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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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM
---------------------------
COMMISSION FILE NO: 0-26432
AIRWAYS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-3315474
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
6280 HAZELTINE NATIONAL DRIVE, SUITE 100
ORLANDO, FLORIDA 32822
(Address of principal executive offices, including zip code)
(407) 859-1579
(Registrant's phone number, including area code)
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- - ----------------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE N/A
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT, COMPUTED BY REFERENCE TO THE LAST REPORTED PRICE AT WHICH THE STOCK
WAS SOLD ON JUNE 17, 1996, WAS $64,311,402. FOR PURPOSES OF THE ABOVE
STATEMENT ONLY, ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ARE
ASSUMED TO BE AFFILIATES.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AS OF JUNE 17, 1996, WAS 8,996,937.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE PROXY STATEMENT RELATING TO THE REGISTRANT'S 1996 ANNUAL
SHAREHOLDERS MEETING ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
REPORT.
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AIRWAYS CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED MARCH 31, 1996
PART I
ITEM 1. BUSINESS
GENERAL
Airways Corporation ("Airways"), a Delaware corporation incorporated in 1995 is
the parent company of AirTran Airways, Inc. ("AirTran"), a domestic commercial
airline providing non-stop scheduled passenger air service from Orlando,
Florida to 21 locations in the eastern United States. AirTran Airways, Inc.
was incorporated under the laws of Delaware on September 7, 1993 and was
acquired by AirTran Corporation from Conquest Airlines Corporation on June 16,
1994.
AirTran began flying commercially on July 2, 1994 with one Boeing 737-200
aircraft providing charter services and commenced scheduled flight operations
on October 6, 1994. As of March 31, 1996, AirTran operated a fleet of six
leased and four owned Boeing 737-200 aircraft for a total of ten aircraft.
In addition to owning AirTran, Airways operates a fixed base operation in Grand
Rapids, Minnesota (the "FBO"), which provides private aircraft services,
maintenance, fueling, hangar facilities, flight instruction, aircraft parts
sales and other ground services. The FBO began operations in 1944 and was
owned by Mesaba Aviation, Inc. Airways currently operates its FBO business
under a Federal Aviation Administration ("FAA") repair station certificate.
In May 1995, AirTran Corporation (subsequently renamed Mesaba Holdings, Inc.,
hereinafter "Mesaba") and Northwest Airlines, Inc. ("Northwest") entered into
an agreement to spin-off Mesaba's Orlando-based jet carrier and the FBO. To
facilitate the spin-off, Mesaba established Airways, on April 7, 1995, as a
wholly owned subsidiary into which it consolidated the above operations. The
spin-off, in the form of a dividend of one share of Airways common stock for
each share of Mesaba to the shareholders of Mesaba (other than Northwest), was
approved by Mesaba's shareholders on August 29, 1995. The distribution was
made on September 7, 1995 to shareholders of record (other than Northwest) on
August 31, 1995.
BUSINESS STRATEGY - AIRTRAN
AirTran's strategy is based on a commitment to customer service, reliability
and low fare service. AirTran sets its fares at a substantial
discount to stimulate demand, particularly by those who might otherwise have
used ground transportation. AirTran's one-way fares currently range from $49
to $159.
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AirTran's low-fare strategy depends on maintaining competitive operating cost
levels and relatively low fixed costs. In the year ended March 31, 1996,
AirTran's total cost per Available Seat Mile ("ASM") was $0.0675, resulting in a
63.1% break-even load factor. AirTran's fixed aircraft expenses (including
depreciation) represented less than 8.5% of operating expenses during the year
ended March 31, 1996 ("1996"). The key elements in AirTran's strategy are:
- - - Reliable Non-Stop Air Service at Low Fares. AirTran serves primarily the
leisure traveler and some business and other travelers seeking non-stop
service to and from Orlando. AirTran seeks to provide efficient, low-cost
service by: flying a single aircraft type, offering fares on a
"ticketless" basis and by eliminating extra costs such as first class
seating, airport clubs, frequent flyer programs and ticket offices.
