-fare market
(including those formed by other major airlines) as well as from ground
transportation alternatives. In addition to traditional competition among
domestic carriers, the industry may be subject to new forms of competition in
the future such as video teleconferencing and other methods of electronic
communication that may add a new dimension of competition to the industry as
businesses seek lower cost substitutes for air travel.
As a result of deregulation of the domestic airline industry under the Airline
Deregulation Act of 1978 (the "Deregulation Act"), domestic routes and fare
regulations were substantially eliminated and the ability of airlines to
compete with respect to flight frequencies and fares has increased.
Additionally, because the primary remaining barriers (the need for certain
governmental licenses, the availability of airport access or landing slots and
the need for capital) to entry in the United States airline industry are
easily surmounted, there has been an increase in the number of competitors,
some of which have low cost structures similar to Western Pacific's.
Competition from established and new carriers has led to a general reduction
in the level of air fares in certain market segments and Western Pacific
expects to continue to face substantial competition from established and new
carriers, possibly including other low-cost carriers operating from Denver,
and from ground transportation alternatives. Significant competitive factors
among airlines include price or fare levels, schedules, dependability of
service, passenger amenities (such as frequent flyer programs, etc.), name
recognition and the availability and convenience of other passenger services.
Since Western Pacific commenced service, United Airlines ("United"), American
Airlines ("American"), Delta Air Lines ("Delta"), Continental Airlines
("Continental"), Northwest Airlines ("Northwest"), America West Airlines
("America West") and Reno Air, Inc. ("Reno") have inaugurated or increased
service between Colorado Springs and cities served by Western Pacific as well
as other cities that Western Pacific may serve in the future and, in some
cases, have substantially reduced fares to match or undercut the fares charged
by Western Pacific on those routes. Western Pacific is actively exploring
service to and from DIA. Western Pacific continues to face substantial
competitive challenges from United Airlines and its low-cost subsidiary,
Shuttle by United, as well as other carriers such as American, Delta, and
Continental operating at DIA. Further competition at DIA will come from other
low fare carriers such as Frontier Airlines and Vanguard Airlines. However,
management believes that the size of the market coupled with Western Pacific's
low costs would enable it to compete successfully at DIA in the event that
Western Pacific were to begin operations at DIA.
Prior to Western Pacific's commencement of service at Colorado Springs, air
service at Colorado Springs consisted primarily of "spokes" to and from major
airline hub operations located elsewhere including, principally, Denver,
Dallas and Chicago. As of February 28, 1997, there were 80 daily jet
departures from Colorado Springs, typically providing a total of approximately
12,013 daily available seats, to 39 different destination cities including a
number of the markets served by Western Pacific. In addition to Western
Pacific, Colorado Springs is currently served by nine other airlines: United,
Delta, American, America West, TWA, Northwest, Continental, Reno and Mesa
Airlines. Western Pacific has also faced increasing competition from United
and Frontier out of the Denver market. United and Frontier have matched
Western Pacific's fares in many cases, lessening the desire of travelers in
the Denver market to drive south to Colorado Springs for air travel.
Additionally, in 1997, Shuttle by United began offering frequent low cost
service from DIA to Phoenix and Las Vegas.
In February 1997, Western Pacific was the largest Colorado Springs carrier
with 38 daily departures and 5,244 daily available seats. United, with
principal hubs in Denver and Chicago/O'Hare, was the second largest Colorado
Springs carrier, with 14 daily departures and approximately 2,050 daily
available seats. The third largest carrier was American, operating 8 daily
departures with approximately 1,259 daily available seats.
The Denver market is currently dominated by United, which offered 303 flights
per day from DIA in February 1997 and accounted for approximately 70% of the
total enplanements at DIA for the 12 month period ended December 31, 1996.
United also provides service from Colorado Springs to DIA and O'Hare, offering
10 departures to DIA and 4 departures to O'Hare per day as of February 28,
1997. Partially in response to competitive pressures from United, Continental,
which until October 1994 was United's largest competitor in the Denver market
with over 260 daily departures, eliminated its Denver hub and reduced service
to 13 daily departures. As a result of Continental's withdrawal from the
Denver market, United's leading market position was strengthened. In October
1995, United set aside a limited number of seats on each of its flights from
DIA corresponding in time and destination to Western Pacific's flights from
Colorado Springs Airport at fares competitive with the fares offered by
Western Pacific.
Although management believes that it can operate at a lower cost than larger
air carriers, the resources of larger carriers are vast in comparison to
Western Pacific's resources. In the event such carriers were to aggressively
reduce fares on Western Pacific's routes to levels at which Western Pacific
could not sustain profitable operations, and were to maintain such reduced
fares for an extended period, such carriers could withstand sustained losses
for a longer period of time than Western Pacific. Further, there can be no
assurance that Western Pacific will be able to withstand competitive pressure
from United, other carriers, including low-cost carriers, or from new carriers
that may enter the Colorado Springs and/or DIA market in the future.
MAINTENANCE AND REPAIRS
GENERAL
Western Pacific's maintenance division is responsible for maintaining the
airworthiness of Western Pacific's aircraft in compliance with FAA approved
maintenance programs and is responsible for maintaining Western Pacific's
aircraft log books and technical records.
Western Pacific provides its own routine aircraft maintenance and repair
services including most routine checks at its Colorado Springs Airport hangar,
which was opened in October 1996. Maintenance and repair services that become
necessary while an aircraft is located at one of Western Pacific's field
stations (on-call maintenance) are provided by an FAA approved contract
maintenance provider that is generally another airline. Engine overhaul
services are provided by GE Engine Services.
Western Pacific's maintenance quality assurance department routinely audits
Western Pacific's overall maintenance activities and performs periodic quality
assurance audits on Western Pacific's contract maintenance providers and
aircraft parts suppliers.
HEAVY MAINTENANCE AND AIRCRAFT PARTS INVENTORY
Western Pacific entered into a 10-year contract with the Aerospace division of
The B.F. Goodrich Company ("BFG") in 1995 for comprehensive aircraft
maintenance services. These services include heavy airframe maintenance
including major checks, component overhaul/repair, wheel and brake services,
landing gear overhaul, aircraft technical engineering, various maintenance
support services, and spare parts inventory purchasing, financing and
warehousing. BFG maintains a comprehensive aircraft spare parts inventory for
Western Pacific's exclusive use in a Colorado Springs warehouse that is
staffed, equipped and managed by BFG.
Charges for heavy airframe maintenance and component overhaul/repair services
are based on BFG's customary rates and charges for larger airline accounts;
while fees for wheel and brake services are paid on a cost per landing basis
and landing gear overhaul is on a fixed charge per overhaul basis. Western
Pacific also pays BFG a monthly inventory standby fee based upon the value of
rotable/repairable spare parts inventory on hand at the end of each month.
Expendable and consumable supplies are paid for by Western Pacific as used.
Additionally, BFG receives a monthly program management fee to cover the cost
of providing aircraft engineering and maintenance support services and for
providing aircraft spare parts purchasing and warehousing services. Under the
contract BFG received $300,000 as reimbursement for program start-up expenses
and 200,000 shares of Western Pacific's Common Stock as consideration for the
first three years of program management fees.
FUEL
The cost of jet fuel is Western Pacific's second largest operating expense
after aircraft lease expense and salaries and benefits. Jet fuel costs have
been subject to wide fluctuations as a result of market conditions, such as
those caused by the military activity in the Persian Gulf in the summer of
1996. Because of the potential effect of events such as the Gulf War on the
price and availability of oil, the future availability and cost of jet fuel
cannot be predicted with any degree of certainty. Significant increases in
fuel prices or a shortage of supply would materially affect Western Pacific's
operating results. Because of Western Pacific's low-fare policy, its ability
to pass on increased fuel costs to passengers through price increases or fuel
surcharges may be limited. Western Pacific is presently investigating possible
forms of price protection but has not yet entered into any such agreements or
agreements providing a guarantee of supply or price in connection with the
purchase of fuel.
Western Pacific entered into a three year fuel administration agreement with
Mercury Air Group, Inc. ("Mercury") on April 1, 1995 under which Mercury
provides consulting and administrative services in connection with Western
Pacific's fuel purchases. Western Pacific has the right under such agreement
to select its fuel suppliers and direct the activities of Mercury which acts
as Western Pacific's agent in connection with Western Pacific's fuel
purchases. The agreement allows Mercury to charge an override of $0.0025 per
gallon on Western Pacific's fuel purchases. Under the agreement, Mercury is
billed for fuel directly by the fuel suppliers and in turn bills Western
Pacific on 30 days net payment terms. In consideration for the foregoing
credit arrangement, Western Pacific granted Mercury $8.00 Affinity Warrants to
purchase 50,000 shares of Common Stock at an exercise price of $8.00 per
share. In connection with Western Pacific's 1995 public offering, Mercury
exercised its $8.00 Affinity Warrants and sold 50,000 shares of Common Stock.
Western Pacific is currently negotiating with Mercury to increase the credit
terms offered to Western Pacific in return for an increase in the override and
the issuance of warrants.
INSURANCE
Western Pacific believes it maintains insurance policies of types customary in
the industry and in amounts it believes are adequate to protect Western
Pacific and its property against material loss. The policies principally
provide coverage for public liability, passenger liability, baggage and cargo
liability, property damage, including coverage for loss or damage to its
flight equipment, and worker's compensation insurance. There is no assurance,
however, that the amount of insurance carried by Western Pacific will be
sufficient to protect it from material loss.
EMPLOYEES
As of February 28, 1997, Western Pacific had 1,311 employees (1,184 Full Time
Equivalents). The categories of employees were as indicated in the following
table:
NUMBER OF EMPLOYEES
CLASSIFICATION AS OF 2/28/97 FULL-TIME EQUIVALENTS
----------------- ------------------- ---------------------
Management 26 26
Administrative 120 114
Reservations 364 290
Maintenance 54 58
Customer Service 402 310
Cockpit Crew 132 150
Flight Attendants 213 236
----- -----
Total 1,311 1,184
===== =====
During 1996, Western Pacific expanded its management team. Robert A. Peiser
joined Western Pacific as President and Chief Executive Officer, Mark J.
Coleman as Senior Vice President of Marketing, and George E. Leonard as Vice
President of Finance and Chief Financial Officer, all during the fourth
quarter of 1996. Mr. Peiser and Mr. Leonard also joined Western Pacific's
Board of Directors.
Training, both initial and recurrent, is required for all flight operations,
maintenance and customer service personnel. The typical training period for
all new operational employees is approximately two weeks, although Western
Pacific's cockpit crews undergo approximately six weeks of training. Both
pilot training on 737-300 aircraft simulators and mechanic training for the
737-300 aircraft is provided by contractors which include other airlines.
Western Pacific advances the cost of initial training for its pilots but has
entered into agreements with each trainee pilot whereby training costs will be
partially recoverable by Western Pacific in the event the pilot leaves the
employment of Western Pacific within 24 months of hire. In addition, some of
the aircraft leases provided for the lessor to train a certain number of crew
and mechanics of Western Pacific at no cost to Western Pacific. Western
Pacific pays for all recurrent training of all employees.
FAA regulations require pilots to be licensed as commercial pilots with
specific ratings for each aircraft to be flown and to be medically certified
as physically fit. Licenses and medical certification are subject to periodic
re-evaluation requirements including recurrent training and recent flying
experience. Mechanics, quality-control inspectors and flight dispatchers must
be licensed and qualified for specific aircraft. Flight attendants must have
initial and periodic competency fitness training, FAA certification, and meet
medical qualifications. Training programs are subject to approval and
monitoring by the FAA. Management personnel directly involved in the
supervision of flight operations, training, maintenance and aircraft
inspection must meet experience standards prescribed by FAA regulations. All
employees are subject to background checks and pre-employment and subsequent
drug testing.
Management believes that current conditions in the airline industry have
created a sufficient pool of qualified, licensed pilots, dispatchers and
mechanics to satisfy Western Pacific's near future needs in the flight
operations, maintenance and quality control areas and that Western Pacific
will have little difficulty in hiring and continuing to employ the required
personnel. Western Pacific has employee incentive programs in the form of the
1994 Stock Option Plan and 1995 Employee Stock Purchase Plan which emphasize
employee stock ownership, as well as Western Pacific's 401(k) retirement plan.
While Western Pacific believes that its per employee labor costs are currently
lower than those of its competitors, those costs may increase in the future.
Western Pacific considers its relationship with its employees to be good.
Western Pacific's employees are not currently represented by labor unions,
except for the mechanics, who currently number 27, and are represented by the
International Brotherhood of Teamsters. Western Pacific is unable to predict
the effect on its costs of existing or future union representation.
AIRPORT OPERATIONS
Western Pacific's ground handling operations at Colorado Springs Airport and
other airports served by Western Pacific are contracted to other carriers or
fixed base operators. Ground handling services are limited to underwing
services, which include marshaling the aircraft into the gate, baggage
unloading and loading, lavatory and water servicing, anti-icing and de-icing,
certain services provided to aircraft that remain overnight and push-back of
the aircraft from the gate upon departure.
AMR Services, an affiliate of American Airlines, provides Western Pacific's
ground handling services at Colorado Springs. Midwest Express Airlines,
Southwest, Continental, American Trans Air, TWA, Northwest, Ontario Air
Services, America West, Aviation West, Delta, DynAir, and Ogden Allied provide
ground handling services for Western Pacific at Western Pacific's field
stations. Western Pacific continues to evaluate both the quality and cost of
outsourcing these services, versus performing them in-house.
GOVERNMENT REGULATION
All United States interstate air carriers are subject to regulation by the DOT
and the FAA under the provision of Subtitle VII of Title 49 of the United
States Code, as amended (formerly the Federal Aviation Act of 1958, as
amended). The DOT's jurisdiction extends primarily to the operational aspects
of air transportation, including, among other things, air carrier
certification and financial fitness, insurance, deceptive and unfair
competitive practices, advertising, CRSs and other consumer protection matters
such as on-time performance, denied boarding and baggage liability.
The FAA's regulatory authority relates primarily to air safety, including
aircraft certification and flight operations, crew licensing and training,
maintenance standards, aircraft noise, ground facilities, dispatch,
communications, security, flight and duty time and other matters affecting air
safety. Western Pacific must have and maintain FAA certificates of
airworthiness for all of its aircraft. Western Pacific's flight personnel,
flight and emergency procedures, aircraft and maintenance facilities are
subject to periodic inspections and tests by the FAA.
Both the DOT and FAA have broad and powerful regulatory and enforcement
authority, including the authority to require reports, inspect the books,
records and property of a carrier, investigate and institute enforcement
proceedings, assess civil penalties and revoke operating authority or
certification.
In general, the amount of economic regulation over interstate air carriers in
terms of market entry and exit, pricing and inter-carrier acquisitions and
contractual agreements have been greatly reduced after the enactment of the
Deregulation Act. As a result of that change in the regulatory structure,
Western Pacific's entry into the domestic air transportation business has been
greatly simplified and the level of regulation to which it will be subject has
been greatly reduced. On the other hand, the availability to Western Pacific
of regulatory protection from competition has been virtually eliminated.
Each United States carrier must qualify as a United States citizen, which
requires that its President and at least two-thirds of its Board of Directors
and other managing officers must be comprised of United States citizens, at
least 75 percent of the voting interest is owned or controlled by persons that
are citizens of the United States, and that the carrier is not otherwise
subject to foreign control.
Western Pacific obtained its Certificate of Public Convenience and Necessity
("CPCN") from the DOT pursuant to 49 U.S.C. sec. 41102 and its Air Carrier
Operating Certificate from the FAA pursuant to Part 121 of the Federal
Aviation Regulations on April 28, 1995 by demonstrating compliance with all
DOT and FAA requirements. A CPCN confers no proprietary rights on the holder
and DOT may enforce conditions or restrictions on such a CPCN. Each of Western
Pacific's aircraft in service has received an airworthiness certificate issued
by the FAA and any additional aircraft Western Pacific adds to its fleet will
be required to have an airworthiness certificate.
The present regulatory environment is characterized by an increased
sensitivity to safety and security issues and an increased intensity of FAA
review of safety-related procedures, training and equipment. The
organizational structure and procedures for FAA's review of new air carriers
are currently in transition and subject to some uncertainty. These
circumstances could impose increased costs and/or delays on Western Pacific.
ENVIRONMENTAL REGULATION
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 and the
Clean Air Act, as amended, to monitor and regulate aircraft engine noise and
exhaust emissions. Western Pacific's aircraft comply with all applicable
current and known future FAA noise control regulations and with current
emissions standards.
OTHER
All air carriers are also subject to certain provisions of the Communications
Act of 1934 because of their extensive use of radio and other communication
facilities and are required to obtain an aeronautical radio license from the
Federal Communications Commission.
Western Pacific's operations may become subject to additional federal
regulatory requirements in the future under certain circumstances. For
example, Western Pacific's labor relations are covered under Title II of the
Railway Labor Act of 1926 and are subject to the jurisdiction of the National
Mediation Board. During a period of past fuel scarcity, air carrier access to
jet fuel was subject to allocation regulations promulgated by the U.S.
Department of Energy. Western Pacific is also subject to state and local laws
and regulations at locations where it operates and the regulations of various
local authorities that operate the airports it serves.
RISK FACTORS
The following issues and uncertainties, among others, should be considered in
evaluating Western Pacific's future prospects and performance.
HISTORICAL LOSSES. Western Pacific began scheduled flight operations on
April 28, 1995, and Mountain Air Express began scheduled flight operations on
December 15, 1996. During the period from the Company's inception through
December 31, 1996, the Company incurred net losses totaling $35.7 million.
Given the Company's limited operating history, there can be no assurances that
the Company will be profitable in the future.
AVAILABILITY OF WORKING CAPITAL AND FINANCING SOURCES. Neither Western
Pacific nor Mountain Air Express have generated positive cash flow
consistently since inception. The Company had a deficit in consolidated
working capital at December 31, 1996 of $19.0 million. The airline industry
is extremely capital intensive, especially for a growing carrier, with
payments for new aircraft and maintenance requirements for the existing fleet.
The Company is evaluating additional sources of working capital and financing
sources, (See discussion of Liquidity and Capital Resources in Management's
Discussion and Analysis), but there is no assurance that additional sources
will be available at competitive rates and conditions. Although management
believes that the Company will be able to secure such additional capital, if
the Company is unable to do so, cash flow from operations might not be
sufficient to cover the Company's financial obligations during 1997.
CONSUMER CONCERN ABOUT OPERATING SAFETY CONDITIONS AT START-UP CARRIERS.
The highly publicized safety issues that led to the Federal Aviation
Administration (FAA) grounding of ValuJet have caused some consumers to
question the operating safety of all start-up airlines. During 1996, Western
Pacific passed a rigorous National Aeronautical Safety Inspection audit
conducted by the FAA and passed an independently commissioned comprehensive
safety audit conducted by the Flight Safety Foundation. However, there is no
assurance that the FAA will not take more restrictive actions against Western
Pacific because of its start-up status. Such actions by the FAA could
increase operating costs and reduce future earnings potential.
RISING FUEL COSTS. Western Pacific's average cost per gallon of fuel has
increased from 72.3 cents for the three months ended December 31, 1995 to 87.7
cents for the three months ended December 31, 1996. For the three months
ended March 30, 1997, Western Pacific's average fuel cost (inclusive of
management fee and taxes) was 83.7 cents. At Western Pacific's current
consumption rate, each one cent increase in the price of fuel increases
Western Pacific's monthly fuel expense by approximately $40,000. Some
carriers have begun to assess a fuel surcharge to be added to their base fares
to cover these increased costs. Western Pacific has considered this
alternative, but there can be no assurance that Western Pacific would be able
to pass along any increases in the price of fuel to its consumers.
UNIONIZATION OF EMPLOYEE GROUPS. Western Pacific's mechanics voted to
join the International Brotherhood of Teamsters union in May 1996. No other
work groups are currently represented by, or have voted to be represented by,
a union. While the mechanics' action has not altered Western Pacific's work
rules or increased Western Pacific's costs, there can be no assurance that
such action will not result in future changes or that other employee groups
will not vote for union representation, nor that labor costs for those groups
represented by a union will not increase.
COMPETITION. The airline industry is highly competitive. Other airlines
that presently serve Western Pacific's routes in competition with Western
Pacific are larger and have greater name recognition and resources than
Western Pacific . Western Pacific may also face competition from other
airlines which may begin serving the markets that Western Pacific currently
serves or may serve in the future, and competition from new low-cost airlines
that may be formed to compete in the low-fare market (including those formed
by other major airlines) and from ground transportation alternatives.
GENERAL STATE OF UNITED STATES ECONOMY. The airline industry is highly
susceptible to general changes in the economic climate, particularly in the
leisure travel segment of the market. Any downturn in the economy of the
United States could have an adverse effect on Western Pacific's business.
ITEM 2. PROPERTIES.
Western Pacific's headquarters in Colorado Springs, Colorado are currently
located in office facilities containing approximately 74,000 square feet of
space which Western Pacific occupies pursuant to eight separate lease
agreements that expire in September 1998 (with two one-year renewal options).
Western Pacific occupies passenger and cargo terminal facilities at Colorado
Springs Airport under a lease agreement with the City of Colorado Springs
governed by the city's Airline Use and Lease Agreement (the "Terminal Facility
Lease"). Western Pacific's lease, which began on April 1, 1995, covers
specified areas in the terminal buildings to be made available to Western
Pacific on an exclusive basis for ticket counters, offices, and cargo
facilities and preferential use of four gates. The Terminal Facility Lease
provides for payment of building rental, loading bridge charges and landing
fees at rates provided in the Terminal Facility Lease, which are applicable to
all air carriers using Colorado Springs Airport. The Terminal Facility Lease
expires on December 31, 1999.
Western Pacific constructed a new concourse at the Colorado Springs airport
adjacent to the existing terminal in the fourth quarter of 1996. This new
facility is reached from the main concourse via a shuttle bus service. The
new concourse has six gates, five of which are used by Western Pacific, and
one by Mountain Air Express, Western Pacific's affiliated commuter carrier.
The City of Colorado Springs has approved the construction of a permanent
connector walkway that will connect the new concourse to the original
concourse. This walkway is scheduled to be constructed during 1997.
In connection with Western Pacific's pursuance of providing service to Denver,
Western Pacific has had preliminary discussions with the management of Denver
International Airport regarding facilities. These discussions would seem to
indicate that there are adequate gate, ticket counter, baggage, and other
facilities available for Western Pacific's use.
Under an agreement with the City of Colorado Springs, Western Pacific also
leases a single bay, jet aircraft maintenance hangar and adjacent
administrative and maintenance support space located in the old Colorado
Springs Airport terminal facility. The lease governing such maintenance
facilities has an initial term that expires on December 31, 2010 (with two
five-year renewal options). Construction of the hangar facility was completed
in October 1996.
Western Pacific believes that its facilities are adequate for present and
anticipated future purposes.
STATION AIRPORT FACILITIES
The ticket counters, gates and airport office facilities at each of the
airports Western Pacific serves are leased from the airport authority or sub-
leased from other airlines. Such arrangements may also include baggage
handling, station operations, cleaning and other services. Western Pacific
believes that it has obtained such facilities at such airports at competitive
rates. Subsequent to December 31, 1996, Western Pacific has eliminated five
cities from its schedule: Las Vegas, Ontario, San Antonio, Nashville, and
Miami. There were no long term lease commitments at any of these stations.
AIRCRAFT
Western Pacific's fleet currently consists of 15 Boeing 737-300 jet aircraft.
Western Pacific presently leases fourteen of its aircraft under operating
leases with terms that expire between April 30, 2000 and June 22, 2006. The
fifteenth aircraft was purchased by Western Pacific and was financed by a
third party over fifteen years. Western Pacific's fleet consists of one type
of aircraft. Western Pacific has entered into a purchase agreement with
Boeing providing for the acquisition of six new Boeing 737-300 aircraft, firm
options for six new Boeing 737-700 aircraft, and rolling options for up to six
additional new Boeing 737-700 aircraft. The delivery schedule for the six new
737-300 aircraft calls for two deliveries in May 1997, two in June 1997, one
in December 1997, and the last in November 1998. Western Pacific has also
signed a term sheet for the lease of a used 737-300 aircraft to be delivered
in November 1997.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which Western Pacific is a
party.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Western Pacific's Common Stock, par value $0.001 per share, is traded on the
Nasdaq National Market under the symbol "WPAC." Western Pacific's Common Stock
began trading on December 5, 1995, the date of its initial public offering.
The initial public offering price of Western Pacific's Common Stock was $19.00
per share.
The following table sets forth the reported high and low sale prices for
Western Pacific's Common Stock for the period from the date on which the
Common Stock first commenced trading on December 5, 1995 through December 31,
1996. Quotations are as reported by Nasdaq for National Market System issues.
PERIOD HIGH LOW
------------------------------------ ------ ------
December 5, 1995 - December 31, 1995 $22.00 $16.50
First Quarter 1996 17.25 11.75
Second Quarter 1996 16.75 14.00
Third Quarter 1996 13.25 8.50
Fourth Quarter 1996 10.00 6.87
As of March 15, 1997, there were approximately 590 holders of record of
Western Pacific's Common Stock and the closing price of the Common Stock was
$6.25.
The transfer agent and registrar for Western Pacific's Common Stock is
Continental Stock Transfer & Trust Western Pacific, 2 Broadway, New York, New
York 10004, telephone: (212) 509-4000.
The common stock of Mountain Air Express is not currently publicly traded.
DIVIDENDS
Western Pacific presently intends to retain future earnings for its operations
and expansion of its business. Western Pacific has never declared or paid any
dividends on its Common Stock and has no plans to do so in the foreseeable
future. Any determination to pay cash dividends in the future will be at the
discretion of Western Pacific's Board of Directors and will be dependent upon
Western Pacific's results of operations, financial condition and other factors
deemed relevant at the time by the Board of Directors.
On January 31, 1997, the Board of Directors of Western Pacific authorized the
designation of 200,000 shares of its preferred stock as Series B Preferred
Stock with a par value of $.001 per share. In February 1997 Western Pacific
completed the sale of all 200,000 shares of Series B Preferred Stock to two
existing major shareholders, GFI Company and Hunt Petroleum of Texas, Inc.
The holders of Series B Preferred Stock are entitled to receive, when, as and
if authorized by the Board of Directors out of funds legally available for
that purpose, quarterly cash dividends in an amount per share equal to $2.50.
Such dividends shall begin to accumulate and shall be fully cumulative from
the issue date, whether or not authorized by the Board of Directors and
whether or not in any period there are funds of Western Pacific legally
available for the payment of such dividends.
PRIVATE ISSUANCE OF UNREGISTERED EQUITY SECURITIES
Pursuant to an Employment Agreement dated November 21, 1996 between Western
Pacific and Robert A. Peiser, the Company's President and Chief Executive
Officer, Western Pacific granted 100,000 shares of its Common Stock to Mr.
Peiser in consideration of his employment with the Company. The shares
granted to Mr. Peiser under his employment agreement vest as follows: 34,000
vest on November 21, 1997, 33,000 vest on November 21, 1998 and 33,000 vest on
November 21, 1999.
On April 19, 1996, the Company's Board of Directors authorized the reservation
of an additional 100,000 shares of Common Stock for issuance under the
Company's 1996 Restricted Stock Plan for Non-Employee Directors (the "1996
Plan"). On July 1, 1996, the Company granted 701 shares of Common Stock to
each of Clayton E. Bennett, Ivan Irwin, Jr., Glenn M. Stinchcomb, and James R.
Wikert under the terms of the 1996 Plan, such shares being issued in
consideration for the directors' continued service to the Company. No
registration statement covering these additional shares was in effect on the
grant date because the Company had previously issued all available shares
under the 1996 Plan. Pending registration of these shares, Western Pacific
has issued the stock granted to these four directors as unregistered
restricted stock under the exemption from registration contained in Section
4(2) of the Securities Act of 1933, and the certificates representing such
shares have been duly legended.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the period ended December 31, 1994, and for
years ended December 31, 1995 and 1996, have been derived from the financial
statements of Western Pacific audited by Arthur Andersen LLP, independent
public accountants. The selected financial data for the period ended December
31, 1996, have been derived from the financial statements of Mountain Air
Express audited by Arthur Andersen LLP, independent public accountants. The
data should be read in conjunction with the financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<CAPTION>
MOUNTAIN AIR
WESTERN PACIFIC AIRLINES EXPRESS CONSOLIDATED
Period Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1994 1995 1996 1996 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA <F1>
Operating revenues:
Passenger $ -- $ 53,381 $ 150,816 $ 421 $ 151,237
Other -- 1,401 4,522 0 4,522
---------- ---------- ---------- ---------- ----------
Total operating revenues -- 54,782 155,338 421 155,759
---------- ---------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 1,069 14,642 29,693 655 30,348
Aircraft leases -- 13,223 38,169 194 38,363
Aircraft fuel and oil -- 8,772 30,266 107 30,374
Other rentals, landing and
ground handling fees 60 7,533 17,153 99 17,252
Advertising -- 3,896 9,895 39 9,934
Insurance -- 2,290 5,614 288 5,901
Maintenance materials and repairs -- 2,083 11,328 110 11,438
Agency commissions -- 2,042 5,264 0 5,264
Depreciation and amortization 24 1,728 4,624 9 4,633
Restructuring charge -- -- 7,663 -- 7,663
Other operating 461 9,947 18,662 2,154 20,899
---------- ---------- ---------- ---------- ----------
Total operating and
preoperating expenses 1,614 66,155 178,330 3,657 182,069
---------- ---------- ---------- ---------- ----------
Operating income (loss) (1,614) (11,374) (22,992) (3,236) (26,310)
Interest income, net 172 879 1,212 (33) 1,178
Minority Interest -- -- -- -- 1,413
---------- ---------- ---------- ---------- ----------
Net loss $ (1,442) $ (10,495) $ (21,780) $ (3,269) $ (23,719)
========== ========== ========== ========== ==========
Loss per common share and common
share equivalent <F2> $ (.17) $ (1.12) $ (1.64) $ (1.87) $ (1.78)
========== ========== ========== ========== ==========
Weighted average number of common
shares and common share
equivalents outstanding <F2> 8,528 9,331 13,310 1,752 13,310
SELECTED OPERATING DATA <F1,3,4>
Revenue passengers enplaned -- 731,198 1,768,139 4,177 N/A
Revenue passenger miles (000's) -- 551,812 1,516,806 555 N/A
Available seat miles (000's) -- 878,182 2,607,652 1,250 N/A
Load factor -- 62.8% 58.2% 44.4% N/A
Operating break-even load factor -- 70.6% 67.7% 177.9% N/A
Average segment fare -- $ 73.00 $ 84.46 $ 57.66 N/A
Passenger revenue per RPM (cents) -- 9.67 9.86 75.86 N/A
Total revenue per ASM (cents) -- 6.24 5.73 33.68 N/A
Operating cost per ASM (cents) -- 6.99 6.84 46.00 N/A
Completion factor -- 99.4% 99.9% 87.1% N/A
Aircraft in fleet (end of period) -- 12 15 4 N/A
Cities served (end of period) -- 17 23 4 N/A
Average stage length (miles) -- 739 853 148 N/A
BALANCE SHEET DATA <F1>
Cash and cash equivalents <F5> $ 13,003 $ 58,317 $ 17,595 $ 2,775 $ 20,391
Working capital (deficiency) 12,789 43,836 (20,788) 1,648 (19,011)
Property and equipment, net 720 13,335 41,133 1,044 41,703
Total assets 13,766 91,619 119,693 4,759 123,047
Total liabilities 257 25,954 76,503 4,276 79,599
Stockholders' equity 13,509 65,665 43,376 484 43,448
<FN>
<F1>
Selected financial and operating data for the period ended December 31,
1994 and for the year ended December 31, 1995 include only the operations of
Western Pacific Airlines. For the year ended December 31, 1996, the selected
financial and operating data is shown separately for Western Pacific Airlines
and for Mountain Air Express for the period from inception (May 2, 1996) to
December 31, 1996. Statement of operations and balance sheet data for the
year ended December 31, 1996 is also presented on a consolidated basis.
Operating expenses for the period from inception (April 12, 1994) through
December 31, 1994, and for the year ended December 31, 1995, include
preoperating and development costs totaling approximately $1.6 million and
$4.8 million, respectively for Western Pacific Airlines. Operating expenses
for the period from inception, May 2, 1996 through December 31, 1996 for
Mountain Air Express include preoperating and development costs of
approximately $2.7 million.
<F2>
Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
<F3>
The terms included in Selected Operating Data have the meanings indicated
below:
"Revenue passengers enplaned" represents the number of paying passengers
boarded.
"Revenue passenger miles" or "RPMs" represents the number of scheduled miles
flown multiplied by the number of revenue passengers.
"Available seat miles" or "ASMs" represents the number of seats available for
passengers multiplied by the number of scheduled miles those seats are flown.
"Load factor" represents revenue passenger miles divided by scheduled service
available seat miles.
"Operating break-even load factor" represents the percentage of revenue
passenger miles which must be flown for the airline to break-even after
operating expenses. Operating break-even load factor is calculated by
dividing operating expenses less other revenue by scheduled service ASMs,
divided by passenger revenue per RPM.
"Average segment fare" represents passenger revenue divided by revenue
passengers enplaned.
"Passenger revenue per RPM" represents the total passenger revenue divided by
RPMs.
"Total revenue per ASM" represents the total revenue divided by ASMs.
"Operating cost per ASM" represents the total operating expenses divided by
the ASMs.
"Completion factor" represents the percentage of scheduled flights actually
flown by Western Pacific.
"Average stage length" represents the scheduled aircraft miles flown divided
by the total number of departures.
<F4>
The operating data and related calculations for the year ended December
31, 1995 exclude preoperating and development costs of approximately $4.8
million incurred from January 1, 1995 through the commencement of scheduled
flight operations on April 28, 1995 for Western Pacific Airlines, and
approximately $2.7 million from May 2, 1996 through the commencement of
scheduled flight operations on December 15, 1996 for Mountain Air Express.
<F5>
Includes restricted cash and cash equivalents of $8.4 million and $8.3
million at December 31, 1995 and 1996, respectively.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company's operating results are significantly affected by both the general
and the airline industry economic environment. Small fluctuations in yield
per RPM and cost per ASM can have a significant impact on the Company's
financial results. The Company sustained consolidated losses of $23.7 million
and $10.5 million for the years ended December 31, 1996 and December 31, 1995,
respectively. Factors contributing to these losses included: restructuring
charges totaling $7.7 million related to the changes in Western Pacific's
senior management and write-offs of certain technology related assets; pre-
operating losses for Mountain Air Express of $2.7 million (less approximately
43% minority interest); pricing policies of other airlines which generated
intense competition; and consumer backlash against start-up carriers in the
aftermath of two airline accidents during 1996 and the ensuing government
controversy concerning the safety of start-up carriers; and during 1995, pre-
operating losses for Western Pacific Airlines of $4.8 million. Under the
direction of a new senior management team , Western Pacific is taking steps to
improve its financial condition and operating performance by, among other
things, revising Western Pacific's route structure and adding a strong
presence at Denver International Airport, entering into additional
distribution channels (primarily CRS), and obtaining additional financing.
Western Pacific's ability to improve its financial position and meet its
financial obligations will depend in part on a variety of factors, including:
ability to attract new capital, improved operating results, favorable airfare
pricing environment, absence of adverse general economic conditions, and
continued operating cost controls. See additional discussion under "Risk
Factors".
OVERVIEW
Western Pacific commenced operations on April 12, 1994 as a development stage
enterprise organized to operate a low-fare, medium-haul, scheduled passenger
airline from its hub at the Colorado Springs Airport. From its inception until
it commenced flight operations on April 28, 1995, Western Pacific's activities
were limited to start-up activities. During 1996, Western Pacific assisted in
the start-up of an affiliated regional commuter carrier, Mountain Air Express,
Inc. ("MAX") to initially carry traffic to and from Colorado Springs to the
mountain skiing communities. Western Pacific owns approximately 57% of the
outstanding voting stock of MAX. Western Pacific also started a Thrifty car
rental franchise, Colorado Springs Car Rental, Inc. ("CSCR") in November 1996
which is wholly owned by Western Pacific. The losses attributable to CSCR are
included in the Company's consolidated operating results, and total $82,000
for 1996.
The operating data and related calculations for the year ended December 31,
1995 exclude preoperating and development costs of approximately $4.8 million
incurred from January 1, 1995 through the commencement of scheduled flight
operations for Western Pacific Airlines on April 28, 1995. The operating data
and related calculations for the year ended December 31, 1996 for MAX exclude
certain preoperating and development costs of approximately $2.7 million
incurred from May 2, 1996 to the commencement of flight operations on December
15, 1996.
WESTERN PACIFIC
Western Pacific began flight operations on April 28, 1995 with two Boeing 737-
300 aircraft and provided six daily round trips between Colorado Springs and
five cities. The following chart indicates Western Pacific's expansion of
service since it commenced flight operations.
TOTAL NUMBER OF
NUMBER OF DAILY ROUND
AS OF MONTH END AIRCRAFT TRIPS SERVICE CHANGES
- --------------- --------- ----------- -----------------------------------------
April 1995 2 6 Began service to Los Angeles, Kansas City,
Phoenix, Las Vegas (2), Oklahoma City
May 1995 3 9 Began service to San Francisco, and added
an additional flight to Kansas City and
Los Angeles
June 1995 5 14 Began service to Chicago-Midway, Dallas/
Ft. Worth (2), Seattle, and added an
additional flight to San Francisco
July 1995 5 14 Added one additional flight to Phoenix and
reduced one flight from Kansas City
August 1995 8 19 Initiated service to Houston, San Diego,
Indianapolis, and Wichita, and added a
flight to Chicago- Midway
October 1995 10 20 Added additional flight to Oklahoma City
November 1995 12 24 Initiated service to Newark and Tulsa, and
added one flight to Los Angeles and Los
Angeles
December 1995 12 26 Initiated service to Washington-Dulles,
and added an additional flight to Seattle
January 1996 12 26 Initiated service to Atlanta, and reduced
one round trip to Dallas
February 1996 12 28 Initiated service to Nashville, San Jose,
San Antonio, and withdrawal from Wichita
March 1996 13 28 Added an additional round trip to Phoenix
and Las Vegas and reduced one trip per day
to each of Seattle and San Francisco
May 1996 14 30 Started one round-trip to Portland, and
added one additional round-trip to Newark
June 1996 16(1) 33 Added an additional trip to San Antonio,
San Diego, and San Francisco
July 1996 17 35 Added an additional trip to Atlanta and
Seattle
September 1996 15 31 Started one round trip to Orlando and
Ontario (CA); reduced one trip per day to
each of Newark, Atlanta, Oklahoma City,
San Antonio, Seattle, and San Francisco
December 1996 15 31 Initiated service to Miami and withdrew
service from San Jose
February 1997 15 38 Added additional service to all cities
except Houston, Miami, and Seattle, and
withdrew service from Ontario (CA), San
Antonio, Nashville, and Las Vegas
April 1997 15 37 Withdrew service from Miami
(1) Western Pacific leased two Boeing 727-200 aircraft on a short term basis
for the seasonal period covering mid-June through early September 1996. These
leases were inclusive of aircraft rental, maintenance, insurance, and crew
costs.
MOUNTAIN AIR EXPRESS, INC.
Mountain Air Express began flight operations on December 15, 1996 with four
Dornier 328 aircraft. The following chart indicates MAX's service changes
since it began flight operations.
TOTAL NUMBER OF
NUMBER OF DAILY ROUND
AS OF MONTH END AIRCRAFT TRIPS SERVICE CHANGES
- --------------- --------- ----------- -----------------------------------------
December 1996 4 up to 23 Initiated service to Steamboat Springs/
Hayden, Aspen/Snowmass, Crested Butte/
Gunnison, and Telluride/Montrose
January 1997 4 up to 23 Added service to Durango
April 1997 4 16 Added service to Sante Fe, New Mexico;
Casper and Cheyenne, Wyoming; Grand
Junction and Ft. Collins, Colorado;
withdrew service from Steamboat Springs/
Hayden, Telluride/Montrose, and Durango,
Colorado
MAX also plans to begin supplementing Western Pacific's jet service to
Oklahoma City, Tulsa, and Kansas City on April 14, 1997.
RESULTS OF OPERATIONS
OPERATING REVENUES
WESTERN PACIFIC
Airline revenue is primarily a function of the number of passengers flown and
the fares charged by the airline. Passenger ticket sales are generally
recognized as revenue when the transportation is provided. Western Pacific's
fares are generally non-refundable and changes in travel plans may be made
only prior to scheduled departure for a $50 change fee ($35 in 1996 and $25 in
1995), plus any fare increase. Fares for passengers who do not cancel in
advance of scheduled departure and do not take the scheduled flight are
currently recognized as revenue when the scheduled flight departs.
Generally, passenger revenue per RPM has increased since Western Pacific's
inception due to a combination of factors including increases in average fares
and decreases in promotional fares as a percentage of total fares. Revenue per
passenger mile (yield) increased 2% from 9.67 cents per passenger mile in 1995
to 9.86 cents per passenger mile in 1996. Western Pacific believes that the
negative impact of entering new markets and running promotional fares should
decrease as Western Pacific increases its revenue base. As shown below,
Western Pacific's average fare has increased by 16% from 1995 to 1996, in part
because of Western Pacific's expansion into longer-haul, higher-fare cities
such as Orlando, Newark, and Washington (Dulles).
<TABLE>
<CAPTION>
PASSENGER
PASSENGER REVENUE AVERAGE REVENUE
OPERATING PERIOD REVENUE<F1> PASSENGER MILES SEGMENT FARE PER RPM
- ------------------------------------- ----------- --------------- ------------ ---------
(000'S) (000'S) (DOLLARS) (CENTS)
<S> <C> <C> <C> <C>
Eight Months ended December 31, 1995 53,381 551,812 73.00 9.67
Twelve Months ended December 31, 1996 150,816 1,516,806 84.46 9.86
<FN>
<F1>
Passenger revenue is derived by deducting federal excise taxes and airport
passenger facility charges from the gross passenger fare and adding back
incidental charges such as reservation change fees. Federal excise taxes
currently equal 10% of gross fare prices.
</FN>
</TABLE>
Western Pacific's operating break-even load factor fell from 70.6% for the
eight months ended December 31, 1995 to 67.7% for the twelve months ended
December 31, 1996. Excluding certain restructuring charges, Western Pacific's
operating break-even load factor for the twelve months ended December 31, 1996
was 64.7%. Western Pacific's relatively high operating break-even load factor
for the twelve months ended December 31, 1996 can be attributed to increased
fare competition on Western Pacific's routes and consumer concern about the
safety of start-up carriers in the wake of several highly publicized air
accidents in 1996 which kept Western Pacific's yield at a relatively low
level. Western Pacific's relatively high operating break-even load factor
during the eight-month operating period ended December 31, 1995 was primarily
attributable to (i) certain non-recurring start-up expenses, (ii) the impact
of spreading the cost of Western Pacific's corporate infrastructure over a
small number of total available seat miles until Western Pacific's fleet was
further expanded, and (iii) the impact of promotional fares during Western
Pacific's initial start-up which resulted in lower passenger revenue per
revenue passenger mile. As Western Pacific's fleet is expanded, to the extent
that the incremental passenger revenue generated from the additional capacity
is sufficient to cover the incremental costs of the expansion, as well as a
portion of Western Pacific's existing fixed costs, Western Pacific's operating
break-even load factor should decrease. However, there can be no assurance
that any such incremental passenger revenue will be sufficient to cover such
costs or that, ultimately, as a result of these or other factors, Western
Pacific's operating break-even load factor will decrease.
<TABLE>
<CAPTION>
PASSENGER OPERATING OPERATING
PASSENGER REVENUE COST PER BREAK-EVEN
OPERATING PERIOD LOAD FACTOR PER RPM ASM LOAD FACTOR
- ------------------------------------- ----------- --------- --------- -----------
(CENTS) (CENTS)
<S> <C> <C> <C> <C>
Eight months ended December 31, 1995 62.8% 9.67 6.99 70.4%
Twelve months ended December 31, 1996 58.2 9.86 6.84 67.7
</TABLE>
Western Pacific anticipates that its core business will follow the traditional
seasonal trends of the airline industry, with revenues typically higher during
the months of March, June, July, August and December when business travel is
supplemented by increased discretionary personal travel.
In addition to passenger revenue, Western Pacific generates revenue from the
shipment of general cargo, mail and small packages. Generally these additional
revenue sources represent less than 2% of Western Pacific's total revenues.
Also, Western Pacific has created an innovative program called "Air Logo"
through which Western Pacific receives revenue and promotional benefits in
exchange for painting the exterior of its aircraft for advertising purposes.
Revenues derived from this service generally cover Western Pacific's cost of
aircraft paint, advertising design and production fees. Currently, Western
Pacific operates thirteen logo aircraft. For the years ended December 31, 1996
and December 31, 1995, revenues earned from this service totaled approximately
$1,288,000 and $649,000, respectively.
Effective January 1, 1996, a 10% federal excise tax on all passenger and cargo
base fares was eliminated due to the failure of Congress to re-enact the
legislation. The tax was later re-enacted in August 1996, and expired again on
January 1, 1997. The tax has once again been re-enacted effective March 7,
1997 and is due to expire on September 30, 1997. In each instance, Western
Pacific kept its gross fares at the same level as prior to the elimination of
the excise tax, effectively increasing its base fares by 10%. There has been
no appreciable effect on advance bookings as a result of this action.
However, the major carriers have been lobbying for the excise tax to be
assessed based on the number of passengers carried, rather than on the gross
price of the passenger's tickets. This would change the calculation of the
excise tax such that a larger percentage of the total air traffic system's
excise tax would be borne by low fare carriers like Western Pacific, and a
smaller percentage by the major carriers.
MOUNTAIN AIR EXPRESS
Mountain Air Express commenced flight operations on December 15, 1996. The
determination of MAX's revenues is currently governed by an Alliance Agreement
between MAX and Western Pacific. Under the Alliance Agreement, all of MAX's
marketing, scheduling, and pricing decisions are made by Western Pacific. In
return, MAX receives an agreed amount from Western Pacific, ranging from
$57.26 to $63.50, for each segment flown. The agreed amount may be
renegotiated by MAX in the event of certain occurrences, such as decreases in
load factor or increases in fuel prices. MAX's load factor of 44.4% for the
period of December 15 through December 31, 1996 was negatively impacted by
weight restrictions into some of the mountain communities due to certification
issues with its aircraft and weather. MAX also expects its revenue to be
seasonal, with higher load factors in the winter and summer, and reduced load
factors during the spring and fall.
OPERATING EXPENSES
WESTERN PACIFIC
The following table shows the components of operating expenses per available
seat mile (shown in cents; "ASM"):
WESTERN PACIFIC AIRLINES
YEAR ENDED YEAR ENDED
DECEMBER 31,1995 DECEMBER 31,1996
---------------- ----------------
(CENTS) (CENTS)
Salaries, wages and benefits 1.48 1.15
Aircraft leases 1.47 1.46
Aircraft Fuel and Oil .99 1.16
Other rentals, landing and ground
handling fees .83 .66
Advertising .42 .38
Insurance .23 .22
Maintenance materials and repairs .23 .43
Agency commissions .24 .20
Depreciation and amortization .18 .18
Restructuring and project
discontinuation charges --- .29
Other operating .92 .71
---- ----
6.99 6.84
==== ====
The decrease in the salaries, wages and benefits per ASM from the year ended
December 31, 1995 to the year ended December 31, 1996 is consistent with a
197% increase in ASMs over the period combined with a smaller increase in
headcount. The increase in the aircraft fuel expense per ASM for the year
ended December 31, 1995 to the year ended December 31, 1996 is due to a 26%
increase in the average price of fuel per gallon, partially offset by
decreased rate of consumption due to Western Pacific's longer stage lengths.
The decrease in other rentals, landing, and ground handling expense per ASM
from the year ended December 31, 1995 to the year ended December 31, 1996 is
due to the increase in ASMs with only marginal incremental expense such as
station rents. The decrease in advertising expense per ASM from the year
ended December 31, 1995 to the year ended December 31, 1996 is due to the
increase in ASMs and the high cost of establishing brand awareness in Western
Pacific's first year. The increase in maintenance materials and repairs
expense per ASM from the year ended December 31, 1995 to the year ended
December 31, 1996 is due to initial "C" checks and engine overhauls performed
during 1996, the costs of which are now being amortized over the period until
the next scheduled "C" check or engine overhaul. See Note 2 of Notes to
Consolidated Financial Statements. The decrease in agency commission expense
per ASM from the year ended December 31, 1995 to the year ended December 31,
1996 is due to a slight decrease (from 40% to 35%) in the proportion of total
sales booked by travel agents. The decrease in other expenses per ASMs from
the year ended December 31, 1995 to the year ended December 31, 1996 is due to
the increase in ASMs for the period.
Western Pacific incurred restructuring charges related to the changes in
senior management and write-offs of certain technology related assets totaling
$7.7 million during the fourth quarter of 1996. Without these charges, total
operating expense per ASM would have been 6.55 cents.
MOUNTAIN AIR EXPRESS
MOUNTAIN AIR EXPRESS
QUARTER ENDED
DECEMBER 31,1996
--------------------
(CENTS)
Salaries, wages and benefits 14.16
Aircraft leases 9.52
Aircraft Fuel and Oil 4.16
Other rentals, landing and ground handling fees 3.44
Advertising 2.80
Insurance 3.12
Maintenance materials and repairs 5.52
Agency commissions .00
Depreciation and amortization .24
Restructuring and project discontinuation charges ---
Other operating 3.04
-----
46.00
=====
The relatively high cost per ASM for Mountain Air Express for the period from
the inception of flight operations on December 15, 1996 to December 31, 1996
can be attributed to the partial month of operations and high fixed costs such
as station rentals and administrative charges spread over a small number of
ASMs. MAX anticipates that when it is flying a complete schedule, its cost
per ASM should be between 18 to 20 cents.
BALANCE SHEET FLUCTUATION ANALYSIS
WESTERN PACIFIC
Western Pacific's current portion of prepaid maintenance increased by $6.7
million, while the long term portion increased by $7.9 million during 1996.
Western Pacific follows the deferral method of accounting for its maintenance
expenses whereby expenditures for "C" checks and engine overhauls are
capitalized and amortized over the period until the next scheduled maintenance
event. The current portion of these costs will be amortized during 1997.
Western Pacific's current portion of maintenance reserves increased by $3.6
million, and the long term portion increased by $5.3 million during 1996.
This balance represents the reserve payments made to aircraft lessors to
offset certain scheduled maintenance events. The current portion represents
those scheduled maintenance events that will occur during 1997.
Western Pacific's property and equipment increased by $34.6 million during
1996, of which $25 million represented Western Pacific's only purchased
aircraft. An additional $5.6 million represents Western Pacific's portion of
the maintenance hangar and new passenger concourse, both built at Colorado
Springs Airport during 1996. The balance relates to purchases of office
equipment, computers and telecommunications equipment.
Western Pacific's short term financing increased by $10.5 million during 1996.
Of this total, $5.4 million was a loan to cover a portion of the progress
payments on Western Pacific's 1997 delivery of five new Boeing 737-300
aircraft. An additional $5.0 million was a short term loan from two of
Western Pacific's principal stockholders. See Note 5 of the Notes to
Consolidated Financial Statements.
Western Pacific's long term debt increased by $15 million during 1996. This
loan was used to fund a portion of the purchase of Western Pacific's only
owned aircraft. See Note 6 of the Notes to Consolidated Financial Statements
for a discussion of the terms and conditions.
MOUNTAIN AIR EXPRESS
MAX had $1.0 million in net property and equipment at December 31, 1996,
consisting primarily of telecommunications and computer equipment, leasehold
improvements to facilities, and capitalized fees related to the acquisition of
its aircraft. MAX had $1.2 million in accrued expenses at December 31, 1996
consisting of accrued salaries and wages and other operating expenses. MAX
had $2.5 million in a long term note payable to Western Pacific for advances
made for operating expenses through the commencement of flight operations.
Such note becomes due and payable on January 1, 1998 and bears interest at
10%.
LIQUIDITY AND CAPITAL RESOURCES
WESTERN PACIFIC
From Western Pacific's inception on April 12, 1994 through December 31, 1996,
Western Pacific's preoperating and development costs, as well as its operating
costs since it commenced flight operations, have been funded primarily with
the proceeds from private sales of its equity securities, the proceeds from
its initial public offering, and the issuance of debt. Western Pacific has
received net proceeds from the sale of its equity securities aggregating
approximately $76.8 million of which approximately $62.4 million was received
during the year ended December 31, 1995.
During the year ended December 31, 1995, Western Pacific's preoperating and
operating activities resulted in a deficit in cash flow of $11.2 million, of
which $4.6 million was generated during the period prior to the commencement
of scheduled flight operations on April 28, 1995. During the year ended
December 31, 1996, Western Pacific's operating activities resulted in a cash
flow deficit of $35.4 million. These cash flow deficits have been funded
primarily with the proceeds from the private and public sale of Western
Pacific's equity securities as discussed above. At December 31, 1996, Western
Pacific had cash and cash equivalents of $17.6 million, including restricted
cash and cash equivalents of $8.3 million. Western Pacific had a working
capital deficit at December 31, 1996 of $20.8 million.
Cash flow used in investing activities totaled $30.4 million and $14.2 million
during the years ended December 31, 1996 and 1995, respectively. Capital
expenditures during the years ended December 31, 1996 and 1995 totaled $34.6
million and $14.9 million, respectively. Capital expenditures in 1996
consisted of the acquisition of a used Boeing 737-300 aircraft, payments made
to construct Western Pacific's maintenance hangar and new concourse at
Colorado Springs Airport, and various computer and telecommunications upgrades
and additions. Capital expenditures in 1995 consisted primarily of aircraft
modifications and the acquisition of ground equipment, telecommunications and
computer equipment, software, leasehold improvements and office equipment and
furniture. In December 1996, Western Pacific issued a $1.5 million letter of
credit in favor of MAX. MAX drew down $1.0 million of this letter of credit
in March 1997.
Western Pacific expects to incur approximately $1.6 million for capital
expenditures during 1997 for aircraft interior modifications, including Heads
Up Display and Wind Shear avoidance systems, aircraft fleet induction costs,
reservation and information system improvements and facility leasehold
improvements. An additional $1.4 million in payments will be made to The
Boeing Company for interest payments on new aircraft deliveries and $2.0
million in progress payments for deliveries of new aircraft in 1997. Western
Pacific is in negotiations for financing of these new aircraft, and
anticipates the majority of the costs of these aircraft will be financed by
third parties. In addition, Western Pacific may be required to post a letter
of credit or other type of financial bond of up to $3.0 million to secure
gates, ramp, and office space at DIA should Western Pacific decide to serve
that market.
At December 31, 1996, Western Pacific operated fifteen aircraft, with fourteen
under operating leases with original terms of either five or ten years. Rent
expense under these leases is recognized on a straight-line basis over the
lease terms. The amount charged to aircraft lease expense was approximately
$38.2 million and $13.2 million for the years ended December 31, 1996 and
December 31, 1995, respectively. Future minimum rental payments under these
fourteen operating leases over the remaining terms, are approximately $258
million, of which $35.8 million will be paid during 1997. During 1997,
Western Pacific expects to incur approximately $33.5 million for aircraft
maintenance reserve deposits, aircraft lease security deposits and aircraft
heavy maintenance (net of reserves and lessor contributions). Additionally,
Western Pacific owns one aircraft, with minimum principal and interest
payments of $2.6 million due during 1997.
Cash flow provided by financing activities totaled $27.1 million and $62.4
million during the years ended December 31, 1996 and December 31, 1995,
respectively. During 1996, $16.8 million was generated from the financing of
Western Pacific's purchased aircraft, $5.4 million from the financing of a
progress payment due to Boeing by a third party, and $5.0 from a short term
note payable to two principal stockholders. During 1996, Western Pacific
issued a $16.8 million note payable to a third party to finance the
acquisition of an aircraft. The note accrues interest at 10.4%, requires
monthly principal and interest payments decreasing over the term of the loan
from $215,000 to $122,402 and is secured by the aircraft. In the event the
note payable is prepaid due to a sale of the aircraft or refinancing of the
note, a prepayment penalty, which declines from 3% to 0% of the outstanding
principal balance over the term of the note plus a break up fee, is due to the
note holder. The note matures in April 2011. The $5.4 million short term
note payable is due on July 30, 1997 with interest payable at prime plus 1%,
secured by Western Pacific's interest in the Boeing purchase agreement. On
January 31, 1997, the Board of Directors of Western Pacific authorized the
designation of 200,000 shares of its preferred stock as Series B Preferred
Stock with a par value of $.001 per share. In February 1997, Western Pacific
completed the sale of all 200,000 shares of Series B Preferred Stock for total
proceeds of $20,000,000, which included the conversion of $5.0 million in
notes payable issued in December 1996. See Note 7 of the Notes to
Consolidated Financial Statements. During 1995, approximately $46.7 million
was generated from Western Pacific's initial public offering, $12.8 million
was generated from the private sale of common and preferred stock, and
approximately $2.9 million was generated from the exercise of warrants and
purchases pursuant to Western Pacific's Employee Stock Purchase Plan.
Western Pacific is actively seeking arrangements that will allow it to
increase its liquidity. The Company has taken certain short term measures to
conserve its cash resources through the months of April and May which are
generally lower revenue periods in the airline industry. Among other
measures, the Company is currently negotiating agreements with certain of its
aircraft lessors to defer lease payments during the months of April and May,
an agreement with its major fuel supplier for an extension of payment terms on
fuel payments, and an agreement with its provider of heavy maintenance for the
extension of payment terms for the months of April and May from 30 days to 60
days. Western Pacific has contracted to outsource its Information Technology
function to Perot Systems Corporation. This transaction calls for the Company
to issue common stock in lieu of cash for certain of the required monthly
service fees. Western Pacific has also had discussions with Colorado Springs
Airport about the issuance of Special Facility Bonds to repay Western Pacific
for the costs of construction of the new concourse at Colorado Springs
Airport. Western Pacific continues to seek other methods of raising
additional capital, including the sale and leaseback of the equity in its one
owned aircraft and additional equity or debt offerings. Although management
believes that the Company will be able to secure such additional capital, if
Western Pacific is unable to do so, cash flow from operations might not be
sufficient to cover the Company's financial obligations during 1997.
Western Pacific has delayed certain payments to certain of its vendors,
including aircraft lessors during December 1996 and January and April 1997.
Although these payments were delayed with the prior knowledge of the aircraft
lessors, such non-payment put Western Pacific in technical default under these
leases. The technical defaults were cured when all payments due to aircraft
lessors were repaid.
MOUNTAIN AIR EXPRESS
MAX's cash balance at December 31, 1996 was $2.8 million and working capital
was $3.1 million. Additionally, MAX had a receivable from Western Pacific for
December 1996 revenue of $0.5 million. MAX raised $4.2 million from the
private sale of its common stock during 1996, including $.1 million from
Western Pacific. MAX's loss from operations for the period from inception
through December 31, 1996 totaled $3.3 million, of which $2.7 million was
incurred prior to the commencement of flight operations. This loss was
funded by MAX's sale of equity securities and a note payable to Western
Pacific for $2.1 million. Western Pacific provided MAX with a $1.5 million
letter of credit prior to MAX's commencement of flight operations.
MAX incurred $1.0 million in investing activities, primarily the purchase of
property and equipment, and aircraft acquisition. These activities were
financed by the proceeds of the sale of equity securities and a note payable
to Western Pacific. MAX expects to incur $4.0 million in 1997: $3.3 million
for aircraft acquisition and lease payments on current aircraft, and $0.7
million for capital expenditures. MAX expects to finance these payments
through cash flow from operations, third party financings, and the sale of
equity securities. Western Pacific has no further commitment to MAX to
provide any future financing or capital. MAX may renegotiate the agreed
amount it is receiving per segment from Western Pacific on a quarterly basis
if certain events occur, such as increases in the price of fuel or shortfalls
in MAX's load factor from its plan. Western Pacific anticipates using MAX to
supplement service on a number of its shorter haul routes such as Tulsa,
Oklahoma City, and Kansas City during the spring, bringing additional revenue
to MAX, and freeing Western Pacific's aircraft to add service in higher yield
markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended December 31, 1996
and December 31, 1995 and for the Period from Inception (April 12, 1994)
to December 31, 1994
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1996 and December 31, 1995 and for the Period from Inception (April
12, 1994) to December 31, 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996
and December 31, 1995 and for the Period from Inception (April 12, 1994)
to December 31, 1994
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Western Pacific Airlines, Inc.:
We have audited the accompanying consolidated balance sheets of WESTERN
PACIFIC AIRLINES, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended and
for the period from inception (April 12, 1994) to December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Pacific Airlines,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended and for the period from
inception (April 12, 1994) to December 31, 1994, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
April 4, 1997.
<PAGE>
<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,076,034 $ 49,966,697
Restricted cash and cash equivalents 8,314,887 8,350,639
Accounts receivable, net of allowance for uncollectible
accounts of $347,000 and $350,000 at December 31, 1996
and 1995, respectively 3,217,450 5,248,621
Prepaid expenses and other 6,104,414 4,009,459
Maintenance reserves 5,204,698 1,648,498
Prepaid maintenance 6,819,841 100,715
------------ ------------
Total current assets 41,737,324 69,324,629
PROPERTY AND EQUIPMENT, net 41,702,859 13,335,405
MAINTENANCE RESERVES, net of current portion 7,495,345 2,232,797
PREPAID MAINTENANCE, net of current portion 7,983,560 -
AIRCRAFT AND ENGINE DEPOSITS 21,308,588 5,887,188
RESTRICTED CASH AND CASH EQUIVALENTS 2,638,158 571,985
OTHER 180,855 267,178
------------ ------------
$123,046,689 $ 91,619,182
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,637,006 $ 2,206,303
Accrued expenses 21,947,117 11,018,931
Air traffic liability 15,617,460 11,137,622
Short-term debt 10,455,985 -
Current portion of long-term debt 1,007,757 -
Other 82,590 1,125,409
------------ ------------
Total current liabilities 60,747,915 25,488,265
------------ ------------
LONG-TERM DEBT, net of current portion 15,214,819 -
------------ ------------
OTHER LIABILITIES 1,396,735 465,418
------------ ------------
MINORITY INTEREST 2,239,033 -
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, no shares outstanding
at December 31, 1996 and 1995 - -
Common stock, $.001 par value, 13,381,894 and 13,220,913
issued and outstanding at December 31, 1996 and 1995,
respectively 13,387 13,221
Common stock to be issued 800,411 -
Deferred compensation (1,016,667) (900,000)
Additional paid-in capital 80,265,823 79,363,393
Treasury stock, at cost (84,902) -
Accumulated deficit (36,529,865) (12,811,115)
------------ ------------
Total stockholders' equity 43,448,187 65,665,499
------------ ------------
$123,046,689 $ 91,619,182
============ ============
<FN>
The accompanying notes are an integral part of these consolidated balance sheets.
</FN>
</TABLE>
<PAGE>
<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 12, 1994) TO DECEMBER 31, 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger (net of federal excise taxes of $3,473,686
in 1996 and $5,224,261 in 1995) $151,237,265 $ 53,380,443 $ -
Other 4,521,615 1,401,312 -
------------ ------------ ------------
Total operating revenues 155,758,880 54,781,755 -
------------ ------------ ------------
OPERATING AND PREOPERATING EXPENSES:
Aircraft leases 38,363,063 13,222,973 -
Aircraft fuel and oil 30,373,779 8,771,931 -
Salaries, wages and benefits 30,348,514 14,642,019 1,068,885
Other operating 20,898,637 9,947,490 461,523
Other rentals, landing and ground handling fees 17,252,181 7,532,820 60,405
Maintenance materials and repairs 11,438,178 2,082,849 -
Advertising 9,933,639 3,895,545 -
Insurance 5,901,460 2,289,660 -
Agency commissions 5,263,858 2,041,765 -
Depreciation and amortization 4,633,029 1,728,302 23,601
Restructuring charge (Notes 2 and 3) 7,662,965 - -
------------ ------------ ------------
Total operating and preoperating expenses 182,069,303 66,155,354 1,614,414
------------ ------------ ------------
OPERATING LOSS (26,310,423) (11,373,599) (1,614,414)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,157,356 913,479 172,012
Interest expense (978,559) (34,736) -
------------ ------------ ------------
Total other income (expense) 1,178,797 878,743 172,012
------------ ------------ ------------
NET LOSS BEFORE MINORITY INTEREST (25,131,626) (10,494,856) (1,442,402)
MINORITY INTEREST 1,412,876 - -
------------ ------------ ------------
NET LOSS $(23,718,750) $(10,494,856) $ (1,442,402)
============ ============ ============
LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $ (1.78) $ (1.12) $ (.17)
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING 13,310,207 9,331,036 8,527,783
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 12, 1994) TO DECEMBER 31, 1994
<CAPTION>
Preferred Stock Common Stock
------------------ ------------------- Common Additional
Shares Shares Stock to Deferred Paid-in Accumulated Treasury
Amount Outstanding Amount Outstanding be Issued Compensation Capital Deficit Stock Total
------ ----------- ------- ----------- --------- ------------ ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization $ - - $ 2,500 2,500,000 $ - $ - $ - $ - $ - $ 2,500
Sale of common stock - - 3,818 3,817,750 - - 7,026,247 - - 7,030,065
Sale of preferred stock 1,250 1,250,000 - - - - 7,392,617 - - 7,393,867
Issuance of common stock - - 263 262,500 - - 524,737 - - 525,000
Amortization of discount
on preferred stock - - - - - - 75,000 (75,000) - -
Net loss - - - - - - - (1,442,402) - (1,442,402)
------ ----------- ------- ----------- --------- ------------ ---------- ----------- -------- -----------
BALANCE,December 31,1994 1,250 1,250,000 6,581 6,580,250 - - 15,018,601 (1,517,402) - 13,509,030
Sale of common stock - - 628 628,984 - - 3,718,105 - - 3,718,733
Sale of preferred stock 1,797 1,796,769 - - - - 10,207,186 - - 10,208,983
Conversion of preferred
stock into common stock (3,047) (3,046,769) 3,047 3,046,769 - - - - - -
Initial public offering
of common stock, net - - 2,720 2,720,000 - - 46,703,265 - - 46,705,985
Exercise of warrants - - 90 90,000 - - 719,910 - - 720,000
Sale of common stock in
connection with employee
stock purchase plan - - 155 154,910 - - 2,197,469 - - 2,197,624
Amortization of discount
on preferred stock - - - - - - 798,857 (798,857) - -
Deferred compensation - - - - - (1,200,000) - - - (1,200,000)
Amortization of deferred
compensation - - - - - 300,000 - - - 300,000
Net loss - - - - - - - (10,494,856) - (10,494,856)
------ ----------- ------- ----------- --------- ------------ ---------- ----------- -------- -----------
BALANCE,December 31,1995 - - 13,221 13,220,913 - (900,000)79,363,393 (12,811,115) - 65,665,499
Initial public offering
issuance costs - - - - - - (362,224) - - (362,224)
Purchase of treasury
stock - - - (5,000) - - - - (84,902) (84,902)
Common stock issued
through exercise of
stock option - - 134 134,014 - - 783,950 - - 784,084
Sale of common stock in
connection with employee
stock purchase plan - - 32 31,967 - - 304,335 - - 304,367
Compensation expense
recorded through
extension of stock
option exercise dates - - - - - - 176,369 - - 176,369
Amortization of deferred
compensation - - - - - 683,744 - - - 683,744
Common stock to be issued
as compensation - - - - 800,411 (800,411) - - - -
Net loss - - - - - - - (23,718,750) - (23,718,750)
------ ----------- ------- ----------- --------- ------------ ---------- ----------- -------- -----------
BALANCE,December 31,1996 $ - - 13,387 13,381,894 800,411 (1,016,667) 80,265,823 (36,529,865) (84,902) 43,448,187
====== =========== ======= =========== ========= ============ ========== =========== ======== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 12,1994) TO DECEMBER 31, 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING AND PREOPERATING ACTIVITIES:
Net loss $(23,718,750) $(10,494,856) $ (1,442,402)
Adjustments to reconcile net loss to net cash used
in operating and preoperating activities, net of
restructuring charges-
Depreciation and amortization 4,633,029 1,728,302 23,601
Recognition of deferred gain on sale leaseback (89,273) (11,242) -
Minority interest in loss (1,412,876) - -
Common stock issued for compensation 25,411 - 525,000
Amortization of deferred compensation 400,000 300,000 -
Restructuring charge, net of amounts paid 6,479,718 - -
Changes in assets and liabilities-
Decrease (increase) in accounts receivable, net 2,031,171 (5,238,068) (10,553)
Increase in prepaid expenses and other (2,094,955) (4,117,005) (33,169)
Increase in maintenance reserves (8,818,748) (3,881,295) -
Increase in prepaid maintenance (14,702,686) - -
Increase in restricted cash and cash equivalents (2,030,421) (8,922,624) -
Increase in aircraft and engine deposits (15,421,400) (5,887,188) -
Decrease (increase) in other assets 86,323 (227,178) -
Increase in accounts payable 9,430,703 1,948,898 257,405
Increase in accrued expenses 9,493,530 11,018,931 -
Increase in air traffic liability 4,479,838 11,137,622 -
Increase (decrease) in other liabilities (1,396,065) 1,467,686 -
------------ ------------ ------------
Net cash used in operating and preoperating activities (32,625,451) (11,178,017) (680,118)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (36,289,566) (14,859,572) (743,571)
Proceeds from sale and leaseback of computer equipment - 650,218 -
Proceeds from sale of equipment 291,244 - -
Proceeds from sale of minority interest in subsidiary 3,651,909 - -
------------ ------------ ------------
Net cash used in investing activities (32,346,413) (14,209,354) (743,571)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 16,815,000 - -
Proceeds from issuance of short-term debt 10,455,985 - -
Principal payments on long-term debt (831,109) - -
Sale of common stock, net of issuance costs - 2,518,733 7,032,565
Sale of preferred stock, net of issuance costs - 10,208,983 7,393,867
Initial public offering of common stock,
net of issuance costs - 46,705,985 -
Additional initial public offering costs (362,224) - -
Exercise of warrants - 720,000 -
Exercise of stock options 784,084 - -
Proceeds from sale of common stock in connection with
employee stock purchase plan 304,367 2,197,624 -
Purchase of treasury stock (84,902) - -
------------ ------------ ------------
Net cash provided by financing activities 27,081,201 62,351,325 14,426,432
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,890,663) 36,963,954 13,002,743
CASH AND CASH EQUIVALENTS, beginning of period 49,966,697 13,002,743 -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 12,076,034 $ 49,966,697 $ 13,002,743
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds received $ - $ 46,211 $ -
============ ============ ============
Cash paid for interest $ 935,784 $ 34,736 $ -
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS:
Purchases of equipment financed by capital leases $ 238,685 $ - $ -
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) ORGANIZATION AND OPERATIONS:
Western Pacific Airlines, Inc. (Western Pacific or the Company), commenced
commercial flight operations on April 28, 1995, as a low-cost, low-fare
airline from its hub at Colorado Springs Airport in Colorado Springs,
Colorado. Western Pacific provides up to 38 daily round trips between
Colorado Springs and Seattle, San Francisco, Portland, Los Angeles, San Diego,
Phoenix, Houston, Dallas/Ft. Worth, Oklahoma City, Tulsa, Kansas City,
Atlanta, Indianapolis, Orlando, Miami, Chicago-Midway, Washington-Dulles and
Newark with a fleet of 15 modern, 138-passenger Boeing 737-300 aircraft, of
which 14 are under operating leases with original terms of either five or ten
years, and one has been purchased.
During 1996, Western Pacific assisted in the start-up of a regional airline,
Mountain Air Express, Inc. (MAX) to carry traffic initially into and out of
Colorado ski markets and other small markets that cannot support jet traffic.
MAX is an independent company with its own operating certificate and
management. MAX commenced flight operations on December 15, 1996, with four
Dornier 328 aircraft with seating capacity of 32 passengers each. MAX serves
Aspen/Snowmass, Crested Butte/Gunnison, Ft. Collins and Grand Junction,
Colorado, Santa Fe, New Mexico, and Casper and Cheyenne, Wyoming. Western
Pacific owns approximately 57% of the outstanding voting stock of MAX.
In November 1996, Colorado Springs Car Rental, Inc., a Thrifty Rent-A-Car
franchise and a 100% owned subsidiary of Western Pacific, commenced operations
from its base in Colorado Springs.
MANAGEMENT'S PLANS
The Company initially selected Colorado Springs as its operating hub because
of its unique and favorable position in the Denver/Colorado Springs market,
which is the seventh largest air travel market in the United States. Before
the Company began service at Colorado Springs Airport, air service available
in Colorado Springs was characterized by high fares and limited flights.
During 1996, the Company's competitors, both in Colorado Springs and in
Denver, began to more aggressively match the Company's low fares.
Additionally, two U.S. airline accidents which occurred in May and July 1996
caused many travelers to avoid the low-cost, startup carriers, including the
Company, over the late summer and fall of 1996. These events significantly
impacted the Company's results of operations during 1996.
The Company's growth plan and business strategy had been focused on developing
its routes and expanding the markets it serves from its Colorado Springs hub
based on the Company's low-fare, no frills, low-cost structure and a
simplified approach to airline operations. The Company's initial route
structure was built around providing low frequency, scheduled service to high
density, high volume primary travel markets, such as Los Angeles, San
Francisco, New York-Newark, Washington, D.C. and Chicago-Midway and strong
secondary travel markets such as Oklahoma City, Phoenix and Indianapolis. The
Company believes that after almost two years of flight service, it has
successfully established itself within this targeted market. With the
addition of several new members to its management team in late 1996 and the
expansion of its fleet of aircraft, the Company has decided to expand its
focus, not only to retain its existing customer base of leisure travelers, but
also to attract the value-conscious business traveler. To accomplish this, in
February 1997, the Company initiated a schedule change, adding flights to all
cities it served except Houston, Miami and Portland, while discontinuing
service to its unprofitable routes to Nashville, San Antonio, Ontario, and Las
Vegas. The additional flights increased capacity by 21% and the average hours
of daily aircraft utilization by 19%. This schedule change was implemented to
provide better aircraft utilization and to offer more flight and connecting
opportunities for both leisure and business travelers. As the Company expands
the size of its aircraft fleet, the Company's strategy will be to increase
both service frequency and the number of markets served in order to build an
efficient, low-cost hub and spoke air transportation network targeted at the
value conscious leisure and business traveler.
An integral part of the Company's initial business strategy was a streamlined
"ticketless" reservation system. However, as call volumes to the Company
reservation center increased, the Company's existing proprietary reservation
system was unable to handle such call volume. Therefore, in order to remedy
this growing problem as well as increase its ticket distribution to the flying
public, during March 1997, the Company entered into agreements with several
computer reservation systems (CRS) that allow travel agents the ability to
directly book seats on the Company's aircraft.
Western Pacific is based in Colorado Springs as a result of the initial belief
that it could function effectively as an alternative airport to Denver
International Airport (DIA) for the Denver/Colorado Springs market. As
scheduled air carrier operations moved from Stapleton International Airport to
DIA in February of 1995, a significant adverse public reaction developed.
This was primarily due to the combination of the increased distance to the
airport for a large portion of the metro Denver population and the increased
fares associated with the higher cost of operations at DIA. In addition, the
lower fares offered by Western Pacific not only provided significant market
stimulation in Colorado Springs, but also provided significant incentive for
Denver passengers to drive to Colorado Springs Airport. While this trend
continued throughout the balance of 1995 and well into 1996, underlying
factors surfaced which made the continued expansion of Western Pacific
Airlines at Colorado Springs Airport, to the exclusion of DIA, impractical.
With the advent of low fare service available out of DIA as a result of
Frontier Airline's (Frontier) entry into the Denver market, fewer passengers
were willing to make the drive to Colorado Springs Airport. In addition,
United Airlines began to match the fare offerings of Western Pacific and
Frontier in selected markets which further reduced the incentive for
passengers to make the drive from Denver to Colorado Springs. At the same
time, carriers who had served the Colorado Springs market only on a limited
basis prior to Western Pacific's commencement of operations at Colorado
Springs Airport, began to schedule additional flights. All of these factors
had a dampening effect on the traffic available to Western Pacific at Colorado
Springs Airport. Therefore, as capacity increased, it became increasingly
difficult to stimulate additional traffic at acceptable fare levels. The
traffic erosion occurred in spite of the fact that average fares continued to
decline on a year over year basis. The combination of all these factors has
led to management's conclusion that given current capacity and traffic levels
in Colorado Springs, Western Pacific's prospects for significant growth in
this market could be significantly limited.
With this in mind, management is actively exploring an entry into the Denver
market. While numerous Denver/Colorado Springs schedule alternatives are
under consideration, each would appear to provide favorable economics for
Western Pacific.
As is discussed above, the Company's new management has taken several steps
during late 1996 and early 1997 to turn around the financial condition and
financial performance of the Company. These steps included (i) a significant
schedule change on February 2, 1997, (ii) a commitment to begin service in
Denver in June 1997, (iii) entering into an agreement to multi-host on the
SABRE CRS beginning March 7, 1997, which allows direct connectivity with
travel agents worldwide, (iv) a focused marketing and sales plan targeted to
the value conscious leisure and business traveler and (v) entering into an
agreement with a third-party to outsource its technology support systems. To
date, with the exception of initiating service to Denver which is not planned
to occur until June 1997, the above have had a significant impact on the
Company's operations.
In early 1997 following the announcement of the February 2 schedule change,
the Company began listing its flight schedules in several CRS systems on a
"view only" capability. This allowed travel agents to view Western Pacific's
flight and fare schedules but still required them to telephone Western
Pacific's reservation office to actually book the flights. Telephone call
volume to the Western Pacific reservation center increased from an average of
20,000 calls per day in January 1997 to in excess of 150,000 calls per day of
which only about 10,200 per day could be answered by Western Pacific's
reservation staff using its internal reservation systems. As a result of this
dramatic increase in telephone volume, certain design flaws were identified in
Western Pacific's computer based reservation system. Following a
comprehensive review of various alternative solutions, Western Pacific
determined that the most expedient and cost effective solution was to join the
SABRE multi-host system, effective March 7, 1997. While Western Pacific is
still reviewing its distribution strategies, the demand for Western Pacific's
product on the CRS has been much greater than management had anticipated.
Ticket sales in February 1997 exceeded actual travel in February 1997 by over
$11 million. Western Pacific expects that this additional demand will
positively impact its results of operations during the spring and summer of
1997, and also positively impact its cash flow.
Management also expects the outsourcing of its technology support function
(Note 12) to improve cash flow as a result of certain monthly payments being
satisfied through the issuance of common stock and from the proceeds of the
sale of certain of its technology assets to the outsourcer.
In addition to the above, the Company is taking certain short-term measures to
preserve its cash resources through the months of April and May which are
generally lower revenue periods in the airline industry. Among other
measures, the Company is currently negotiating agreements with certain of its
aircraft lessors to defer lease payments during the months of April through
June, an agreement with its major fuel supplier for an extension of payment
terms on fuel payments, and an agreement with its provider of heavy
maintenance for the extension of payment terms for the months of April and May
from 30 days to 60 days.
OPERATIONAL AND INDUSTRY RISKS
The airline industry is characterized by low gross profit margins and high
fixed costs. The expenses of operating each flight do not vary significantly
with the number of passengers carried and, therefore, a relatively small
change in the number of passengers carried or in fare pricing or traffic mix
could have a disproportionate effect on operating and financial results.
Accordingly, a minor shortfall from expected revenue levels could have a
material adverse effect on the Company's growth or its financial performance.
The airline industry is highly sensitive to general economic conditions.
Because a substantial portion of airline travel (both business and personal)
is discretionary, the industry tends to experience adverse financial results
during general economic downturns. Any prolonged general reduction in airline
passenger traffic may adversely affect the Company. In addition, the airline
industry tends to be seasonal in nature. The Company expects that based on
its experience, February, April, May, September and October of each year will
be periods with lower load factors and lower yields.
Fuel costs constitute a significant portion of the Company's operating costs
and significant increases in fuel costs would materially affect the Company'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
the Company can neither control nor accurately 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. The Company has
no agreement assuring the availability and price stability of fuel.
The airline industry is highly competitive and, therefore, the competitive
reaction of other airlines in markets that the Company plans to enter,
particularly Denver, could also have a material adverse effect on the
Company's results of operations and financial condition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Western Pacific,
MAX, and Colorado Springs Car Rental, Inc. All significant intercompany
accounts have been eliminated. The minority stockholders' share of MAX's net
loss and stockholders' equity has been presented as minority interest in the
accompanying consolidated financial statements.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RESTRUCTURING CHARGE
During the fourth quarter of 1996, the Company initiated a restructuring
program designed to expand its focus from its existing base of leisure
travelers, to attract the value-conscious business traveler. The initiation
of the restructuring program resulted in a pre-tax charge of $7.7 million
during the fourth quarter of 1996. The charge principally reflects severance
costs for former members of senior management that have or will be replaced,
along with the write-off of the cost to develop and implement the Company's
automated computer reservation system and several other technology-related
assets. The technology-related write-offs were precipitated by the Company's
plans to enter several of the computer reservation systems owned and operated
by third parties in an effort to increase its exposure and distribution to the
flying public.
PASSENGER REVENUE
Passenger ticket sales are generally recorded as revenue when the
transportation is provided. The Company's fares are nonrefundable and changes
in travel plans may be made only prior to scheduled departure for a $50 change
fee, plus any increase to the new fare. The original fare plus any increase
to the new fare for those passengers who cancel their flight in advance of the
scheduled departure are accounted for as unused tickets as described below.
The change fee is recognized as revenue when the change is made. Fares for
passengers who do not cancel in advance of scheduled departure and do not take
the scheduled flight are recognized as revenue when the scheduled flight
departs. The value of unused tickets is included in current liabilities as
air traffic liability, net of the Company's estimates of what credits will be
unused at the end of one year after the passenger cancels, at which time the
credits are forfeited and recognized as revenue.
OTHER REVENUE
Other revenue includes cargo, mail and small package service revenue, all of
which is recognized when the related service is provided. In addition, other
revenue includes amounts earned by the Company in connection with its "Air
Logo" program under which the Company makes available the exterior of its
aircraft for advertising purposes. The Company recognized "Air Logo" revenues
of approximately $1,288,000 and $649,000 for the years ended December 31, 1996
and 1995, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS
Short-term restricted cash and cash equivalents consists of the balance of
credit card receipts of approximately $8,315,000 and $8,350,000 at December
31, 1996 and 1995, respectively, held by the Company's credit card processing
bank. Long-term restricted cash and cash equivalents consists of cash
securing letters of credit required by the various airport authorities and the
Department of Transportation (see Note 11).
At December 31, 1996 and 1995, cash equivalents (including $2,638,158 and
$571,985 classified as restricted cash and cash equivalents at December 31,
1996 and 1995, respectively) consisting of United States government agencies'
securities are classified as available for sale in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. At December 31, 1996 and 1995, the
amortized cost, which approximated fair value, was approximately $8,711,000
and $43,957,000, respectively.
ADVERTISING
The Company expenses the costs of advertising the first time the advertising
takes place, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits.
Direct-response advertising consists primarily of specific programs offering
promotional fares for a fixed period of time and for a fixed number of seats.
The capitalized costs of the direct-response advertising are amortized over
the period during which the passengers who purchased the promotional fares
travel. Direct-response advertising capitalized at December 31, 1996 and
1995, totaled $487,000 and $737,000, respectively.
MAINTENANCE RESERVES AND PREPAID MAINTENANCE
Routine maintenance and repairs are expensed when incurred. Under the terms
of its aircraft leases, the Company is required to make monthly maintenance
reserve deposits based on aircraft usage. These deposits, which are to be
applied against the cost of scheduled major maintenance checks and overhauls,
are included as maintenance reserves in the accompanying consolidated
financial statements until used for scheduled major maintenance checks and
overhauls.
As scheduled major maintenance checks and overhauls are performed, the cost of
such maintenance is capitalized and amortized using the straight-line method
over the estimated periods benefited, which is to the next scheduled major
maintenance check or overhaul or the life of the aircraft's lease, whichever
is shortest. These amounts are included as prepaid maintenance in the
accompanying consolidated financial statements.
PASSENGER TRAFFIC COMMISSIONS AND RELATED FEES
Passenger traffic commissions and related fees are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and other fees related to transportation not yet provided
are included as a prepaid expense in the accompanying consolidated balance
sheets.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives as
follows:
Leasehold improvements Life of improvements
or term of lease,
whichever is less
Aircraft 20 years
Airport concourse 20 years
Ground equipment 5-10 years
Telecommunications and
computer equipment 3-5 years
Software 3 years
Furniture and fixtures 5 years
Office equipment 3 years
AIRCRAFT AND ENGINE DEPOSITS
Included in aircraft and engine deposits are deposits for each of the
Company's leased aircraft, generally equal to two or three months rent.
Deposits related to aircraft leased at December 31, 1996 and 1995, totaled
$8,104,613 and $5,887,188, respectively. Any portion of the deposits not
required to be applied to cure a default by the Company is to be returned to
the Company at the termination of the lease.
As discussed in Note 12, the Company entered an agreement for the purchase of
six Boeing 737-300's, firm options for six Boeing 737-700 series aircraft and
rolling options for up to six additional Boeing 737-700 series aircraft. A
total of $11.2 million in deposits have been paid as of December 31, 1996, and
are included in aircraft and engine deposits in the accompanying consolidated
financial statements.
ACCRUED EXPENSES
The following amounts are included in accrued expenses as of December 31:
1996 1995
------------ ------------
Federal excise taxes $ 1,757,962 $ 3,311,671
Aircraft fuel and oil payable 3,099,605 2,331,486
Accrued maintenance reserves 1,537,025 -
Accrued restructuring costs 1,661,856 -
OPERATING AND PREOPERATING EXPENSES
Operating expenses for the year ended December 31, 1995, include preoperating
and development costs of Western Pacific totaling approximately $4.8 million.
Operating expenses for the year ended December 31, 1996, include preoperating
and development costs of MAX totaling approximately $2.7 million.
Preoperating and development costs for financial reporting purposes consist of
all costs incurred prior to the commencement of scheduled flight operations.