- - - Simple Fare Structure. AirTran offers a simple, easy to understand fare
structure: tickets are sold on a one-way basis and priced on route, demand
and availability. Approximately 41% of AirTran's sales are made directly
to passengers, using its computerized reservation system. These seats are
sold on a ticketless basis saving on the costs of producing tickets and
time during the boarding process. AirTran pays sales commissions only on
tickets sold through travel agencies.
- - - Motivated and Productive Work Force. AirTran seeks to employ a skilled
work force of motivated, productive and enthusiastic employees. AirTran
believes that its base wage and benefit levels are competitive with
low-fare air carriers and that there remains a pool of well-qualified
candidates available to meet its future hiring needs. From time to time,
AirTran's employees enter into discussion with various union groups and, at
present, an election is pending among the pilots' group. Nevertheless, none
of AirTran's employees are unionized.
- - - Corporate Culture. AirTran seeks to encourage and maintain a work
environment that is enjoyable for its employees and that makes flying
simple, inexpensive and fun for its customers. AirTran's advertising
brochures, uniforms and aircraft paint schemes are in a colorful,
distinctive style intended to create a relaxed tone and a unique identity.
Employee training emphasizes friendly, helpful service intended to
simplify the travel experience.
FARES, ROUTE SYSTEM AND SCHEDULING
AirTran provides non-stop scheduled passenger air service between Orlando and
cities principally in the eastern half of the United States. AirTran's
strategy in developing its route system is to serve medium-sized cities from
which service to Orlando is not typically provided by the major airlines on a
non-stop basis. This strategy involves flying long stage lengths to
medium-sized markets on a low frequency basis. Stage lengths range from
approximately 500 to 1,200 miles and service is provided to most markets on a
one-flight-per-day schedule.
AirTran generally offers four fare levels in each market. The number of seats
available at each fare level is set according to market conditions. AirTran
may also offer promotional fares in certain markets. Tickets are
non-refundable but travel dates can be changed prior to departure for a $25
fee. All fares are sold on a one-way basis without any minimum, maximum or
overnight stay. The following table shows the expansion of AirTran's scheduled
route system and fleet through March 31, 1996.
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<TABLE>
<CAPTION>
As of Total number Departures
month end of aircraft per month Scheduled cities added
- - --------- ----------- --------- ----------------------
<S> <C> <C> <C>
FISCAL YEAR 1995:
October 2 164 Orlando, Providence, Hartford,
Huntsville*, Knoxville, & Newburgh
November 2 192 -
December 3 317 Ft. Lauderdale and Islip*
January 3 326 -
February 3 266 Cincinnati, Albany, and Syracuse
March 4 362 Omaha
FISCAL YEAR 1996:
April 4 354 -
May 4 428 Nashville**
June 4 412 -
July 4 426 -
August 6 714 San Antonio, Dayton, Birmingham,
and Buffalo
September 6 642 -
October 7 880 Dallas, Greenville/Spartanburg,
Kansas City, and Norfolk
November 7 874 -
December 8 883 -
January 9 929 -
February 10 1,126 Allentown, Canton/Akron, and
Rochester
March 10 1,223 Richmond
</TABLE>
* Service to these locations was discontinued in 1995.
** Includes services between Tampa and Nashville which were discontinued as of
October 1, 1995.
AirTran may develop other routes that do not originate or terminate in Orlando
if it determines that such service can be provided on an efficient, cost
effective basis. AirTran's strategy in selecting routes includes an evaluation
of the potential demand for service and the existing level of service provided
by other carriers. The availability and cost of airport operations are also
among the factors AirTran considers in determining its route structure and
expansion plans.
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MAINTENANCE AND REPAIRS
Under the terms of its lease agreements, all expenses relating to the
maintenance and operation of its fleet are AirTran's responsibility. Aircraft
maintenance consists of routine maintenance and major overhauls. Routine
maintenance is performed in Orlando by AirTran's employees and in other cities
by FAA-approved contractors. Major overhauls or heavy checks are performed by
a contractor approved by the FAA to work on Boeing 737-200 aircraft.