These costs, which were expensed when incurred, include obtaining the
necessary government licenses, hiring personnel, assembling the management
team and all other activities required to bring the entity to an operational
stage.
LOSS PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Loss per common share and common share equivalent is computed by dividing the
net loss by the weighted average number of common shares and common share
equivalents assumed outstanding during the period. For purposes of these
calculations, the Series A Cumulative Redeemable Preferred Stock that was
converted into shares of common stock in connection with the Company's initial
public offering has been assumed to have been converted upon original
issuance. Fully diluted earnings per share are equal to primary earnings per
share in all periods presented.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, was adopted by the Company in fiscal 1996.
The adoption did not have a material effect on the Company's financial
position or its results of operations.
(3) PROPERTY AND EQUIPMENT:
Property and equipment at December 31 consists of the following:
1996 1995
------------ ------------
Aircraft $ 22,037,671 $ -
Leasehold improvements - aircraft 10,346,628 6,691,037
Software 2,807,579 4,053,710
Leasehold improvements - facilities 4,359,335 2,095,625
Airport concourse 4,121,296 -
Telecommunications and computer equipment 1,381,578 924,681
Ground equipment 1,117,238 564,094
Furniture and fixtures 654,230 461,368
Office equipment 214,550 140,138
------------ ------------
47,040,105 14,930,653
Less: Accumulated depreciation and amortization (5,337,246) (1,595,248)
------------ ------------
$ 41,702,859 $ 13,335,405
============ ============
During 1996, the Company constructed a passenger concourse at Colorado
Springs Airport for the exclusive use of the Company. The concourse and
related fixtures and equipment were completed during December of 1996 at a
cost of approximately $4.1 million. The Company is also making certain
improvements to the existing facilities at Colorado Springs Airport and will
assist in the construction of a permanent connection between the existing
facilities and the newly constructed concourse. The Company is in
negotiations with the City of Colorado Springs (the City) to obtain
reimbursement for the construction costs of the concourse through the issuance
of special purpose facility bonds that would be guaranteed by the Company and
secured by a lease for the newly constructed concourse. There is no assurance
that the Company and the City will be successful in completing the special
purpose facility bond transaction.
As discussed in Note 2, the Company initiated a restructuring plan in the
fourth quarter of 1996. Software, telecommunication and computer equipment,
and leasehold improvements of approximately $4.0 million was written off in
connection with the restructuring plan.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company estimates the fair value of its monetary assets and liabilities
based upon existing interest rates related to such assets and liabilities
compared to current rates of interest for instruments with a similar nature
and degree of risk. The Company estimates that the carrying value of all of
its monetary assets and liabilities approximates fair value as of December 31,
1996 and 1995.
(5) SHORT-TERM DEBT:
Short-term debt at December 31, 1996, consists of the following (there was no
short-term debt at December 31, 1995):
Notes payable to stockholders, interest payable at
8.25%, due January 17, 1997. These notes were
converted into 50,000 shares of Series B Preferred
Stock in February 1997, as discussed in Note 7. $ 5,013,562
Note payable, due on July 30, 1997, interest payable
at prime (8.25% at December 31, 1996) plus one percent,
secured by the Company's interest in the purchase
agreement discussed in Note 12. 5,442,423
------------
$ 10,455,985
============
(6) LONG-TERM DEBT:
During 1996, the Company issued a $16.8 million note payable to a third party
to finance the acquisition of an aircraft. The note accrues interest at
10.4%, requires monthly principal and interest payments decreasing over the
term of the loan from $215,000 to $122,402 and is secured by the aircraft.
The balance outstanding at December 31, 1996 was $15,997,297. In the event
the note payable is prepaid due to a sale of the aircraft or refinancing of
the note, a prepayment premium of up to 3% of the then outstanding principal
balance plus an amount to be calculated based on an agreed upon formula set
forth in the note agreement is due to the note holder. The aggregate
prepayment premium at December 31, 1996, is approximately $3.5 million. The
note matures in April 2011. The Company is also party to certain capital
lease agreements, which require monthly payments of approximately $4,100
through November 2000. Capital lease obligations outstanding at December 31,
1996 totaled $225,279. The future maturities of long-term debt and capital
lease obligations are as follows:
Year Amount
-------- ------------
1997 $ 1,007,757
1998 1,017,626
1999 1,091,072
2000 981,594
2001 1,005,324
Thereafter 11,119,203
------------
Total 16,222,576
Less: current maturities (1,007,757)
------------
$ 15,214,819
============
(7) STOCKHOLDERS' EQUITY:
The Company's authorized capital stock consists of 20,000,000 shares of common
stock, par value $.001 per share and 3,047,000 shares of serial preferred
stock, par value $.001 per share.
COMMON STOCK
On December 4, 1995, the Company completed an initial public offering in which
3,220,000 shares of the Company's common stock were sold to the public at a
price of $19 per share. Of the 3,220,000 shares of common stock sold in the
offering, 2,720,000 were sold by the Company with the remaining 500,000 being
sold by certain stockholders of the Company.
SERIES A PREFERRED STOCK
During 1995 and 1994, the Company sold an aggregate of 3,046,769 shares of its
Series A Cumulative Redeemable Convertible Preferred Stock (Series A).
Pursuant to the terms of the Series A, the Company had the option to convert
the Series A into common stock on the effective date of an initial public
offering of the Company's common stock if such public offering was at a price
of $8 per share or more and would generate gross proceeds of $20 million or
more. In connection with its initial public offering on December 4, 1995, the
Company converted all outstanding shares of Series A on a one-for-one basis
into shares of common stock.
Discounts on increasing rate preferred stock are amortized over the periods
preceding commencement of the stated dividend by charging an imputed dividend
cost against accumulated deficit and increasing the carrying amount of the
preferred stock through additional paid-in capital by a corresponding amount.
For the period from inception to December 31, 1994, and for the period from
January 1, 1995 through the conversion of the Series A, the Company amortized
approximately $75,000 and $798,900, respectively, of the total discount on its
Series A of approximately $1,703,000, the remainder of which has been
reflected as an increase to additional paid-in capital in connection with the
conversion of the Series A. The Series A was canceled during July 1996.
SERIES B PREFERRED STOCK
On January 31, 1997, the Board of Directors of Western Pacific authorized the
designation of 200,000 shares of its preferred stock as Series B Preferred
Stock (Series B) with a par value of $.001 per share. In February 1997,
Western Pacific completed the sale of all 200,000 shares of Series B for total
proceeds of $20,000,000, which included the conversion of $5.0 million of
notes payable issued in December 1996 (see Note 5).
At any time after the three year anniversary of the issue date, the holders of
Series B shall have the right to cause Western Pacific to redeem all or any
part of Series B for an amount equal to the original issue price ($100 per
share) plus all dividends accumulated and unpaid.
At any time after the three year anniversary of the issue date, the holders of
Series B shall have the right to convert all or any portion of such Series B
into an exchange note in the principal amount equal to the issue price plus an
amount representing a ten percent (10%) per annum return (compounded annually)
on the issue price from the issue date.
The holders of Series B are entitled to receive, when, as and if authorized by
the Board of Directors out of funds legally available for that purpose,
quarterly cash dividends in an amount per share equal to $2.50 per annum.
Such dividends shall begin to accumulate and shall be fully cumulative from
the issue date, whether or not authorized by the Board of Directors and
whether or not in any period there are funds of Western Pacific legally
available for the payment of such dividends.
In the event of any liquidation, dissolution or winding up of Western Pacific,
whether voluntary or involuntary, before any payment or distribution of the
assets of Western Pacific shall be made to or set apart for the holders of
shares ranking junior to the Series B, holders of Series B shall be entitled
to receive in immediately available funds an amount equal to the issue price
per share, plus all dividends accumulated and unpaid thereon to the date of
final distribution to such holders (Liquidation Preference).
At any time after the issue date, the Series B may be redeemed by Western
Pacific, at its option in whole or in part at any time, for an amount payable
in immediately available funds equal to the Liquidation Preference on the date
fixed for redemption.
In connection with the sale of the Series B, Western Pacific issued to the
same parties, warrants to purchase up to 2,500,000 shares of Western Pacific's
common stock at a price of $.01 per share. The ultimate number of warrants
that will vest depends on the length of time that the Series B remains
outstanding. The vesting schedule is as follows: (i) warrants for the
purchase of 256,849 shares of common stock vested on the issue date of the
Series B (ii) warrants for the purchase of 256,849 vest ratably from the issue
date through December 1, 1997, as long as the Series B remains outstanding,
(iii) warrants for the purchase of 856,161 shares of common stock vest ratably
from May 1, 1998 through April 30, 1999, as long as the Series B remains
outstanding, and (iv) warrants for the purchase of 1,130,138 shares of common
stock vest ratably from May 1, 1999 through April 30, 2000, as long as the
Series B remains outstanding.
The $20 million in gross proceeds received by Western Pacific will be
allocated between the Series B and the warrants based on the respective fair
values of each instrument, which is estimated at $10.7 million for the Series
B and $9.3 million for the warrants. The initial carrying amount of the
Series B will be increased by periodic accretions so that the carrying amount
will equal the redemption amount ($20.0 million) at the redemption date in
February 2000. The periodic increases in carrying amount will be affected by
charges against additional paid-in capital.
AFFINITY WARRANTS
The Company has reserved 166,291 shares of common stock for issuance upon
exercise of the $8 Affinity Warrants (Affinity Warrants) granted to certain
vendors and strategic partners of the Company. The Affinity Warrants are
exercisable on the later of four years from the date of grant or two years
after the effective date of the Company's initial public offering. At
December 31, 1996, Affinity Warrants to purchase 76,291 shares of common stock
at $8.00 per share were outstanding.
(8) STOCK PLANS:
1994 STOCK OPTION PLAN
The Company adopted the 1994 Stock Option Plan (the Plan) which provides for
the grant of options intended to qualify as incentive stock options and
nonstatutory stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the Code). Incentive stock options are
issuable only to eligible officers and employees of the Company. Nonstatutory
options may be granted to employees, officers, directors or consultants of the
Company. The Company has reserved 2,600,000 shares of common stock for
issuance under the Plan.
The per share exercise price of an incentive stock option may not be less than
the fair market value of the common stock on the date the option is granted.
The per share exercise price of a nonstatutory stock option may not be less
than 85% of the fair market value of the common stock on the date of grant.
The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any person may purchase in any calendar year
pursuant to the exercise of incentive stock options may not exceed $100,000.
No person who owns, directly or indirectly, at the time of the granting of an
incentive stock option, more than 10% of the total combined voting power of
all classes of stock of the Company is eligible to receive incentive stock
options under the Plan unless the option price is at least 110% of the fair
market value of the common stock subject to the option on the date of the
grant.
Incentive stock options may be exercised only if the option holder remains
continuously associated with the Company from the date of grant to a date not
less than 60 days prior to the date of exercise. Options under the Plan must
be granted within 10 years from the effective date of the Plan. The exercise
date of an option granted under the Plan cannot be later than 10 years from
the date of grant, provided that the term of an option is limited to five
years if the optionee is a person who owns stock representing more than 10% of
the voting power of the capital stock of the Company on the date of grant.
Any options that expire unexercised or that terminate upon an optionee's
ceasing to be employed by the Company become available for issuance.
There were 898,514 and 1,491,000 options available for grant as of December
31, 1996 and 1995, respectively.
DIRECTORS' STOCK OPTION PLAN
The Company's 1995 Directors' Option Plan (the Directors' Option Plan) was
adopted by the Board of Directors in June 1995. A total of 200,000 shares of
common stock have been reserved for issuance under the Directors' Option Plan,
which provides for the grant of nonstatutory stock options to outside
directors of the Company. The Director's Option Plan is designed to work
automatically, without administration; however, to the extent administration
is necessary, the Compensation Committee serve as administrators.
The terms of the Directors' Option Plan provide that each person who first
becomes an outside director of the Company is automatically granted an option
to purchase 25,000 shares upon the later of the date on which the optionee
first becomes a director of the Company or July 28, 1995 (the date on which
the Board of Directors approved the Directors' Option Plan). The Directors'
Option Plan is effective for ten years after its adoption by the Board of
Directors. The term of each individual option is five years, and subject to
limited exceptions for termination, disability and death, each option is
exercisable only while the Outside Director remains a Director of the Company.
The exercise price of all options granted under the Directors' Option Plan is
equal to the fair market value of a share of the Company's common stock on the
date of grant of the option. The options are exercisable in installments, to
the extent of 40% of the shares (10,000 shares) on the date of grant of the
option, 30% of the shares (7,500 shares) on the first anniversary of the date
of the grant of the option and 30% of the shares (7,500 shares) on the second
anniversary of the date of grant of the option, provided, however, that no
option was exercisable until June 1995.
Options to purchase 125,000 shares of common stock had been granted under the
Directors' Option Plan as of December 31, 1996 and 1995, at prices ranging
from $6.00 to $8.00 per share of which options to purchase 87,500 and 50,000
shares, respectively, were exercisable. No options have been exercised.
A summary of the status of the Company's two stock option plans at December
31, 1996 and 1995, and changes during the years then ended is presented below:
1996 1995
----------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------ ---------- ------
Outstanding at beginning of year 1,309,000 $ 6.52 525,000 $ 6.00
Granted 768,500 8.79 784,000 6.87
Exercised (134,014) 5.85 - -
Forfeited (42,000) 10.31 - -
---------- ----------
Outstanding at end of year 1,901,486 7.30 1,309,000 6.52
========== ==========
Exercisable at end of year 768,833 6.61 261,166 6.13
========== ==========
Range of exercise prices $6.00 - $13.50 $6.00 - $12.75
============== ==============
Weighted average fair value of
options granted $ 5.05 $ 3.97
====== ======
At December 31, 1996, the weighted average remaining contractual life of
options outstanding was 8.8 years.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (Purchase Plan) was adopted by the
Board of Directors in September 1995, as a qualified employee stock purchase
plan under Section 423 of the Code, and became effective on the effective date
of the Company's initial public offering. The Company has reserved 600,000
shares of common stock for issuance under the Purchase Plan, which allows
eligible employees to purchase shares of common stock, at annual intervals,
through periodic payroll deductions.
The purchase price per share is 85% of the lower of the fair market value of
the common stock on the date of (i) commencement of an offering period or (ii)
termination of an offering period. The purchase price, amount of shares
purchased, and value of stock purchased are all subject to certain limitations
on an individual and aggregate basis, as defined in the Purchase Plan. Under
the Purchase Plan, 31,967 and 154,910 shares of common stock have been issued
during 1996 and 1995, respectively.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost related to stock options issued to
employees under these plans using the method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock
Issued to Employees. Entities electing to remain with the accounting in APB
No. 25 must make pro forma disclosures of net income and earnings per share,
as if the fair value based method of accounting defined in SFAS No. 123 has
been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options and warrants granted during 1995 and 1996;
using the following weighted average assumptions used for grants:
Risk free interest rate 6.1%
Expected dividend yield N/A
Expected lives 5 years
Expected volatility 61%
Options were assumed to be exercised over the five year expected life for the
purpose of this valuation. Adjustments are made for options forfeited prior
to vesting. The total value of options and warrants granted was computed to
be the following approximate amounts, which would be amortized on the
straight-line basis over the vesting period of options and warrants:
Year ended December 31, 1996 $ 3,640,000
Year ended December 31, 1995 $ 3,828,858
If the Company had accounted for stock options issued to employees using a
fair value based method of accounting, the Company's net loss and net loss per
common share and common share equivalent would have been reported as follows:
Year Ended December 31,
--------------------------
1996 1995
------------ ------------
Net loss:
As reported $(23,718,750) $(10,494,856)
Pro forma (25,715,544) (11,794,677)
Net loss per common share
and common share equivalent:
As reported $ (1.78) $ (1.12)
Pro forma (1.93) (1.26)
The effects of applying SFAS No. 123 for providing pro forma disclosures for
1996 and 1995 are not likely to be representative of the effects on reported
net income (loss) and net income (loss) per common share and common share
equivalent for future years, because options vest over several years and
additional awards generally are made each year.
(9) INCOME TAXES:
The Company computes its income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
reporting and tax bases of assets and liabilities and the tax rates expected
to be in effect when those differences reverse.
The provisions for income taxes at December 31 are as follows:
1996 1995 1994
------------ ------------ ------------
Current:
Federal $ - $ - $ 38,962
State - - 7,249
------------ ------------ ------------
- - 46,211
Deferred tax benefit (9,919,000) (4,140,000) (630,900)
Increase in valuation allowance 9,919,000 4,140,000 584,689
------------ ------------ ------------
Provision for income taxes $ - $ - $ -
============ ============ ============
The components of deferred taxes at December 31 are as follows:
1996 1995
------------ ------------
Capitalized organization and start-up costs $ 2,977,000 $ 2,142,000
Tax effect of net operating loss carryforward 8,359,000 2,584,000
Accrued expenses not currently deductible 3,575,000 -
Other (287,000) (1,000)
------------ ------------
14,644,000 4,725,000
Valuation allowance (14,644,000) (4,725,000)
------------ ------------
$ - $ -
============ ============
A valuation allowance is provided when it is uncertain that some portion or
all of the deferred tax asset will be recognized. The Company has established
a valuation allowance due to the unprofitable operating history of the
Company.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $20,897,000 expiring from 2010 through 2011.
Stock issuances by the Company may cause a change in ownership under the
provisions of Internal Revenue Code Section 382; accordingly, the utilization
of the Company's net operating loss carryforwards may be subject to annual
limitations.
(10) RELATED PARTY TRANSACTIONS:
Effective June 10, 1996, the Company entered into a short-term lease agreement
with an affiliate of a director of the Company for two Boeing 727-200
aircraft. The lease covered the cost of the aircraft, in-flight crews,
maintenance and insurance. The agreement was terminated on September 5, 1996.
Lease expense of $2,748,000 was recorded under this agreement during the year
ended December 31, 1996.
Effective September 5, 1994, the Company entered into a consulting agreement
with a company that is owned, operated and controlled by an affiliate of a
shareholder and director of the Company. Under the agreement, the company was
to provide market analysis, forecasting, pricing policy analysis, yield
management and related services. Effective January 1, 1995, the Company
entered into a consulting agreement with another company owned, operated and
controlled by an affiliate of a shareholder and director of the Company and an
affiliate of a shareholder and former outside general counsel of the Company.
Under the agreement, the company was to provide creative media and related
services, including advertising liaison, promotion and marketing. Both
agreements provide for a one-year term and are terminable by either party.
Compensation under both agreements was based on hourly rates for services
performed, with minimum monthly compensation of $12,500. For the years ended
December 31, 1996 and 1995, the Company paid approximately $3.4 million and
$276,000, respectively, under these agreements. Both agreements were
terminated in December 1996. The Company also purchased uniforms and other
supplies from an affiliate of a shareholder and director of the Company.
Purchases of $446,000 and $100,000 were made from this affiliate during the
years ended December 31, 1996 and 1995, respectively.
On September 30, 1994, the Company entered into an Aircraft Supply Agreement
(the Agreement) with Aircorp, Inc. (Aircorp), an affiliate of a member of the
Company's board of directors. Under the Agreement, Aircorp acted as the
Company's agent or broker in connection with the procurement, through lease
with a lessor or purchase, of the Company's first eight aircraft. The
agreement terminated upon closing of the purchase or lease of the eighth
aircraft. The agreement provided for compensation to Aircorp in the amount of
3% of the purchase price of any purchased aircraft or one month's lease
payment for any aircraft leased by the Company, except for aircraft leased
from Aircorp or any affiliated company for which no commission is due.
Amounts paid under the agreement for aircraft leased during the year ended
December 31, 1995 totaled $1,221,000. The agreement was terminated in October
1995.
(11) COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
At December 31, 1996, the Company leased 14 aircraft which are accounted for
under operating leases with terms ranging from five to ten years. Rent
expense is recognized on a straight-line basis over the lease terms. The
amount charged to aircraft lease expense was approximately $38,363,000 and
$13,223,000 for the years ended December 31, 1996 and 1995, respectively.
Under the terms of the aircraft leases, the Company is required to make
monthly maintenance deposits based on aircraft usage.
The Company also leases administrative, airport, maintenance and reservation
facilities under operating lease agreements expiring at various dates through
December 31, 2010. Rent expense is recognized on a straight-line basis over
the lease terms. Amounts charged to rental expense for nonaircraft operating
leases were approximately $7,319,500 and $3,633,000 for the years ended
December 31, 1996 and 1995, respectively.
On December 19, 1995, the Company entered into a Construction, Lease and
Operation Agreement (the Agreement) for a hangar at Colorado Springs Airport.
Under the Agreement, the Company was responsible for the construction of a
hangar on ground leased from the city of Colorado Springs (the City). The
City reimbursed the Company for $1.0 million of the costs of construction.
The hangar is the property of the City. The Company subsequently leased the
hangar and certain office space from the City through December 31, 2010. The
lease includes two, five-year extension periods. During the first extension
period, no rent will be required to be paid on the hangar. During the second
five year extension period, rent on the hangar will be at the then fair market
rental. Monthly rental expense under the Agreement is approximately $19,000.
The Company's future minimum rental payments under noncancelable operating
leases at December 31, 1996, are as follows:
Year Ending
December 31, Aircraft Other Total
------------ ------------ ------------ ------------
1997 $ 40,793,444 $ 3,840,525 $ 44,633,969
1998 42,498,700 2,644,600 45,143,300
1999 43,867,200 1,717,783 45,584,983
2000 41,405,200 954,731 42,359,931
2001 30,241,200 711,862 30,953,062
Thereafter 173,791,946 4,625,882 178,417,828
------------ ------------ ------------
$372,597,690 $ 14,495,383 $387,093,073
============ ============ ============
CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to any significant concentration of
credit risk. At December 31, 1996, approximately 35% of the Company's
receivables related to amounts due from travel agencies and approximately 23%
related to tickets sold to individual passengers through the use of major
credit cards. These receivables are short-term, generally being settled
shortly after the sale or in the month following usage. Bad debt losses,
which have been minimal to date, have been considered in establishing
allowances for uncollectible accounts.
LEASE LINE OF CREDIT
In May 1996, the Company obtained a $5.0 million credit facility from a
technology equipment lessor for the financing of computer hardware and
software. The facility carries an initial term of one year and provides
financing for 100% of the technology acquisition cost. As purchases are made,
advances under the facility are converted to separate operating lease
agreements. The facility remains in effect so long as there is not a material
adverse change in the credit rating of the Company during the term of the
agreement. At December 31, 1996, the Company had used approximately $650,000
of this credit facility and approximately $4,350,000 was available for
additional acquisitions.
COMPENSATION ARRANGEMENTS
The Company has entered into employment agreements with certain members of
senior management, which have three year terms and generally include
provisions for medical, life and disability insurance, automobile allowances
and the granting of stock options under the 1994 Stock Option Plan. The
employment agreement with its president and chief executive officer also
included a stock grant and signing bonus. Approximately $558,000 of
compensation expense, representing the signing bonus and the value of the
vested shares of common stock granted was recorded pursuant to this agreement
for the year ended December 31, 1996.
OTHER
The Company is a party to various legal and administrative proceedings arising
in the ordinary course of business. Management believes, based upon
discussion with legal counsel, that the eventual outcome of these proceedings
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
During 1996, the Company entered into a letter of intent with the owner of an
aircraft for the proposed purchase of that aircraft. The Company decided not
to purchase this aircraft and therefore, the owner of the aircraft has
notified the Company that they intend to seek damages equal to the difference
between the agreed upon purchase price and the ultimate sales price of the
aircraft. Management of the Company believes the Company has no liability and
have therefore, not provided any reserves for such resolution.
As required by the various airport authorities, the Company has outstanding
letters of credit at December 31, 1996 and 1995, in the amount of
approximately $1,069,000 and $485,000, respectively, secured by restricted
cash and cash equivalents. Additionally, Western Pacific has issued a $1.5
million irrevocable letter of credit in favor of MAX to satisfy certain
Department of Transportation requirements.
(12) SIGNIFICANT AGREEMENTS:
The Company has entered into a ten-year contract with the Aerospace division
of BF Goodrich Aerospace (BFG) for comprehensive aircraft maintenance
services. These services include heavy airframe maintenance, component
overhaul/repair, wheel and brake services, landing gear overhaul, technical
engineering and various maintenance support services and spare parts inventory
purchasing, financing and warehousing. BFG maintains a comprehensive aircraft
spare parts inventory for the Company's exclusive use in a Colorado Springs
warehouse that is staffed, equipped and managed by BFG.
Charges for heavy airframe maintenance and component overhaul/repair services
are based on BFG's customary rates; while fees for wheel and brake services
are paid on a cost per landing basis and landing gear overhaul is on a fixed
charge per overhaul basis. The Company also pays BFG a monthly inventory
standby fee based upon the value of rotable/repairable spare parts inventory
on hand at the end of each month while expendable and consumable supplies are
paid for by the Company as used. Additionally, BFG receives a monthly program
management fee to cover the cost of providing aircraft engineering and
maintenance services and for providing aircraft spare parts purchasing and
warehousing services. Such fees are expensed as incurred. Under the
contract, BFG received $300,000 as reimbursement for program start-up expenses
and 200,000 shares of common stock valued at $6 per share as consideration for
the first three years of program management fees. The start-up fee was
primarily for the purchase of fixed assets to be used by BFG during the term
of the agreement. The fair value of the common stock issued in consideration
for the program management fees is reflected in stockholders' equity as common
stock and deferred compensation, and is being amortized over the term of the
agreement.
In October 1996, the Company entered into an agreement with Boeing for the
purchase of six new Boeing 737-300 aircraft. The total purchase price for
these aircraft will be approximately $232 million. Under the terms of the
contract, five of the 737-300 aircraft are scheduled to be delivered during
1997 and one is scheduled to be delivered in 1998. The acquisition cost is
subject to increase by an inflationary factor, as defined in the agreement.
The Company is obligated to prepay, pursuant to a prepayment schedule,
approximately 15% of the cost of these aircraft before delivery occurs. The
prepaid amounts have been recorded as aircraft and engine deposits in the
accompanying consolidated balance sheets. During 1996, the Company also
accrued $1,390,000 in interest for prepayments not made in accordance with the
agreed upon funding schedule. The accrued interest is included in accrued
expenses in the accompanying consolidated financial statements.
The Company has also entered into an agreement with Boeing whereby the Company
was granted an option to purchase six new Boeing 737-700 aircraft. The
agreement provides for the delivery of the aircraft, if the option is
exercised, starting in 2000. If options on all six aircraft are exercised,
the total purchase price will be approximately $265 million. The Company paid
$1.2 million to Boeing during 1996 to secure this option, which has been
recorded as aircraft and engine deposits in the accompanying consolidated
balance sheets. The Company also has a rolling option for the purchase of six
additional Boeing 737-700 aircraft.
The Company has entered into a financing facility with a third party to
provide funding for certain of the prepayments required under the Boeing
agreement. The financing facility requires the payment of a 2% fee up-front
and interest at prime plus one percent. At December 31, 1996, there was
$5,442,423 outstanding under the facility (see Note 5). All amounts are due
upon the earlier of July 30, 1997 or when the first aircraft is delivered.
Through this and other sources, the Company intends to obtain lease financing
for all aircraft acquired pursuant to the agreements with Boeing.
In September 1996, Western Pacific entered into an alliance agreement (the
Alliance Agreement) with MAX. Under the Alliance Agreement, Western Pacific
is to provide essential services on behalf of MAX including reservation,
"ticketless" booking and sales, purchasing, marketing, flight planning, flight
data and weather data services in exchange for a per passenger charge.
Western Pacific creates and coordinates all of MAX's advertising, marketing
and promotional programs. Western Pacific has no continuing obligation to
fund the operation of MAX pursuant to the Alliance Agreement. The Alliance
Agreement expires in 2006, but is subject to earlier termination in certain
circumstances.
Effective April 1, 1997 (Effective Date), the Company entered into a
Information Technology Services Agreement (Technology Agreement) with Perot
Systems Corporation (Perot) pursuant to which Perot will deliver an integrated
suite of technology related services to the Company over a five year period in
support of the Company's strategic plan. These services are to include
business process re-engineering, call center infrastructure, data mining,
networking, total system management and the application of emerging
technologies. Base monthly service fees under the Technology Agreement, which
excludes pass-through expenses for which Perot will be reimbursed by the
Company, are as follows:
Months Monthly Fee
------ -----------
1-12 $317,000
13-24 461,600
25-36 981,800
37-48 975,500
49-60 934,400
During the first six months of the Technology Agreement, the Company can elect
to issue shares of its common stock in lieu of cash for up to three months of
base monthly service fees and pass-through expenses not to exceed $2.0
million. The number of shares to be issued is to be determined by dividing
the amount of the base monthly service fees by the average closing bid price
for the Company's common stock for the five trading days ending two days prior
to the date the shares are to be delivered. If Perot decides to sell the
shares of common stock within thirty calendar days after receiving such
shares or is unable to sell the shares for specified reasons, Perot can
require the Company to pay an amount equal to the excess of the applicable
monthly base service fees over the actual proceeds from such sale and will
return any unsold shares to the Company. This option is available to Perot
only during the thirty days following the issuance of the shares.
As additional consideration under the Technology Agreement, the Company will
pay Perot, in the form of shares of its common stock, $800,000 within thirty
days of the Effective Date, $600,000 on the first anniversary of the Effective
Date and $400,000 on the second anniversary of the Effective Date. The number
of shares to be issued will be determined in the manner described above. The
Company has an option, exercisable at any time prior to the termination or
expiration of the Technology Agreement, to repurchase, at a price of $15.00
per share, any of these shares which have not been sold by Perot.
(13) SEGMENT DATA:
The Company provides low cost, low fare airline service through Western
Pacific and MAX. Western Pacific offers travel to national destinations via
its fleet of 15 Boeing 737-300 jet aircraft. MAX offers travel to regional
destinations via its fleet of four Dornier 328 turboprop aircraft. Operating
revenue, operating loss, identifiable assets, capital expenditures and
depreciation expense related to each of these two segments is as follows (in
thousands):
Western
Pacific MAX Consolidated
------------ ------------ ------------
Operating revenues $ 155,338 $ 421 $ 155,759
Operating loss $ (23,075) $ (3,235) $ (26,310)
Identifiable assets $ 118,288 $ 4,759 $ 123,047
Capital expenditures $ 35,649 $ 879 $ 36,528
Depreciation expense $ 3,550 $ 8 $ 3,558
(14) UNAUDITED SUPPLEMENTAL STATEMENTS OF OPERATIONS DATA:
The following table sets forth the unaudited results of operations for each of
the four quarters of 1996 and 1995. In the opinion of management, this
information has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the information for the periods
presented when read in conjunction with the financial statements of the
Company and notes thereto. The operating results for any period are not
necessarily indicative of the results of the full year or any future period.
Quarter Ended
------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
------------ ------------ ------------ ------------
Operating revenues $ 33,705,603 $ 39,313,642 $ 45,520,859 $ 37,218,776
Operating expenses 36,879,920 39,296,335 46,493,245 59,399,803
Operating income (loss) (3,174,317) 17,307 (972,386) (22,181,027)
Net income (loss) (2,443,214) 520,933 (910,325) (20,886,144)
Income (loss) per common
share and common share
equivalent (.18) .04 (.07) (1.57)
Quarter Ended
------------------------------------------------------
March 31, June 30 , September 30, December 31,
1995 1995 1995 1995
------------ ------------ ------------ ------------
Operating revenues $ - $ 7,611,268 $ 22,289,842 $ 24,880,645
Operating and
preoperating expenses 2,066,297 13,742,986 22,129,325 28,216,746
Operating income (loss) (2,066,297) (6,131,718) 160,517 (3,336,101)
Net income (loss) (1,857,845) (5,998,173) 371,639 (3,010,477)
Income (loss) per common
share and common share
equivalent (.28) (.58) .03 (.32)
<PAGE>
<TABLE>
WESTERN PACIFIC AIRLINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR BAD DEBTS
<CAPTION>
CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ENDING
BALANCE EXPENSES ACCOUNTS DEDUCTIONS<F1> BALANCE
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
April 12, 1994 - Dec. 31, 1994 - - - - -
Jan. 1, 1995 - Dec. 31, 1995 - 455,975 - (103,056) 352,919
Jan. 1, 1996 - Dec. 31, 1996 352,919 839,459 - (842,890) 349,488
<FN>
<F1>
Deductions are write-offs of specific account balances, net of recoveries.
</FN>
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
information set forth under the caption "Election of Directors" in the Proxy
Statement for the Annual Meeting of Stockholders to be held May 21, 1997 (the
"1997 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
information set forth under the caption "Executive Compensation" in the 1997
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the 1997
Proxy Statement.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED WITH THIS REPORT:
1. Financial Statements. The financial statements filed as a part of this
report are listed in Item 8, "Financial Statements and Supplementary Data,"
herein.
2. Financial Statement Schedules. There are no financial statement schedules
filed as part of this report, since the required information is included in
the financial statements, including notes thereto, or the circumstances
requiring inclusion of such schedules are not present.
3. Exhibits. The following exhibits are filed herewith or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
As used in the list of Exhibits below, "Registrant" refers to Western Pacific.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
(1) 3.1 -- Restated Certificate of Incorporation of the Registrant.
3.3 -- Amended By-laws of the Registrant.
(1) 4.1 -- Specimen Stock Certificate.
(1) 4.4 -- Common Stock Purchase Warrant Certificate to Subscribe for and
Purchase Common Stock of the Registrant dated June 22, 1995
issued to Babcock & Brown Aircraft Management, Inc.
(1) 4.5 -- Common Stock Purchase Warrant Certificate to Subscribe for and
Purchase Common Stock of the Registrant dated June 26, 1995
issued to Mercury Air Group, Inc.
(1) 4.6 -- Common Stock Purchase Warrant Certificate to Subscribe for and
Purchase Common Stock of the Registrant dated June 26, 1995
issued to Hanifen, Imhoff Inc.
(1) 4.7 -- Subscription Agreement and Investment Letter dated October 11,
1995 between Registrant and Boullioun Aviation Services, Inc.
(6) 4.8 -- Certificate of Designation, Preferences and Rights of Series B
Preferred Stock dated January 31, 1997 issued by Western
Pacific
(1) 10.1 -- Aircraft Lease Agreement dated as of March 7, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.2 -- Letter Agreement No. 1 dated as of March 7, 1995 to Aircraft
Lease Agreement dated as of March 7, 1995, between the
Registrant and General Electric Capital Corporation.
(1) 10.3 -- Letter Agreement No. 2 dated as of May 5, 1995 to Aircraft Lease
Agreement dated as of March 7, 1995 between the Registrant and
General Electric Capital Corporation.
(1) 10.4 -- Lease Supplement No. 1 dated April 28, 1995 to Aircraft Lease
Agreement dated as of March 7, 1995, between the Registrant and
General Electric Capital Corporation.
(1) 10.5 -- Aircraft Lease Agreement dated as of March 15, 1995 between the
Registrant and First Security Bank of Utah, N.A.
(1) 10.6 -- Aircraft Lease Agreement dated as of May 1, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.7 -- Letter Agreement No. 1 dated as of May 1, 1995 to Aircraft Lease
Agreement dated as of May 1, 1995 between the Registrant and
General Electric Capital Corporation.
(1) 10.8 -- Lease Supplement No. 1 dated May 5, 1995 to Aircraft Lease
Agreement dated as of May 1, 1995 between the Registrant and
General Electric Capital Corporation.
(1) 10.9 -- Aircraft Lease Agreement dated as of May 5, 1995 between the
Registrant and Aircorp, Inc.
(1) 10.10 -- Aircraft Lease Agreement dated as of May 22, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.11 -- Letter Agreement No. 1 dated as of May 22, 1995 to Aircraft
Lease Agreement dated as of May 22, 1995 between the Registrant
and General Electric Capital Corporation.
(1) 10.12 -- Lease Supplement No. 1 dated May 25, 1995 to Aircraft Lease
Agreement dated as of May 22, 1995 between the Registrant and
General Electric Capital Corporation.
(1) 10.13 -- Aircraft Lease Agreement dated as of June 1, 1995 between the
Registrant and Kasumigaura Land Co., Ltd.
(1) 10.14 -- Lease Supplement No. 1 dated June 2, 1995 to Aircraft Lease
Agreement dated as of June 1, 1995 between the Registrant and
Kasumigaura Land Co., Ltd.
(1) 10.15 -- Lease Supplement No. 2 dated June 26, 1995 to Aircraft Lease
Agreement dated as of June 1, 1995 between the Registrant and
Kasumigaura Land Co., Ltd.
(1) 10.16 -- Assignment and Assumption Agreement dated June 2, 1995 to
Aircraft Lease Agreement dated as of June 1, 1995 between the
Registrant and Kasumigaura Land Co., Ltd.
(1) 10.17 -- Aircraft Lease Agreement dated as of July 10, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.18 -- Letter Agreement No. 1 dated as of July 10, 1995 to Aircraft
Lease Agreement dated as of July 10, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.19 -- Lease Supplement No. 1 dated July 18, 1995 to Aircraft Lease
Agreement dated as of July 10, 1995 between the Registrant and
General Electric Capital Corporation.
(1) 10.20 -- Aircraft Lease Agreement dated as of July 15, 1995 between the
Registrant and Avalon Leasing Corporation.
(1) 10.21 -- Letter of Intent dated as of August 25, 1995 between the
Registrant and Aircorp III, Inc.
(1) 10.22 -- Aircraft Lease Agreement (MSN 23331) dated as of October 16,
1995 between the Registrant and Boullioun Aircraft Holding
(1) 10.23 -- Aircraft Lease Agreement (MSN 23332) dated as of October 16,
1995 between the Registrant and Boullioun Aircraft Holding
(1) 10.24 -- Aircraft Supply Agreement dated September 30, 1994 between the
Registrant and Aircorp, Inc.
(1) 10.25 -- Colorado Springs Municipal Airport Airline Use and Lease
Agreement dated January 11, 1995 between the Registrant and
the City of Colorado Springs, Colorado.
(1) 10.26 -- Lease Agreement dated August 1, 1995 between the Registrant and
Executive Tower of Colorado Springs, LLC.
(1) 10.27 -- Lease Agreement dated January 10, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(1) 10.28 -- Lease Agreement dated January 10, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(1) 10.29 -- Lease Agreement dated August 4, 1994 between the Registrant and
Charles J. Murphy.
(1) 10.30 -- Amendment No. 1 dated March 7, 1995 to Lease Agreement dated
August 4, 1994 between the Registrant and Charles J. Murphy.
(1) 10.31 -- Services Agreement dated as of October 31, 1995 between the
Registrant and The B.F.Goodrich Western Pacific, by and through
its segment BF Goodrich Aerospace.
(1) 10.32 -- Aviation Fuel Sales Agreement dated May 31, 1995 between the
Registrant and Mercury Air Group, Inc.
(1) 10.34* -- Employment Agreement dated September 1, 1994 between the
Registrant and Martin J. Dugan, Jr.
(1) 10.35* -- Employment Agreement dated September 1, 1994 between the
Registrant and Thomas J. DeNardin.
(1) 10.36* -- Employment Agreement dated September 1, 1994 between the
Registrant and Nolan A. Wiley.
(1) 10.37* -- Employment Agreement dated September 12, 1994 between the
Registrant and Timothy D. Komberec.
(1) 10.38* -- Employment Agreement dated October 1, 1994 between the
Registrant and Mark S. Klumb.
(1) 10.39* -- Employment Agreement dated January 16, 1995 between the
Registrant and Glenn S. Goldberg.
(1) 10.40* -- Employment Agreement dated September 1, 1995 between the
Registrant and Donald E. Applegarth.
(1) 10.41* -- Employment Agreement dated August 9, 1995 between the Registrant
and Martin J. Wax.
(1) 10.42* -- 1994 Stock Option Plan.
(1) 10.43* -- 1995 Directors' Option Plan.
(1) 10.44* -- 1995 Employee Stock Purchase Plan (amended through October 27,
1995).
(1) 10.45 -- Consulting Agreement dated April 15, 1994 between the Registrant
and John S. Lancy.
(1) 10.46 -- Consulting Agreement dated January 1, 1995 between the
Registrant and InnoVision Incorporated.
(1) 10.47 -- Consulting Agreement dated September 5, 1994 between the
Registrant and AVFORS, Inc.
(1) 10.48 -- Aircraft Lease Agreement dated as of November 1, 1995 between
the Registrant and Daikyo Tatemono Co., Ltd.
(1) 10.49 -- Aircraft Lease Agreement dated as of November 13, 1995 between
the Registrant and General Electric Capital Corporation.
(1) 10.50 -- Letter Agreement No. 1 dated as of November 13, 1995 to Aircraft
Lease Agreement dated as of November 13, 1995 between the
Registrant and General Electric Capital Corporation.
(1) 10.51 -- Lease Supplement No. 1 dated November 17, 1995 to Aircraft Lease
Agreement dated as of November 13, 1995 between the Registrant
and General Electric Capital Corporation.
(1) 10.52 -- Agreement for Purchase of Accounts dated October 31, 1995
between the Registrant and Performance Funding Corporation.
(2) 10.53 -- Lease Agreement dated August 31, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(2) 10.54 -- Lease Agreement dated December 22, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(2) 10.55 -- Lease Agreement dated September, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(2) 10.56 -- Lease Agreement dated September, 1995 between the Registrant
and Executive Tower of Colorado Springs, LLC.
(2) 10.57 -- Aircraft Engine Lease Agreement dated October 20, 1995 between
the Registrant and Terandon Leasing Corporation (MSN 725180).
(2) 10.58 -- Aircraft Engine Lease Agreement dated November 24, 1995 between
the Registrant and Terandon Leasing Corporation (MSN 720190).
(2) 10.59 -- Aircraft Engine Lease Agreement dated September 12, 1995
between the Registrant and Germania Fluggesellschaft MBH
(MSN 723129).
(2) 10.60 -- Construction, Lease, and Operation For an Airline Hub
Operation Hangar at the Colorado Springs Municipal Airport dated
December 19, 1995 between Registrant and the City of Colorado
Springs.
(2) 10.61 -- Agreement for an Airline Facility at the Colorado Springs
Municipal Airport dated February 20, 1995 between the Registrant
and City of Colorado Springs.
(3) 10.62 -- Aircraft Sale Agreement dated as of April 26, 1996 between
Aerovias Venezolanas, S.A. and Western Pacific Airlines, Inc.
(4) 10.63 -- Sublease agreement dated March 18, 1996 between Registrant and
TACA International Airlines, S.A.
(4) 10.64 -- Aircraft Lease Agreement dated May 31, 1996 between Registrant
and International Lease Finance Corporation.
(4) 10.65 -- Wet Lease Agreement dated May 28, 1996 between the Registrant
and Express One.
(5) 10.66 -- Purchase Agreement Number 1947 between Boeing and Western
Pacific Airlines, Inc. dated as of August 21, 1996
(CONFIDENTIALITY REQUESTED).
(5) 10.66A -- Letter Agreement No. 1947-1 to the Purchase Agreement -
Disclosure of Confidential Information.
(5) 10.66B -- Letter Agreement No. 1947-2 to the Purchase Agreement - Waiver
of Aircraft Demonstration Flights.
(5) 10.66C -- Letter of Agreement No. 1947-3 to the Purchase Agreement -
Seller Purchased Equipment (CONFIDENTIALITY REQUESTED).
(5) 10.66D -- Letter Agreement No. 1947-4 to the Purchase Agreement - Spare
Parts Support for Flight Training.
(5) 10.66E -- Exhibit A to the Purchase Agreement: Aircraft Configuration
(CONFIDENTIALITY REQUESTED).
(5) 10.66F -- Exhibit B to the Purchase Agreement: Product Assurance Document
(CONFIDENTIALITY REQUESTED).
(5) 10.66G -- Exhibit C to the Purchase Agreement: Customer Support Document
(5) 10.66H -- Exhibit D to the Purchase Agreement: Airframe and Engine Price
Adjustment (CONFIDENTIALITY REQUESTED).
(5) 10.66I -- Exhibit E to the Purchase Agreement: Buyer Furnished Equipment
Provisions Document.
(5) 10.66J -- Exhibit F to the Purchase Agreement: Defined Terms Document.
(5) 10.66K -- Letter Agreement No. 6-1162-JDR-418 to the Purchase Agreement:
Board of Directors Approval.
(5) 10.66L -- Letter Agreement No. 6-1162-JDR-426 to the Purchase Agreement:
Model 737-700-Option Aircraft (CONFIDENTIALITY REQUESTED).
(5) 10.66M -- Letter of Agreement No. 6-1162-JDR-429 to the Purchase
Agreement: Revision to the Purchase Agreement
(CONFIDENTIALITY REQUESTED).
(5) 10.66N -- Letter Agreement No. 6-1162-JDR-393 to the Purchase Agreement:
Aircraft Performance Guarantees.
(5) 10.66O -- Letter Agreement No. 6-1162-JDR-394 to the Purchase Agreement:
Certain Contractual Matters (CONFIDENTIALITY REQUESTED).
(5) 10.66P -- Letter Agreement No. 6-1162-JDR-395 to the Purchase Agreement:
Advance Payment Matters (CONFIDENTIALITY REQUESTED).
(5) 10.66Q -- Letter Agreement No. 6-1162-JDR-396 to the Purchase Agreement:
Escalation Matters (CONFIDENTIALITY REQUESTED).
(5) 10.66R -- Letter Agreement No. 6-1162-JDR-397 to the Purchase Agreement:
Promotion Support (CONFIDENTIALITY REQUESTED).
(5) 10.66S -- Letter Agreement No. 6-1162-JDR-398 to the Purchase Agreement:
Customer Support Matters (CONFIDENTIALITY REQUESTED).
(5) 10.66T -- Letter Agreement No. 6-1162-JDR-399 to the Purchase Agreement:
Configuration Matters (CONFIDENTIALITY REQUESTED).
(5) 10.66U -- Letter Agreement No. 6-1162-JDR-400 to the Purchase Agreement:
Miscellaneous Matters.
(5) 10.66V -- Letter Agreement No. 6-1162-JDR-401 to the Purchase Agreement:
Product Assurance Matters.
(5) 10.66W -- Supplemental Agreement No. 1 to Purchase Agreement Number 1947,
dated September 27, 1996 (CONFIDENTIALITY REQUESTED).
(6) 10.67 -- Promissory Note dated January 31, 1997 from Western Pacific to
Hunt Petroleum of Texas, Inc.
(6) 10.68 -- Promissory Note dated January 31, 1997 from Western Pacific to
GFI
(6) 10.70 -- Stock Purchase Agreement dated as of January 31, 1997, by and
among Western Pacific, Hunt Petroleum of Texas, Inc. and GFI
(6) 10.71 -- Warrants issued to Hunt Petroleum of Texas, Inc.
(6) 10.72 -- Warrants issued to GFI
(6) 10.73 -- Press Release issued by Western Pacific dated January 31, 1997
10.74* -- Employment Agreement dated November 21, 1996 between the
Registrant and Robert A. Peiser
10.75* -- Revised Employment Agreement dated November 21, 1996 between
the Registrant and Edward R. Beauvais
10.76 -- Information Technology Services Agreement dated March 28, 1997
between the Registrant and Perot Systems Corporation
11 -- Western Pacific Airlines, Inc. Computation of Net Earnings
Per Share.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Arthur Andersen LLP on Valuation Allowance
27.1 -- Financial Data Schedule (EDGAR only)
- --------------------------------------
(1) Incorporated by reference to Western Pacific's Registration Statement on
Form S-1, File No. 33-97862.
(2) Incorporated by reference to Western Pacific's 10-K for the year ended
December 31, 1995, File No. 0-27238.
(3) Incorporated by reference to Western Pacific's 10-Q for the quarter ended
March 31, 1996, File No. 0-27238.
(4) Incorporated by reference to Western Pacific's 10-Q for the quarter ended
June 30, 1996, File No. 0-27238.
(5) Incorporated by reference to Western Pacific's 10-Q for the quarter ended
September 30, 1996, File No. 0-27238.
(6) Incorporated by reference to Western Pacific's 8-K filed February 11,1997,
File No. 0-02738.
* Management Contract or Compensatory Plan
(B) REPORTS ON FORM 8-K.
Western Pacific filed a report on Form 8-K dated November 22, 1996 announcing
under Item 5 the appointment of Robert A. Peiser as Western Pacific's
President and Chief Executive Officer.
Western Pacific filed a report on Form 8-K dated January 3, 1997 disclosing
under Item 5 $5.0 million in short term borrowings from two major
stockholders.
Western Pacific filed a report on Form 8-K dated January 31, 1997 disclosing
under Item 5 additional investments from two major stockholders.
<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.
WESTERN PACIFIC AIRLINES, INC.
By: /s/ ROBERT A. PEISER
----------------------
Robert A. Peiser
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: April 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated:
SIGNATURE TITLE DATE
- ----------------------- ------------------------------------ --------------
/s/ ROBERT A. PEISER President, Chief Executive Officer,
- ----------------------- and Director April 14, 1997
Robert A. Peiser
/s/ EDWARD R. BEAUVAIS Chairman of the Board and Director April 14, 1997
- ------------------------
Edward R. Beauvais
/s/ GEORGE E. LEONARD Chief Financial Officer and Director
- ------------------------ (Principal Financial Officer) April 14, 1997
George E. Leonard
/s/ CLAYTON I. BENNETT Director April 14, 1997
- ------------------------
Clayton I. Bennett
/s/ GLENN M. STINCHCOMB Director April 14, 1997
- ------------------------
Glenn M. Stinchcomb
/s/ IVAN IRWIN, JR. Director April 14, 1997
- ------------------------
Ivan Irwin, Jr.
/s/ JAMES R. WIKERT Director April 14, 1997
- ------------------------
James R. Wikert
/s/ STACY A. MIHALSKY Controller (Chief Accounting Officer) April 14, 1997
- ------------------------
Stacy A. Mihalsky
BYLAWS
of
WESTERN PACIFIC AIRLINES, INC.
(As amended through February 28, 1997)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the Company in the
State of Delaware and the name of the resident agent in charge thereof is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware.
Section 2. Other Offices. The Company shall have its principal office at such
place as the Board of Directors may designate from time to time and shall also
have offices at such other places as the President and the Board of Directors
may from time to time designate or appoint, or as the business of the Company
may require.
ARTICLE II
Directors
Section 1. Powers. The corporate powers, business and property of the Company
shall be vested in and exercised, conducted, controlled and managed by and
under the direction of the Board of Directors, which may exercise all said
powers of the Company and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Determination of Number. Within the limits set forth in the
Company's Certificate of Incorporation, the exact number of Directors who shall
constitute the full Board of Directors shall initially be determined by
resolution adopted by the affirmative vote of a majority of the Incorporators
or directors at the organizational meeting thereof, or by a unanimous consent
resolution in lieu of organizational meeting executed by all of the
Incorporators or directors in accordance with Delaware law. After the exact
number of directors is initially determined, the Board of Directors may,
subject to the limitations thereon set forth in the Certificate of
Incorporation, from time to time by resolution duly adopted or unanimous
consent duly executed, increase or decrease the exact number of Directors
constituting the full Board of Directors.
Section 3. Nominations. Nominations for election to the Board of Directors of
the Company at a meeting of stockholders may be made by the Board or on behalf
of the Board by the Nominating Committee appointed by the Board, or by any
stockholder of the Company entitled to vote for the election of Directors at
such meeting. Such nominations, other than those made by or on behalf of the
Board, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary of the Company, and
received by him not less than thirty (30) days nor more than sixty (60) days
prior to any meeting of stockholders called for the election of Directors;
provided, however, that if less than thirty-five (35) days' notice of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary of the Company not later than the close of business
on the seventh (7th) day following the day on which the notice of meeting was
mailed. Such notice shall set forth as to each proposed nominee who is not an
incumbent Director (i) the name, age, business address and, if known, residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
Company which are beneficially owned by each such nominee and by the nominating
stockholder, and (iv) any other information concerning the nominee that must be
disclosed of nominees in proxy solicitations pursuant to Rule 14(a) of the
Securities Exchange Act of 1934.
The chairman of any meeting of stockholders may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III
Meetings of Directors
Section 1. Place of Meetings. Meetings of the Board of Directors of the
Company whether regular, special or adjourned shall be held at the principal
office of the Company, as specified in Section 2 of Article I hereof, or at any
other place within or without the State of Delaware which has been designated
from time to time by resolution of the Board or by written consent of all
members of the Board. Any meeting shall be valid wherever held, if held upon
the written consent of all members of the Board of Directors given either
before or after the meeting and filed with the Secretary of the Company.
Section 2. Regular Meetings. Regular meetings of the Board of Directors shall
be held immediately following the adjournment of each annual meeting of the
stockholders, every second month thereafter and at such other times as may be
designated from time to time by resolution of the Board of Directors.
Section 3. Special Meetings. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board, the President or any Vice
President who is also a Director of the Company or by any two Directors.
Section 4. Notice of Meetings. Written notice of the time and place of special
meetings of the Board of Directors shall be delivered at least two (2) days
before the meeting personally to each Director, or sent in writing, by mail,
courier, facsimile or electronic mail transmission, if by mail, addressed to
such Director at his address as it appears on the records of the Company with
postage thereon prepaid, and if by facsimile or electronic mail transmission,
transmitted to the facsimile machine at the residence or principal office of
the director or to the electronic mail address of the director. Such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail, delivered by courier or otherwise transmitted; provided,
however, that if a special meeting is called by the President or by any Vice
President who is also a Director or by any two Directors because an emergency
exists, then each Director shall be given not less than three (3) hours'
notice, and such notice shall be deemed given once it has been conveyed to a
Director in person or by telephone or an attempt has been made to give such
notice by telephoning a Director at his home telephone number and his business
office telephone number as such numbers are shown in the Secretary's records.
Notice to Directors may also be given by facsimile or electronic mail
transmission, telex or telegram.
Whenever any such notice is required to be given, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. If the
address of a Director is not shown on the records and is not readily
ascertainable, notice shall be addressed to him at the city or place in which
the meetings of the Directors are regularly held. Notice of the time and place
of holding an adjourned meeting need not be given to absent Directors if the
time and place be fixed at the meeting adjourned. Attendance of a director at
any meeting shall constitute waiver of call and notice of such meeting (and any
adjournment thereof) unless he is attending the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 5. Quorum. A majority of the number of Directors serving at the time
of the meeting shall constitute a quorum of the Board of Directors for the
transaction of business; provided, however, that if the number of Directors
serving at the time of the meeting shall be an even number, one-half of
such even number shall constitute a quorum of the Board of Directors for the
transaction of business; and provided further, that in no event shall a number
of directors representing less than one-third (1/3) of the total number of
Directors constituting the full Board of Directors (as then in effect by
resolution of the Board or as otherwise provided in the Bylaws) constitute a
quorum of the Board of Directors for the transaction of business. Every act or
decision done or made by a majority of the Directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board of
Directors. In the absence of a quorum, a majority of the Directors present may
adjourn from time to time, without notice other than an announcement at the
meeting, until a quorum shall be present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 7. Telephone Meetings. Members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
ARTICLE IV
Committees of the Board of Directors
Section 1. Executive Committee. The Board of Directors may, by resolution
adopted by the affirmative vote of a majority of the full Board of Directors,
appoint an Executive Committee to consist of the President and not less than
two nor more than five other Directors of the Company. The Executive Committee
shall elect a Chairman of the Executive Committee, and the Executive Committee
shall meet at such times and places as it may determine. The Executive
Committee shall have and may exercise, when the Board is not in session, all
the powers of the Board in the management of the business and affairs of the
Company, without limitation, except as set forth in Section 9 below.
Section 2. Nominating Committee. The Board of Directors may, by resolution
adopted by the affirmative vote of a majority of the full Board of Directors,
appoint a Nominating Committee consisting of two Directors of the Company who
shall not be officers of the Company. The Nominating Committee shall recommend
to the Board the number of Directors which best meets the requirements of the
Company; identify, evaluate, review and recommend to the Board qualified
candidates to fill vacancies on the Board and any newly created directorships
resulting from an increase in the number of Directors; recommend to the Board
the individuals to constitute the nominees of the Board for election as
directors at the annual meeting of stockholders; recommend to the Board a list
of Directors selected as members of each committee of the Board; and perform
such other duties as may be assigned by the Board.
Section 3. Compensation Committee. The Board may, by resolution adopted by the
affirmative vote of a majority of the full Board of Directors, appoint a
Compensation Committee consisting of two or more Directors of the Company. The
Compensation Committee shall review annually and recommend to the Board of
Directors the level of compensation of the Chairman of the Board and the
President giving consideration to the amount and composition of their total
compensation in terms of salary, stock options and other benefits; review
annually the recommendations of the President concerning salaries and other
compensation of all senior officers reporting to the President, as well as
review from time to time other conditions of employment; administer any stock
option plan, profit-sharing plan and year-end bonus plans; review and make
recommendations to the Board of Directors for changes in the Company's
compensation and benefit plans and practices; and administer other compensation
plans that may be adopted from time to time as authorized by the Board of
Directors.
Section 4. Audit Committee. The Board of Directors may, by resolution adopted
by the affirmative vote of a majority of the full Board of Directors, appoint
an Audit Committee of two or more Directors of the Company who shall not be
officers of the Company. The Audit Committee shall receive from and review with
the Company's independent auditors the annual report of such auditors; review
with the independent auditors the scope of the succeeding annual examination;
nominate the independent auditors to be appointed each year by the Board;
review consulting services made by the Company's independent auditors and
evaluate the possible effect on the auditors' independence of performing such
services; ascertain the existence of adequate internal accounting and control
systems; and review with management and the Company's independent auditors
current and emerging accounting and financial reporting requirements and
practices affecting the Company.
Section 4a. Legal Committee. The Board of Directors may, by resolution
adopted by the affirmative vote of a majority of the Board of Directors,
appoint a Legal Committee of two or more Directors of the Company, who shall
not be officers of the Company. The Legal Committee shall engage special
counsel to the Company pending appointment of an outside General Counsel;
nominate outside General Counsel to be appointed each year by the Board;
review with the outside General Counsel and with counsel who are employees of
the Company all of the legal affairs affecting the Company and/or the Board;
seek, from time to time, from the outside General Counsel independent advice
with respect to the discharge by the Board of its responsibilities to the
Company and to all of its stockholders; review all statements for fees and
expenses submitted to the Company by the outside General Counsel or other
counsel representing the Company; and perform such other duties as may be
assigned by the Board.
Section 4a of Article IV, added by amendment approved by the Board of
Directors, November 11, 1996.
Section 5. Quorum. A majority of the members of the Committee shall constitute
a quorum for the transaction of business. The Board may designate one or more
Directors as temporary or alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member.
Section 6. Notice and Emergency Action. Notice of the time and place of
committee meetings shall be given in writing or by telephone or in person, by
any member of the committee, to all members of the committee at least two (2)
days prior to the time of holding such meeting; provided, however, that such
notice requirement shall not be applicable if any member of the Executive
Committee deems it necessary to cause the Executive Committee to act on an
emergency basis. In the event a member of the Executive Committee deems such
emergency action necessary, such member shall attempt to contact each other
member of the Executive Committee by telephone for the purpose of having each
such member consider and act upon the emergency matter or matters presented.
Such consideration and action may take place by telephone without convening a
meeting. The quorum and voting requirements set forth in Section 5 above shall
pertain to such emergency action, and for this purpose all persons reached by
telephone shall be deemed to be present. The member of the Executive Committee
who calls for emergency action in the manner described herein, immediately
following the approval or disapproval of any action thereby proposed, shall
report such action to the Secretary of the Company for the purpose of having it
described in the minutes of the Executive Committee. Such report and minutes
shall also include a recitation of all efforts made by the member calling for
such action to contact other Executive Committee members by telephone.
Section 7. Minutes; Reports to Board. Each committee shall keep regular
minutes of its meetings. All actions of the committees shall be reported to the
Board of Directors at the meeting of the Board of Directors next succeeding
such action.
Section 8. Other Committees. The Board of Directors, from time to time may, by
resolution adopted by a majority of the full Board of Directors, appoint other
committees for any purpose or purposes, and any such committee shall have such
powers as shall be specified in the resolution of its appointment.
Section 9. Duties. Any committee, including the Executive Committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Company, and may authorize the
seal of the Company to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Company's property and assets, recommending to the
stockholders a dissolution of the Company or a revocation of a dissolution, or
amending the Bylaws of the Company; and, unless the resolution of the Board
expressly provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 10. Tenure, Removal and Vacancies. The members of any committee shall
hold office until the next annual meeting of the Board of Directors and until
their successors are appointed by a new resolution adopted by the affirmative
vote of a majority of the full Board of Directors. The Board of Directors, with
or without cause, may dissolve any committee or remove any member thereof by a
simple majority vote at any meeting of the Board. Except as provided in Section
5 as to temporary alternate members, any permanent vacancies occurring by
reason of death, resignation, removal, disqualification or otherwise may be
filled only by the affirmative vote of a majority of the full Board of
Directors.
ARTICLE V
Officers
Section 1. Officers. The officers of the Corporation shall be a Chairman of
the Board, a President, a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors or Incorporators
shall, at the organizational meeting or Unanimous Action in Lieu Thereof, and
from time to time thereafter as appropriate, choose a President, a Secretary,
and a Treasurer. The Board of Directors may also appoint a Chairman of the
Board, one or more Vice Presidents, and one or more Assistant Secretaries and
Assistant Treasurers, and may appoint, or may delegate to any standing Audit
Committee of the Board the power to appoint, a Controller. Any number of
offices may be held by the same person, except that the offices of President
and Secretary shall not be held by the same person and the offices of
Controller and Treasurer or Assistant Treasurer shall not be held by the same
person. All officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as may be provided
in these Bylaws or as may be determined by resolution of the Board of Directors
not inconsistent with these Bylaws.
Section 2. Removal of Officers. Any officer or agent of the Corporation may be
removed by the Board of Directors whenever in its judgment the best interest of
the Corporation will be served thereby. Such removal shall be without prejudice
to the contract rights, if any, of the person so removed; election or
appointment of an officer or agent shall not of itself create any such contract
rights.
Section 3. Salaries. The salaries of the officers shall be as fixed from time
to time by the Board of Directors or by any committee of the Board to which
such authority may be delegated by the full Board of Directors. No officer
shall be prevented from receiving a salary by reason of the fact that he is
also a director of the Corporation.
Section 4. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, or otherwise, may be filled by the Board of
Directors at any time.
Section 5. Delegation. The Board of Directors may, by resolution duly recorded
in the minutes of the Board of Directors, delegate to the Chairman of the Board
or the President of the Corporation the authority to fix the salaries and other
compensation of any or all officers of the Corporation except himself.
Section 6. Chairman of the Board. The Board of Directors may elect a Chairman
of the Board to serve as an executive officer of the Corporation, and, if
specifically designated as such by the Board, as the Chief Executive Officer
and principal executive officer of the Corporation. If elected, the Chairman
will preside at all meetings of the Directors and be vested with such other
powers and duties as the Board may from time to time delegate to him. The Board
of Directors may also elect a Vice Chairman of the Board to preside at all
meetings of the Board in the absence of the Chairman of the Board and to do and
perform such other things as may from time to time be assigned to him by the
Board of Directors or the Chief Executive Officer.
Section 7. President and Vice President. The President will be the Chief
Operating Officer of the Corporation and will supervise the business and
affairs of the Corporation and the performance, by all of its other officers of
their respective duties, subject to the control of the Board of Directors and
of its Chairman, if the Chairman has been specifically designated as the Chief
Executive Officer of the Corporation (failing which the President will be such
Chief Executive Officer and principal executive officer). One or more Vice
Presidents may be elected by the Board of Directors, each of whom, in the order
designated by the Board, will be vested with all of the powers and charged with
all of the duties (including those herein specifically set forth) of the
President in the event of his absence or disability. Each Vice President will
perform such other duties as may from time to time be delegated or assigned to
him by the Chief Executive Officer, the President or the Board of Directors.
Except as may otherwise be specifically provided in a resolution of the Board
of Directors, the President or any Vice President will be a proper officer to
sign on behalf of the Corporation any deed, bill of sale, assignment, option,
mortgage, pledge, note, bond, evidence of indebtedness, application, consent
(to service of process or otherwise), agreement, indenture or other instrument
of any significant importance to the Corporation. The President shall not also
serve as Secretary or Assistant Secretary of the Corporation.
Section 8. Secretary and Assistant Secretary. The Secretary will keep the
minutes of meetings of the Board of Directors, see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law,
be custodian of the records of the Corporation and of its seal and, in general,
perform all duties incident to his office at the direction of the Chief
Executive Officer. Except as may otherwise be specifically provided in a
resolution of the Board of Directors, the Secretary will be a proper officer to
impress the Corporation's seal on any instrument signed by the President or any
Vice President, and to attest to the same. There may be one or more Assistant
Secretaries, and such persons shall perform such functions as from time to time
may be assigned to them by the Board of Directors or the Secretary. No
Secretary or Assistant Secretary shall also serve as President of the
Corporation.
Section 9. Treasurer and Assistant Treasurer. The Treasurer will be the
principal financial officer of the Corporation and shall have custody of the
Corporate funds and securities, and will cause all money and other valuable
effects to be deposited in the name and to the credit of the Corporation in
such depositaries, subject to withdrawal in such manner, as may be designated
by the Board of Directors and the President. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President, and
to the Directors (at the regular meetings of the Board or whenever they may
require), an account of all his transactions as Treasurer. There may be one or
more Assistant Treasurers. Such persons shall perform such functions as from
time to time may be assigned to them by the Board of Directors or the
Treasurer. No Assistant Treasurer shall have power or authority to collect,
account for, or pay over any tax imposed by any federal, state, or city
government. No Treasurer or Assistant Treasurer shall also serve as Controller
of the Corporation. If no Controller is elected by the Board of Directors or
any standing Audit Committee thereof, the Treasurer shall also serve as
principal accounting officer of the Corporation.
Section 10. Controller. The Controller, if elected by the Board of Directors
or any standing Audit Committee thereof, will be the principal accounting
officer of the Corporation and shall have charge of the Corporation's books of
account, records and auditing, and generally do and perform all such other
duties as pertain to such office, and as may be required by the Board of
Directors or the Audit Committee thereof or the President. The Controller shall
not report to the Treasurer of the Corporation and shall not also serve as
Treasurer or Assistant Treasurer.
ARTICLE VI
Meetings of Stockholders
Section 1. Meetings. Annual meetings of stockholders shall be held at the
principal office of the Company, as specified in Section 2 of Article I hereof,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by resolution of the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders, commencing with
the year 1995, shall be held on such date and at such time as shall be
designated by the Board of Directors and stated in the notice of the meeting.
At the annual meeting the stockholders shall elect by a plurality vote the
number of Directors equal to the number of Directors whose term expires at such
meeting (or, if less, the number of Directors properly nominated and qualified
for election). If the Board shall then be divided into classes, such newly
elected directors shall hold office until the third succeeding annual meeting
of stockholders after their election. At any annual meeting, the stockholders
shall transact such other business as may properly be brought before the
meeting.
Section 3. Stockholder List. The officer who has charge of the stock ledger of
the Company shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 4. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, may be called by the Board of Directors or by the Chairman
of the Board, the President or by ten percent (10%) of the stockholders
entitled to vote at such meeting.
Section 5. Notice of Meeting. Written notice of any annual or special meeting
stating the place, date and hour of the meeting and, in the case of a special
meeting, stating the purpose or purposes for which the meeting is called, shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting, to each stockholder entitled to vote at such meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Whenever notice is required to be given to any stockholder, such notice shall
be given in writing, by mail, addressed to each stockholder at his address as
it appears on the records of the Company, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Whenever any such notice is required to be
given, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance by a person at any shareholders' meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 7. Election Inspectors. The Board of Directors, in advance of any
shareholders' meeting, may appoint an Election Inspector or Inspectors to act
at such meeting (and any adjournment thereof). If an Election Inspector or
Inspectors are not so appointed, the chairman of the meeting may, or upon the
request of any person entitled to vote at the meeting will, make such
appointment. If any person appointed as an Inspector fails to appear or to act,
a substitute may be appointed by the chairman of the meeting. If appointed, the
Election Inspector or Inspectors (acting through a majority of them if there be
more than one) will determine the number of shares outstanding, the authenti-
city, validity and effect of proxies and the number of shares represented at
the meeting in person and by proxy; they will receive and count votes, ballots
and consents and announce the results thereof; they will hear and determine all
challenges and questions pertaining to proxies and voting; and, in general,
they will perform such acts as may be proper to conduct elections and voting
with complete fairness to all shareholders. No such Election Inspector need be
a shareholder of the Corporation.
Section 8. Organization and Conduct of Meetings. Each shareholders' meeting
will be called to order and thereafter chaired by the President or, in the
absence of the President, by the Chairman of the Board; or if both the
President and the Chairman of the Board are unavailable, then by such other
officer of the Corporation or such shareholder as may be appointed by the Board
of Directors. The Corporation's Secretary will act as secretary of each
shareholders' meeting; in his absence the chairman of the meeting may appoint
any person (whether a shareholder or not) to act as secretary. After calling a
meeting to order, the chairman thereof may require the registration of all
shareholders intending to vote in person, and the filing of all proxies, with
the Election Inspector or Inspectors, if one or more have been appointed (or,
if not, with the secretary of the meeting). After the announced time for such
filing of proxies has ended, no further proxies or changes, substitutions or
revocations of proxies will be accepted. If directors are to be elected, a
tabulation of the proxies so filed will, if any person entitled to vote in such
election so requests, be announced at the meeting (or adjournment thereof)
prior to the closing of the election polls. Absent a showing of bad faith on
his part, the chairman of the meeting will, among other things, have absolute
authority to fix the period of time allowed for the registration of
shareholders and the filing of proxies, determine the order of business to be
conducted at such meeting and, in the absence of any regulations established by
the Board of Directors, establish reasonable rules for expediting the business
of the meeting (including any informal, or question and answer portions
thereof). The Board of Directors may promulgate rules and regulations and
establish the rules of procedure applicable at all meetings of shareholders and
the provisions thereof are incorporated herein by reference. Absent a specific
rule or regulation, the chairman of any meeting of shareholders shall determine
the order of business at any meeting and shall have authority, in his
discretion, to regulate the conduct of such meetings.
ARTICLE VII
Certificates for Stock
Section 1. Certificates. Every holder of stock in the Company shall be
entitled to have a certificate signed by, or in the name of the Company by the
Chairman of the Board, or the President or a Vice President and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Company, certifying the number of shares owned by him in the Company.
Section 2. Signatures. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Company with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Company a bond in such sum as it may
direct as indemnity against any claim that may be made against the Company with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the Company or the transfer
agent of the Company of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it
shall be the duty of the Company to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Section 5. Fixing Record Date. In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action, and which shall not precede the date on which the resolution
fixing such record date is adopted by the Board of Directors. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Registered Stockholders. The Company shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
Dividends
Section 1. Dividends upon the capital stock of the Company, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the Company available for dividends such sum or sums as the Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Company, or for such other purpose as the
Directors shall think conducive to the interest of the Company, and the
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE IX
Indemnification
Section 1. The Company shall indemnify any person who was or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he is or was a Director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a Director,
officer, employee or agent of another company, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, to the
fullest extent and under any and all circumstances permitted by the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
as amended. Such indemnification (unless ordered by a court) shall be made as
authorized in a specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in the General
Corporation Law of the State of Delaware. Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties to such action, suit or proceeding, or (2) if
such quorum is not obtainable, or even if obtainable if a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested Directors or otherwise
and shall continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Expenses (including attorney's fees) by a Director, officer, employee or
agent of the Company in defending a civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the Director, officer, employee
or agent to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized in this Section 1.
Notwithstanding the foregoing sentence, the foregoing advancement of expenses
(including attorneys' fees) shall not be mandatory, but instead shall be at
the discretion of the Company's Board of Directors with respect to expenses
(including attorneys' fees) incurred or to be incurred by a Director, officer,
employee or agent of the Company in an action, suit or proceeding (1) by or on
behalf of that Director, officer, employee or agent of the Company against the
Company or a Director, officer, stockholder, employee or agent of the Company;
or (2) instituted at the direction of the Company's Board of Directors by or
on behalf of the Company against that Director, officer, employee or agent of
the Company. In exercising the foregoing discretion, the Board of Directors
shall make its determination in accordance with the standards set forth in the
first paragraph of this Section 1.
Section 2. Insurance. The Board of Directors shall have the power to authorize
to the extent permitted by the General Corporation Law of the State of Delaware
the purchase and maintenance of insurance on behalf of any person who is or was
a Director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a Director, officer, employee or agent of another
company, partnership, joint venture, trust or other enterprise against any
liability asserted against him or incurred by him in such capacity or arising
out of his status as such whether or not the Company would have the power to
indemnify him against such liability under the provisions of the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
as amended.
ARTICLE X
Corporate Seal
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "Incorporated 1994, Delaware." Except to the extent otherwise
required by law, the seal of the Corporation shall not be required to be
affixed to any document or act of the Corporation in order for such document or
act to be valid and binding upon the Corporation. In the absence of the
Secretary or Assistant Secretary, any officer authorized by the Board of
Directors to do so may affix the seal of the Corporation to any instrument
requiring a seal.
ARTICLE XI
Amendments
Any of these Bylaws may be altered, amended or repealed by the affirmative
vote of at least two thirds of the Directors of the Company, which shall
include the affirmative vote of at least one Director of each class of the
Board of Directors if the Board shall then be divided into classes, or by the
affirmative vote of the holders of sixty-five percent (65%) of the shares of
the Company entitled to vote in the election of Directors, voting as one class.
CERTIFICATION
The undersigned hereby certifies that the foregoing is a true and correct copy
of the Bylaws of WESTERN PACIFIC AIRLINES, INC. as amended through February 28,
1997.
\s\ Nina A. Ortega
-------------------------
Nina A. Ortega, Secretary
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated November 21, 1996 between Robert
A. Peiser, currently residing at 326 Lakewood Drive, Bloomfield Hills,
Michigan 48304 ("Employee"), and Western Pacific Airlines, Inc., a Delaware
corporation (the "Company").
1) EMPLOYMENT. Subject to the terms and conditions herinafter set forth, the
Company hereby agrees to employ Employee, and Employee hereby agrees to be
employed by the Company, during the three-year period (the "Employment Term")
beginning on December 2, 1996 (the "Commencement Date"), and ending on
December 1, 1999; provided, however that the Employment Term shall
automatically extend for successive one-year periods, with the annual cycle
thereof running from each December 2 to the December 1 of the following year,
unless not later than June 1 of any year, commencing with June 1, 1999, the
Company shall have given written notice to Employee that the Company does not
wish to extend the Employment Term, and receive his then current base salary
for a period of twelve months from the date of such written notice and
Employee shall be entitled to receive passes as specified in Section 8(e).
The Employment Term may be terminated pursuant to the provisions of Section 5
or Section 6 hereof.
2) DUTIES. Employee shall be employed in the capacity of President and Chief
Executive Officer of the Company. Employee shall have such duties as may
reasonably be assigned to him by the Board of Directors of the Company.
Employee shall perform such duties diligently and to the best of his ability,
and shall comply with the Company's business conduct policies as in effect
from time to time. Employee's duties shall be performed primarily at the
Company's headquarters in Colorado Springs, Colorado, with such travel as the
performance of his duties may reasonably require. As President and Chief
Executive Officer, Employee shall have general supervision over the Company's
other officers, employees, agents and representatives. The Company shall use
its best efforts and powers to cause Employee's election as a director of the
Company as of the Commencement Date and shall use its best efforts and powers
to sustain and continue Employee's election as a director of the Company
during the Employment Term. Except as otherwise set forth herein, during the
Employment Term, Employee shall devote his entire working time, attention and
energy to the business of the Company, and shall not be engaged in any other
business activity that, in any significant way, conflicts with or interferes
with Employee's performance of his duties hereunder, except as authorized by
the Board of Directors of the Company. The Company undertakes not to either
materially diminish the responsibilities, duties and authority of Employee or
require that Employee relocate his principal residence from Detroit, Michigan
without the prior consent of Employee.
3) COMPENSATION AND BENEFITS
(a) SALARY. During the Employment Term, the Company shall pay Employee for
his services hereunder a base salary at the rate of $300,000 per annum, for
the first twelve months of the Employment Term and, increased upward for each
successive twelve-month period by that percentage which is equal to the annual
increase in the Consumer Price Index (as hereinafter defined), and subject
further to upward adjustment in accordance with the Company's salary review
practices and procedures in effect from time to time. Such salary shall be
payable semi-monthly in accordance with the regular payroll policies of the
Company in effect from time to time.
(b) BENEFITS. During the Employment Term, Employee shall be entitled to
participate in, to the extent Employee is eligible under the terms thereof,
all benefit plans and programs that are generally provided from time to time
by the Company to its executive personnel, including an incentive compensation
plan, a pension or profit sharing plan, a stock purchase plan a bonus plan, a
group benefit plan and a medical plan. Notwithstanding anything herein to the
contrary, Employee and Employee's dependents shall be covered, without regard
to waiting periods or to exclusions for pre-existing conditions, from the
Commencement Date forward, under either the Company's health plan, or an
individual health policy procured and maintained by the Company, the Company's
group term life insurance plan and the Company's group long-term disability
plan. Subject to the rights of Employee set forth in Sections 5 and 6 hereof,
nothing herein shall preclude the Company from terminating or amending any
employee benefit plan or program.
(c) VACATION. During the Employment Term, Employee shall be entitled to not
less than four weeks of vacation per calendar year to be taken in accordance
with the Company's normal vacation policies in effect from time to time.
(d) BONUSES. Employee shall be entitled to receive bonuses as follows:
(i) Upon the date of execution of this Agreement, Employee shall receive a
cash signing bonus in the amount of $300,000; and
(ii) Upon each anniversary of this Agreement during the Employment Term,
Employee shall participate in any performance bonus plan that may be adopted
by the Company's Board of Directors.
(e) SUPPLEMENTAL INSURANCE. The Company will procure and maintain in force,
during the Employment Term, on behalf of Employee and in his name a term life
insurance policy upon the life of Employee in the amount of $1,000,000.00,
with the beneficiaries to be designated by Employee. Upon termination of his
employment with the Company for any reason, Employee shall be entitled to
retain such life insurance policy. The Company will also procure and
maintain, to the extent the Company's long term disability insurance for
executive personnel does not provide a benefit equal to 80% of Employee's base
salary, a supplemental long-term disability policy the terms of which shall be
the insurance carrier's standard terms for such policies, which provides a
benefit such that Employee's aggregate long term disability coverage is equal
to 80% of Employee's then-current base salary.
(f) STOCK GRANT AND OPTIONS. Upon the date of execution of this Agreement,
Employee shall receive a grant of 100,000 shares of the Company's common
stock, which shares shall vest in Employee as follows: the first 34,000
shares shall vest on November 21, 1997, the second 33,000 shares shall vest on
November 21, 1998, and the last 33,000 shares shall vest on November 21, 1999.
In addition, upon the date of execution of this Agreement the Company shall
cause to be granted to Employee, under the Company's 1994 Stock Option Plan,
options with respect to 300,000 shares of Company stock, each such option to
be exercisable at a price of $7.75 per share and to vest at the rate of
100,000 shares per year at the same times as the Company stock granted to
Employee shall vest. To the maximum extent permitted by law, such options
shall be incentive stock options, within the meaning of section 422 of the
Internal Revenue Code of 1986. as amended.
(g) TRAVEL AND BUSINESS EXPENSES. Upon submission of itemized expense
statements in the manner specified by the Company, Employee shall be entitled
to reimbursement for reasonable travel and other business expenses, including
luncheon club dues and expenses in the Colorado Springs, Colorado area,
incurred by Employee in the performance of his duties hereunder. The Company
shall provide Employee with a monthly automobile allowance of $650.00. The
Company shall provide a Company-owned cellular phone, pager and laptop
computer to Employee to be used by Employee during the Employment Term.
(h) LIVING EXPENSES. Upon submission of itemized expense statements in the
manner specified by the Company with respect to travel and business expenses
and for the period beginning with the Commencement Date and ending twelve
months thereafter, (except for airfare, which shall continue during the
Employment Term), unless otherwise extended by the Board of Directors,
Employee shall be entitled to reimbursement for reasonable out-of-pocket
living expenses incurred while Employee is residing in the Colorado Springs,
Colorado area, including, without limitation, airfare between Detroit,
Michigan or such other location as then constitutes Employee's permanent
residence and Colorado Springs, Colorado, and apartment rental and food
expenses in the Colorado Springs, Colorado area.
(i) PAYMENT. Payment of all compensation and benefits to Employee hereunder
shall be made in accordance with the relevant policies of the Company in
effect from time to time and shall be subject to all applicable employment and
withholding taxes.
(j) CESSATION OF EMPLOYMENT. If Employee shall cease to be employed by the
Company for any reason, then Employee's compensation and benefits shall cease
as of the Termination Date, except as otherwise provided herein or in any
applicable employee benefit plan or program.
4) EMPLOYEE'S OTHER ACTIVITIES. Notwithstanding any provision to the contrary
herein, during the Employment Term, Employee may serve on the Board of
Directors for up to two other public companies, provided that such companies
are not direct competitors with the Company. In addition, the Company
acknowledges that Employee is the holder of Trans World Airlines stock options
and the Employee will in no way be restricted by this Agreement, the Company
or the Board of Directors of the Company with respect to his ability to
exercise such options or dispose of such options or any stock acquired
thereunder.
5) TERMINATION OF EMPLOYMENT OF EMPLOYEE BY THE COMPANY.
(a) Employee's employment may be terminated by the Company for Cause (as
hereinafter defined) at any time, effective not earlier than 30 days following
the giving to Employee of a written notice of termination specifying in detail
the particulars of the conduct of Employee deemed by the Company to justify
such termination for Cause and which shall include copies of Board of
Directors resolutions in which appropriate determinations have been made in
support of such termination. If such termination is based on subclauses (I)
or (ii) of subsection 14(a) hereof, Employee shall be entitled to and may
demand a hearing before the Board of Directors, prior to the effective date of
termination, at which hearing all of the evidence and other considerations
material to the determination of the Board of Directors to terminate Employee
shall be openly discussed and Employee shall have the opportunity to present
additional relevant evidence and relevant arguments as to why Employee should
not be terminated for Cause. Employee shall be entitled to be represented by
counsel. At the conclusion of the hearing, the Board of Directors may take
any action it deems appropriate or may, in its discretion, take no further
actions. In order to foster openness and candor in such hearing, all
communications occurring in connection with any such hearing and related
proceedings shall be deemed confidential and privileged communications and
shall be inadmissible in any judicial or other proceeding. Unless the Board
of Directors otherwise determines, the conduct of any such hearing shall not
affect the timetable for the effective date of termination for Cause;
provided, however that the effective date of termination shall not be
retroactive.
(b) Employee's employment may be terminated by the Company Without Cause at
any time, effective not earlier than 30 days following the giving to Employee
of a written notice of termination specifying that such termination is Without
Cause.
(c) Upon a termination by the Company of Employee's employment for Cause,
Employee shall be entitled to the payments specified in subparagraph (a) of
Section 8 of this Agreement. Upon a termination by the Company of Employee's
employment Without Cause, Employee shall be entitled to all of the payments
and benefits provided for in subparagraphs (b), c, (d) and (e) of Section 8
hereof.
(d) If, as a result of Employee's incapacity due to physical or mental
illness, Employee shall have been absent from Employee's duties hereunder for
180 consecutive days, the Company may, by notice to Employee, terminate
Employee's employment hereunder for "Disability". Upon a termination of
Employee's employment for Disability, Employee shall be entitled to the
payments specified in subparagraphs (b), c, (d) and (e) of Section 8 of this
Agreement. During any period that Employee fails to perform Employee's duties
hereunder as a result of incapacity due to physical or mental illness,
Employee shall continue to receive the compensation and benefits provided for
in Section 3 hereof, provided, however, that the amount of compensation and
benefits received by Employee shall be reduced by the aggregate amounts, if
any, payable to Employee under disability benefit plans and programs of the
Company or under the Social Security disability insurance program.
6) TERMINATION OF EMPLOYMENT OF EMPLOYEE. Employee shall be entitled to
terminate his employment with the Company at any time, effective not earlier
than 30 days following the giving to the Company's Board of Directors of
written notice of termination. If such termination is for Good Reason,
Employee shall be entitled to all of the payments and benefits specified in
subparagraph (a) of Section 8. Employee shall give the Company written notice
of any such voluntary termination of employment, which notice need specify
only Employee's desire to terminate his employment and, if such termination is
for Good Reason, set forth in reasonable detail the facts and circumstances
claimed by Employee to constitute Good Reason.
7) CHANGE IN CONTROL. In the event of a "Change in Control" (as hereinafter
defined), Employee shall be entitled to the benefits specified in Section 8(d)
hereof.
8) PAYMENTS AND BENEFITS UPON TERMINATION. To the extent provided in Sections
5 and 6 hereof, upon termination (other than as to subparagraph (d) below
where the vesting referred to therein shall occur on the day immediately
preceding the date of termination) of his employment (other than termination
solely by reason of the expiration of the Employment Term), Employee shall be
entitled to receive the following payments and benefits:
(a) The Company shall pay to Employee without set-off on the Termination Date
(I) the full base salary earned by Employee through the Termination Date and
unpaid at the Termination Date, plus (ii) credit for any vacation earned by
Employee but not taken at the Termination Date, plus (iii) all other amounts
earned by Employee and unpaid as of the Termination Date.
(b) The Company shall pay to Employee without set-off all amounts he is or
would be entitled to receive under Section 3(a) hereof as if Employee were
employed through the later of the Completion Date (as hereinafter defined) or
the date which is twelve months following the date written notice of
termination is given. In addition, the Company shall pay to Employee without
set-off all amounts he is entitled to receive under Section 3(d) hereof as if
Employee were employed through the Completion Date. In each case, such
amounts shall be payable at Employee's election either in a lump sum or at the
times such amounts would have been payable were Employee to remain employed by
the Company.