AirTran's aircraft were manufactured between 1968 and 1985. AirTran believes
that its aircraft are mechanically reliable and that its estimated maintenance
costs for the fleet will be within industry averages. AirTran's estimates
include anticipated costs of complying with FAA Aging Aircraft Airworthiness
Directives.
AirTran maintains an inventory of aircraft parts and supplies for routine
maintenance and obtains parts for major overhauls from vendors and
manufacturers when needed. Due to the large number of 737 aircraft in
commercial operation, AirTran expects that a reliable supply of engines and
replacement parts will continue to be available at reasonable prices.
Although AirTran expects higher maintenance costs for its aircraft, including
costs to comply with FAA aging aircraft requirements and procedures, it
believes that total operating costs for the fleet will be competitive with
newer fleets because of the lower lease expenses and cost of spare parts
relative to newer aircraft.
AIRCRAFT
AirTran's fleet currently consists of six leased and four owned Boeing 737-200
aircraft with average capacities of 126 passengers. The lease terms for the
aircraft range from three to seven years and monthly lease payments range from
$45,000 to $142,000. All of the leases require monthly payment of reserves for
major engine and airframe overhauls.
According to FAA rules, each addition to the airline's fleet must comply with
the FAA's Stage 3 noise level requirements according to the following schedule:
- 50% by December 31, 1996,
- 75% by December 31, 1998 and
- full compliance by December 31, 1999.
Three of AirTran's ten aircraft currently meet Stage 3 requirements.
AirTran intends to remain in compliance with noise requirements through the
acquisition of Stage 3 aircraft and the installation of hush kits on Stage 2
aircraft presently in its fleet. Hush kits certified by the FAA for the Boeing
737-200 aircraft are available at an installed cost of approximately $1.5
million per aircraft.
Increasing demand for short-to-medium-range jet aircraft has resulted in higher
leasing costs for AirTran. Much of this demand has been caused by the entry of
other low-cost carriers. Although the Boeing 737 is the most common type of
jet aircraft currently in operation worldwide, there can be no assurance that
AirTran can obtain additional aircraft at favorable lease rates.
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AirTran currently operates only Boeing 737-200 aircraft and believes that
maintenance and operating expenses are generally lower for airlines whose fleet
consists of a single aircraft type. AirTran may, however, consider other
aircraft types if they are better suited to its future needs.
FUEL
The cost of jet fuel is one of AirTran's largest operating expenses, accounting
for approximately 17% of total operating costs during 1996. Jet fuel costs are
subject to wide fluctuations, primarily resulting from changes in supply. The
effect of world events on the price and availability of oil makes prediction of
the supply and cost of jet fuel difficult. Increases in fuel prices could have
a materially adverse effect on AirTran's operating results. AirTran has not
entered into any fixed-price or guaranteed delivery contracts for fuel.
AirTran's fleet of 737-200 aircraft is not as fuel efficient as one comprised
of new medium-sized jet aircraft. As a result, a significant increase in the
price of jet fuel would disproportionately affect AirTran's costs as compared
to its competitors using newer, more fuel efficient aircraft. AirTran intends
to pass on fuel cost increases through increased fares. There can be no
assurance that fare increases would not reduce AirTran's competitive fare
advantage.
INSURANCE
AirTran carries the types of insurance customary in the airline industry,
including coverage for public liability, passenger liability, property damage,
aircraft loss or damage, baggage and cargo liability, and workers'
compensation. AirTran believes that this insurance is adequate in amount and
risk covered. There can be no assurance, however, that the insurance coverage
would be sufficient to protect AirTran adequately in the event of a
catastrophic accident.
SEASONALITY AND CYCLICALITY
The airline industry generally is subject to cyclical changes in the economy.