(c) The Company shall provide to Employee without set-off all benefits he is
entitled to receive under Sections 3(b) and 3(e) hereof as if Employee were
employed through the Completion Date. Until the earlier of (I) the Completion
Date or (ii) Employee's similar coverage (without exclusions for preexisting
conditions) by a new employer, the Company shall maintain in full force and
effect for Employee's continued benefit all life insurance, medical, dental
and disability plans, programs or arrangements in which Employee is entitled
to participate immediately prior to the Termination Date, provided that
Employee's continued participation is possible under the terms and provisions
of such plans, programs or arrangements. In the event that Employee's
participation is any such plan, program or arrangement is barred by the terms
thereof, the Company shall arrange to provide Employee with benefits
substantially similar to those which Employee would otherwise be entitled to
receive under such plans, programs or arrangements. Any continuation of
benefits under this Section 8c shall not be counted towards the benefits
extension period mandated by the Consolidated Omnibus Budget Reconciliation
Act of 1985.
(d) The Company shall vest Employee in any Company stock previously granted to
Employee and any options with respect to Company stock previously granted to
Employee which have not vested by their terms as of Employee's Termination
Date, and, with respect to any such options, the options shall remain
exercisable for a period of twelve months following Employee's Termination
Date.
(e) Employee and Employee's eligible dependents will be issued lifetime
positive space first class no service charge passes, on a basis commensurate
with the position of the Company's chief executive officer, on the Company
airline. Employee's passes will not be transferable but will cover one
additional individual if such individual is accompanying Employee.
9) TAX INDEMNITY. If any amounts, reimbursements or benefits payable by the
Company to Employee pursuant to Sections 3(g) or 3(h) of this Agreement are
determined to be subject to any tax pursuant to any federal, state or local
tax laws, the Company shall pay to Employee such additional sum as is
necessary (after taking into account all federal, state and local income taxes
payable by Employee as a result of the receipt of such additional sum) to
place Employee in the same after-tax position he would have been in had no
such tax been paid or incurred.
10) EMPLOYEE'S ENFORCEMENT EXPENSES. All costs and expenses (including
reasonable legal and accounting fees) incurred by Employee to (I) defend the
validry of this Agreement, (ii) contest the termination of his employment by
the Company or any determinations by the Company concerning the amounts
payable by the Company under this Agreement or c otherwise obtain or enforce
any right or benefit provided to Employee by this Agreement (including,
without limitation, any right or benefit under this Section 10) shall be paid
by the Company if Employee is the prevailing party. Notwithstanding the
foregoing, all costs and expenses (including reasonable legal fees) incurred
by Employee in connection with his negotiations to become affiliated with the
Company, including the negotiation of this Agreement, and his consultation
during the Employment Term with his legal counsel with respect to his
relationship with the Company pursuant to this Agreement and his rights and
obligations hereunder, shall be paid by the Company.
11) CONFIDENTIAL INFORMATION. Employee, during the period of his employment
by the Company and thereafter, irrespective of whether the termination of his
employment is voluntary or involuntary, will not directly or indirectly
(without the Company's prior written consent), use for himself, or use for or
disclose to any other party, any confidential information regarding the
Company. For purposes of this Agreement, such confidential information shall
include any data or information regarding the business of the Company or any
subsidiary or affiliate of the Company that is not generally known to the
public, including without limitation any confidential information or data
regarding the plans of the Company or its affiliates or the business methods
of the Company or its affiliates not in general use by others. The Company
acknowledges that Employee has substantial experience in the airline industry
and possesses extensive information and knowledge regarding the industry in
general which shall not be deemed confidential information for purposes of
this Agreement.
12) INDEMNIFICATION. The Company shall defend, indemnify and hold harmless
Employee (including, without limitation, the prompt advance payment of all
reasonable legal fees and expenses) to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware and by the
Certificate of Incorporation of the Company as in effect from time to time.
The Company shall cause Employee to be covered by the current policies of
directors' and officers' liability insurance covering directors and officers
of the Company, copies of which have been provided to Employee, in accordance
with their terms, to the maximum extent of the coverage available for any
director or officer of the Company. The Company shall use commercially
reasonable efforts to cause the current policies of directors' and officers'
liability insurance covering directors and officers of the Company to be
maintained throughout the Employment Term (provided that the Company may
substitute therefore, policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured in any material respect.)
13) NOTICE. All notices hereunder shall be in writing and shall be deemed to
have been duly given (I) when delivered personally or by courier, or (ii) on
the third business day following the mailing thereof by registered or
certified mail, postage prepaid, in each case addressed as set forth below:
(a) If to the Company:
Western Pacific Airlines, Inc.
2864 South Circle Drive
Suite 1100
Colorado Springs, Colorado
Attention: Corporate Secretary
(b) If to Employee:
Robert A. Peiser
326 Lakewood Drive
Broomfield Hills, Michigan 48304
Any party may change the address to which notices are to be addressed by
giving the other party written notice in the manner herein set forth.
14) DEFINITIONS.
(a) "Cause", when used in connection with the termination of Employee's
employment by the Company, shall mean (I) the unreasonable willful or repeated
failure by Employee, in any material respect, to perform his lawful duties or
otherwise comply with any of his obligations hereunder, which failure is not
or cannot be cured within five business days after the Company has given
written notice thereof to Employee specifying in detail the particulars of the
acts or omissions deemed to constitute such failure; (ii) the engaging by
Employee in any act of dishonesty or willful misconduct or more than
immaterial significance; or (iii) Employee's conviction of, or entry of a plea
of nolo contendere with respect to any felony.
(b) "Change in Control" shall mean a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934 as in effect on the date of this Agreement (the "Exchange Act"), or,
if Item 6(e) is no longer in effect, any regulation issued by the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934 which
serves similar purposes; provided, however, that notwithstanding the foregoing
and except as expressly provided in the last unnumbered paragraph of this
subparagraph (b) of Section 14, a change in control of the Company shall be
deemed to have occurred if:
(i) Any "Person" (as such term in used in Sections 13(d) and 14(d)(2) of the
Exchange Act), other than the Company or one or more trusts established by the
Company for the benefit of employees of the Company or a corporation
controlled by the Company or the Company's stockholders, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
50% or more of the Company's outstanding common stock (a "Fifty Percent
Beneficial Owner");
(ii) During any period of twenty-four (24) consecutive months, individual who
at the beginning of such period constitute the Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board of Directors; provided, however, that any individual becoming a
director during such period where election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding for this
purpose any such individual whose initial assumption of office is in
connection with an actual or threatened contest for the election of directors
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act, or if Rule 14a-11 is no longer in effect, any regulation issued
by the Securities and Exchange Commission pursuant to the Exchange Act which
serves similar purposes) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the board of Directors;
(iii) There shall be consummated a consolidation or merger of the Company, in
which the Company is not the continuing or surviving corporation or other
entity, other than a consolidation or merger of the Company in which
immediately after the transaction, (A) the holders of shares of the Company's
common stock immediately prior to the consolidation or merger have at least
50% of the total voting power of the surviving corporation or other entity,
(B) at least a majority of the board of Directors of the resulting corporation
or other entity were members of the Incumbent Board, and ( C) no Person is a
Fifty Percent Beneficial Owner of the continuing or surviving corporation or
other entity; or
(ix) There shall be consummated a sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all, or substantially
all, of the assets of the Company other than a sale, lease, exchange or other
transfer to an entity in which the Company owns, directly or indirectly, at
least 80% of the outstanding voting securities after such transfer, and in
which immediately after such sale, lease, exchange or other transfer, (A) at
least a majority of the Board of Directors of the transferee entity were
members of the Incumbent Board, and (B) no Person (except the Company) is a
Fifty Percent Beneficial Owner of the Transferee entity.
(c) "Company" shall have the definition set forth in Section 15 hereof.
(d)"Completion Date" shall mean the date the Employment Term would have ended
under the provisions of Section 1 hereof had it not been terminated pursuant
to Section 5 or Section 6.
(e)"Consumer Price Index" shall mean the Consumer Price Index as computed for
All Urban Consumers (CPI-U).
(f)"Good Reason", when used with reference to a voluntary termination by
Employee of his employment with the Company, shall mean:
(i) The assignment to Employee of any duties materially inconsistent with, or
the reduction of powers or functions associated with, his positions, or status
with the Company, or the direction or assignment to Employee to perform any
act, or to refrain from performing any act, inconsistent with Employee's
overall fiduciary obligations as a director or officer of the Company, or any
removal of Employee from or any failure to re-elect Employee to any positions
or offices held by Employee, except in connection with the termination of
Employee's employment by the Company for Cause of for Disability;
(ii) A reduction in Employee's base salary as in effect from time to time;
(iii) The mandatory transfer of the permanent residence of Employee to
Colorado Springs, Colorado or to another geographic location;
(iv) The failure by the Company to continue in effect any employee benefit
plan, program or arrangement in which Employee was previously participating
(or plans, programs or arrangements providing Employee with substantially
similar benefits), or the taking of any action by the Company which would
adversely affect Employee's participation in. or materially reduce Employee's
benefits under, any of such plans, programs or arrangements, or the failure by
the Company to provide Employee with the number or paid vacation days to which
Employee was previously entitled;
(v) Subject to Section 15 of this Agreement, the failure by the Company to
obtain an express written assumption of the obligations of the company to
perform this Agreement by any successor (whether by purchase, merger or
otherwise) to all or a substantial portion of the business and/or assets of
the Company upon or prior to the effective date of any such succession;
(vi) The continued failure, for more than 15 days following written notice to
the Company, by the Company to prevent the Chairman of the Company from
becoming actively engaged in the management of the business affairs of the
Company (other than at the direction of Employee or, hereafter, at the
direction of the Board of Directors acting unanimously), from interfering with
Employee's discharge of his duties hereunder or from usurping Employee's
authority in a substantial way;
(vii) Employee's termination of employment following a Change in Control; or
(viii) Any purported termination of Employee's employment by the Company which
is not effected pursuant to the requirements of this Agreement.
(g) "Termination Date" shall mean the effective date as provided hereunder of
the termination of Employee's employment.
(h) "Without Cause", when used in connection with the termination of
Employee's employment by the Company, shall mean any termination of the
employment of Employee by the Company which is not a termination of employment
for Cause.
15) SUCCESSORS: BINDING AGREEMENT
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or a majority of the
business and/or assets of the Company, upon or prior to such succession, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would have been required to perform it if no
such succession had taken place. A copy of such assumption and agreement
shall be delivered to Employee promptly after its execution by the successor.
Failure of the Company to obtain such agreement upon or prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to benefits from the Company in the same amounts and on
the same terms as Employee would be entitled hereunder if Employee terminated
his employment for Good Reason. For purposes of the preceding sentence, the
date on which any such succession becomes effective shall be deemed the
Termination Date. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section15(a) or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of law.
(b) This Agreement is personal to Employee and Employee may not assign or
delegate any part of his rights or duties hereunder to any other person,
except that this Agreement shall inure to the benefit of and be enforceable by
Employee's legal representatives, executors, administrators, heirs and
beneficiaries.
16) SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be held to be
invalid or unenforceable, the remainder of this Agreement and the application
of such provision to persons or circumstances other than those as to which it
is held invalid or unenforceable shall not be affected thereby, and each
provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
17) HEADINGS. The headings in this Agreement are inserted for convenience of
reference only and shall not in any way affect the meaning or interpretation
of this Agreement.
18) COUNTERPARTS. This Agreement may be executed in one or more identical
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the some instrument.
19) WAIVER. Neither any course of dealing nor any failure or neglect of
either party hereto in any instance to exercise any right, power or privilege
hereunder or under law shall constitute a waiver of such right, power or
privilege or of any other right power or privilege or of the same right, power
or privilege in any other instance. Without limiting the generality of the
foregoing, Employee's continued employment without objection shall not
constitute Employee's consent to, or a waiver of Employee's rights with
respect to, any circumstances constituting Good Reason. Any waivers by either
party hereto must be contained in a written instrument signed by the party to
be charged therewith, and, in the case of the Company, by its duly authorized
officer.
20) ENTIRE AGREEMENT. This instrument constitutes the entire agreement of the
parties in this matter and supersedes any other agreement between the parties,
oral or written, concerning the same subject matter.
21) AMENDMENT. This Agreement may be amended only by a writing which makes
express reference to this Agreement as the subject of such amendment and which
is signed by Employee and by a duly authorized officer of the Company.
Notwithstanding the foregoing, any amount payable to Employee under this
Agreement may be reduced or otherwise notified pursuant to the mutual
agreement of the Company and Employee.
22) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, without
reference to the conflict of laws rules of such State.
23) SURVIVAL. To the extent provided in this Agreement, this Agreement, and
the respective rights and obligations of the Company and Employee hereunder,
shall survive and remain full force and effect following the expiration of the
Employment Term and the termination of Employee's employment hereunder.
IN WITNESS WHEREOF, Employee and the Company have executed this Agreement as
of the date and year first above written
COMPANY:
WESTERN PACIFIC AIRLINES, INC.
By:
/S/ EDWARD BEAUVAIS
Title:
CHAIRMAN
EMPLOYEE:
/S/ ROBERT A. PEISER
WESTERN PACIFIC AIRLINES, INC
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the ___
day of November, 1996, by and between WESTERN PACIFIC AIRLINES, INC., a
Delaware corporation (the "Company"), and Edward R. Beauvais (the "Employee").
RECITALS:
A. The Company and Employee are parties to an Employment Agreement dated as of
April 15, 1994 (the "Original Agreement") pursuant to which Employee is
employed as Chairman of the Board, President and Chief Executive Officer of the
Company.
B. The Company and the Employee have agreed that the Employee shall resign,
effective immediately, as President and Chief Executive Officer of the Company
but shall retain his position as Chairman of the Board of the Company.
C. The Company and Employee wish to amend and restate the Original Agreement
to reflect such resignation and certain other changes in the employment
relationship to be effected simultaneously.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
in reliance upon the Recitals hereinabove set forth and incorporated herein and
made a part hereof, the Company and the Employee agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts such employment from the Company as an employee upon the terms
and conditions set forth in this Agreement.
2. Duties. During the term of this Agreement, the Employee shall be employed
in the position of the Company's Chairman of the Board of Directors and in such
additional positions as the Board of Directors of the Company (the "Board") may
from time to time determine and the Employee shall faithfully, diligently and
conscientiously discharge those duties associated with those position(s) and
shall be vested with such authority as provided in the Bylaws of the Company
and as specifically directed by the Board or pursuant to the general operating
policies adopted by the Board. As Chairman, the Employee will serve on the
Board during the term of this Agreement, and will serve in such capacity
without further compensation beyond that specified in this Agreement, unless
otherwise determined by the Board. He will keep the Board fully informed, will
on a regular schedule present reports to the Board and will conscientiously,
faithfully and diligently pursue the accomplishment of the Company's business
plans and objectives. The Company undertakes not to require that the Employee
relocate from Colorado Springs, Colorado without the prior consent of
the Employee. The Employee acknowledge that the Company is in the process of
engaging a new President and Chief Executive Officer and agrees that the
officer so engaged shall have general charge of the business affairs and
property of the Company and the general supervision over the Company's other
officers, employees, agents and representatives.
3. Term. Subject to the provisions for early termination as hereinafter
provided, the term of this Agreement shall begin on the date hereof and shall
terminate on November __, 1999 (the "Initial Termination Date"). This
Agreement shall be reviewed annually by the Company's Board of Directors, which
shall determine, in its sole discretion, whether to extend the term of this
Agreement beyond the Initial Termination Date and, if so, the date that shall
constitute the New Termination Date.
4. Early Termination. Except as provided in this Paragraph 4, this Agreement
shall not terminate prior to the Initial Termination Date or any New
Termination Date which has come into effect under Paragraph 3.
a. EARLY TERMINATION BY THE COMPANY FOR CAUSE. If:(i) Employee is convicted of
or pleads guilty to, the commission of a felony or other crime involving moral
turpitude; (ii) the Employee has engaged in willful misconduct, embezzlement or
reckless disregard of the Employee's duties hereunder or has materially
interfered with the President and Chief Executive Officer's discharge of his
duties or has attempted to usurp such officer's authority in a substantial way,
or (iii) the Employee has voluntarily abandoned his duties and responsibilities
hereunder, the Company may terminate the Employee effective as of a date not
less than thirty (30) days after delivery to the Employee of written notice of
such termination, which notice shall state in detail the grounds of such
termination and shall include copies of Board resolutions in which appropriate
determinations have been made in support of such termination. If such
termination is based upon subparagraphs (ii) and (iii) above, the Employee
shall be entitled to and may demand a hearing before the Board at which hearing
all of the evidence and other considerations material to the determination of
the Board to terminate the Employee shall be openly discussed and the Employee
shall have the opportunity to present additional relevant evidence and relevant
arguments as to why the Employee should not be terminated for cause. The
scope, nature and conduct of the hearing shall be under the control of the
Board or its appointed hearing officer. The Employee shall be entitled to be
represented by counsel. At the conclusion of the hearing, the Board may take
any action it deems appropriate or may, in its discretion, take no further
action. In order to foster openness and candor in such hearing, all
communications occurring in connection with any such hearing and related
proceedings shall be deemed confidential and privileged communications and
shall be inadvisable in any judicial or other proceeding. Unless the Board
otherwise determines, the conduct of any such hearing shall not affect the
timetable for the effective date of termination for cause. In the event of
such termination for cause, the Employee shall continue to render his services,
subject to regulation and control by the Board, and shall continue to receive
all compensation and benefits up to the effective date of termination as set by
resolution of the Board, which shall not have retroactive effect.
b. EARLY TERMINATION WITHOUT CAUSE. The Company may terminate this Agreement
and the Employee's employment hereunder at any time without cause or if the
Employee is absent from work due to prolonged illness or mental or physical
disability for more than 180 consecutive days or if the Employee is required to
relocate from Colorado Springs, Colorado and refuses to do so by delivery of
sixty (60) days written notice of such termination to the Employee in the
instance of termination without cause or termination for refusal to relocate or
by delivery of thirty (30) days written notice of such termination to the
Employee in the instance of termination because of ill health or disability;
provided, however, that in the event this Agreement is terminated by the
Company for any reason other than for cause as provided in Paragraph 4(a), the
Company shall upon such termination immediately pay to the Employee:
(1) The Employee's then current salary, net of withholding and other
deductions required by law, for the unexpired term of this Agreement, payable
at the Employee's election either in a lump sum or at the times such salary
would have been payable were the Employee to remain employed by the Company.
(2) The Employee will have the right at any time within sixty (60) days of
the date of the Employee's termination to exercise all unexercised options to
purchase the Company's securities then held by the Employee ("Options"),
regardless of any vesting, or other requirements to the contrary.
(3) For a period equal to the unexpired term of this Agreement, the Company
will maintain in full force and effect the Employee's coverage under any life,
health, disability, accident or similar insurance plans in which the Employee
then participates or will provide the Employee with alternative coverage
substantially equivalent to that under such plans.
(4) The Employee and spouse will be issued a lifetime positive space no
service charge pass on the Company airline. The Employee's passes will not be
transferable, but will cover one additional individual if such individual is
accompanying the Employee.
For purposes of determining entitlement to severance compensation under this
subparagraph 4(b), any notice of termination by the Company other than for
cause under Paragraph 4(a) shall be deemed notice of termination under this
Paragraph 4(b).
c. VOLUNTARY TERMINATION BY THE EMPLOYEE. The Employee may voluntarily
terminate this Agreement, effective as of any date specified by the Employee,
which date shall be not less than thirty (30) days after delivery to the
Company's Board of written notice of such termination. In the event of such
voluntary termination by the Employee, the Employee shall cease to receive all
compensation and benefits as of the date of such termination.
d. DEATH. In the event of the Employee's death, the Employee shall cease to
receive compensation as of the date on which death occurs.
5. Compensation. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee the following compensation:
a. BASE SALARY.The Company shall pay the Employee a base salary in the amount
of $350,000 per year ("Annual Base Salary"). The Annual Base Salary shall also
compensate the Employee for his services as Chairman of the Board of Mountain
Air Express, Inc. ("Mountain Air"). Said Annual Base Salary shall be paid
after withholding and other required deductions in twenty-four (24) equal semi-
monthly installments at the Company's regular payroll periods.
b. PERIODIC SALARY ADJUSTMENTS. Not less than once a year during the time of
this Agreement, the Board, or any Compensation Committee thereof, shall review
the Employee's Annual Base Salary and adjust such salary upward but not downward
as appropriate in its sole discretion.
c. FRINGE BENEFITS. The Employee shall receive all such fringe benefits as
are made available to executive employees of the Company and such other benefits
as the Board or the Company may from time to time, in its discretion, make
available to the Employee, including an incentive compensation plan, a pension
or profit sharing plan, a stock purchase plan, a bonus plan, a group benefit
plan and a medical plan.
d. ADDITIONAL COMPENSATION. The Employee shall receive such other
compensation and benefits as may be determined from time to time by the Board.
e. INSURANCE. The Company will procure and maintain in force on behalf of the
Employee and in his name a fully paid up whole life insurance policy upon the
life of the Employee in the amount of Three Million Dollars ($3,000,000) with
the beneficiary(ies) to be designated by the Employee.
f. RETIREMENT BENEFIT. If at any time after age 65, the Employee's employment
hereunder is terminated, either voluntarily or by the Company without cause,
the Company shall pay during the remainder of the Employee's lifetime an annual
retirement benefit equal to one-half of the average of the annual base salary
paid to the Employee for the prior three years. The method of funding shall be
determined by the Company and may at the discretion of the Company be funded by
the qualified retirement plan.
6. Working Facilities and Staff. The Company shall pay for an office,
administrative staff, telecommunications and computer equipment, services and
time, and such other facilities, equipment and services, suitable to the
Employee's position and adequate for the performance of the Employee's duties.
7. Business Expenses. The Employee is authorized to incur reasonable expenses
for promoting the business and services of the Company, including but not
limited to expenses for entertainment, travel, mileage and similar items. The
Company will reimburse the Employee for all such expenses in accordance with
the Company's policies and procedures then in effect upon presentation by the
Employee of an itemized account of such expenditures. The Company shall
provide the Employee with a monthly automobile allowance of $550.00 for the
Employee's use of the Employee's automobile for the Company's business, which
will be paid in accordance with the Company's policies and procedures then in
effect. The Company shall provide a Company owned mobile phone to the Employee
to be used solely for the Company's business.
8. Vacations. The Employee shall be entitled, in each year of this Agreement,
to a vacation in accordance with the Company's policies and procedures then in
effect in regard to vacation for executive employees during which time the
Employee's compensation shall be paid in full. In addition, the Employee shall
be entitled to paid holidays applicable in the Employee's locale and other
employee benefits relating to attendance at work including, but not limited to,
sick leave in accordance with the Company's policies and procedures then in
effect for executive employees of the Company.
9. Contacts, Customers and Confidential Information.
a. CONFIDENTIAL INFORMATION. For purposes of this Agreement, "Confidential
Information" shall mean confidential information and trade secrets relating to
the business and affairs of the Company including, but not limited to,
processes, plans, planning and planning methods, information, information
records and data systems, pricing strategies, sales procedures, customer
information, techniques and methods of doing business, know how and other
confidential information and trade secrets that are proprietary and unique to
the Company. The Company acknowledges that the Employee has substantial
experience in the airline industry and possesses extensive information and
knowledge regarding, the industry in general which shall not be deemed
Confidential Information for purposes of this Agreement, nor shall information
and knowledge gained during employment that is not unique or proprietary to the
Company be deemed Confidential Information for purposes hereof.
b. NON-DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION. The Employee agrees not
to disclose any Confidential Information to outside parties, or use such
Confidential information for any purpose other than as authorized in
furtherance of the business interests of the Company, either during or
subsequent to the term of this Agreement.
c. REMEDIES FOR BREACH. In the event of a breach or threatened breach by the
Employee of the provisions of this paragraph, the Company shall be entitled to
an injunction restraining, the Employee from disclosing, in whole or part, or
using, for any purpose not in furtherance of the business interests of the
Company, any Confidential Information. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to the Company for such breach or threatened breach, including the recovery of
damages from the Employee.
d. The Employee agrees that the covenants contained in this Paragraph 9 of
this Agreement shall survive any termination of this Agreement.
10. The Employee's Other Activities. Notwithstanding any provision to the
contrary herein, while the Employee is performing his duties hereunder, the
Employee may engage in outside consulting and other commercial airline related
businesses including serving as an officer and director of such businesses and
devote a portion of his time to those affairs, provided such business does not
involve direct competition with the Company and the amount of time the Employee
devotes to such matters, does not materially impair his ability to perform his
duties hereunder. In particular, the Employee may continue to serve as
Chairman of the Board of Mountain Air (at the discretion of such corporation's
Board of Directors).
11. Return of Property and Documents. Upon the termination of the Employee's
employment with the Company for any reason, the Employee shall deliver promptly
to the Company any and all property belonging to the Company that is in the
Employee's direct or indirect possession, custody or control and any and all
printed, typewritten, handwritten, recorded or computerized, information,
including text, diagrammatic and graphic material, or other tangible
representation or mode of expression, suitable for the manifestation, storage
or communication of any idea, data or other information ("Documents") relating
in any way to any matter of the Company's business or relating to any other
information or fact which is the property of the Company, or any other
Documents that may contain Confidential Information, which the Employee may
then have in his direct or indirect possession, custody or control, whether
prepared by the Employee or not.
12. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if delivered in person or sent
by registered U.S. Mail to his residence in the case of the Employee, or to its
principal office in the case of the Company.
13. Waiver of Breach. The waiver by the Company of a breach of any provision
of this Agreement by the Employee shall not operate or be construed as a waiver
of any subsequent breach by the Employee.
14. Assignment. The Employee acknowledges that the services to be rendered by
the Employee are unique and personal. Accordingly, the Employee may not assign
any of the rights or, except as specifically contemplated within the scope of
the duties described herein, delegate any of the Employee's duties under this
Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
15. Entire Agreement. This Agreement supersedes the Original Agreement and
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and any oral agreements entered into prior hereto or
contemporaneously herewith are merged herein, and any such prior or
contemporaneous agreement not reflected herein shall not survive said merger.
This Agreement may not be changed, modified or rescinded except in writing,
signed by all parties hereto, any attempt at oral modification of this
Agreement shall be void.
16. Severability. All agreements, covenants and warranties contained herein
are severable and in the event any of them shall be held to be invalid by any
competent Court, this Agreement shall be interpreted as if such invalid
agreements, covenants or warranties were not contained herein.
17. Governing Law. The Employee and the Company agree that this Agreement
shall be deemed to be made under, and shall be governed by, construed,
interpreted and enforced in accordance with the laws of the State of Colorado.
18. Relationship Created. The relationship created by this Agreement shall be
deemed and construed to be, and shall be, that of employer and employee and not
of any other type or nature.
19. Attorneys' Fees. Should any litigation be commenced between the parties
hereto concerning the terms of this Agreement, or the rights and duties of the
parties hereto under this Agreement, the prevailing party in such litigation
shall be entitled, in addition to such other relief as may be granted, to a
reasonable sum as and for the prevailing party's attorneys' fees.
20. Costs and Expenses. Each party hereto shall bear its own costs, including
counsel fees and accounting fees incurred in connection with the negotiation,
drafting and consummation of this Agreement and the transactions contemplated
thereby, and all matters incident thereto.
21. Number and Gender. Words used herein, regardless of the number, and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context requires.
22. Titles Not to Affect Interpretation. The titles of Paragraphs contained
in this Agreement are for convenience of reference only, and they neither form
a part of this Agreement nor are they to be used in construction or
interpretation hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the _____ day
of November, 1996.
COMPANY:
WESTERN PACIFIC AIRLINES, INC.,
a Delaware corporation
By:
Its:
EMPLOYEE:
EDWARD R. BEAUVAIS
CORPORATE SEAL
INFORMATION TECHNOLOGY SERVICES AGREEMENT
between
PEROT SYSTEMS CORPORATION
and
WESTERN PACIFIC AIRLINES, INC.
Effective as of April 1, 1997
<PAGE>
Schedules
- ----------
A Client Systems
B Equipment
C Performance Standards
D Services
D-1 Network Locations
D-2 Change Control
D-3 Software Development Request Process
D-4 Typical Field Station Configuration
E Excluded Services
F Certain Employees
G Subsidiaries
H Client Obligations
I Payment Schedule
I-1 Task Order
J Key Staff
K Disaster Recovery and Back-up Plan
L Transition Plan
M Deliverables
N Remedies
O Typical Field Station Configuration
P LAN Satellite Equipment Room Configuration (typical)
<PAGE>
INFORMATION TECHNOLOGY SERVICES AGREEMENT
-----------------------------------------
This Information Technology Services Agreement ("Agreement"), dated as of
March 28, 1997, is between Perot Systems Corporation, a Delaware corporation
("Perot Systems"), and Western Pacific Airlines, Inc., a Delaware corporation
("Client").
ARTICLE 1
DEFINITIONS
------------
1.1 Certain Definitions.
---------------------
(a) "Client Data" has the meaning given the term in Section 6.3(a).
(b) "Client Facilities" means such space, office furnishings, janitorial
service, telephone service, secretarial support, utilities (including air
conditioning) and office-related equipment, supplies, and duplicating services
in Client's premises or such other premises as Perot Systems may reasonably
require to provide the Services, including the space, furnishings, and
equipment used by the Transitioned Employees prior to the Effective Date.
(c) "Client Systems" means any Systems owned by Client or licensed to Client
by any entity other than Perot Systems, including the Systems listed on
Schedule A.
(d) "Component" means any part, device, subsystem, functional unit, hardware,
firmware, software, equipment or system used in, comprising or forming part of
the Equipment.
(e) "Deliverables" means a document or item to be delivered to the Client as
set out in the Transition Plan or Schedule M.
(f) "Designated Interest Rate" means a rate of interest equal to the lesser of
(i) four percent per annum more than the base rate established from time to
time by CitiBank, N.A., or (ii) the maximum rate of interest allowed by
applicable law.
(g) "Draft Schedules" has the meaning given in Section 2.2(a).
(h) "Effective Date" means April 1, 1997.
(i) "Emergency" means any event referred to in the Disaster Recovery Plan as
amended from time to time, a copy of which will be attached to this Agreement
as Schedule K, or an airline disaster which necessitates unusually large usage
of processing or telecommunications facilities.
(j) "Equipment" means the computer and telecommunications equipment owned or
leased by or licensed to Client that is required to perform the Services,
including but not limited to all computers (including personal computers) and
related peripherals and accessories. The Equipment is listed in Schedule B
and includes the Class A Equipment and the Class B Equipment.
(k) "Expiration Date" means March 31, 2002.
(l) "Future Service" shall mean any service requested by Client outside the
scope of the Services.
(m) "Including" means including but not limited to.
(n) "Integrated System" means the combination of the Equipment, Systems and
PSC Work Product that is used by Perot Systems to perform the Services.
(o) "Key Staff" means the persons primarily responsible for provision and
management of the Services and Equipment, details of whom are set out in
Schedule J.
(p) "Losses" means all losses, liabilities, damages and claims, and all costs
and expenses relating to such losses, liabilities, damages and claims
(including attorneys' fees and costs of investigation, litigation, settlement,
judgment, and interest).
(q) "Millennium Compliance" means software which lacks any so called
Millennium Year 2000 bug.
(r) "Performance Standards" means the minimum grade of service requirements,
congestion level requirements, or availability standards for each Service:
(1) as set out in this Agreement, including Schedule C; or
(2) where relevant, as set out in any particular Service Level Agreement.
(s) "Personnel" means:
(1) any director or employee of Perot Systems;
(2) any agent, consultant or subcontractor retained by Perot Systems to
perform any tasks, works, functions or obligations under this
Agreement for Perot Systems; and
(3) each director, partner or employee of an agent, consultant or
contractor referred to in (b) who perform any tasks, works, functions
or obligations of such agent, consultant, or contractor.
(t) "PSC Work Product" means all works of authorship, including Software and
Software Documentation, and all inventions that are conceived, developed,
fixed in any tangible medium or reduced to practice by Personnel in connection
with the Services that are delivered to or used for the benefit of Client
under this Agreement.
(u) "Resources" means the Client Systems, Equipment, and Client Facilities.
(v) "Services" means the services, functions and responsibilities described in
Schedule D, as such Schedule may be amended from time to time pursuant to the
terms of this Agreement. Services exclude the services, functions and
responsibilities described in Schedule E.
(w) "Specification" means the documents approved by Client that describe the
Services or the functional and operational characteristics and requirements of
the Integrated System or any of its component parts.
(x) "System" means a computer program with supporting documentation, including
input and output formats, program listings, narrative descriptions and
operating instructions, together with the tangible media upon which the
program is recorded.
(y) "Term" means the term of the Agreement as set out in Section 1.
(z) "Third Party Intellectual Property" means any trade secret, invention,
work of authorship or other protectable interest that was not conceived or
developed by or under the direction of Perot Systems, including trade secrets,
inventions, works of authorship and other protectable interests conceived or
developed by Client, Client's suppliers or, other than independent contractors
retained specifically to develop software or to create other works of
authorship in connection with this Agreement, Perot Systems' suppliers.
(aa) "Trade Secrets" mean any plans, processes, devices, or information (e.g.,
source code, customer data, financial information) that (i) have independent
economic value, (ii) are not generally known to or ascertainable by proper
means by other persons, (iii) are the subject of reasonable efforts to
maintain their secrecy, and (iv) have been described in writing to Perot
Systems.
(bb) "Transition Period" means the three month period immediately after the
Effective Date.
(cc) "Transition Plan" means the plan referred to in Schedule L.
(dd) "Transitioned Employee" means each person identified in Schedule F who
accepts Perot Systems' offer of employment in accordance with Section 3.3.
1.2 OTHER DEFINITIONS Other terms used in this Agreement have the meanings
indicated by their context.
ARTICLE 2
TERM
----
2.1 TERM. The term of this Agreement will begin on the Effective Date and end
on the Expiration Date, unless terminated earlier pursuant to Article 11.
2.2 TRANSITION PERIOD.
(a) The parties acknowledge that as of the Effective Date Schedules A, B, C,
D, K, L, M, and N are incomplete ("Draft Schedules").
(b) During the Transition Period the parties will finalize the details of the
Draft Schedules.
(c) If the parties are unable to reach agreement on the final terms of the
Draft Schedules on or before the end of the Transition Period the
following arrangements will apply:
(1) Either party may terminate this Agreement by notice in writing to the
other party within 10 days after the end of the Transition Period.
(2) If the Agreement is terminated pursuant to paragraph (1):
(i) neither party will have any liability to the other party, except
for amounts payable to Perot Systems under Article 8 through the
date of termination;
(ii) Client or a third party vendor selected by Client will offer to
employ, subject to Client's or the third party vendor's standard
employment practices and policies, the Transitioned Employees.
Perot Systems will render reasonable assistance to Client in the
transfer of the Transitioned Employees;
(iii) Perot Systems may on notice in writing to Client, require Client to
re-purchase (at book value) any Equipment which Perot Systems may
have acquired from Client during the Transition Period.
ARTICLE 3
ACCOUNT MANAGEMENT AND PERSONNEL
---------------------------------
3.1 ACCOUNT MANAGER Perot Systems will designate an Account Manager ("Account
Manager") who will be directly responsible for coordinating and managing the
delivery of the Services and will have full authority to act on Perot Systems'
behalf with respect to all matters relating to this Agreement. The Account
Manager will work with the Client Representative to address Client's
information technology issues and strategies and the parties' relationship
under this Agreement.
3.2 CLIENT REPRESENTATIVE Client will designate a representative ("Client
Representative") who will be directly responsible for supervising the delivery
of the Services and have full authority to act on Client's behalf with respect
to all matters relating to this Agreement. The Client Representative will work
with the Account Manager to address Client's information technology issues and
strategies and the parties' relationship under this Agreement.
3.3 TRANSFER OF PERSONNEL.
(a) Perot Systems will offer to employ, subject to Perot Systems' standard
employment practices and policies, each person identified in SCHEDULE F that
is an employee of Client on the Effective Date. Perot Systems will offer each
such person a salary and benefits package, including disability, health and
life insurance coverage, comparable to that offered to other Perot Systems'
employees having similar skills and experience. Perot Systems will use
reasonable commercial efforts to employ each Transitioned Employee as soon as
practicable after the Effective Date.
(b) Upon Perot Systems' request, Client will act as Perot Systems' payroll and
benefits agent and make salary and benefits payments to Transitioned Employees
for a reasonable period after the Effective Date. In such event, Perot Systems
will reimburse Client for all such amounts properly paid to Transitioned
Employees.
(c) Client will be responsible for any severance or other payments to Client's
employees who are not hired by Perot Systems.
(d) Perot Systems will have no liability whatsoever arising out of the
employment of any individual identified on SCHEDULE F, whether or not such
individual becomes a Transitioned Employee, prior to the Effective Date and
thereafter only if such individual becomes a Transitioned Employee. Client
will have no liability whatsoever arising out of the employment of any
Transitioned Employee after the Transition Date; provided however, that Client
shall retain all responsibility and liability for compliance with the
requirements of Section 4980B of the Internal Revenue Code of 1986, as
amended.
3.4 ACKNOWLEDGMENT Perot Systems will use reasonable commercial efforts to
ensure that all Personnel who are to perform any tasks, works, functions or
obligations under this Agreement for or on behalf of Perot Systems shall be:
(a) of good fame and character, and without, to the extent permitted by
applicable law, a history of misconduct or dishonesty;
(b) appropriately competent and experienced in performing the tasks, works,
functions or obligations to be performed by such Personnel; and
(c) if required to perform the applicable task, work, function or obligation,
qualified, with appropriate U.S. qualifications or qualifications which are
recognized in or equivalent to qualifications recognized in the U.S.
3.5 KEY STAFF.
(a) Perot Systems will use reasonable commercial efforts to ensure that the
Personnel Specified in SCHEDULE J (Key Staff) shall be and remain employed by
Perot Systems for the first two years of the Term and their primary
responsibility shall be the performance of Perot System's obligations under
this Agreement.
(b) In addition to the Key Staff set out in SCHEDULE J, at the date hereof,
Perot Systems may from time to time nominate to client other Personnel as Key
Staff. The inclusion of such persons as Key Staff must be approved by Client
Representative. Perot Systems shall assist Client Representative in making
any inquiries deemed necessary to satisfy the Client Representative of the
suitability of such persons.
(c) Perot Systems shall notify Client Representative of the assignment of Key
Staff.
3.6 PROHIBITION ON REMOVAL During the first two years of the Term, Perot
Systems shall not terminate the services of nor procure the resignation of any
Senior Personnel (being the Account Manager and persons who report directly to
him) or remove any such Senior Personnel into another job classification or
assign Senior Personnel to perform different tasks, works, functions or
obligations under this Agreement, in each case without receiving the prior
written approval of Client; provided, however, that such approval will not be
required to terminate any Senior Personnel for Substantial Misconduct.
"SUBSTANTIAL MISCONDUCT" means conviction of a felony; breach of any
confidentiality or non-competition obligation; or failure to use good faith
efforts to carry out the reasonable directions, instructions, policies, rules,
regulations, or decisions of the Board of Directors of Perot Systems including
those related to business ethics and the ethical conduct of the business of
Perot Systems. Such approval will only be withheld if Client is satisfied
that the proposal will have a serious and adverse impact on the ability of
Perot Systems to perform its obligations under this Agreement.
3.7 RIGHT TO REQUEST REASSIGNMENTS, REPLACEMENTS AND REMOVAL. Client shall
have the right, upon giving not less than one month's notice in writing to
Perot Systems, to require Perot Systems to reassign, replace or remove any
Personnel where the performance of that Personnel is such that it may, in
Client's opinion, have a material and adverse impact on the ability of Perot
Systems to perform its obligations under this Agreement or provide the
Services.
3.8 TRAINING Perot Systems shall implement and maintain a policy of on-going
training for all Personnel to ensure that all Personnel have the requisite
skills and knowledge required to perform the tasks, works, functions and
obligations assigned to them by Perot Systems.
3.9 BACK-UP PERSONNEL Perot Systems shall ensure that there will be sufficient
back-up Personnel promptly to perform all activities under this Agreement in
the event that the Personnel who normally perform such activities are
temporarily unavailable due to sickness, holiday leave, or otherwise.
3.10 EMERGENCY SITUATIONS Perot Systems shall use extraordinary commercial
efforts to perform any activities required in the event of an Emergency or
other situation requiring high or unusual usage of the Equipment. Perot
Systems shall only be liable under this clause if the Equipment fails to meet
the Specifications or Performance Standards. Client shall reimburse Perot
Systems for all extraordinary costs and expenses incurred by Perot Systems in
connection with such extraordinary commercial efforts to the extent such costs
and expenses are not covered under a Disaster Recovery Agreement between
Client and Perot Systems.
3.11 ADDITIONAL PERSONNEL. If Perot Systems is consistently unable to meet
its Performance Standards obligations under this Agreement, Client may give a
direction in writing to Perot Systems requiring Perot Systems to employ or
retain additional Personnel in order that such obligations are performed.
Perot Systems shall, at Perot Systems' expense, comply with any commercially
reasonable direction given by Client under this section.
3.12 SUB-CONTRACTORS.
(a) Perot Systems shall not use any sub-contractor in connection with
performance of any substantial obligation of Perot Systems under this
Agreement without Client's prior written consent, which consent shall not
unreasonably be withheld.
(b) Each sub-contractor shall execute and deliver to Perot Systems an
appropriate confidentiality agreement in a form substantially similar to that
used by Perot Systems in connection with its own business activities, provided
that such confidentiality agreement is not inconsistent with the terms of this
Agreement.
ARTICLE 4
PEROT SYSTEMS' RESPONSIBILITIES
-------------------------------
4.1 SERVICES -- GENERAL.
(a) Perot Systems will provide to Client, and Client will obtain from Perot
Systems, on an exclusive basis, except as otherwise mutually agreed, Client's
requirements for the Services for the consideration described in Paragraph
8.1, provided that Client shall be entitled (i) to seek competitive bids for
requirements for Services or Future Services identified after the Effective
Date for which the incremental price to be charged under this Agreement will
exceed $100,000, and (ii) to purchase Client's hardware and software
requirements from third party vendors.
(b) Perot Systems shall meet the Performance Standards. In addition, upon
request by Client, Perot Systems shall provide additional services to Client
as described in Section 4.6.
4.2 SERVICES - PERFORMANCE GOALS. Perot Systems shall use reasonable
commercial efforts:
(a) to provide the Services and manage the Equipment for Client in an
efficient and effective manner; and
(b) to source and supply information technology and telecommunication products
and services for Client in a fair and competitive manner.
4.3 SOFTWARE DEVELOPMENT . In the event Client requests Perot Systems to
perform software development services as part of the Services or otherwise in
connection with the development of specific Systems, an appropriate, mutually
acceptable amendment to this Agreement will be prepared, which amendment will
address the ownership of intellectual property rights, including, to the
extent appropriate, the recoupment of Client's costs associated with the
development of that Systems in the event Perot Systems licenses that Systems
to an unrelated third party.
4.4 MILLENNIUM COMPLIANCE. Except as provided in a specific amendment to this
Agreement, Perot Systems will have no obligation to identify or mitigate
Client's exposure to the so-called "Millenium Bug" or any related issues.
Notwithstanding the foregoing, while performing its obligations under this
Perot Systems (i) will use reasonable commercial efforts to acquire hardware
and software products that are Millennium Compliant, and (ii) will ensure that
software that it develops is Millennium Compliant.
4.5 DISABLING CODE OR VIRUS.
(a) Perot Systems will not, without the prior consent of Client, insert into
any System any code which would reasonably be expected to have the intentional
effect of disabling or otherwise shutting down all or any portion of the
System. In addition, Perot Systems will not knowingly invoke any such
disabling code known or discovered to exist in any System, without Client's
prior consent.
(b) Each party shall use its best efforts to ensure that no viruses or similar
surreptitious code are introduced into the Systems used to provide the
Services. If such surreptitious code is introduced into such Systems, the
parties will each use its best efforts to minimize the adverse effects of the
such code and to assist Client to mitigate and correct such adverse effects.
4.6 FUTURE SERVICE . From time to time Client may request that Perot Systems
perform a Future Service. Provided that the service is one which Perot
Systems offers or makes available to any other client of Perot Systems, Perot
Systems shall provide the Future Service for the consideration specified in
Section 8.2. The parties shall execute a written amendment to this Agreement
setting forth any special terms and conditions applicable to such Future
Service, and Perot Systems will begin performing the Future Service: (1) upon
receiving Client's written approval of the authorization to proceed and
agreement to pay Perot Systems' charges and (2) after development of
Applicable Specifications for the future service.
4.7 TRANSITION PLAN.
(a) During the Transition Period, Perot Systems shall (i) perform the Services
generally described in the Draft Schedules to this Agreement, (ii) negotiate
with Client in good faith the Performance Standards and further refinements of
the descriptions of the Services to be provided, and (iii) develop a mutually
acceptable Transition Plan. The Transition Plan shall describe, among other
things, the migration of Client's information technology and
telecommunications services from Client's facilities to Perot Systems' Data
Center, shall include a task list with target dates and responsible personnel
for each required activity, and shall provide for an acceptance test to
ascertain whether the migration has been successfully completed and the
Integrated Systems operate in accordance with the Performance Standards.
(b) Unless otherwise agreed in the Transition Plan, Perot Systems will
establish an equipment configuration at Perot Systems' Data Center having
performance characteristics that are at least equivalent to the configuration
currently used by Client at its facilities and to test the operation of such
configuration to demonstrate that Perot Systems can successfully migrate
Client's information technology and telecommunications to the Perot Systems'
Data Center.
(c) Perot Systems will, in accordance with the Transition Plan, install,
integrate and test a parallel operations equipment configuration at Perot
System's Data Center, which configuration shall be at least equivalent in
processing capability or, in the case of telecommunications services,
transmission capability, to the configuration currently used by Client at its
own facilities.
(d) Upon completion of installation, integration and testing of the parallel
operations equipment configuration at Perot Systems' Data Center, Perot
Systems shall so certify to Client in writing. Client shall then perform any
inspection desired by Client of Perot Systems' Data Center to verify the
configuration and give its written consent to Perot Systems to commence the
Test Suite, which consent shall not be unreasonably withheld.
(e) In accordance with the terms set forth in the Transition Plan, Client will
supply to Perot Systems a master set of data (the "Test Suite"). Perot Systems
will load the Client Systems on the parallel operations equipment
configuration at Perot Systems' Data Center, and will process the Test Suite
at Perot Systems' Data on the parallel operations equipment configuration
using the Client Systems and deliver the results of such processing to Client
in a format reasonably specified by Client, for comparison by Client to the
results previously generated by Client in processing such data at Client's
facilities. If the results do not match those previously generated by Client,
Client and vendor will work to resolve and correct the differences.
(f) Upon successful completion of the Test Suite processing, Perot Systems
shall, in accordance with the terms and conditions of this Agreement,
immediately complete all steps necessary to make the final cut-over of all
information technology and telecommunications operations from Client's
facilities to Perot Systems' Data Center.
4.8 EQUIPMENT.
(a) Except as otherwise provided by this Agreement, Perot Systems will, at its
expense, provide, manage, support and, maintain the Equipment in accordance
with the Performance Standards and to ensure that all Equipment and Components
are kept in good working order.
(b) Client hereby appoints Perot Systems as its sole agent for all matters
pertaining to the Equipment arising on or after the Effective Date. Client
will notify all appropriate third parties of such appointment, and will take
no other action affecting Perot Systems' use of, or cost of using, the
Equipment without Perot Systems' prior consent.
(c) Client will (i) assign to Perot Systems all license, maintenance,
services, support and similar agreements relating to the Class A Equipment to
the extent permitted by such agreements or the consent of the other parties to
such agreements, or (ii) take such other action with respect to such
agreements as Perot Systems reasonably requests.
(d) Effective as of the Effective Date, Client hereby assigns, conveys and
transfers the Class A Equipment to Perot Systems free and clear of all liens
and encumbrances. As consideration for such assignment, Perot Systems will
pay Client an amount equal to the net book value of the Class A Equipment as
shown on Client's accounting books and records on the Effective Date, provided
that such books and records are maintained in accordance with generally
accepted accounting principles applied on a consistent basis.
(e) Upon expiration of each lease or similar agreement relating to each item
of Class B Equipment, Client will, at Perot Systems' reasonable request, use
reasonable commercial efforts to acquire such item. Immediately upon Client's
acquisition of such item, Client will assign, convey and transfer, and hereby
does assign, convey and transfer such item to Perot Systems and, thereafter,
such item will be deemed to be Class A Equipment. As consideration for such
assignment, Perot Systems will pay Client an amount equal to the purchase
price of such Class B Equipment.
(f) In order to meet Client's objectives, Client and Perot Systems acknowledge
that it will be desirable from time to time to replace, or make modifications
to the design and configuration of the Equipment and the Components.
Therefore Perot Systems shall:
(1) establish and maintain a mutually acceptable program for upgrading the
Equipment and the Components to incorporate new technologies as and when they
become available and to increase cost effectiveness and efficiency of the
Equipment, the Components and the Services;
(2) ensure that modification upgrading will not reduce the functionality of
the Equipment or any Component nor shall such modification or upgrading
adversely impact on any performance standards;
(3) submit to Client all material replacements, modifications to the design or
configuration of the Equipment or its Components for Client's acceptance,
which acceptance shall not be unreasonably withheld.
The cost of replacing, modifying or upgrading Equipment or Components shall be
borne by Client, unless otherwise agreed.
(g) During the Term, Perot Systems shall maintain an on-going inventory of all
Components, including but not limited to an inventory of all spare equipment.
Client may access the inventory at any time by giving notice to Perot
Systems.
4.9 SOFTWARE.
(a) Effective as of the Effective Date, Client hereby licenses Perot Systems
on a non-exclusive basis the right to use the Client Owned or Licensed Systems
identified in SCHEDULE A for the sole purpose of performing the Services for
the benefit of Client and its Subsidiaries. Perot Systems shall not be
entitled to use, reproduce, modify, distribute, disclose, reverse engineer or
otherwise utilize Client Owned or Licensed System other than in accordance
with the license granted in this subsection (a). The license granted in this
paragraph (a) will terminate on termination or expiration of this Agreement.
(b) Perot Systems will obtain any consents which are necessary to enable the
sub-license of the Licensed Systems to Perot Systems.
(c) Effective as of the Effective Date, Perot Systems will negotiate the
assignment of the Third-Party Software identified in Part B2 of SCHEDULE A
to Perot Systems.
4.10 PERFORMANCE STANDARDS.
(a) During the Transition Period, Perot Systems shall provide the Services at
service levels which are no less than the performance levels achieved by
Client as of the Effective Date.
(b) During the Transition Period, the parties will negotiate in good faith the
final Performance Standards. The final Performance Standards are intended to
be established to provide service levels that are better than or equal to the
performance levels being provided by Client as of the Effective Date. These
Performance Standards will be documented jointly by the parties and set forth
as SCHEDULE C.II.
(c) Perot Systems will use commercially reasonable efforts to meet or exceed
the Performance Standards. Any degradation of performance resulting from
service or resource reductions requested by Client, or any change in the
manner in which the Services are provided by Perot Systems approved by Client,
will not constitute a failure by Perot Systems to meet any applicable
Performance Standards.
(d) If requested by Client at the time Client requests or approves a service
or resource reduction or a change in the manner of delivery of the Services,
Perot Systems will review with Client, to the extent reasonably feasible under
the circumstances, the anticipated effect of such reduction or change on Perot
Systems' ability to meet the applicable Performance Standards.
4.11 SERVICE LEVEL AGREEMENTS.
(a) Unless the parties determine otherwise, before the provision of a Future
Service, or otherwise as directed by Client, Perot Systems shall deliver to
Client Perot Systems' suggested form of Service Level Agreement in respect of
such Service for Client's approval in accordance with this Section 4.12.
(b) Client may accept or reject a proposed form of Service Level Agreement
delivered to Client under Section 4.12(a). If Client rejects the form of such
Service Level Agreement, Client may give directions to Perot Systems as the
Client may reasonably consider necessary, to ensure that Perot Systems
prepares a form of Service Level Agreement acceptable to Client, but which
contains no provisions more onerous on Perot Systems than are imposed on it
under this Agreement.
(c) If, in respect of a Service Level Agreement, Client does not exercise its
rights under (b), or provide the directions referred to in (b) within seven
days of delivery of the Service Level Agreement, it shall be deemed to have
been accepted by Client.
(d) If Perot Systems fails to deliver to Client a form of Service Level
Agreement as required under this Section 4.12, Client may prepare a form of
Service Level Agreement which shall be binding upon Perot Systems provided
that it contains no provision more onerous on Perot Systems than are imposed
on Perot Systems under this Agreement.
4.12 REVIEW AND REVISION OF STANDARDS. The parties will periodically review
the Performance Standards and, if mutually agreed, will adjust the Performance
Standards to reflect appropriate changes in circumstances, such as
technological advances, changes in methods used generally to perform similar
services, or service or resource changes requested or approved by Client.
4.13 VERIFICATION OF COMPLIANCE. Perot Systems will provide Client with (i) a
quarterly report, in a form and with content mutually agreed by the parties,
and (ii) such other documentation and information as Client reasonably
requests, to verify that the Services and Future Services are being performed
in compliance with the Performance Standards.
4.14 CHANGE CONTROL. Within 90 days after the Effective Date, Perot Systems
will prepare and provide to Client a procedure (the "Change Control
Procedure"), which will provide, at a minimum, that Perot Systems will make no
change which materially and adversely affects the function or performance of
the Services, or which results in an increase in Perot Systems' charges to
Client, without first obtaining Client's approval.
4.15 USE OF RESOURCES. Perot Systems will manage and will have the right to
use the Resources and such other resources as and where Perot Systems deems
appropriate to perform the Services.
4.16 INSURANCE. During the Term, Perot Systems shall have and maintain in
force, at Perot Systems' sole expense, the following insurance coverages:
(a) Worker's Compensation Insurance, including occupational illness or disease
coverage, or other similar social insurance in accordance with the laws of the
country, state, or territory exercising jurisdiction over the employee and
Employer's Liability Insurance with a minimum limit of $1,000,000 per
occurrence.
(b) Commercial General Liability Insurance, including Products, Completed
Operations Liability and Personal Injury, Contractual Liability and Broad Form
Property Damage Liability coverage for damages to any property with a minimum
combined single limit of $2,500,000 per occurrence.
(c) Automotive Liability Insurance covering use of all owned, non-owned, and
hired automobiles with a minimum combined single limit of $2,000,000 per
occurrence for bodily injury and property damage liability.
(d) Errors and Omissions Insurance, covering data processing errors and
omissions and wrongful acts in the performance of the Services with a minimum
combined single limit per occurrence of not less than $2,000,000.
ARTICLE 5
CUSTOMER RESPONSIBILITIES
-------------------------
5.1 GENERAL. Client hereby appoints Perot Systems as its sole agent for all
matters pertaining to the Resources and will notify all appropriate third
parties of such appointment. Client will be responsible for the obligations
set forth in SCHEDULE H.
5.2 EQUIPMENT. Client will make the Class B Equipment available to Perot
Systems without charge for its use to perform the Services, and Perot Systems
will assume operational, including maintenance, and administrative
responsibility for each item of Class B Equipment as long as that item is used
by Perot Systems to perform the Services. Notwithstanding the foregoing,
Client will retain complete financial responsibility for the Class B
Equipment, including depreciation, insurance and taxes and all financial
obligations under any applicable lease, license, maintenance, services,
support and similar agreements relating to the Class B Equipment.
5.3 CLIENT FACILITIES. Commencing on the Effective Date, Client will provide
the Client Facilities to Perot Systems without charge. Perot Systems will
have access to Client Facilities 24 hours a day, seven days a week and will
comply with Client's reasonable security procedures while on the premises of
Client Facilities. In addition, Client will provide necessary storage space
for backup data files and will provide such additional storage space as may be
required by any change in Client's retention schedules.
5.4 INSURANCE. Client shall, at its expense, maintain at all times during the
term of this Agreement valid and collectible Comprehensive Airline Liability,
including Aircraft Liability, Passenger Liability, Public Liability and
Property Damage insurance, written on an "occurrence" basis. Such insurance,
and any Umbrella or Excess Liability insurance necessary to provide this limit
of liability, shall bear a combined single limit per occurrence and annual
aggregate of not less than $500,000,000, exclusive of defense costs. Such
insurance shall (a) acknowledge Perot Systems, its officers, agents and
employees as additional insureds as regards Perot Systems' acts or omissions;
(b) waive all rights of subrogation against Perot Systems; and (c) contain
standard cross-liability or severability of interest provisions.
ARTICLE 6
PROPRIETARY RIGHTS AND SOFTWARE
-------------------------------
6.1 PSC WORK PRODUCT.
(a) Subject to the license granted in Section 6.1(b), Perot Systems shall
retain all right, title and interest in and to all trade secret, copyright,
patent and other intellectual property rights in and to all PSC Work Product.
Notwithstanding the foregoing, Perot Systems hereby assigns to Client, to the
maximum extent permitted by applicable law, all right, title and interest in
and to all PSC Work Product to the extent that it contains Client's Trade
Secrets. In addition, Perot Systems hereby assigns to Client, to the maximum
extent permitted by applicable law, all right, title and interest in and to
all PSC Work Product incorporated into Systems transferred to Perot Systems on
the Effective Date.
(b) Upon termination of this Agreement, except in connection with Client's
breach of this Agreement, Perot Systems grants Client a 99-year, non-
exclusive, non-transferable, royalty-free, irrevocable, worldwide license to
use, reproduce, and create derivative works of all PSC Work Product that are
then being used by Perot Systems to provide Services, subject to the
following:
(1) Except to the extent required by natural disaster or similar emergency,
such PSC Work Product will not be operated, directly or indirectly, (A) by
persons other than bona fide employees of Client or, with Perot Systems'
consent, which consent will not be unreasonably withheld, third party service
providers who execute a confidentiality agreement with Perot Systems having
terms substantially similar to Section 10.4 of this Agreement, or (B) on
equipment that is not under the control of Client or such third party service
providers.
(2) Such PSC Work Product will not be used, copied or modified except for the
internal operations of Client.
(3) Such PSC Work Product will be Confidential Information and remain
perpetually subject to the provisions of Section 10.4.
(4) All copyrights, patent rights and other intellectual property rights in
and to all modifications and additions to such PSC Work Product shall be owned
by, and Client hereby assigns such modifications and additions to, Perot
Systems, subject to the license granted to Client in this Section 6.1(b).
Perot Systems will provide to Client one copy of the source code of all PSC
Work Product licensed to Client under this Section 6.1(b).
(c) Nothing in this Agreement shall be construed to restrict Perot Systems
from (1) developing or distributing products or performing services similar to
the PSC Work Product or the Services, or (2) using any concepts, know-how or
techniques developed by Perot Systems as a direct result of developing the PSC
Work Product or performing the Services to develop or distribute products or
to perform services for any other person, provided that Perot Systems does not
infringe any proprietary rights of Client which Client obtains pursuant to
Section 6.1(a).
6.2 THIRD PARTY INTELLECTUAL PROPERTY.
(a) Unless Perot Systems is authorized to do so by Client or the authorized
licensor of any applicable Third Party Intellectual Property, Perot Systems
shall not incorporate into any PSC Work Product, or use for the benefit of
Client in connection with the Services, any Third Party Intellectual Property.
(b) To the extent that Perot Systems is reasonably expected to use, reproduce
or create derivative works of Third Party Intellectual Property owned by or
licensed to Client to fulfill its obligations under this Agreement, Client
hereby authorizes Perot Systems, as an independent contractor, and grants to
Perot Systems, to the extent permitted by any applicable agreement to which
Client is a party, a non-exclusive, non-transferable, royalty-free license, to
use, reproduce and create derivative works of such Third Party Intellectual
Property to the extent necessary to, and for the sole purpose of, fulfilling
Perot Systems' obligations under this Agreement. Client, at no charge to Perot
Systems and with Perot Systems' cooperation and assistance, will obtain any
consents from third parties necessary to grant Perot Systems these rights.
(c) If (1) Perot Systems acquires the right to use, reproduce or create
derivative works of any Third Party Intellectual Property and (2) the PSC Work
Product contemplated by this Agreement to be developed by Perot Systems cannot
reasonably be used as contemplated by this Agreement unless Perot Systems can
transfer such rights to Client in accordance with the terms of this Agreement,
then Perot Systems shall use reasonable commercial efforts to obtain the right
to transfer such rights to Client. To the extent permitted, and subject to
the restrictions imposed, by the owner or licensor of that Third Party
Intellectual Property, Perot Systems assigns or sublicenses, as the case may
be, to Client all rights in and to all Third Party Intellectual Property that
forms part of a PSC Work Product that are necessary to allow Client to use
that PSC Work Product as contemplated by this Agreement upon acceptance of,
and payment for, that PSC Work Product.
6.3 CLIENT DATA.
(a) All data and information submitted to Perot Systems by Client in
connection with the Services and Future Services (the "Client Data") is and
shall remain the property of Client. Client Data shall not be (1) used by
Perot Systems other than in connection with providing the Services and the
Future Services, (2) disclosed, sold, assigned, leased or otherwise provided
to third parties by Perot Systems or (3) commercially exploited by or on
behalf of Perot Systems, its employees or agents.
(b) At its own expense, Perot Systems shall promptly correct any errors or
inaccuracies in the Client Data caused by Perot Systems. At Client's expense,
Perot Systems shall promptly correct any other errors or inaccuracies in the
Customer Data.
(c) Upon request by Client at any time, Perot Systems shall (1) at Client's
expense, promptly return to Client, in the format and on the media requested
by Client, all Client Data and (2) erase or destroy all Client Data in Perot's
posession. Any archival tapes containing Client Data shall be used solely for
back-up purposes.
(d) Perot Systems shall make tapes containing copies of any Client Data then
residing on Client Systems or Perot Systems' Systems (the "Back-up Tapes") and
shall maintain the Back-Up Tapes in accordance with procedures set forth in
EXHIBIT K. Perot Systems shall send the Back-Up Tapes to the off-site storage
facilities described in EXHIBIT K. Upon request, authorized personnel of
Client shall be permitted access to the off-site facilities during normal
business hours and subject to any reasonable security procedures or other
restrictions in effect at the off-site facilities at the time of the access.
At the end of every calendar month during the Term, Perot Systems shall
provide a copy of the Back-up Tapes made during such calendar month to Client
and Client shall reimburse Perot Systems for the cost of the media.
ARTICLE 7
CONTINUED PROVISION OF SERVICES
-------------------------------
7.1 DISASTER RECOVERY PLAN. During the Transition Period, Perot Systems will
prepare a proposal, to be attached as EXHIBIT K to this Agreement, for the
procedures to be followed with respect to the continued provision of the
Services and the Future Services in the event that Client's facilities or
Perot Systems' Data Center is unavailable for use because it has been
destroyed, damaged or is otherwise not available for use (the "Disaster
Recovery Plan") and providing a back-up procedure. Client shall promptly
review the proposed Disaster Recovery Plan and notify Perot Systems of its
acceptance or rejection of such proposal. If Client accepts such proposal, an
appropriate amendment to this Agreement will be prepared and executed by the
parties.
7.2 TERMINATION RIGHT. In the event the Services or Future Services are
provided from a disaster recovery site for more than 30 days, Client may
terminate this Agreement upon notice to Perot Systems.
7.3 TESTING. If Client elects to implement the proposed Disaster Recovery
Plan, Perot Systems shall test the Disaster Recovery Plan at least once every
calendar year during the Term and certify to Client that the Disaster Recovery
Plan is operational.
7.4 PRIORITY. Perot Systems shall consult with Client regarding the priority
to be given to the Services and the Future Services during the pendency of any
disaster. Perot Systems shall not be excused from implementing the Disaster
Recovery Plan as a result of the events described in Section 14.9., except to
the extent that such events affect the disaster recovery site.
ARTICLE 8
PAYMENTS TO PEROT SYSTEMS
-------------------------
8.1 SERVICE CHARGES. Client will pay Perot Systems for the Services in
accordance with SCHEDULE I.
8.2 ADDITIONAL SERVICES CHARGES. If Client requests Future Services from
Perot Systems, Client will pay Perot Systems for such services on such basis
as the parties may agree.
8.3 REIMBURSABLE EXPENSES. Client will pay or reimburse Perot Systems for its
reasonable and actual documented out-of-pocket expenses incurred in connection
with its performance of the Services, including non-routine travel and travel-
related expenses that comply with Client's travel expense policies, provided
that no such expenses will be incurred without Client's prior consent. Client
will also pay or reimburse Perot Systems for aggregate software license
transfer fees in excess of $25,000, and all license fees payable in connection
with any third-party software other than that listed in Schedule A, incurred
by Perot Systems at Client's request. Whenever reasonably practicable, air
travel will be booked on Client's flights.
8.4 TAXES. There will be added to any charges under this Agreement, and
Client will pay or reimburse to Perot Systems, amounts equal to any taxes,
however designated or levied based upon such charges, the Services, or this
Agreement, including state and local taxes, and any taxes or amounts in lieu
thereof paid or payable by Perot Systems in respect of the foregoing,
excluding franchise taxes and taxes based on the net income of Perot Systems.
Each party will cooperate with the other in minimizing any applicable tax
and, in connection therewith, Client will provide Perot Systems any resale
certificates, information regarding out-of-state use of materials, services or
sales, or other exemption certificates or information reasonably requested by
Perot Systems.
8.5 TIME OF PAYMENT. All amounts due hereunder will be due within, in the
case of base monthly service fees, 10 days, or, in the case other fees and
expenses, 30 days after receipt by Client of a Perot Systems invoice therefor
and shall be paid by wire transfer to a bank account specified by Perot
Systems. Perot Systems will submit invoices on a timely basis in accordance
with Schedule I and any applicable task order. Undisputed amounts not paid
when due will incur interest until paid at the Designated Interest Rate.
8.6 AUDITS. Perot Systems will permit Client or its designated
representatives access to Perot Systems' facilities to perform an semi-annual
audit of Perot Systems' records to the extent necessary to verify Perot
Systems' charges to Client for the then preceding year or any portion thereof.
Client will provide to Perot Systems a copy of the audit report resulting
from each such audit upon its completion. As soon as reasonably feasible
thereafter, the parties will review the audit report and work in good faith to
agree upon any reimbursement or upward adjustment of charges to Client and any
appropriate future adjustments to Perot Systems' charges and practices. If
such audit demonstrates that Perot Systems' invoiced charges for that period
exceed the correct charges for that period by more than five percent, Perot
Systems will pay or reimburse Client for the reasonable costs of such audit.
In the event Perot Systems desires to limit the scope of Client's audit rights
in order to protect confidential or proprietary information, the audit will be
conducted, at Perot Systems' expense, by an independent third party auditor
mutually acceptable to Perot Systems and Client who will verify Perot Systems'
charges to Client for the then preceding year without disclosing any Perot
Systems confidential or proprietary information to Client or any other party.
8.7 VERIFICATION OF COSTS. The charges set forth in this Agreement are based
upon information furnished by Client to Perot Systems, but not independently
verified by Perot Systems. Client represents to Perot Systems that such
information, particularly as it relates to costs, is to the best of Client's
knowledge, accurate and contains no material omissions. Accordingly, if any
such information should prove to be incorrect in any material respect,
appropriate adjustments may be made to Perot Systems' charges hereunder after
consultation between Client and Perot Systems.
8.8 TELECOMMUNICATIONS CHARGES. During the remaining term of Client's service
agreement with MCI, all telecommunications charges incurred by Perot Systems
in respect of the provisions of Services or Future Services shall be charged
to Client without a markup by Perot Systems. Telecommunications charges after
expiration of Client's service agreement with MCI will be included in the base
service fees, to the extent such charges are based on usage not greater than
the average monthly usage for the six month period commencing on the Effective
Date, for those years set forth in Schedule I. Notwithstanding the foregoing,
Perot Systems will provide, at its expense, all telecommunications services
necessary to connect the Equipment to Perot Systems' Data Center.
ARTICLE 9
RECORDS, REPORTING AND ACCESS
-----------------------------
9.1 RECORDS AND REPORTING.
(a) Perot Systems shall ensure that accurate records of all Client Data,
System documentation and records of any material other acts, matters or things
required under this Agreement shall at all times be complete and up to date.
Perot Systems shall give to Client on demand an electronic copy of any
information kept pursuant to this Paragraph (a).
(b) During the Transition Period, Perot Systems and Client shall establish
appropriate reporting requirements that will allow Client to verify Perot
Systems' compliance with the Performance Standards, and these reporting
requirements will be incorporated in SCHEDULE C.
9.2 RIGHT OF ACCESS. Client shall have the right at any time to inspect the
processing facilities and operating practices of Perot Systems for the purpose
of determining that Perot Systems security is adequate and that Client stored
at Perot Systems is adequately protected. Client personnel shall comply with
reasonable security requirements of Perot Systems. Perot Systems may require
advance notice of any access by Client to Perot Systems' facilities.
ARTICLE 10
CONFIDENTIALITY
---------------
10.1 CLIENT DATA. All Client Data will remain the property of Client. Perot
Systems will use such data or information solely in connection with performing
the Services.
10.2 SAFEGUARDING CLIENT DATA.
(a) Perot Systems will establish and maintain commercially reasonable
procedures and physical security measures to protect against the unauthorized
alteration, loss, or destruction of Client's Data in Perot Systems'
possession. Except as approved by Client, such procedures and physical
security measures will be no less rigorous than those in effect at the Client
Facilities prior to the Effective Date. Except as allowed in Section 9.2,
Client personnel will not enter any computer operations area or other
restricted access area in which Services are performed without Perot Systems'
prior consent, which consent will not be unreasonably withheld.
(b) At Client's request and expense in accordance with Section 8.2, Perot
Systems will establish and maintain additional procedures and physical
security measures to protect such data and information.
10.3 CONFIDENTIAL INFORMATION.
(a) Each party agrees that all information regarding the other party's
business activities and plans communicated to the receiving party will be
treated as confidential information ("Confidential Information").
Notwithstanding the foregoing, Confidential Information shall not include
information that (1) was previously known by the receiving party without an
obligation of confidentiality, (2) is independently developed by the receiving
party, (3) is or becomes publicly available without a breach of this Agreement
by the receiving party, (4) is disclosed to the receiving party by a third
person who is not required to maintain its confidentiality, or (5) is required
to be disclosed by reason of legal, accounting or regulatory requirements
beyond the reasonable control of the receiving party. The receiving party has
the burden of proving the applicability of the foregoing exceptions.
(b) Each party shall use at least the same degree of care, but no less than a
reasonable degree of care, to avoid unauthorized disclosure or use of the
other party's Confidential Information as it employs with respect to its own
Confidential Information of like importance.
(c) Each party may disclose Confidential Information only to its own officers,
directors, and employees and to its consultants and advisors who reasonably
need to know it. Each party shall be responsible to the other party for any
violation of this Agreement by its officers, directors, employees, consultants
or advisors.
(d) Neither party may print or copy, in whole or in part, any documents or
other media containing any Confidential Information, other than copies for its
officers, directors, employees, consultants, or advisors who are working on
the matter, without the prior consent of the other party.
(e) Neither party may use the other party's Confidential Information for
competing with the other party or for any purpose not in furtherance of this
Agreement.
(f) Promptly after termination or expiration of this Agreement, each party
will return or, with the consent of the other party, destroy all of other
party's Confidential Information, except for archival and backup copies that
are not readily available for use (other than archival and backup copies of
data and information specifically created as part of the Services) and
business records required by law to be retained.
(g) If either party becomes legally obligated to disclose any of the other
party's Confidential Information, the party subject to the obligation shall
notify the other party in writing promptly and shall cooperate with the other
party at the other party's expense in seeking a protective order or other
appropriate remedy.
(h) Each party agrees that in the event of a breach or threatened breach by
either party, including its officers, directors, consultants, or employees, of
the provisions of this Article 10, the non-breaching party will have no
adequate remedy in money damages and, accordingly, shall be entitled to seek
an injunction against such breach, in addition to any other legal or equitable
remedies available to it.
(i) Each party is disclosing Confidential Information solely on an "AS IS"
basis, with no warranties. The disclosing party will not be liable for any
damages arising out of the use of Confidential Information disclosed
hereunder.
ARTICLE 11
PERFORMANCE REVIEW AND TERMINATION
----------------------------------
11.1 PERFORMANCE REVIEW. The Account Manager and Client Representative will
meet as often as reasonably requested by either party to review the
performance of the parties under this Agreement. Each party will bear its own
costs and expenses incurred in connection with such review.
11.2 DISPUTE RESOLUTION. If any continuing dispute between the parties is not
resolved after reasonable attempts to resolve such dispute are made by either
party, then, upon the written request of either party, each party will appoint
an officer who does not spend most of his or her time on activities relating
to this Agreement, to meet with the other party's officer for the purpose of
resolving the dispute. The officers will negotiate in good faith to resolve
the dispute within 60 days without the necessity of any formal proceeding.
During the course of such negotiations, all reasonable requests made by one
party to the other for information will be honored. Both parties agree to
continue performing their respective obligations under this Agreement while
the dispute is being resolved, except to the extent that such obligations are
in dispute, unless and until this Agreement expires or is terminated in
accordance with its terms.
11.3 ARBITRATION. If the parties agree and if any dispute that is not
resolved through negotiation pursuant to Section 11.2, except for disputes
directly relating to infringement of intellectual property rights or a breach
of Section 10, the dispute shall be submitted for final and binding
arbitration in accordance with the following:
(a) Except as specified below or otherwise agreed in writing, the arbitration
will be conducted in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association.
(b) Any demand for arbitration or any counterclaim will specify in reasonable
detail the facts and legal grounds forming the basis for the claimant's
request for relief, and will include a statement of the total amount of
damages claimed, if any, and any other remedy sought by the claimant.
(c) The arbitration will be conducted by an arbitration panel consisting of a
single neutral arbitrator selected in accordance with those Commercial
Arbitration Rules.
(d) The arbitration proceedings will take place in Dallas, Texas.
(e) The arbitration panel may render awards of monetary damages, direction to
take or refrain from taking action, or both. However, the arbitration panel
may not award monetary damages in excess of the damages allowed pursuant to
Section 10.3 hereof.
(f) The arbitration panel may, at its discretion, require any party to the
arbitration to reimburse any other party to the arbitration for all or any
part of the expenses of the arbitration paid by the other party and the
attorneys' fees and other expenses reasonably incurred by the other party in
connection with the arbitration.
(g) Judgment upon the award rendered in the arbitration may be entered in any
court of competent jurisdiction.
11.4 TERMINATION FOR CAUSE.
(a) If either party materially breaches any of its duties or obligations
hereunder and such breach, if capable of cure, is not substantially cured
within (i) 30 days of notice specifying the breach for a breach of Client's
payment obligations hereunder, or (ii) 60 days of notice specifying the breach
for any breach not relating to payment, the other party may terminate this
Agreement for cause by giving notice to the party in default specifying the
date of termination. For purposes of this section, a "material breach"
includes, but is not limited to, any failure to meet Performance Standards for
which a right of termination is created by virtue of Schedule N.
(b) Notwithstanding paragraph (a) above, Client may terminate the whole or any
portion of this Agreement if there are recurrring failures by Perot Systems to
meet any one or more Performance Standards.
11.5 TERMINATION FOR INSOLVENCY. If either party is unable to pay its debts
generally as they come due or is declared insolvent or bankrupt, is the
subject of any proceedings relating to its liquidation, insolvency or for the
appointment of a receiver or similar officer for it, makes an assignment for
the benefit of all or substantially all of its creditors, or enters into an
agreement for the composition, extension, or readjustment of all or
substantially all of its obligations, then the other party may, by giving
notice thereof to such party, terminate this Agreement as of a date specified
in such notice of termination.
11.6 PARTIAL TERMINATION. Without limiting any of the rights contained in
this Agreement, Client may elect, in the termination notice given under
Section 11.4, partially to terminate this Agreement, in respect of any Service
or Future Service to which the default the subject of the notice relates. In
this event, Perot Systems and Client shall negotiate in good faith an
equitable adjustment to fees payable to Perot Systems under this Agreement,
and Perot Systems shall, in its sole discretion, continue to perform the
remaining part of this Agreement.
11.7 TERMINATION FOR CONVENIENCE.
(a) Beginning on the third anniversary of the Effective Date, Client may serve
notice of termination at any time for Client's convenience. Client agrees to
continue utilizing Services of Perot Systems for a period of not less than six
months after notice is given. Client shall pay Perot Systems, as Perot
Systems' sole remedy for termination, upon giving such notice the "Make Whole
Costs" (hereinafter defined) and a termination fee equal to the present value
of the remaining base monthly services charge. "Make Whole Costs" shall mean
all reasonable direct costs of Perot Systems associated with the early
termination of this Agreement, including:
(i) any equipment and facility lease termination penalties and transfer fees,
prorated over a period of the lesser of the Term or the entire lease term
existing during the Term,
(ii) Equipment and System book loss or sublease loss, and
(iii) severance or relocation payments to individuals employed by Perot
Systems that are dedicated solely to performing Services for Client, less
(iv) any savings associated therewith.
(b) RECHARACTERIZATION AFTER THE FACT. In the event that a purported
termination for cause by Client under Section 11.4 or 11.6 is determined by a
competent authority not to be properly a termination for cause, then such
termination by Client shall be deemed to be a termination for convenience
under this Section 11.7.
11.8 TERMINATION FOR CHANGE OF CONTROL. In the event of a change in control of
Perot Systems (other than through one or more public offerings of Perot
Systems' securities) where such control is acquired, directly or indirectly,
in a single transaction or series of related transactions at any time during
the Term (except that such change of control shall be measured during any six
month period only in respect of any period when the Perot Systems shall be
publicly owned), or all or substantially all of the assets of the Perot
Systems are acquired by a competitor of Client, or Perot Systems is merged
with or into an unaffiliated entity which is a competitor of Client to form a
new entity, then, at any time within six months after any such event, Client
may terminate this Agreement by giving Perot Systems written notice thereof
and designating a date upon which such termination shall be effective.
11.9 TERMINATION ASSISTANCE. Commencing upon any notice of termination by
either party or expiration of the term of this Agreement pursuant to Section
2.2 hereof, Perot Systems will provide to Client the termination assistance
reasonably requested by Client to allow the Services and Future Services to
continue without significant interruption or adverse effect and to facilitate
the orderly transfer of responsibility for the Services or Future Services to
Client or to a third party at Client's direction. Client will pay Perot
Systems for such assistance on a time and materials basis at Perot Systems'
then-current commercial billing rate therefor or on any other mutually
acceptable basis. The termination assistance to be provided to Client by
Perot Systems will include the following:
(a) Continuing to perform, for up to 180 days from the termination date, any
or all of the Services or Future Services then being performed by Perot
Systems.
(b) Developing, with the assistance of Client, a plan for the transition of
services from Perot Systems to Client or third party nominated by Client.
(c) Providing training for personnel of Client in the performance of the
services then being transitioned to Client.
(d) Making available to Client, pursuant to mutually acceptable terms and
conditions, any equipment owned or leased by Perot Systems that is then
dedicated solely to the performance of the Services or Future Services subject
to the terms of any applicable lease. Client may purchase any such equipment
owned by Perot Systems at Perot Systems' then current book value and, subject
to the terms of the applicable lease, may assume Perot Systems' rights and
obligations with respect to any such equipment leased by Perot Systems.
(e) Making available to Client, pursuant to mutually acceptable terms and
conditions, any third party services then being used by Perot Systems in the
performance of the Services. Perot Systems will be entitled to retain the
right to use any such third party services as Perot Systems may require in
connection with the performance of services for any other Perot Systems
customer.
(f) Assisting any new service provider nominated by Client (provided that such
service provider executes a nondisclosure agreement reasonably acceptable to
Perot Systems) as follows:
(1) notify the new service provider of procedures to be followed in transition
of services from Perot systems to the new service provider;
(2) reviewing all software libraries with the new service provider;
(3) explaining any applicable naming conventions used by Perot Systems;
(4) generating tapes and computer listings for relevant source code for Client
Owned software or Client Licensed Software that are to be turned over to the
new service provider;
(5) Unloading Client's production databases and making available tapes thereof
with content listings to the new service provider staff;
(6) assisting with the loading of the databases at the new service provider;
(7) assisting with turn over of any carrier agreements, telecommunications
infrastructure and network links to the new service provider;
(8) enabling Client to acquire the Equipment for the book value of such
Equipment;
(9) assisting Client in making offers of employment to the Transitioned
Employees; and
(10) other assistance reasonably required to transition the Services and
Future Services to a new service provider.
Upon any termination of this Agreement, Client will pay Perot Systems, on the
first day of each month and as a condition to Perot Systems' obligation to
provide termination assistance to Client, an amount equal to Perot Systems'
reasonable estimate of the total amount payable to Perot Systems for such
termination assistance for that month. Should Termination occur as a result
of a breach by Perot Systems, Perot Systems shall immediately on transfer of
services from Perot Systems to Client or Client's designated third party
service provider, repay or reimburse Client for any payments made by Client to
Perot Systems under this Section 11.9(f). For a reasonable period after Client
or a third party has assumed responsibility for the Services, Perot Systems
will cooperate with Client or such third party to resolve any outstanding
issues that may arise during such period, and Client will pay Perot Systems at
its then current commercial rates for such cooperation, which rates will not
be subject to repayment or reimbursement as provided in the preceding
sentence.
11.10 TRANSITION OF PEROT SYSTEMS PROPRIETARY SOFTWARE AND OTHER SYSTEM
SOFTWARE. Upon termination or expiration of this Agreement:
(a) With respect to the systems software proprietary to Perot Systems and not
generally commercially available, Perot Systems will either:
(1) grant Client, for use by Client or a third party service provider
rendering services to Client, a license to use such system software on
commercially reasonable terms, or
(2) at Client's option, recommend a commercially available substitute (if one
exists) to perform the same function. However, if a commercially available
substitute exists, then Perot Systems may elect not to grant Client a license
to use the Perot Systems' proprietary systems software, in which event Perot
Systems will, at its expense, perform and deliver to Client all conversions
necessary to enable Client or a third party service provider rendering
Services to Client to utilize such substitute in a manner that does not
prevent timely transition to Client or a third party service provider.
(b) With respect to generally commercially available systems software, if
Perot Systems has licensed or purchased and is using any such system software
solely for providing the Services or Future Services to Client at the date of
expiration or termination, and Client desires to use or have a third party
service provider use such system software, Client will reimburse Perot Systems
for initial license or purchase charges for such systems software in an amount
equal to the remaining unamortized cost of such systems software, if
depreciated over a five year life, pay any transfer fee or charge imposed by
any applicable vendor, and assume all license and maintenance payments due
after the date of termination.
(c) With respect to generally commercially available systems software, if
Perot Systems has licensed or purchased and is using any such system software
for providing the Services or Future Services to Client and other Perot
Systems' customers in a shared environment at the date of expiration or
termination, Perot Systems will assist Client in obtaining licenses for such
systems software subject to Client's payment of any license fee or charge
imposed by any applicable vendor.
(d) Perot Systems will return to Client all copies of the Client Owned and
Licensed Systems identified in Schedule A which are in Perot Systems'
possession.
ARTICLE 12
INDEMNITIES AND LIABILITY
-------------------------
12.1 CROSS INDEMNITY. Each party agrees to indemnify, defend, and hold
harmless the other party from and against all Losses arising from third-party
claims based on the negligence, gross negligence or willful misconduct of the
indemnifying party and arising out of (i) the death or bodily injury of any
person, or (ii) the damage, loss or destruction of any real or tangible
personal property of the indemnifying party.
12.2 INTELLECTUAL PROPERTY INDEMNITY.
(a) BY PEROT SYSTEMS. Perot Systems shall, at its expense, defend any claim
brought against Client alleging that (1) PSC Work Product infringes a third
person's copyright or trade secret enforceable where the affected PSC Work
Product or Software was installed by Perot Systems or was, to the knowledge of
Perot Systems as determined at the time of installation, to be used by, or for
the benefit of, Client, or (2) the method chosen and used by Perot Systems in
its sole discretion to implement the Specifications or the Services or Future
Services infringes a third person's patent enforceable where the affected PSC
Work Product was installed by Perot Systems or was, to the knowledge of Perot
Systems as determined at the time of installation, to be used by, or for the
benefit of, Client, and shall indemnify and hold Client harmless for all
Losses in connection with any such claims, provided that Client gives Perot
Systems (i) prompt notice of such claim, (ii) sole authority to defend or
settle the claim, and (iii) all necessary assistance and information to defend
or settle such claim.
(b) BY CLIENT.
(1) Client shall, at its expense, defend any claim brought against Perot
Systems alleging that Perot Systems' use, in accordance with the terms of this
Agreement, of Third Party Intellectual Property owned by or licensed to Client
infringes a third person's copyright, trade secret or patent (except as may
have been caused solely and directly by a modification to the Third Party
Intellectual Property by Perot Systems) enforceable where the affected Third
Party Intellectual Property is used by Perot Systems, and shall indemnify and
hold Perot Systems harmless for all Losses in connection with any such claim,
provided that Perot Systems gives Client (i) prompt notice of such claim, (ii)
sole authority to defend or settle the claim, and (iii) all necessary
assistance and information to defend or settle such claim.
(2) Client shall, at its expense, defend any claim brought against Perot
Systems alleging that a process or system having the characteristics or
functionality of the Integrated System described in the Specifications that
is implemented or used by Perot Systems or PSC Personnel infringes a third
person's patent, and shall indemnify and hold Perot Systems harmless for all
Losses in connection with any such claim, provided that Perot Systems gives
Client (i) prompt notice of such claim, (ii) sole authority to defend or
settle the claim, and (iii) all necessary assistance and information to defend
or settle such claim. This Section 12.2(b) does not apply to any claims
described in Section 12.2a)(2) and to PSC Work Product.
(c) MITIGATION. Upon receiving notice of an infringement claim, the
indemnifying party may, in its sole discretion, (1) modify the allegedly
infringing item to be non-infringing or (2) if, in the indemnifying party's
reasonable discretion, modification is not reasonably possible, obtain for the
indemnified party the right to continue to use the item in accordance with the
terms of this Agreement. If the indemnifying party elects to modify the
allegedly infringing item, (i) the indemnified party shall, without charge,
give the indemnifying party all assistance and information necessary to allow
the indemnifying party to make such modifications as promptly as practicable,
and (ii) all relevant inspection, test and acceptance criteria shall be
revised as appropriate to reflect such modifications.
(d) EXCLUSIONS. Notwithstanding the other provisions of this Section, the
indemnifying party shall have no liability to the indemnified party for any
claim of infringement based on the use or licensing of any portion of an
Integrated System modified by the indemnified party if the claim reasonably
relates to such modification.