Because both personal discretionary travel and business travel may be expected
to decline during economic downturns, the airline industry tends to experience
poorer financial results during such periods. Further, because AirTran serves
primarily the leisure travel market, its results may be more affected by
declines in discretionary spending than airlines carrying a higher percentage
of business travelers.
Seasonal factors, primarily weather conditions and passenger demand, are
expected to affect AirTran's monthly passenger boardings. AirTran anticipates
diminished demands in late spring and early fall.
COMPETITION AND INDUSTRY CONSIDERATIONS
The airline industry is highly competitive as a result of the Airline
Deregulation Act of 1978 (the "Deregulation Act"). In general, the
Deregulation Act increased competition by eliminating restrictions on fares and
route selection. The removal of barriers to entry into new markets increased
the potential for competition by other carriers in AirTran's markets. The
Deregulation Act also contributed to the withdrawal of national and major
carriers from small to medium-sized cities
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by allowing them to obtain additional long-haul routes more easily, which has
contributed to the development of the concept of a "hub and spoke" network.
AirTran's competition includes carriers with substantially greater financial
resources. Fare levels and passenger demand are negatively affected by a
number of factors, including the general state of the economy and intense fare
competition in the industry.
Competitive factors in the airline industry generally include fares, frequency
and dependability of service, convenience of flight schedules, frequent flier
programs, type of aircraft flown, airports served, control of a computerized
reservations system used by travel agencies, code-sharing relationships with
other airlines, relationships with travel agents, and efficiency and
reliability of reservations systems and ticketing services. While AirTran
chooses not to have a frequent flier program, does not control a computerized
reservations system used by travel agencies nor does it have a code-sharing
relationship with another airline, it believes that it is competitive with
respect to each of the other factors listed above because of its cost
structure, aircraft fleet, location, in-house reservations system and
relationships with travel agencies.
GOVERNMENT REGULATION
U.S. Department of Transportation ("DOT") - All interstate air carriers are
subject to regulation by the DOT and the FAA under the Federal Aviation Act of
1958, as amended (the "Aviation Act"). The DOT's jurisdiction extends primarily
to the economic aspects of air transportation, while the FAA's regulatory
authority relates primarily to air safety, including aircraft certification and
operations, crew licensing and training and maintenance standards.
In general, the amount of economic regulation over interstate air carriers in
terms of market entry and exit, pricing and inter-carrier acquisitions and
agreements has been greatly reduced subsequent to enactment of the Deregulation
Act. Consequently, barriers to entry into the domestic air transportation
business have been greatly reduced and the post-entry regulation to which an
airline is subject has been simplified.
AirTran has a Certificate of Public Convenience and Necessity issued by the DOT
pursuant to Section 401 of the Aviation Act. Each United States carrier must
qualify as a United States citizen, which requires that it be organized under
the laws of the United States or a state, territory or possession thereof, that
its president and at least two-thirds of its Board of Directors and other
managing officers be United States citizens, that not more than 25% of its
voting stock be owned by foreign nationals and that the carrier not be
otherwise subject to foreign control.
U.S. Federal Aviation Administration - AirTran also has an operating
certificate issued by the FAA pursuant to part 121 of the Federal Aviation
Regulations. The FAA has jurisdiction over the regulation of the flight
operations generally, including the licensing of pilots, dispatchers and
maintenance personnel; the establishment of minimum standards for training and
maintenance; and technical standards for flight, in-flight, dispatch,
communications and ground equipment. AirTran must obtain and maintain FAA
certificates of airworthiness for all its aircraft. AirTran's flight
personnel, flight and emergency procedures, aircraft, maintenance personnel and
maintenance facilities are subject to periodic inspections and tests by the
FAA. FAA inspectors have flown on many AirTran flights and have subjected its
other flight and ground personnel to periodic announced
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and unannounced checks. Since AirTran began operations, issues raised by the FAA
have been routine or typical of a start-up airline and have been addressed by
immediate correction or by ongoing changes in operational procedures.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 ("ANCA") and, along with the Environmental Protection Agency, under the
Clean Air Act, as amended, to monitor and regulate aircraft engine noise and
exhaust emissions. To AirTran's knowledge, its aircraft comply with all
applicable FAA noise control regulations and with current emissions standards.
ANCA requires the phase-out of Stage 2 aircraft (which meet less stringent
noise emission standards than later Stage 3 aircraft) in the contiguous 48
states by December 31, 1999. In September 1991, the FAA promulgated final
rules establishing interim compliance dates of December 31, 1994, December 31,
1996, and December 31, 1998, for phasing out Stage 2 aircraft.
Miscellaneous - The following are miscellaneous regulations and laws applicable
to the industry:
- - - All air carriers are also subject to certain provisions of the
Communications Act of 1934, as amended, 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
("FCC"). To the extent AirTran is subject to FCC requirements, it has
taken all necessary steps to comply with those requirements.
- - - Airways' operations may become subject to additional federal regulatory
requirements in the future under certain circumstances. For example,
AirTran's labor relations are covered under Title II of the Railway Labor
Act of 1926, as amended, 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 Department of Energy.
- - - To the extent AirTran seeks to provide international air transportation in
the future, it will be required to obtain additional authority from the
DOT and become subject to regulatory requirements imposed by affected
foreign jurisdictions.
- - - Airways 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.
MARKETING
The primary objectives of AirTran's marketing activities are to communicate
directly with potential customers and travel agents and to develop a strong
identity in Orlando and in other markets it serves.
AirTran communicates with potential customers primarily through radio and
newspaper advertisements which feature AirTran's destinations, low-cost fares,
ease of ticketing and toll-free
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information and reservations telephone number. Customers may make reservations
directly through AirTran's reservations staff by calling 1-800-AIRTRAN or
through travel agents. AirTran uses the services of the Airline Reporting
Corporation ("ARC"), a collection agent for travel agency sales. The airline
two-letter code for AirTran is "FL."
EMPLOYEES
As of March 31, 1996 and 1995 Airways had 429 and 194 full-time equivalent
employees, respectively.
Management personnel directly involved in the supervision of flight operations,
training, maintenance and aircraft inspection must meet certain experience
levels set by the FAA. Under FAA regulations, pilots are required to be
licensed as commercial pilots, with specific ratings for the type of aircraft
flown, and must also be medically certified as physically fit. In order to
maintain licenses and medical certifications, pilots must satisfy periodic
continuation 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 are
required to have initial and periodic competency fitness training and
certification. As required by FAA regulations, all of these employees must
undergo pre-employment and periodic drug testing.
AirTran believes current conditions in the airline industry have created a
sufficient pool of qualified, licensed pilots, dispatchers and mechanics to
fill its needs and that it will be able to hire and retain all personnel needed
to operate and expand its business.
AIRPORT OPERATIONS
AirTran's operations are based at the Orlando International Airport, where it
maintains its aircraft fleet. In Orlando, AirTran's employees provide
passenger services and all other ground services are outsourced. In all other
cities served by AirTran, other contractors, including major airlines, provide
all ground handling services including passenger services. Ground handling
services include greeting and serving passengers at check-in, gate and baggage
claim areas; guiding aircraft to and from gates; baggage handling services;
lavatory and water servicing; de-icing; and certain overnight aircraft
maintenance services. AirTran has an employee at each of the cities it serves
to promote sales and oversee its operations.
ITEM 2. PROPERTIES
REAL PROPERTY
AirTran's principal executive offices are located two miles from the Orlando
International Airport in a leased facility consisting of approximately 11,500
square feet of office space. This facility houses the executive offices of both
Airways and AirTran as well as the general administrative staff, reservations
staff and computer systems of AirTran. The Lease Agreement for these premises
expires in October 1998 and requires monthly lease payments of $13,000. During
the year ended March 31, 1996, AirTran entered into a ground lease with the
Greater Orlando Aviation Authority and a purchase agreement with Page AvJet to
acquire an aircraft hangar of approximately 74,000 square feet at the Orlando
International Airport for its maintenance staff, records, inventory and
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personnel training facilities as well as other office space. AirTran paid $3.6
million for the hangar and makes monthly ground lease payments of $8,900.