12.3 LIMITATION OF LIABILITY. Except in connection with Section 12.2 or a
party's breach of Section 10.3, if either party ("Liable Party") becomes
liable to the other party ("Other Party") on account of the Liable Party's
performance or nonperformance of its obligations under this Agreement (except
for Client's payment obligations), whether arising by negligence, intended
conduct, or otherwise, the amount of damages recoverable against the Liable
Party for all events, acts and omissions will not exceed, in the aggregate, a
sum which is the total of the Base Charges and the Incremental charges for the
six month period prior to the date of breach. In no event shall either party
be liable for indirect, incidental, reliance, special, consequential or
punitive damages of any person, including third persons, arising out of or in
connection with this Agreement, even if such party has been advised of the
possibility of such damages in advance. Each party shall have a duty to
mitigate damages for which the other Party is responsible. No claim may be
asserted by either party against the other with respect to any event, act or
omission which occurred more than two years prior to the claim being asserted.
12.4 REMEDIES. During the Transition Period, the parties will complete
Schedule N specifying types of defaults in respect of Perot Systems failing to
deliver to Client a Deliverable or failing to comply with Schedule C
(Performance Standards) and further specifying the remedies, if any, in
respect of each such default.
ARTICLE 13
WARRANTIES
----------
13.1 BY CUSTOMER. Client warrants that:
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware;
(b) It has all the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement;
(c) The execution, delivery and performance of this Agreement has been duly
authorized by Client; and
(d) No approval, authorization or consent of any governmental or regulatory
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement.
13.2 BY PEROT SYSTEMS. Perot Systems warrants that:
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware;
(b) It has all the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement;
(c) The execution, delivery and performance of this Agreement has been duly
authorized by Perot Systems; and
(d) No approval, authorization or consent of any governmental or regulatory
authority is required to be obtained or made by it in order for it to enter
into and perform its obligations under this Agreement.
13.3 DISCLAIMER. Except as specified in this Article 13, neither Perot
Systems nor Client makes any other warranties in relation to the Services,
Future Services or the Integrated systems and each explicitly disclaims all
other warranties, express or implied, including the implied warranties of
merchantability and fitness for a specific purpose.
ARTICLE 14
MISCELLANEOUS
-------------
14.1 NO HIRE COMMITMENTS. During the term of this Agreement and for 12 months
thereafter, each party agrees that neither it nor any of its subsidiaries will
recruit or hire any person employed then or within the preceding 12 months by
the other party or any of its subsidiaries and who performed work in
connection with this Agreement without the prior consent of the other party;
provided, however, that this restriction will not apply to the initial
transfer of the Transitioned Employees from Client to Perot Systems or,
following termination of this Agreement (except a termination for cause by
Perot Systems) the transfer of Transitioned Employees to Client from Perot
Systems.
14.2 NOTICES. All consents, notices, requests, demands, and other
communications to be given or delivered under or by reason of the provisions
of this Agreement will be in writing and will be deemed given when delivered
personally against receipt, on the next business day when sent by overnight
courier, and on the fifth business day after being mailed by certified mail,
return receipt requested, to each party at the following address (or to such
other address as that party may have specified by notice given to the other
pursuant to this provision):
If to Perot Systems:
Perot Systems Corporation
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
Attn: President
With a copy to:
Perot Systems Corporation
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
Attn: General Counsel
If to Client:
Western Pacific Airlines Corporation
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attn: President
With a copy to:
Western Pacific Airlines Corporation
2864 S. Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attn: Nina A. Ortega, Esq.
14.3 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of each party and its respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned by either party
without the prior written consent of the other.
14.4 SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be deemed restated to
reflect the original intentions of the parties as nearly as possible in
accordance with applicable law, and, if capable of substantial performance,
the remaining provisions of this Agreement will be enforced as if this
Agreement was entered into without the invalid provision.
14.5 CAPTIONS. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
14.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts
all of which taken together will constitute one and the same instrument.
14.7 RELATIONSHIP OF PARTIES. Perot Systems, in furnishing services to Client
hereunder, is acting only as an independent contractor. Except as otherwise
provided herein, Perot Systems does not undertake by this Agreement or
otherwise to perform any obligation of Client, whether regulatory or
contractual, or to assume any responsibility for Client's business or
operations, and Perot Systems has the sole right and obligation to supervise,
manage, contract, direct, procure, perform or cause to be performed, all work
to be performed by Perot Systems hereunder unless otherwise provided herein.
14.8 APPROVALS AND SIMILAR ACTIONS. Where agreement, approval, acceptance,
consent or similar action by either party is required by any provision of this
Agreement, such action will not be unreasonably delayed or withheld unless
otherwise expressly provided.
14.9 FORCE MAJEURE. If either party is prevented, hindered, or delayed in the
performance or observance of any of its obligations hereunder, except for
Client's payment obligations, by reason of any circumstance beyond its
reasonable control, that party will be excused from any further performance or
observance of the obligation(s) so affected for as long as such circumstances
prevail and that party continues to use all commercially reasonable efforts to
recommence performance whenever and to whatever extent possible without delay.
14.10 MODIFICATION; WAIVER. This Agreement may be modified only by a written
instrument duly executed by or on behalf of each party. No delay or omission
by either party to exercise any right or power hereunder will impair such
right or power or be construed to be a waiver thereof. A waiver by either
party of any of the obligations to be performed by the other or any breach
thereof will not be construed to be a waiver of any succeeding breach thereof
or of any other obligation herein contained.
14.11 NO THIRD PARTY BENEFICIARIES. The parties agree that this Agreement is
for the benefit of the parties hereto and is not intended to confer any rights
or benefits on any third party, including any employee of either party, and
that there are no third party beneficiaries to this Agreement or any part or
specific provision of this Agreement.
14.12 GOVERNING LAW. The laws of the State of Texas will govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
14.13 ENTIRE AGREEMENT. This Agreement, including any exhibits, schedules or
appendices hereto or thereto, constitutes the final, entire, and exclusive
agreement among the parties with respect to its subject matter.
14.14 PUBLICITY. Neither party shall use the other party's name or refer to
it directly or indirectly in any media release, public announcement or public
disclosure relating to this Agreement or its subject matter, including in any
promotional or marketing materials, customer lists or business presentations
without approval from the other party for each such use or release.
14.15 SURVIVAL. The terms of Sections 2.2(c), 4.5, 8.6, 9.1(a), 11.9, 11.10,
14.1 and 14.4, and Articles 6, 10, and 12 shall survive the expiration of this
Agreement or termination of this Agreement for any reason.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed and
delivered by their duly authorized representative as of the date first set
forth above.
PEROT SYSTEMS CORPORATION WESTERN PACIFIC AIRLINES, INC.
- ------------------------- -----------------------------
<PAGE>
SCHEDULE A
CLIENT SYSTEMS
--------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997.
PART A: CLIENT-OWNED SYSTEMS
ACCOUNTING REPORTING - Revenue accounting application running on an HP9000
machine. On-line and batch processes. Import ReserVision (Informix) data into
Sybase via Access client.
CALL MANAGEMENT - Download call center data from AT&T phone switch for
analysis running on a Sun Sparc machine.
CARGO - Cargo tracking system running on HP9000. On-line and batch processes.
CRS INTERFACE(S) - Interface and reporting customization will be required to
support the coordination of inventory between ReserVision and Sabre.
FLIGHT INFORMATION DISPLAY SYSTEM (FIDS) - supports the display of departure
and arrival information at the Colorado Springs airport.
FREQUENT FLYER - Database which houses Client and promotional data on an
HP9000 machine. VB front end to ReserVision.
FLIGHT INFORMATION SYSTEM - Bridge application that supports the transfer of
information from the Flight Operations system to ReserVision.
FLIGHT OPERATIONS REPORTING SYSTEM - supports the front end of reporting for
Flight Operations
INTERNET WEB SERVER (www.westpac.com) - Client's external web page with
airline history and flight scheduling information.
HELP DESK - Application creates trouble tickets and provides a status to all
trouble tickets.
MYSTERY FARES - Client special promotion to unknown destinations. Special
promotion within ReserVision.
PASS BUREAU - Employees' friends and families flight information database
running on HP9000. On-line and batch processes.
REMOTE DIAL-IN - Supports the remote, secure access to the Client network of
eight (8) concurrent users. Secureid card access available to approximately
80 users to date.
RESERVISION HISTORY - Archive of ReserVision data on an HP9000 machine.
VACATION PACKAGES - Appendage to the ReserVision system running on HP9000.
Incorporates a Visual Basic Client.
WEB INTRANET DATABASE SERVER - Application used by reservation agents to
obtain general, static information. (Common Gate departures and arrivals,
etc.)
PART B-1: LICENSED SYSTEMS TO BE TRANSFERRED
Perot Systems will use reasonable commercial efforts to negotiate, on behalf
of Client, the transfer of the following third-party software product licenses
to Perot Systems. Perot Systems will use reasonable commercial efforts to
minimize charges payable in connection with such transfers. Client will
reimburse Perot Systems for all third party charges incurred by Perot Systems
in connection with such transfers, provided that Perot Systems will pay the
first $25,000 of such transfer charges.
<TABLE>
<CAPTION>
VENDOR PRODUCT NAME MONTHLY LEASE PAYMENT MONTHLY MAINTENANCE PAYMENT TRANSFER FEE
- ----------------------- ----------------------------------- --------------------- --------------------------- ------------
<S> <C> <C> <C> <C>
SBS International of Crew Planning System (SCS Pair & SBS $ 5,000.00 Prior Written
New York, Inc Lines) Consent
Tuxedo support covered in master
SBS Lease
Crew Management System (SBS Maestro) prior written
consent
Jeppesen Sanderson, Inc NavData $ 2,800.00 <F1> prior written
consent
US LAN Systems Corp USL Financials $ 500.00 prior written
consent
Airline Software, Inc. Airline Resource Management System $ 75.00 prior written
(ARMS) consent
Citrix Winframe $ 500.00
Cabletron Cabletron Spectrum Element Manager $ 62.50
AAMG inc Airsoft $ 6,250.00 prior written
consent
Microsoft Corporation Server family (NT srvr, client,
exchange server/client)
Windows family $ 3,333.33 prior written
consent
Office family prior written
consent
<FN>
<F1>
THIS LICENSE AGREEMENT IS CURRENTLY IN A SEVEN (7) YEAR TERM WITH ANNUAL INCREASES IN MAINTENANCE COSTS
</FN>
</TABLE>
PART B-2: LICENSED SYSTEMS TO BE RETAINED
Client will remain the licensee for the following third-party software product
licenses and will authorize Perot Systems to use such products on Client's
behalf. ClientPerot Systems will, on behalf of Client, administer the license
and maintenance agreements relating to these products, which administration
will include the payment of license and maintenance fees. Client will
reimburse Perot Systems for all license and maintenance fees incurred in
connection with these products.
MONTHLY MONTHLY
VENDOR PRODUCT NAME LEASE PAYMENT MAINT. PAYMENT
- --------------------- ----------------------- ------------- --------------
CISCO CiscoWorks $ 166.67
Northwest Aero
Associates, Inc. The Galaxy System (TGS) $ 350.00
Sterling Software CONNECT: Tracs for MS- $ 20.83
DOS (BSC)
Official Airline Guides OAG FlightDisk $ 130.25
Intersolv ODBC drivers
US LAN Accounting FRX
Ceridian Ceridian
Weather for Windows
Hewlett-Packard Magneto test
(optical drives)
General software house Crystal Reports
Pyramid PSNAP (E) $ 9,455.00
PYRDC
PMONITOR
SABRE Decision SABRE QIK
Technologies
Sybase, Inc. Sybase SQL Server $ 500.00
Open Client/D Dev Kit
SQL Server Monitor Server
SQL Server Monitor Client
SQL Monitor Bundle
Informix Informix Online Dynamic Finance Lease $ 5,322.92
Server Runtime (B) No. 41196-001
Illustra (D) Finance lease $ 6,063.75
No. 41196-002
Novell Netware F/S
Performix, Inc. Empower $ 700.00
TCS Management
Group, Inc Telecenter System $ 731.25
Restek Ltd. ReserVision $ 5,000.00
Boarding Control
(B), (D) THESE LICENSE AGREEMENTS ARE CURRENTLY FINANCED AND WILL RESULT NOT
ONLY IN MAINTENANCE EXPENSES BUT ALSO IN THE FULFILLING OF THE OBLIGATION OF
THE FINANCED PURCHASE. CONTRACT WILL REQUIRE THE PAYMENT OF SMALL MONTHLY
PAYMENTS FOLLOWED BY LARGE MONTHLY BALLOON PAYMENTS THROUGHOUT 1997.
(E) THESE PRODUCTS WERE PURCHASED AND THEIR MAINTENANCE AND SUPPORT ARE COVERED
UNDER THE PYRAMID LEASE CONTRACT.
SCHEDULE B
EQUIPMENT
----------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997.
Part 1: Class B Equipment. The following list sets forth the Class B
Equipment. Client will authorize Perot Systems to use such products on
Client's behalf. Perot Systems will, on behalf of Client, administer the lease
and maintenance agreements relating to the Class B Equipment, provided that
Client shall pay all lease and maintenance fees associated with the Class B
Equipment.
LESSOR, MASTER LEASE NUMBER, SCHEDULE NUMBER, SUMMARY DESCRIPTION
- -----------------------------------------------------------------
AT&T Credit Corporation W314804 00010 Definity Switch G3I
AT&T Credit Corporation W314804 00030 Definity Switch G3R upgrade
Technology Credit Corp (CISCO Systems) 7137 1 4500 and 2500 routers
Technology Credit Corp (CISCO Systems) 7137 3 2500 routers
Technology Credit Corp (CISCO Systems) 7137 4 2500 routers
Technology Credit Corp (CISCO Systems) 7137 5 2500 routers
Technology Credit Corp (CISCO Systems) 7137 6 2500 routers
Hewlett-Packard 4124 01733(A) H-50 Class Fileserver
Hewlett-Packard 4124 01733(B) SCSI Disk Drives and memory
Hewlett-Packard 4124 01733(C) SCSI Disk Drives and cabinetry
Hewlett-Packard 4124 1734 E-35 and H-60 Class systems
Hewlett-Packard 4124 01876 Ethernet Advisor (diag test)
CCA Financial/Nelco, Ltd. 02706 01 125 Personal Computers
CCA Financial/Nelco, Ltd. 02706 02 100 Personal Computers
CCA Financial/Nelco, Ltd. 02706 03 & 04 PC Workstations and laptops
CCA Financial/Nelco, Ltd. 02706 05 & 06 PC Workstations and laptops
Forum Financial Group 2770 01 100 Personal Computers & 50+ Printers
Forum Financial Group 2770 02 82 Personal Computers
Forum Financial Group 2770 03 5 Personal Computers
Forum Financial Group 2770 04 20 Personal Computers
Forum Financial Group 2770 05 15 Personal Computers
Forum Financial Group 2770 06 33 Personal Computers
Forum Financial Group 2770 07 26 Personal Computers
LESSOR MASTER LEASE NUMBER SCHEDULE NUMBER SUMMARY DESCRIPTION
AT&T Credit Corporation W314804 00010 Definity Switch G3I
AT&T Credit Corporation W314804 00030 Definity Switch G3R upgrade
Technology Credit Corp (CISCO Systems) 7137 1 4500 and 2500 routers
Technology Credit Corp (CISCO Systems) 7137 3 2500 routers
Technology Credit Corp (CISCO Systems) 7137 4 2500 routers
Technology Credit Corp (CISCO Systems) 7137 5 2500 routers
Technology Credit Corp (CISCO Systems) 7137 6 2500 routers
Hewlett-Packard 4124 01733(A) H-50 Class Fileserver
Hewlett-Packard 4124 01733(B) SCSI Disk Drives and memory
Hewlett-Packard 4124 01733(C) SCSI Disk Drives and cabinetry
Hewlett-Packard 4124 1734 E-35 and H-60 Class systems
Hewlett-Packard 4124 01876 Ethernet Advisor (diag test)
CCA Financial/Nelco, Ltd. 02706 01 125 Personal Computers
CCA Financial/Nelco, Ltd. 02706 02 100 Personal Computers
CCA Financial/Nelco, Ltd. 02706 03 & 04 PC Workstations and laptops
CCA Financial/Nelco, Ltd. 02706 05 & 06 PC Workstations and laptops
Forum Financial Group 2770 01 100 Personal Computers & 50+ Printers
Forum Financial Group 2770 02 82 Personal Computers
Forum Financial Group 2770 03 5 Personal Computers
Forum Financial Group 2770 04 20 Personal Computers
Forum Financial Group 2770 05 15 Personal Computers
Forum Financial Group 2770 06 33 Personal Computers
Forum Financial Group 2770 07 26 Personal Computers
Siemens Credit Corp. 975-0001020-000 2 Nile 150 Fileservers
Siemens Credit Corp. 975-0001020-000 Disk upgrade for Nile fileservers
Racal-Datacom 87591 Telecommunications hubs
Leasetec Corporation 5296 00 HP Netserver 5/133
Leasetec Corporation 5296 01 AS400 Model 200
Leasetec Corporation 5296 02 & 03 2 HP D250 & 2 HP K420
MicroTech Leasing (Varilease) 10777 01 Personal Computers
COMDISCO 01-SL77192 0001 25 IBM thinkpads
COMDISCO 01-SL77192 0002 upgrades for Netserver 5/133
COMDISCO 01-SL77192 0003 41 Personal Computers
Part 2: Class A Equipment. The following list sets forth the Class A
Equipment to be transferred to Perot Systems. The net book value set forth
below is estimated as of February 1997, and will be adjusted as soon as
practicable after the Effective Date.
SYS ASSET IN-SVC DEP REM UNADJ SALVAGE THRU CURRENT NET PCT
NO, NO,DESCRIPTION, DATE, METH,LIFE,BASIS, VALUE, DATE,ACCUM DEP,BK VAL,DEP
- ------------------------------------------------------------------------------
153 252 MERLIN PHO 8/28/94 SLMM 2 6 21,845.41 0 Feb-97 10,922.70 0 10,922.71 50
156 255 (7) CELL P 10/25/94 SLMM 00 08 1,480.76 0 Feb-97 1,192.84 0 287.92 80.6
157 256 T1 ESF CSU 11/18/94 SLMM 00 09 1,869.73 0 Feb-97 1,454.22 0 415.51 77.8
159 258 406CS/LS M 11/18/94 SLMM 00 09 6,952.00 0 Feb-97 5,213.99 0 1,738.01 75
162 261 MERLIN LED 11/28/94 SLMM 00 09 2,742.57 0 Feb-97 2,056.92 0 685.65 75
161 260 EQUIPMENT 12/1/94 SLMM 00 09 1,280.89 0 Feb-97 960.66 0 320.23 75
163 262 PBX ENGINE 12/10/94 SLMM 00 09 236.50 0 Feb-97 177.36 0 59.14 75
164 263 800 NATION 12/13/94 SLMM 00 09 1,734.68 0 Feb-97 1,301.02 0 433.66 75
165 264 ACD 10MB P 2/1/95 SLMM 00 11 938.59 0 Feb-97 651.79 0 286.80 69.4
166 265 (2) KENTRO 2/1/95 SLMM 00 11 8,760.10 0 Feb-97 6,083.40 0 2,676.70 69.4
168 267 SYSTEM 75 3/1/95 SLMM 01 00 4,180.20 0 Feb-97 2,786.80 0 1,393.40 66.7
169 268 CABLING MA 3/1/95 SLMM 01 00 2,769.12 0 Feb-97 1,846.08 0 923.04 66.7
167 266 EVEREST EL 3/1/95 SLMM 01 00 6,853.12 0 Feb-97 4,568.74 0 2,284.38 66.7
661 759 (3) TPXMIM 6/1/95 SLMM 01 03 13,959.33 0 Feb-97 8,142.94 0 5,816.39 58.3
662 760 SEHI-24 ST 6/1/95 SLMM 01 03 2,407.11 0 Feb-97 1,404.14 0 1,002.97 58.3
663 761 (2) ENET M 6/1/95 SLMM 1 3 30,601.24 0 Feb-97 17,850.71 0 12,750.53 58.3
664 762 (6) TPFOT- 6/1/95 SLMM 01 03 3,306.54 0 Feb-97 1,928.81 0 1,377.73 58.3
665 763 SEH-24 6/1/95 SLMM 01 03 1,332.31 0 Feb-97 777.17 0 555.14 58.3
666 764 S75 IN746B 6/1/95 SLMM 01 03 2,630.62 0 Feb-97 1,534.52 0 1,096.10 58.3
736 834 PATCH PANE 7/1/95 SLMM 01 04 1,992.84 0 Feb-97 1,107.13 0 885.71 55.6
863 961 50-SUPRA H 7/1/95 SLMM 01 04 4,221.65 0 Feb-97 2,345.36 0 1,876.29 55.6
881 979 U-A T & T 7/1/95 SLMM 01 04 118.00 0 Feb-97 65.55 0 52.45 55.6
882 980 U-A T T 7/1/95 SLMM 01 04 365.31 0 Feb-97 202.95 0 162.36 55.6
785 883 DSX-DR19 A 8/1/95 SLMM 01 05 1,407.27 0 Feb-97 742.73 0 664.54 52.8
786 884 A4-7030-GB 8/1/95 SLMM 01 05 1,147.07 0 Feb-97 605.40 0 541.67 52.8
848 946 LASER JET 7/1/95 SLMM 01 04 1,731.60 0 Feb-97 962.00 0 769.60 55.6
872 970 2-M8417 TE 8/1/95 SLMM 01 05 369.10 0 Feb-97 194.79 0 174.31 52.8
873 971 4-M8417 TE 8/1/95 SLMM 01 05 738.20 0 Feb-97 389.61 0 348.59 52.8
880 978 100-SUPRA 8/1/95 SLMM 01 05 7,121.40 0 Feb-97 3,758.51 0 3,362.89 52.8
937 1035 120-SUPRA 9/1/95 SLMM 01 06 8,267.99 0 Feb-97 4,134.00 0 4,133.99 50
938 1036 (4) SPEAKE 9/1/95 SLMM 01 06 1,123.30 0 Feb-97 561.64 0 561.66 50
939 1037 (5) PANASO 9/1/95 SLMM 01 06 1,188.73 0 Feb-97 594.36 0 594.37 50
940 1038 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
941 1039 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
942 1040 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
943 1041 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
944 1042 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
945 1043 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
946 1044 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
947 1045 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
948 1046 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
949 1046 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
950 1047 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
951 1048 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
952 1049 PORTABLE R 9/1/95 SLMM 01 06 617.09 0 Feb-97 308.55 0 308.54 50
953 1050 PORTABLE R 9/1/95 SLMM 01 06 617.11 0 Feb-97 308.55 0 308.56 50
954 1051 DSI TRUNK 9/1/95 SLMM 01 06 2,759.45 0 Feb-97 1,379.73 0 1,379.72 50
955 1052 TN754B NDI 9/1/95 SLMM 01 06 1,394.59 0 Feb-97 697.29 0 697.30 50
956 1053 DSI TRUNK 9/1/95 SLMM 01 06 2,755.25 0 Feb-97 1,377.63 0 1,377.62 50
957 1054 PATCH PANE 9/1/95 SLMM 01 06 2,122.83 0 Feb-97 1,061.41 0 1,061.42 50
958 1055 (3) DSI TR 9/1/95 SLMM 01 06 8,025.00 0 Feb-97 4,012.50 0 4,012.50 50
959 1056 DSI TRUNK 9/1/95 SLMM 01 06 2,675.00 0 Feb-97 1,337.50 0 1,337.50 50
960 1057 (10) DIGIT 9/1/95 SLMM 01 06 13,250.00 0 Feb-97 6,625.00 0 6,625.00 50
961 1058 (84) DEFIN 9/1/95 SLMM 01 06 55,440.00 0 Feb-97 27,720.00 0 27,720 50
962 1059 TELEPHONE 9/1/95 SLMM 01 06 2,775.70 0 Feb-97 1,387.84 0 1,387.86 50
1266 1366 116-P10 BA 10/1/95 SLMM 1 7 7,989.50 0 Feb-97 3,772.82 0 4,216.68 47.2
1267 1367 TELEPHONE 10/1/95 SLMM 1 7 30,299 0 Feb-97 14,307.86 0 15,991.14 47.2
1268 1368 5-7406 DIG 10/1/95 SLMM 01 07 4,738 0 Feb-97 2,237.38 0 2,500.62 47.2
1517 1616 DS3 EQUIPM 10/12/95 SLMM 1 7 11,511.70 0 Feb-97 5,436.07 0 6,075.63 47
1769 1868 TELEPORT 11/13/95 SLMM 1 8 14,229.97 0 Feb-97 6,324.42 0 7,905.55 44.4
1768 1867 FAX SERV 11/30/95 SLMM 1 9 24,271.75 0 Feb-97 10,113 0 14,158.51 41.7
2192 2291 3-PORTABLE 12/14/95 SLMM 03 09 1,891.00 0 Feb-97 472.75 0 1,418.25 25
2355 2454 21-PANASON 1/4/96 SLMM 03 10 1,751.92 0 Feb-97 408.77 0 1,343.15 23.3
2194 2293 RADIOS 1/15/96 SLMM 03 10 2,131.00 0 Feb-97 497.23 0 1,633.77 23.3
2325 2424 TELEPHONE 1/18/96 SLMM 01 11 15,954 0 Feb-97 5,761.16 0 10,192.84 36.1
2374 2473 MICROTECH 2/15/96 SLMM 03 11 1,214 0 Feb-97 263.03 0 950.97 21.7
2548 2647 3-HEADSETS 4/16/96 SLMM 04 02 390.68 0 Feb-97 65.11 0 325.57 16.7
2626 2725 6-KENTROX 4/22/96 SLMM 4 2 9,733.11 0 Feb-97 1,622.18 0 8,110.93 16.7
2628 2727 150-SUPPOR 4/22/96 SLMM 04 02 10,517 0 Feb-97 1,752.83 0 8,764.17 16.7
2625 2724 TAPE DRIVE 4/23/96 SLMM 04 02 6,240.00 0 Feb-97 1,040.00 0 5,200 16.7
2627 2726 4-PBX CARD 4/23/96 SLMM 4 2 13,116.75 0 Feb-97 2,186.12 0 10,930.63 16
2936 3034 CISCO ROUT 5/1/96 SLMM 00 02 31,117 0 Feb-97 25,930.83 0 5,186.17 83.3
2984 3082 5-SP50'S & 7/2/96 SLMM 04 04 3,684.80 0 Feb-97 491.30 0 3,193.50 13.3
2887 2985 DESK TRAC 7/25/96 SLMM 04 05 2,071.68 0 Feb-97 241.69 0 1,829.99 11.7
3053 3151 TELECONFER 8/16/96 SLMM 04 06 832.00 0 Feb-97 83.20 0 748.80 10
3052 3150 TELECONFER 8/29/96 SLMM 04 06 5,359.43 0 Feb-97 535.94 0 4,823.49 10
2985 3083 ELECTRICAL 9/15/96 SLMM 04 06 3,470.48 0 Feb-97 347.05 0 3,123.43 10
3051 3149 MICROHUBS 9/18/96 SLMM 02 07 301.85 0 Feb-97 41.93 0 259.92 13.9
3054 3152 WINFRAME 9/27/96 SLMM 4 7 28,550.58 0 Feb-97 2,379.21 0 26,171.37 8.3
3144 3240 4-SP50'S 1 11/6/96 SLMM 04 08 2,199.84 0 Feb-97 146.65 0 2,053.19 6.7
3145 3241 DESKTRAC A 11/19/96 SLMM 04 09 2,212.20 0 Feb-97 110.62 0 2,101.58 5
3195 3291 TELEPHONES 12/18/96 SLMM 04 10 6,668.67 0 Feb-97 222.28 0 6,446.39 3.3
3242 3338 TELEPHONE 1/1/97 SLMM 04 10 5,239.23 0 Feb-97 174.64 0 5,064.59 3.3
3262 3358 UPGRADE KI 1/1/97 SLMM 04 10 1,996.00 0 Feb-97 66.53 0 1,929.47 3.3
858 956 MICROTEST 6/1/95 SLMM 01 03 3,401.85 0 Feb-97 1,984.41 0 1,417.44 58.3
668 766 (49) LANTR 6/1/95 SLMM 01 03 13,708.24 0 Feb-97 7,996.46 0 5,711.78 58.3
2353 2452 HP 9000 SE 12/19/95 SLMM 01 10 14,383 0 Feb-97 5,593.21 0 8,789 38.9
2326 2425 NETWORK 1/17/96 SLMM 01 11 18,356 0 Feb-97 6,628.52 0 11,727.38 36.1
2703 2802 COMPUTER A 5/10/96 SLMM 02 02 1,459.69 0 Feb-97 405.47 0 1,054.22 27.8
2786 2885 ROUTER 6/3/96 SLMM 02 03 4,997.22 0 Feb-97 1,249.30 0 3,747.92 25
249 347 (3) COM LI 12/1/94 SLMM 00 09 1,710.00 0 Feb-97 1,377.50 0 332.50 80.6
250 348 (3) COM LI 12/1/94 SLMM 00 09 78.00 0 Feb-97 62.83 0 15.17 80.6
251 349 MERIDIAN D 12/1/94 SLMM 2 2 6,161.03 0 Sep-95 1,882.54 0 4,278.49 30.6
252 350 AMER POWER 12/1/94 SLMM 00 09 350.79 0 Feb-97 282.57 0 68.22 80.6
253 351 INTEL NET 12/1/94 SLMM 00 09 292.33 0 Feb-97 235.48 0 56.85 80.6
254 352 HP NET SER 12/1/94 SLMM 00 09 7,410.26 0 Feb-97 5,763.54 0 1,646.72 77.8
257 355 ADDED CAPA 12/1/94 SLMM 00 09 2,099.90 0 Feb-97 1,633.26 0 466.64 77.8
260 358 "(2) 78""X24" 12/1/94 SLMM 00 09 3,188.35 0 Feb-97 2,391.26 0 797.09 75
261 359 LAN ENGINE 12/10/94 SLMM 00 09 3,742.26 0 Feb-97 2,806.69 0 935.57 75
263 361 OFFICE AUT 12/1/94 SLMM 00 09 3,569.47 0 Feb-97 2,681.89 0 887.58 75.1
264 362 LAN/WAN 10 3/1/95 SLMM 01 00 2,153.42 0 Feb-97 1,435.61 0 717.81 66.7
864 962 ALTERNATIV 7/1/95 SLMM 01 04 938.13 0 Feb-97 521.18 0 416.95 55.6
963 1060 ENET MANAG 9/1/95 SLMM 01 06 6,518.6 0 Feb-97 3,259.30 0 3,259.30 50
964 1061 ENET MANAG 9/1/95 SLMM 01 06 6,518.62 0 Feb-97 3,259.30 0 3,259.32 50
2787 2886 LAN EQUIPM 5/31/96 SLMM 2 3 21,237 0 Feb-97 5,309.26 0 15,927.79 25
171 269 HP LASERJE 09/13/94 SLMM 0 7 3099.45 0 01/97 2496.77 0 602.68 80.6
172 270 HP LASERJE 09/13/94 SLMM 0 7 1487.69 0 01/97 1198.42 0.00 289.27 80.6
176 274 (1) 15" MA 10/03/94 SLMM 0 8 299 0 01/97 232.56 0.00 66.44 77.8
000173 271(3) HP JET 10/07/94 SLMM 0 8 921.62 0 01/97 716.82 0 204.80 77.8
000178 276 HP ETHERTW 10/07/94 SLMM 0 8 100.99 0.00 1/97 78.54 0 22.45 77.8
000179 277(4) EHTERT 10/17/94 SLMM 0 9 460.00 0.00 1/97 357.76 0 102.24 77.8
000180 278 10 BASE T 10/17/94 SLMM 00 09 245.00 0 1/97 190.56 0 54.44 77.8
000182 280 TOSHIBA PO 10/25/94 SLMM 0 9 2812.10 0.00 01/97 2109.07 0 703.03 75
000184 282 3COM ETHER 10/25/94 SLMM 0 9 211.25 0 1/97 158.44 0 52.81 75.0
000185 283 HP SCANJET 10/28/94 SLMM 0 9 246.97 0 1/97 192.08 0 54.89 77.8
000189 287 (12) 14.4 11/01/94 SLMM 0 9 3180.13 0 1/97 2385.08 0.00 795.05 75.0
000190 288 (12) NI-MH 11/01/94 SLMM 0 9 1267.29 0 1/97 950.46 0.00 316.83 75.0
000191 289 HP LASERJE 11/08/94 SLMM 0 9 1023.64 0 1/97 767.72 0.00 255.92 75.0
000186 282(2) HP LASE 11/11/94 SLMM 0 9 3186.92 0 1/97 2301.67 0 885.25 72.2
000195 293 LAN HIGH S 11/14/94 SLMM 0 9 357.21 0 1/97 257.98 0.00 99.23 72.2
000196 294 12 PORT TP 11/14/94 SLMM 0 9 818.25 0 1/97 590.95 0.00 227.30 72.2
000193 291 CLAMPS,CAB 11/17/94 SLMM 0 10 710.91 0 1/97 513.43 0.00 197.48 72.2
000197 295 12 MOUNTIN 11/17/94 SLMM 00 10 24.32 0 1/97 17.57 0 6.75 72.2
000198 296 IMO SINGLE 11/17/94 SLMM 00 10 94.38 0 1/97 68.16 0 26.22 72.2
000199 297 50 IMO BAS 11/17/94 SLMM 00 10 81.69 0.00 01/97 58.99 0 22.70 72.2
000200 298 4000 CMP L 11/17/94 SLMM 00 10 340.16 0 1/97 245.67 0 94.49 72.2
000201 299 (23) MLX 1 11/17/94 SLMM 00 10 9936 0 1/97 7176.19 0 2760.07 72.2
000202 300 5 PORT PAT 11/17/94 SLMM 00 10 1049.67 0 1/97 758.08 0 291.59 72.2
000213 311 (74) 25PR 01/01/95 SLMM 00 11 2109 0 1/97 1464.60 0 644.44 69.4
000217 315 21" COLOR 1/01/95 SLMM 00 11 1805.00 0 1/97 1253.47 0 551.53 69.4
000220 318 HP LASERJE 02/01/95 SLMM 01 00 2912 0 1/97 1941.84 0 970.92 66.7
000204 302 2 ANTI STA 12/07/94 SLMM 00 10 382.57 0 1/97 276.29 0 106.28 72.2
000208 306 24 PORT TP 12/07/94 SLMM 00 10 15070 0 1/97 10884.16 0 4186.23 72.2
000194 292 MEMORY & P 12/09/94 SLMM 00 10 924.81 0 1/97 667.91 0 256.90 72.2
000205 303 CABLE & PL 12/10/94 SLMM 00 10 975.25 0 1/97 704.34 0 270.91 72.2
000236 334 (4) CISCO 3/01/95 SLMM 01 01 1474.20 0 1/97 941.85 0 532.35 63.9
000215 313 HP LASERJE 1/01/95 SLMM 00 11 4441.75 0 1/97 3084.54 0 1357.21 69.4
000218 316 3 X 8 MB S 1/01/95 SLMM 00 11 1258.62 0 1/97 874.04 0 384.58 69.4
000221 319 LORAN DC P 1/26/95 SLMM 01 00 11712 0 1/97 7807.83 0 3903.93 66.7
000222 320 BATTERY RA 2/01/95 SLMM 01 00 1554.63 0 1/97 1036.42 0 518.21 66.7
000228 326 HP LASERJE 2/01/95 SLMM 01 00 6938.88 0 1/97 4625.91 0 2312.97 66.7
000230 328(2) 8MB, 3 3/01/95 SLMM 01 01 738.40 0 1/97 471.75 0 266.65 63.9
000232 330 (75) FELLO 2/01/95 SLMM 01 00 1891.50 0 1/97 1261.00 0 630.50 66.7
000233 331 (125) FELL 3/01/95 SLMM 01 01 3152.50 0 1/97 2014.09 0 1138.41 63.9
000234 332 NOVELL GUI 2/01/95 SLMM 01 00 72.74 0 1/97 48.50 0 24.24 66.7
000226 324 (2)8MB RA 2/01/95 SLMM 01 00 2413.03 0 1/97 1608.68 0 804.35 66.7
000239 337 (9)KENTRO 3/01/95 SLMM 1 1 19987.15 0 1/97 12769.56 0 7217.59 63.9
000242 340 KENTROX DA 3/01/95 SLMM 1 1 13538.07 0 1/97 8649.32 0 4888.75 63.9
000244 342 HP SCANJET 3/01/95 SLMM 1 1 664.56 0 1/97 424.58 0 239.98 63.9
001824 1923 TRAMCO-COM 4/01/95 SLMM 1 2 38337 0 1/97 23428.14 0 14908.82 61.1
000568 666 3M 500CT R 5/01/95 SLMM 1 3 10280 0 1/97 599.67 0.00 428.33 58.3
000569 667 3M 500CT R 05/01/95 SLMM 1 3 1028.00 0 1/97 599.67 0 428.33 58.3
000467 565 MAGTRON PE 05/01/95 SLMM 2 7 3326.12 0 9/95 461.97 0 2864.15 13.9
000494 592 2147 MB HA 5/01/95 SLMM 01 03 1256.90 0 1/97 733.19 0 523.71 58.3
000495 593 (25) SURGE 5/01/95 SLMM 01 03 364.00 0 1/97 212.33 0 151.67 58.3
000567 665 ICCI FIDS2 5/01/95 SLMM 1 3 3710.00 0 1/97 2164.17 0 1545.83 58.3
000460 558 3.2 NIPPON 5/01/95 SLMM 1 3 1170.00 0 1/97 682.50 0 487.50 58.3
000461 559 3.2" NIPPO 5/01/95 SLMM 1 3 1170.00 0.00 1/97 682.50 0 487.50 58.3
000462 560 LASERJET 4 5/01/95 SLMM 1 3 4263.98 0 1/97 2487.32 0 1776.66 58.3
000463 561 LASERJET 4 5/01/95 SLMM 1 3 4263.98 0 1/97 2487.32 0 1776.66 58.3
000464 562 LASERJET 4 5/01/95 SLMM 1 3 1731.60 0.00 1/97 1010.10 0 721.50 58.3
000465 563 LASERJET P 5/01/95 SLMM 1 3 1731.60 0.00 1/97 1010.10 0 721.50 58.3
000466 564 LASERJET 4 5/01/95 SLMM 1 3 5094.96 0.00 1/97 2972.05 0 2122.91 58.3
000468 566 (75) MEMO 5/01/95 SLMM 2 7 15570.00 0 9/95 2162.50 0.00 13407.50 13.9
000496 594 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000497 595 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000498 596 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000499 597 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000500 598 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000501 599 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000502 600 TPXMIM 34 5/01/95 SLMM 1 3 4646.78 0 1/97 2710.62 0.00 1936.16 58.3
000503 601 TPXMIM 34 5/01/95 SLMM 1 3 4646.79 0 1/97 2710.62 0.00 1936.1 58.3
000504 602 SEHI-24 ST 5/01/95 SLMM 1 3 3084.85 0 1/97 1799.49 0.00 1285.4 58.3
000505 603 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000506 604 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000507 605 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000508 606 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000509 607 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000510 608 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000511 609 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000512 610 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000513 611 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000514 612 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000515 613 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000516 614 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000517 615 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000518 616 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000519 617 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000520 618 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000521 619 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000522 620 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000523 621 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000524 622 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000525 623 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000526 624 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000527 625 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000528 626 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000529 627 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000530 628 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000531 629 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000532 630 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000533 631 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000534 632 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000535 633 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000536 634 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000537 635 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000538 636 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000539 637 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000540 638 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000541 639 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000542 640 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000543 641 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000544 642 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000545 643 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000546 644 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000547 645 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000548 646 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000549 647 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000550 648 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000551 649 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000552 650 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000553 651 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000554 652 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000555 653 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000556 654 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000557 655 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000558 656 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000559 657 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000560 658 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000561 659 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000562 660 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000563 661 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000564 662 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000565 663 TELLURE AR 5/01/95 SLMM 1 3 297.83 0 1/97 173.74 0.00 124.09 58.3
000566 664 TELLURE AR 5/01/95 SLMM 1 3 298.15 0 1/97 173.92 0.00 124.23 58.3
000570 668 P36HV 36KV 5/01/95 SLMM 1 3 27027 0 1/97 15765.73 0 11261.25 58.3
000648 746 SURESTOR 6 6/01/95 SLMM 1 4 3131.20 0 1/97 1740 0.00 1391.65 55.6
000654 752 (14) TPXMI 6/01/95 SLMM 1 4 62930.00 0 1/97 34961 0.00 27969 55.6
000655 753 ACCESSORIE 6/01/95 SLMM 1 4 12812.55 0 1/97 7118 0.00 5694.47 55.6
000656 754 (28) CABLE 6/01/95 SLMM 1 4 1199.12 0 1/97 666.17 0.00 532.95 55.6
000657 755 ENET MANAG 6/01/95 SLMM 1 4 6461.84 0 1/97 3589.91 0.00 2872 55.6
000658 756 ENET MANAG 6/01/95 SLMM 1 4 6461.84 0 1/97 3589.91 0.00 2872 55.6
000659 757 DTWU-0534 6/01/95 SLMM 1 4 8122.30 0 1/97 4512.38 0.00 3610 55.6
000660 758 DTWU-0534 6/01/95 SLMM 1 4 8797.05 0 1/97 4887.25 0.00 3910 55.6
000879 977 129-ARTICU 6/01/95 SLMM 1 4 7885.33 0 1/97 4380.73 0.00 3505 55.6
000727 825 S6400 MODE 7/01/95 SLMM 1 5 3383.69 0 1/97 1785.84 0.00 1598 52.8
000729 827 LASERJET 4 7/01/95 SLMM 1 5 1731.60 0 1/97 913.90 0.00 817.70 52.8
000730 828 LASERJET 4 7/01/95 SLMM 1 5 1999.20 0 1/97 1055.13 0.00 944.07 52.8
000731 82 MODULAR PL 7/01/95 SLMM 1 5 286.00 0 1/97 150.94 0.00 135.06 52.8
000870 968 LASERJET 4 8/01/95 SLMM 1 6 3719 0 1/97 1859.51 0.00 1859.53 50.0
000871 969 LASERJET 4 8/01/95 SLMM 1 6 3254.16 0 1/97 1627.08 0.00 1627 50.0
001830 1929 COMPUTER C 7/31/95 SLMM 1 6 3167.67 0 1/97 1583.84 0.00 1584 50.0
000924 1022 U-GLOBAL C 9/01/95 SLMM 1 7 206.41 0 1/97 97.47 0.00 108.94 47.2
000925 1023 U-GLOBAL C 9/01/95 SLMM 1 7 203.90 0 1/97 96.29 0.00 107.61 47.2
000926 1024 U-GLOBAL C 9/01/95 SLMM 1 7 31.10 0 1/97 14.69 0.00 16.41 47.2
000929 1027 100-ANTI G 9/01/95 SLMM 1 7 2522.00 0 1/97 1191 0.00 1331.06 47.2
000931 1029 3-LASERJET 9/01/95 SLMM 1 7 5194.80 0.00 1/97 2453 0.00 2742 47.2
000932 1030 8-PRINTERS 9/01/95 SLMM 1 7 4501 0 1/97 2125.53 0.00 2375.59 47.2
000933 1031 14-PRINTER 9/01/95 SLMM 1 7 3130.40 0 1/97 1478.24 0.00 1652 47.2
000934 1032 3-VIDEO DR 9/01/95 SLMM 1 7 3560.00 0 1/97 1681.11 0.00 1879 47.2
000936 1034 #63155 POR 9/01/95 SLMM 1 7 5819.50 0 1/97 2748 0.00 3071.41 47.2
001118 1218 712/60 CPU 8/31/95 SLMM 1 7 6185 0 1/97 2920.76 0.00 3264.38 47.2
001265 1365 48 PORT TE 10/01/95 SLMM 1 8 2745.60 0 1/97 1220.26 0.001525 44.4
001332 1432 PRINTER ST 10/01/95 SLMM 1 8 209.95 0 1/97 93.31 0.00 116.64 44.4
001514 1613 9-OKIDATA 10/16/95 SLMM 1 9 2106.00 0 1/97 877.50 0.00 1229 41.7
001515 1614 ACE/SERVER 10/16/95 SLMM 1 9 9161.74 0 1/97 3817.39 0.00 5344 41.7
001767 1866 PRINT SERV 10/24/95 SLMM 1 9 3319.68 0 1/97 1383 0.00 1936.48 41.7
002324 2423 COMPUTER C 11/01/95 SLMM 1 9 10203.44 0 1/97 4251 0.00 5952 41.7
002189 2288 LASERJET 4 11/09/95 SLMM 1 9 1748.24 0 1/97 728.44 0.00 1020 41.7
002190 2289 LASERJET P 11/28/96 SLMM 2 10 3216.82 0 1/97 178.72 0.00 3038 5.6
002191 2290 LASERJET P 11/28/95 SLMM 1 10 3216.82 0 1/97 1251 0.00 1966 38.9
002109 2208 OPTICAL DI 12/31/95 SLMM 1 11 995 0 1/97 359.30 0.00 635.70 36.1
002354 2453 MINI PRINT 1/05/96 SLMM 1 11 4149.60 0 1/97 1498 0.00 2651.14 36.1
002623 2722 POWER SUPP 1/21/96 SLMM 4 00 1496.04 0 1/97 299 0.00 1196.84 20.0
002547 2646 PERFORMIX 3/18/96 SLMM 4 2 8500 0 1/97 1416.66 0.00 7083.34 16.7
002477 2576 COMPONENTS 3/20/96 SLMM 2 2 208.22 0 1/97 57.84 0.00 150.38 27.8
002584 2683 ACE SERVER 3/20/96 SLMM 2 2 2869.00 0 1/97 796.94 0.00 2072 27.8
002746 2845 COMPUTERS 5/01/96 SLMM 2 3 4139.56 0 1/97 1035 0.00 3104.68 25.0
002624 2723 3-BACKUP P 5/02/96 SLMM 2 3 510.90 0 1/97 127.72 0.00 383.18 25.0
002702 2801 COMPUTER A 5/14/96 SLMM 2 3 472.75 0 1/97 118.19 0.00 354.56 25.0
002785 2884 VECTRA VE2 5/15/96 SLMM 2 3 2591 0 1/97 647.76 0.00 1943.30 25.0
002784 2883 BEX8505XL 6/13/96 SLMM 2 4 2247.16 0 1/97 499.37 0.00 1747.79 22.2
002783 2882 CISCO PROC 6/23/96 SLMM 2 5 28564.46 0 1/97 5554 0.00 23010 19.4
002981 3079 2-SERVERS/ 7/30/96 SLMM 2 6 3486.08 0 1/97 581.01 0.00 2905 16.7
002886 2984 CICSO ACCE 8/05/96 SLMM 2 6 117.20 0 1/97 19.53 0.00 97.67 16.7
002982 3080 REPEATER P 8/12/96 SLMM 2 6 4114.85 0 1/97 685.81 0.00 3429 16.7
002983 3081 KEYBOARDS 8/22/96 SLMM 2 7 1025.09 0 1/97 142.37 0.00 882.72 13.9
003048 3146 MICE, KEYB 8/26/96 SLMM 2 7 5840.73 0 1/97 811 0.00 5029.52 13.9
003049 3147 ACCESSORIE 8/29/96 SLMM 2 7 320.00 0 1/97 44.45 0.00 275.55 13.9
003050 3148 ACCESSORIE 8/29/96 SLMM 2 7 258.50 0 1/97 35.90 0.00 222.60 13.9
003142 3238 HARDWARE B 11/06/96 SLMM 2 9 2402.01 0 1/97 200.17 0.00 2202 8.3
003143 3239 NETWORK LI 11/13/96 SLMM 2 9 2309.44 0 1/97 192.45 0.00 2117 8.3
003193 3289 COMPUTER E 12/04/96 SLMM 2 10 424.39 0 1/97 23.57 0.00 400.82 5.6
003194 3290 COMPUTERS 12/04/96 SLMM 2 10 4867.40 0 1/97 270.41 0.00 4597 5.6
003218 3314 6 PRINTERS 12/31/96 SLMM 2 11 1831.00 0 1/97 50.86 0.00 1780 2.8
003240 3336 TOWER CASE 1/01/97 SLMM 2 11 3163.82 0 1/97 87.88 0.00 3075.94 2.8
003241 3337 READERS 1/01/97 SLMM 2 11 700.44 0 1/97 19.45 0.00 680.99 2.8
003249 3345 NETWORK EQ 1/01/97 SLMM 4 11 2787.20 0 1/97 46.45 0.00 2740.75 1.7
Perot Systems will also purchase the following additional assets:
22 PCs purchased from the Inacom lease. $ 31,364.00
A diesel power generator. $ 80,000.00
Data center buildout on 8th floor. $ 20,000.00
GRAND TOTAL FOR ASSETS IS $790,225.