The FBO's principal offices are located in one leased and one owned facility at
Grand Rapids Itasca County Airport in Grand Rapids, Minnesota. The facilities
house the FBO's administrative offices and operations staff and systems. The
Agreement for the leased premises expires December 1996 and requires monthly
lease payments of $1,300. The other building is owned and has been fully
depreciated.
FLIGHT EQUIPMENT
As of March 31, 1996, AirTran's fleet consisted of ten Boeing 737-200 aircraft.
Of these, six were leased and four were owned. All aircraft in use are
maintained in airworthy condition in accordance with procedures approved by the
FAA. The owned aircraft are held subject to financing arrangements pursuant to
which liens on the aircraft were placed.
ITEM 3. LEGAL PROCEEDINGS
Neither Airways nor AirTran is a party to any pending legal proceedings that
either believe would have a materially adverse effect on the financial
condition or results of operations of the consolidated companies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the Airways'
fourth quarter ended March 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Airways' common stock is traded on the National Market System of The NASDAQ
Stock Market under the symbol "AAIR". The number of shareholders of record as
of June 17, 1996 was 8,996,937 and the closing price per share on that date was
$9.25.
The table below sets forth information, for each quarter in 1996 during which
Airways' common stock was traded, concerning the high and low sales prices.
Airways has not paid cash dividends in the past and does not intend to pay cash
dividends in the foreseeable future. Airways presently intends to retain
earnings for use in its business with any future decision to pay cash dividends
dependent on its growth, profitability, financial condition and other factors
the Board of Directors may deem relevant. Quotations for such periods are as
reported by NASDAQ for National Market issues.
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<TABLE>
<CAPTION>
STOCK PRICE RANGE
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HIGH LOW
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<S> <C> <C>
1996
First Quarter (1) (1)
Second Quarter $ 9.000 $7.250
Third Quarter $10.750 $7.250
Fourth Quarter $11.000 $8.125
</TABLE>
(1) Airways stock was not publicly traded prior to August 31, 1995 and,
therefore, there is no data for the First Quarter 1996 or for any quarters in
1995.
The transfer agent for Airways' common stock is Norwest Bank Minnesota, N.A.,
161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone:
(612)450-4064.
ITEM 6. SELECTED FINANCIAL DATA
QUARTERLY FINANCIAL DATA (UNAUDITED):
Airways' quarterly operating results are in thousands, except per share data.
<TABLE>
<CAPTION>
QUARTERS OF FISCAL YEAR ENDED MARCH 31, 1996
--------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, FISCAL YEAR
1995 1995 1995 1996 1996
----------- --------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
TOTAL OPERATING REVENUES . . . . . $ 9,656 $13,133 $18,212 $27,360 $68,361
OPERATING INCOME (LOSS) . . . . . (332) (59) 474 1,411 1,494
------- ------- ------- ------- -------
NET INCOME (LOSS) . . . . . . . $ (188) $ 201 $ 436 $ 738 $ 1,187
======= ======= ======= ======= =======
NET INCOME (LOSS) PER SHARE . . . . $ (.02) $ .02 $ .05 $ .08 $ .13
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING. 8,927 9,349 9,335 9,420 9,230
TOTAL ASSETS 12,599 43,183 54,721 68,360 68,360
LONG TERM DEBT 0 5,603 14,379 16,058 16,058
</TABLE>
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<TABLE>
<CAPTION>
QUARTERS OF FISCAL YEAR ENDED MARCH 31, 1995