SCHEDULE C
PERFORMANCE STANDARDS
---------------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997.
DURING THE TRANSITION PERIOD, PEROT SYSTEMS AND CLIENT WILL NEGOTIATE MUTUALLY
SATISFACTORY PERFORMANCE STANDARDS. PEROT SYSTEMS AND CLIENT INTEND THAT THE
PERFORMANCE STANDARDS WILL BE ESTABLISHED BASED ON CLIENT'S CURRENT PERFORMANCE
LEVELS AS OF THE EFFECTIVE DATE BUT, TO THE EXTENT REASONABLY PRACTICABLE, WILL
EXCEED CLIENT'S CURRENT PERFORMANCE LEVELS. PEROT SYSTEMS AND CLIENT WILL
REVIEW, AND MAKE MUTUALLY SATISFACTORY ADJUSTMENTS TO, THE PERFORMANCE
STANDARDS ON AN ANNUAL BASIS. IN ADDITION, EITHER CLIENT OR PEROT SYSTEMS MAY,
AT ANY TIME UPON NOTICE TO THE OTHER PARTY, INITIATE NEGOTIATIONS TO REVIEW AND
MAKE MUTUALLY SATISFACTORY ADJUSTMENTS TO THE PERFORMANCE STANDARDS.
THE FOLLOWING SETS FORTH SERVICE LEVEL PARAMETERS CURRENTLY UNDER DISCUSSION BY
THE PARTIES AS A GUIDE FOR NEGOTIATING THE FINAL PERFORMANCE STANDARDS.
1.0 DEFINITION OF TERMS
"ON-LINE RESPONSE TIME" shall mean the time from the moment the transaction
enters the CPU until the transaction is completed on the CPU.
"PRIME TIME" shall mean 7:00 AM to 5:30 PM, Mountain Time, Monday through
Friday.
"REMOTE ACCESS" shall mean connection to a Local Area Network from a remote
location.
"SYSTEM AVAILABILITY" shall mean the time that a system is available for user
processing.
* All availability parameters are subject to Force Majeure, Client-requested
downtime and Client-caused downtime.
2.0 PROCESS
2.1 MEASUREMENT AND REPORTING
Perot Systems agrees to measure its performance of Services during the term of
this Agreement. This reporting shall include descriptions of extraordinary
events, and, where appropriate, remedies that have been identified to reduce
or eliminate such problems.
3.0 CLIENT REQUIREMENTS
Client requires that the following Performance Standards be met during the
term of the Agreement:
CRITICAL SYSTEMS
The following Service Levels are required for Client's critical Systems.
These Systems are listed in Section 4.
TRANSACTION RESPONSE TIME - Perot Systems will maintain or improve the
transaction response time for critical Systems in comparison to the
transaction response time for such Systems on the Effective Date. Perot
Systems will monitor and report on the response activity to ensure timely
system access.
SYSTEM AVAILABILITY - Systems shall be available [TBD]% of the time during
Prime Time. During hours other than Prime Time, servers shall be available
[TBD]% of the time, excluding scheduled maintenance and back-ups.
RECOVERY UPDATE PROCESS - Perot Systems will respond to errors based on the
Performance Standards defined in the HELP DESK SERVICE LEVEL SEVERITY TABLE
listed below.
Wide Area Network Management (WAN)
During Prime Time, the WAN shall be available [TBD]% of the time. The WAN will
be remotely accessible 24 hours a day, 7 days a week as the reference period
for availability measurement. Exclusions permitted are Force Majeure, Client-
requested downtime and Client-caused downtime. During times other than Prime
Time the WAN shall be available [TBD]% of the time.
Voice Network (Telecommunications)
Voice Network (telecommunications) Services will be accessible 24 hours a day,
7 days a week as the reference period for availability measurements.
During Prime Time, the PBX and voice mail shall be available [TBD]% of the
time. During times other than Prime Time, the availability of the PBX and
voice mail shall be [TBD]%.
Moves/adds/changes shall be completed within [TBD] Prime Time hours of user
request [TBD]% of the time.
Help Desk
The Help Desk shall be available to receive and process user calls during
Prime Time 100% of the time.
The speed with which calls are answered by a human being once they reach the
phone switch is as follows:
80 % of all calls will be answered within 20 seconds.
90 % of all calls will be answered within 30 seconds.
For problems submitted to the Help Desk electronically, the Help Desk shall
electronically acknowledge receipt of such calls within two (2) Prime Time
hours of receipt 100% of the time. Acknowledgment shall be returned to the
party opening a problem within one day of its resolution 100% of the time.
HELP DESK SERVICE LEVEL SEVERITY TABLE
SEVERITY LEVEL DEFINITION SUPPORT SERVICE LEVEL STATUS UPDATE TO CLIENT AND
TICKET
01 The majority of the users at the site are affected, the problem has high
visibility and there is no work around.
Also, a single user affected at a critical time. Perot Systems Center
provides round the clock problem isolation and determination, and on site
support. Client provides on site support to test and assist data center. Fix
implemented immediately. Permanent resolution implemented at next available
opportunity. 100% resolved or work around provided within 1 day Every hour
unless ticket is in a hold status
02 The majority of the users are affected, the problem has high visibility, a
work around is available, however, performance may be degraded or functions
limited.
For example, a router is down but we are able to reroute traffic although
performance is degraded. Perot Systems provides support until a work around
is identified. Vendor provides support until a work around is identified.
Work around is implemented immediately. Permanent resolution implemented at
next available opportunity. 100% resolved within 3 days Every four hours
unless ticket is in a hold status
03 A single user or a small percentage of users is affected, the problem has
limited visibility.
For example, a user is unable to establish a session. Perot Systems provides
support during normal business hours. Client and/or Perot Systems team must
test fixes and implement during next weekend maintenance window. 100%
resolved within six days Biweekly unless ticket is in a hold status
04 The users can perform and function normally as long as the work around
procedure is followed.
For example, a report is not being generated on microfiche and the Client
must view the report online. Vendor provides support during normal business
hours. Client and/or Vendor must test fixes and implement within the next two
weekend maintenance windows. 100% resolved within eleven days Weekly unless
ticket is in a hold status
05 A permanent fix (e.g., vendor fix, new product release, etc.) has been
scheduled and is awaiting delivery or development. Ticket placed on hold.
Perot Systems provides support during normal business hours. Client and/or
Perot Systems must test fixes. Fix is implemented at a mutually agreed upon
weekend maintenance window. 100% resolved within 30 days Bimonthly
Local Area Network Management
Servers shall be available [TBD]% of the time during Prime Time. During
hours other than Prime Time, servers shall be available [TBD]% of the time,
excluding scheduled maintenance and back-ups.
Moves/changes to Desktop workstations and printers shall be accomplished by
Perot Systems, within [TBD] business days [TBD]% of the time and within [TBD]
business days [TBD]% of the time.
Additional Desktop workstations requested by Client shall be installed
within [TBD] business days [TBD]% of the time and within [TBD] business days
[TBD]% of the time.
Perot Systems shall process moves/changes and requests for additional non-
standard workstations on a "best efforts" basis. The requesting user shall
receive an estimate of the duration for accomplishment of non-standard
requests within [TBD] days of issuing a request [TBD]% of the time.
Remote Access by End-Users will be available [TBD]% of the time.
Application Development and Maintenance
Client believes that emergency break/fix responsibilities of Perot Systems'
application development and maintenance personnel will generally be measured
by the Service Levels defined in HELP DESK SERVICE LEVEL SEVERITY TABLE above.
Security Maintenance
Perot Systems shall provide the following Service Levels in response to Client
user requests for security maintenance:
New accounts shall be established within one (1) business day of Help Desk
call.
Suspended user ids shall be reset within ten (10) minutes of Help Desk call.
Forgotten passwords shall be replaced within ten (10) minutes of Help Desk
call.
Access problems shall be resolved on a "best efforts" basis as soon as
possible.
4.0 CRITICAL SYSTEMS
The list of Critical Systems is set forth in the sections listed below:
Client's Critical Systems are as follows:
Sabre interface
Boarding Control
Airsoft - Aircraft Maintenance
Jeppesen - Flight Operations
SBS - Crew Planning
SBS - Crew Management
Citrix - Winframe
SCHEDULE D
SERVICES
----------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
DATA CENTER AND NETWORK OPERATIONS
Perot Systems will have full responsibility for the operation and management
of the Client's Computer and Network Environment, as it relates to the
Equipment listed in Schedule B, on a seven (7) days per week, twenty-four (24)
hours per day basis. Perot Systems intends to migrate the existing Client
data center to a Perot Systems owned and managed facility. A migration plan
will be presented to Client during the Transition Period. Perot Systems'
Services will include the following major operational tasks. A list of all
network locations is listed in Schedule D-1.
Database Administration, which will include backup, journaling, index
improvement, performance tuning, capacity planning.
Database Redesign, and application efficiency improvement.
System Administration, which will include system performance tuning, queue
management, user administration, systems programming, backup supervision,
capacity planning, security administration and enforcement.
Disk Storage Management - System Administrators will be responsible for the
administration of data across the disk farm to ensure maximum performance and
efficiency.
Perform all master console and sub-system console functions and monitor all
production processing within the Midrange/Server Environment for all
applications listed in Schedule B.
Make available, monitor and process on-line and batch applications,
including scheduled, unscheduled and on-demand, including re-runs, End User
requested processing.
Maintain operations logs so as to create an audit trail of all production
Data Center activities as well as system problems.
Schedule, perform, and execute the backup of Client applications and data
in such a manner to ensure the ability for complete recovery in the event of a
catastrophe.
Install, test and make available version upgrades of operating system
patches and upgrades and related software within three months of Client's
request.
Perform necessary tape and backup management functions required for the
Client environment.
WAN Network engineering, design and implementation.
Network performance monitoring and tuning.
Provide overall network management for the Client network, via the
centralized Perot Systems network control center.
Bridge/Router/Hub/Gateway configuration, acquisition, installation, changes
and maintenance.
Configure, test, maintain, install, de-install, equipment and circuit adds,
moves and changes relating to WAN environment.
Establish and maintain standards, such as naming conventions and
addressing, across the WAN environment.
HELP DESK/FIELD SUPPORT
The technical help desk will be available Monday through Friday, excluding
Client defined holidays, between 8:00 a.m. and 5:30 p.m. Mountain time.
After-hours support will be provided by a second-level help desk located at
Perot Systems' managed facility. Escalation procedures will be jointly
developed and agreed during the Transition Period.
Establish single point of contact that will provide assistance for end-user
problems and coordinate problem tickets, through Perot Systems-Perot Systems
supplied and supported problem management system.
Respond to end-user service requests and problem reports, in accordance
with a mutually agreed upon escalation process based on individually assigned
severity levels.
Support end-user operational issues, requested moves, adds, changes to
desktop equipment or LAN/WAN connectivity.
Maintain ownership of any reported problem, and follow defined escalation
and notification procedures.
Provide a monthly accounting of system and application outages, with
cause/resolution.
Provide troubleshooting and repair for all desktop environment and office
printing issues. Supplies will be charged back through a pass through basis.
Setup and installation of all new desktop and server equipment, as well as
the work required to support moves, adds, and changes.
Provide asset tag maintenance and desktop inventory control.
Perform evaluation and recommendation of hardware and software that will
improve Client's desktop environment.
Perform procurement services by implementation of an Intranet Web-based
application to support the automated order of desktop hardware and software.
Perot Systems will manage all maintenance agreements for Components
associated with systems and hardware in Schedules A and B.
TELECOMMUNICATIONS SERVICES
Provide management and problem resolution for all Client phone switches
(this will include vector management).
Provide the contract administration and management of all Client's
telecommunication needs (local access, data, long distance, 800).
Provide call accounting reports for departmental allocation of related
phone charges. Reporting may be limited due to the capabilities of the switch
and associated software.
Perot Systems will support the order, fulfillment, maintenance, and support
of pagers, radios, and walkie-talkie handsets for Client employees. Client
will remain responsible for supporting the order, fulfillment, maintenance and
support of cellular phones.
Setup and installation of all new telecommunications equipment, as well as
the work required to support moves, adds, and changes.
CRS SUPPORT
Perot Systems will monitor the availability of the communication links
between Client Airlines and SABRE.
Perot Systems will troubleshoot, expedite, and resolve when applicable,
downtime with the Sabre system.
Perot Systems will support Client's migration to Sabre with resources as
available in the Steering Committee meetings. This could include software
development, software integration, testing, training, and field installation.
Perot Systems will support the interfaces between Sabre and Client's other
applications (e.g. ReserVision, Boarding Control, Revenue Accounting).
APPLICATIONS SUPPORT
Perot Systems Perot Systems will provide to Client the following Base
Services for applications support:
Maintenance of Applications Software for the Client Systems listed in
Schedule A.
Software development and integration activities as requested by
Client; provided, however, prior to the initiation of these activities,
the parties will negotiate in good faith the terms and conditions
relating to such services, including the ownership of intellectual
property rights.
Perot Systems and Client will jointly establish a change control/problem
management process that will provide for the allocation of discretionary
resources. The Base Services include eight (8) Full Time Equivalent
discretionary resources.
APPLICATIONS MAINTENANCE
Applications maintenance is defined as the responsibility to successfully
deliver Client service requests (CSRs), and fixes for errors, bugs, and
defects (EBDs) that arise within current applications.
All CSRs and fixes for EBDs will need to be documented and prioritized for the
applications maintenance team by adhering to a clearly defined change
control/problem management process. The applications maintenance team will
perform CSRs and EBDs provided the following:
Client/Perot Systems have authorized the CSR in accordance with defined
CSR procedures
Perot Systems Account Manager and the Client Representative have
approved the CSR pursuant to a clearly defined change control/problem
management process
CSR can be implemented with the application maintenance programming
resources provided in accordance with the Base Services matrix
Schedule D-2 contains an example change control/problem management process.
Perot Systems and Client will jointly establish a change control/problem
management process that will provide for the allocation of application
maintenance programming resources. A defined change control/problem
management process will allow for the timely completion of CSRs and EBDs.
SOFTWARE DEVELOPMENT/INTEGRATION
Software Development/Integration is defined as the responsibility to
successfully deliver enhancements as well as new releases within current
applications.
All software development/integration requests will need to be documented and
prioritized for the software development/integration team by adhering to a
clearly defined software development request process. The software
development/integration team will perform enhancements to and new releases
within the current applications provided the following:
Client/Perot Systems have authorized enhancements or new releases in
accordance with defined software development request procedures
Software development or new releases will be implemented with the
discretionary resources provided in accordance with the Base Services
matrix
Schedule D-3 contains an example software development request process. Perot
Systems and Client will jointly establish a software development request
process that will provide for the allocation of discretionary resources. A
defined software development request process will allow for the timely
completion of enhancements and new releases within the current applications.
The request process will include provisions for negotiating the ownership of
intellectual property rights in and to the software developed.
BASE SERVICES
The Base Services includes eight (8) Full Time Equivalent discretionary
resources. Perot Systems and Client will plan the use of the resources
through an applications support steering committee. This steering committee
will balance the discretionary pool of resources based on the business needs
of the Client. Balancing resources between Applications Maintenance and
Software Development/Integration will provide Client with the flexibility to
adapt as the business changes. Client has control of the prioritization of
the resources in the Discretionary Pool.
Perot Systems and Client will create Task Orders for all applications
maintenance and software development work over and above the Base Services
listed in this document. All Task Orders will be agreed upon and signed off
on by the management of both Perot Systems and the Client.
The following is an example of how these pool hours could be allocated and
adjusted as business dictates:
BASE SERVICES MATRIX
CLIENT - EXAMPLE TARGET
Prod 1 Qtr 2 Qtr 3 Qtr 4 Qtr Total (hrs)
APPLICATIONS MAINTENANCE 1,440 2,000 1,500 1,000 5,940
SOFTWARE DEVELOPMENT/INTEGRATION
TASK 001 03/31/97 1,000
TASK 002 05/31/97 500 500
TASK 003 06/15/97 500 1,250 1,750
TASK 004 07/01/97 1,100 1,100
TASK 005 08/01/97 300 300
TASK 006 08/15/97 500 500
TASK 007 09/15/97 50 50
TASK 008 10/15/97 1,000 1,000
TASK 009 10/31/97 1,000 1,000
TASK 010 12/15/97 900 90 290 340 1,620
OTHERS SMALL PROJECTS 100 500 600
SMALL PROJECT IMPROVEMENTS TOTAL 2,400 1,950 2,340 2,840 8,600
ACTUAL RESOURCE ALLOCATED 3,840 3,840 3,840 3,840 15,360
BUDGETED RESOURCES - (8) FTE'S 3,840 3,840 3,840 3,840 15,360
RESOURCES AVAILABLE 0 0 0 0 0
* Matrix reflects level of effort measured in hours.
MISCELLANEOUS SERVICES
During the Transition Period, Perot Systems will relocate Client's Emergency
Situation Room from the 8th floor to the 9th floor of Client's principal
executive office building.
Client will continue to support Mountain Air Express (MAX) in the same manner
that Client does today. Perot Systems will log all activities that is
provides that are in support of MAX. Perot Systems will produce a document
that will report MAX support usage to Client.
SCHEDULE E
EXCLUDED SERVICES
-----------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
This agreement will not cover the following items. Client will retain the
ownership, coordination and associated responsibilities.
CLIENT LIAISON INTERFACES - Client will supply a small team whose primary
responsibility is to facilitate the coordination between Perot Systems and the
Client user community. This team will assist in the assessment of new capital
initiatives, identify areas for general business improvement, and assist in
application verification during a user acceptance period.
AUDITING - This team will review Perot Systems' work to verify compliance with
any and all agreements.
CELLULAR COMMUNICATIONS - At this time, Client only provides cellular phones
to executives and key personnel. Client will retain the management and
administration of these functions.
OFFICE SUPPLIES - Client will be responsible for all printer supplies,
ticketing, and special forms for its corporate use at its corporate and field
station facilities.
SPECIAL FORM(S) - Client currently employs a ticketless boarding of its
passengers. The establishment of any ticketing application or any new special
form is not covered in the base agreement. This includes, but is not limited
to any required system changes, additional hardware, additional software, or
any telecommunications impact that may result from such an initiative.
During the Transition Period, Perot Systems and Client shall mutually agree on
additions and changes to this schedule.
SCHEDULE F
CERTAIN EMPLOYEES
-----------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
Alan Simpson John Burns Bob Sherriff
Bob Salzer Brian Mukes Bryan Hirschon
Chris Allison Chuck Adams Chuck Lidderdale
Chuck Strong Daniel DeLaRosa David Boyd
David Boyd Jeff Emery Bob Hornberg
Jeffrey Anderson Mark Klumb Jerris Hof
John O'Keefe Neil Kirby Kelly Winters
Elizabeth Kelly Pat Connolly Mark Taylor
Michael Carew Roger Reese Pamela Nickoloff
Paul Venable Terry Surufka Rachel Lacy
Scott White Wayne Saunders Sammie Thomason
Theresa Chisnell Thanh Duong Steve Pepper
Thomas Lacker William Puhl
SCHEDULE G
SUBSIDIARIES
------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
NONE AS OF THE EFFECTIVE DATE
SCHEDULE H
CLIENT OBLIGATIONS
------------------
In addition to the obligations set forth in the Agreement, Client shall
perform the following tasks to ensure a successful relationship between both
parties:
Client will provide key, decision-empowered personnel to participate in the
Steering Committee Steering Committee will be responsible for the
prioritization and scheduling of Client Service Requests (CSRs).
Client will to the best of its knowledge and ability provide true, complete
and accurate information to Perot Systems to support the refinement of the
Service descriptions, Performance Standards and related information during the
Transition Period and thereafter to support the ongoing performance of the
Services.
Client will be responsible for physical security of Client premises. Perot
Systems will adhere to all security policies to ensure the safety of all
personnel.
Client will be responsible for the management, administration, and expenses
of all Client's facilities.
SCHEDULE I
PAYMENT SCHEDULE
----------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
BASE FEES
The following chart represents the base monthly service fees for the initial
year of the Agreement, exclusive of Pass-Through expenses which will be
reimbursed by Client in accordance with Section 8.3 of the Agreement.
Months 1-12 Months 13-24 Months 25-36 Months 37-48 Months 49-60
$317,000 $461,583 $981,810 $975,506 $934,370
STOCK IN LIEU OF CASH
During the period ending six months after the Effective Date and subject to
approval of Client's Board of Directors, Client may pay the base monthly
service fee for up to three months of Services, provided that the aggregate
amount of such fees may not exceed two million dollars, in the form of Client's
voting common stock, $.001 par value (the "Common Stock"), subject to the terms
of a mutually satisfactory agreement containing customary terms and conditions
including the following:
* All shares of Common Stock delivered to Perot Systems in lieu of cash
payments will be registered for sale under the Securities Act of 1933, as
amended, any applicable blue sky laws, and all other applicable laws, rules and
regulations, and will be listed for sale on the NASDAQ prior to the date such
shares are delivered to Perot Systems;
* The number of shares of Common Stock to be delivered to Perot Systems will
be determined by dividing the amount of the base monthly fee payable by the
average closing bid price for the Common Stock for the five trading days ending
two days before the shares are delivered;
* The certificate representing the shares will be delivered to Perot Systems
(or credited to Perot Systems' designated account) on or before the date
payment for the applicable Services is due under the Agreement;
* Client will deliver, concurrently with the delivery of the certificate
representing the shares, an officer's certificate making appropriate
representations and warranties, including 10b-5 representations and warranties;
* Perot Systems will observe Client's insider trading policies and will not
sell any Common Stock while in possession of material information concerning
Client which has not been disclosed to the public and further will not sell
such stock until the end of a period which terminates three days after the
disclosure of such information to the public; and
* If Perot Systems sells the shares of Common Stock received in lieu of cash
payment within 30 calendar days after receiving such shares, or is unable to
sell such shares due to restrictions on trading activities imposed by Client's
insider trading policy or applicable law or the absence of adequate market
trading volume, Perot Systems will, within five days after such 30 day period,
notify Client of such circumstance and Client will pay Perot Systems, in cash
within 10 days after the end of the applicable 30 day period, an amount equal
to the excess of the applicable base service monthly fee over the actual
proceeds received by Perot Systems from such sale, if any, and Perot Systems
will return to Client any unsold shares. Perot Systems will sell any such
shares in a commercially reasonable manner.
* If Perot Systems elects, in its sole discretion, not to sell the Common
Stock within the 30 day period referred to above, Client will have no further
obligation in relation to the monthly fees to which the Common Stock is
related.
ADDITIONAL STOCK PAYMENTS
As additional consideration for the Services, Client will pay Perot Systems,
in the form of shares of Common Stock, $800,000 within 30 days after the
Effective Date, $600,000 on the first anniversary of the Effective Date, and
$400,000 on the second anniversary of the Effective Date, subject to the terms
of a mutually satisfactory agreement containing customary terms and conditions
including the following:
* Perot Systems will have the right to require, on terms that all such
shares of Common Stock delivered to Perot Systems as an additional stock
payment will be registered for sale under the Securities Act of 1933, as
amended, any applicable blue sky laws, and all other applicable laws, rules and
regulations, and will be listed for sale on the NASDAQ prior to the date such
shares are delivered to Perot Systems;
* The number of shares of Common Stock to be delivered to Perot Systems will
be determined by dividing the applicable amount payable by the average closing
bid price for the Common Stock for the five trading days ending two days before
the shares are delivered;
* Client will deliver, concurrently with the delivery of the certificate
representing the shares, an officer's certificate making appropriate
representations and warranties, including 10b-5 representations and warranties;
and
* Perot Systems will observe Client's insider trading policies and will not
sell any Common Stock while in possession of material information concerning
Client which has not been disclosed to the public and further will not sell
such stock until the end of a period which terminates three days after the
disclosure of such information to the public;
* Client will have an option, which may be exercised at any time prior to
the termination or expiration of this Agreement, to repurchase any of these
shares which have not been sold by Perot Systems prior to the exercise of such
option at a price of $15.00 per share
PASS - THROUGH EXPENSES
Pass-Through Expenses shall be only as mutually agreed in writing by the
parties. Client will remain as the invoicee on all Pass-Through invoices;
however, Perot Systems shall pay, and Client shall reimburse Perot Systems
for, third-party charges comprising the Pass-Through Expenses. Prior to
making such payments, however, Perot Systems shall review the invoice charges
to determine whether such charges are proper and valid and should be paid and
shall provide Client with a reasonable opportunity to review the invoices to
confirm Perot Systems' determination. Following such review by Perot Systems
and Client, Perot Systems shall pay the amounts due. Perot Systems shall use
reasonable effort to acquire such items at the best commercial rate.
NEW SERVICES
Client shall pay Perot Systems in accordance with the aforementioned payments
terms for all additional services provided by Perot Systems in accordance with
a payment schedule for such items to be agreed upon in writing by the parties
in the applicable Task Order, an example of which is attached as Schedule I-1
Task Order.
INCREMENTAL PRICING
Incremental pricing will be based on several business parameters that
accurately reflect the growth of Client. These incremental charges are
intended to reflect level of service required by Client to meet its changing
business objectives. Incremental pricing will be based upon the following
parameters and any other mutually acceptable parameters:
Corporate User Growth
Field Station Expansion
CPU Metric Consumption
The incremental monthly service fees exclusive of Pass-Through expenses, will
be invoiced one month in advance and no later than the tenth (10th) day of each
month and are due no more than thirty (30) days after the receipt of each
invoice.
If during any year during the term of this agreement, the incremental charges
cause the aggregate annual amount invoiced to grow more than thirty percent
(30%), Client may, solely at its option, ask Perot Systems to renegotiate the
agreement.
CORPORATE USER GROWTH
As Client's operations grows, it will be necessary to expand the system's
capabilities to meet Information Technology usage. Under the base agreement,
Perot Systems will support the current base of devices. The following chart
depicts the two major locations for Client connectivity. When Client grows
beyond this point, Perot Systems will support growth in blocks of 40
additional users. Perot Systems will credit Client for the reduced
implementation cost of the first 140 incremental users that utilize existing
building cabling.
LOCATION PCS PRINTERS TOTAL PORTS USED OPEN PORTS TOTAL PORTS
Circle Drive 593 33 626 54 680
COS 97 19 116 88 204
Note: Two (2) 24-port Hub Repeater Modules are available and can
support additional growth
In the event that Client makes a business decision to reduce the number of
ports within the first 24-month period after an incremental pricing increase
takes effect, Perot Systems will invoice for any remaining net book value
related to such ports, and any related ongoing payment obligations will
terminate. Perot Systems will make every attempt to reuse components where
possible for the benefit of both parties.
FIELD STATION EXPANSION
As Client enters new markets and flies to new destinations, Perot Systems will
implement a fixed base charge for the purchase, installation, and support of
the hardware required to support the IT systems at these remote locations.
Perot Systems will install these new facilities. A network configuration
diagram and associated equipment list is included in Schedule D-4.
In the event that Client makes a business decision to terminate service to a
field station location within the first 24-month period after an incremental
pricing increase takes effect, Perot Systems will invoice for any remaining
net book value related to such location, and any related ongoing payment
obligations will terminate. Perot Systems will make every attempt to reuse
components where possible for the benefit of both parties. In this event,
Perot Systems will create a specific task order that accurately sets forth the
services to be provided to Client.
Any additional costs that Perot Systems cannot avoid will be passed-through to
Client. These expenses will be approved by Client prior to invoice. Items
such as the engagement of mandated local services and the use of unionized
workforce are examples of expenses that fall outside either party's control.
CPU METRIC CONSUMPTION
As Client requires additional computing resources to support its growth, we
would like to define a parameter that fully and accurately describes this
activity. Due to the significant amount of change currently underway, this
exercise is extremely difficult. Perot Systems and Client will enter a 90-day
due diligence period upon the Effective Date to identify an appropriate
measurement. It is essential to identify today's usage and the total capacity
given today's infrastructure. If both parties cannot reach agreement at the
end of the 90-day due diligence period, Perot Systems will pass-through any
related expenses as they are required to support Client.
In the event, that Client makes a business decision to reduce any incremental
CPU capacity within the first 24-month period after an incremental pricing
increase takes effect, Perot Systems will invoice for any remaining net book
value for such capacity and any related ongoing payment obligations will
terminate. Perot Systems will make every attempt to reuse components where
possible for the benefit of both parties.
INCREMENTAL PRICING MATRIX
PRICING
METRIC UNIT PRICE UNIT PRICE UNIT PRICE UNIT PRICE UNIT PRICE UNIT PRICE
PER MONTH MONTHS 1-24 MONTHS 1-24 MONTHS 1-24 MO'S 25-60 MO'S 25-60 MO'S 25-60
- --------- ----------- ----------- ----------- ---------- ---------- ----------
Ports 1-40 $8,974 $7,932
Ports 41-80 $8,794 $7,752
Ports 81-* $8,619 $7,577
Client Credit
(for first
3.5 incremental
units) $100
Field Station
1-8 $3,726 $2,207
Field Station
9 -16 $3,651 $2,131
Field Station
17- * $3,578 $2,059
CPU Metric [TBD] [TBD] [TBD] [TBD] [TBD] [TBD]
Selected Pass-Through Expenses:
LAN cable plant installation
Circuits
Airport-specific charges
SCHEDULE D-1
NETWORK LOCATIONS
AIRLINE TERMINAL DESTINATIONS
Aspen/Snowmass Atlanta Hartsfield
Chicago Midway Colorado Springs
Dallas-Ft Worth Durango/Purgatory
Gunnison/Crested Butte Hayden/Steamboat Springs
Houston Int'l Indianapolis
Kansas City Intl Los Angeles Intl
Everett, WA (Tramco) Montrose/Telluride
Newark, Int'l Nashville
Orlando Oklahoma City
Portland Int'l Phoenix Int'l
San Francisco San Diego
Tulsa International Seattle-Tac Intl
Wash DC, Dulles
SCHEDULE I-1
TASK ORDER
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
TASK ORDER NO. WP-XXX
Perot Systems Corporation ("Perot Systems") and Client Airlines ("Client")
hereby enter into this Task Order No. ___ under the Information Technology
Services Agreement between such parties, dated as of April 1, 1997, on the
following terms:
1. Effective Date:
2. Term:
3. Scope:
4. Project Managers:
a. Client Project Manager.
b. Perot Systems Project Manager.
5. Client's Responsibilities:
6. Pricing:
a. Personnel.
b. Procurement of Software and Equipment.
c. Cost of Living Adjustment.
7. Other Terms:
AGREED:
WESTERN PACIFIC AIRLINES, INC PEROT SYSTEMS CORPORATION
By: By:
Name: Name:
Title: Title:
SCHEDULE D-2
CHANGE CONTROL/PROBLEM MANAGEMENT PROCESS
This Schedule contains an example change control/problem management process.
Perot Systems and Client will jointly establish a change control/problem
management process that will provide for the allocation of application
maintenance programming resources. A defined change control/problem
management process will allow for the timely completion of CSRs and EBDs.
A problem is defined as an interruption of normal service to a Client.
Examples of problems include: system or network outages; on-line and
application unavailability; information security concerns; hardware failures;
slow response; workstation problems, etc. Any other item that would prompt
the Client to initiate a call to the Help Desk seeking assistance could be
considered a request and does not always require that a trouble ticket be
opened. Examples of such requests not requiring a ticket might include
inquiries concerning the status of a problem (a ticket already exists),
assistance in locating support groups, general information, etc.
The Help Desk will be the principal point of contact for the Client users and
Clients to respond to their problems and requests. The Client is defined to
be anyone who contacts the Help Desk, including Client users and end Clients,
another Help Desk, and other individual groups or employees. The Help Desk
will be considered Level 1 support.
- LEVEL 1 - HELP DESK PERSONNEL
Take initial Client calls
Resolve any issues with Client
Open/Assign trouble tickets
Send trouble ticket to Level 2 support via phone call or eMail
The Business Support Group will provide Level 2 support for problem
management. The Business Support Group will have access and contact with the
various Business groups within Client. Most of the problems that will be
resolved by the Business Support Group are operational in nature as well as
high-level application and system problems.
- LEVEL 2 - BUSINESS SUPPORT GROUP
Receive trouble tickets from Level 1
Utilize contacts to resolve tickets
Analyze/Resolve Level 2 problems
Send trouble ticket to Level 3 support via phone call or eMail if
applicable
Update status on ticket and send back to Level 1
The Applications Support team will provide Level 3 support for problem
management. Trouble tickets that cannot be resolved by the Business Support
Group will be sent to the applications support team. In most cases, the
trouble tickets that make it to Level 3 production support are minor
production application problems, data problems, and major production
application problems.
- LEVEL 3 - APPLICATIONS SUPPORT
Receive trouble tickets from Level 2
Analyze/Resolve Level 3 problems
Utilize Level 4 Application Support if needed
Update status on ticket and send back to Level 4
The Application Support (Development) team will provide Level 4 support for
problem management. Trouble tickets that are technical in nature and require
changes to application software, etc. will be given to the application support
development team. The application support team (Level 4) and the applications
support team (Level 3) work hand in hand as a combined team to resolve
production trouble ticket problems. In most cases, the trouble tickets that
make it to Level 4 application support are minor production application
problems, data problems, and major production application problems.
- - LEVEL 4 - APPLICATION SUPPORT DEVELOPMENT
Receive trouble tickets from Level 3
Analyze/Resolve Level 4 problems
Work very closely with Level 3 to resolve particular trouble tickets
Update status on ticket and send back to Level 3
SCHEDULE D-3
SOFTWARE DEVELOPMENT REQUEST PROCESS
This Schedule contains an example software development request process. Perot
Systems and Client will jointly establish a software development request
process that will provide for the allocation of software
development/integration programming resources. A defined software development
request process will allow for the timely completion of enhancements and new
releases within the current applications.
EXAMPLE PROCESS:
Step 1 Client completes a software development request form and sends
completed form to the Software Development steering committee.
Step 2 Steering Committee prioritizes and assigns request form to Perot
Systems assessment group. The request form is then logged by number, date,
type, etc. into a software development request database for tracking. Log
number is returned to the original requesting Client for future inquiry and
status.
Step 3 Assessment group will scope the request and respond with a scope
information document. The assessment document will then be reviewed by the
Steering Committee.
Step 4 Steering Committee will approve or decline the request. If request is
approved, request goes for second level Client approval (Client account
manager).
Step 5 If request receives second level Client approval, the Steering
Committee will prioritize and assign software development to the Perot Systems
software development/integration team.
The software development request database must be updated and retained to
prevent duplicate requests and unnecessary rework. The software development
request process should also document decisions made by the Client and
rationale for the decisions completed on the request form itself for future
reference.
SCHEDULE O
TYPICAL FIELD STATION CONFIGURATION
-----------------------------------
(OMMITED DUE TO LACK OF GRAPHIC CONVERSION IN EDGAR FORMAT)
SCHEDULE P
----------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
(0MMITED DUE TO LACK OF GRAPHIC CONVERSION INTO EDGAR FORMAT)
SCHEDULE J
KEY STAFF
----------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
[TO BE DETERMINED]
SCHEDULE K
DISASTER RECOVERY
-----------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
[TO BE DETERMINED]
SCHEDULE L
TRANSITION PLAN
---------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
[TO BE DETERMINED]
SCHEDULE M
DELIVERABLES
------------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
[TO BE DETERMINED]
SCHEDULE N
REMEDIES
----------
THIS SCHEDULE IS ATTACHED TO AND MADE A PART OF THAT CERTAIN INFORMATION
TECHNOLOGY SERVICES AGREEMENT, EFFECTIVE AS OF APRIL 1, 1997. UNLESS
OTHERWISE DEFINED IN THIS SCHEDULE, CAPITALIZED TERMS WILL HAVE THE MEANING
ASCRIBED TO THEM IN THE AGREEMENT.
[TO BE DETERMINED]
WESTERN PACIFIC AIRLINES, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
Common Share Outstanding beginning
of period 13,220,913 6,580,250 -
Effect of Weighting Shares:
Issuance of Common Stock 90,544 347,766 8,527,783
Conversion of Preferred Stock - 2,396,363 -
Exercise of Affinity Warrants - 6,658 -
Purchase of Treasury Stock (1,250) - -
------------ ------------ ------------
Total 13,310,207 9,331,036 8,527,783
============ ============ ============
Net Loss (23,718,750) (10,494,856) (1,442,402)
============ ============ ============
NET LOSS PER COMMON AND COMMON
SHARE EQUIVALENT SHARES:
Net Loss Per Share (Primary and
Fully Diluted) (1.78) (1.12) (.17)
============ ============ ============
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-80031.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
April 11, 1997.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Western Pacific Airlines, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Western Pacific
Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995 and for
the years then ended and for the period from inception (April 12, 1994)
to December 31, 1994 and have issued our report thereon dated April
4,1997.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
of the financial statements is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
April 4,1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,391
<SECURITIES> 0
<RECEIVABLES> 3,564
<ALLOWANCES> 347
<INVENTORY> 0
<CURRENT-ASSETS> 41,737
<PP&E> 47,040
<DEPRECIATION> 5,337
<TOTAL-ASSETS> 123,047
<CURRENT-LIABILITIES> 60,748
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 43,435
<TOTAL-LIABILITY-AND-EQUITY> 123,047
<SALES> 151,237
<TOTAL-REVENUES> 155,759
<CGS> 0
<TOTAL-COSTS> 174,406
<OTHER-EXPENSES> 7,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,179)
<INCOME-PRETAX> (23,719)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,719)
<EPS-PRIMARY> (1.78)
<EPS-DILUTED> (1.78)
</TABLE>