---------------------------------------------------------------
PRIOR QUARTERS DECEMBER 31, MARCH 31, FISCAL YEAR
IN 1994 (1) 1994 1995 1995
-------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
TOTAL OPERATING REVENUES . . . . . . . . $ 858 $ 2,557 $ 6,192 $ 9,607
OPERATING INCOME (LOSS) . . . . . . . . (342) (2,806) (3,273) (6,421)
------ ------- ------- -------
NET INCOME (LOSS) . . . . . . . . . . $ (351) $(1,311) $(1,834) $(3,496)
====== ======= ======= =======
PRO-FORMA NET INCOME (LOSS) PER SHARE . . . $ (.04) $ (.15) $ (.21) $ (.39)
====== ======= ======= =======
PRO-FORMA WEIGHTED AVERAGE SHARES OUTSTANDING . 8,927 8,927 8,927 8,927
TOTAL ASSETS 7,964 10,754 13,544 13,544
LONG TERM DEBT 0 0 0 0
</TABLE>
(1) AIRTRAN COMMENCED SCHEDULED SERVICE DURING THE THIRD QUARTER OF FISCAL 1995
AND, THEREFORE, RESULTS PRIOR THERETO ARE INSIGNIFICANT. THE FIRST AND SECOND
QUARTERS OF FISCAL 1995 HAVE BEEN COMBINED AND ARE REPORTED ABOVE AS PRIOR
QUARTERS IN 1994 EXCEPT FOR TOTAL ASSETS AND LONG TERM DEBT WHICH ARE REPORTED
AS OF SEPTEMBER 30, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
AirTran commenced scheduled service on October 6, 1994 and had no operations
other than the FBO prior to July 1994. Therefore, comparisons in this Form
10-K are made only between the years ended March 31, 1996 and 1995. No
comparisons are made to the year ended March 31, 1994 as the results were
insignificant and not indicative of either company's future operating results.
Airways achieved operating income (loss) of $1,494,000 and ($6,421,000) for the
years ended March 31, 1996 ("1996") and March 31, 1995 ("1995"), respectively,
an improvement of $7,915,000. Pre-tax income, as a percentage of total
revenues, was 2.9% in 1996 and (66.2) % in 1995. The dramatic change, year
over year, is principally the result of AirTran's move from startup mode to
full fledged operations and reflects the success of its low fare, non-stop
strategy.
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SELECTED OPERATING DATA
The table below sets forth selected operating data for AirTran for 1996 and
1995.
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------
Percent
1996 1995 Change
------------ ------------ -------
<S> <C> <C> <C>
Available seat miles (1) 974,642,000 180,480,000 440.0%
Revenue passenger miles (2) 605,130,000 80,783,000 649.1%
Load factor (3) 62.1% 44.8% 17.3%
Yield per revenue passenger mile (4) $ 0.107 $ 0.098 9.2%
Passenger enplanements 685,000 87,000 687.4%
Departures 8,861 1,627 444.6%
Miles 7,739,000 1,432,000 440.4%
Block Hours (5) 21,078 3,405 519.0%
Average stage length (miles) (6) 873 880 (.8%)
Average daily aircraft utilization (hours) 9.1 8.8 3.4%
Aircraft (end of period) 10 4 150.0%
Full-time equivalent employees (end of period) 429 194 121.1%
</TABLE>
(1) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(2) The number of scheduled miles flown by revenue passengers.
(3) Revenue passenger miles divided by available seat miles. Year over year
percent change is measured only as percentage points difference.
(4) Passenger revenue divided by revenue passenger miles.
(5) The number of hours aircraft were flown as measured from the time of
pushback from the gate to the time of arrival at the next airport's gate.
(6) The average length of the routes flown on AirTran's scheduled route
system.
13
<PAGE> 14
The table below sets forth the major components of operating revenue and
expenses per ASM, for AirTran only, as a comparison between 1996 and 1995:
<TABLE>
<CAPTION>
Years ended March 31,
---------------------
1996 1995
------ -------
<S> <C> <C>
Operating Revenue:
Passenger $0.067 $ 0.044
Charter 0.002 0.007
Other 0.001 0.000
------ -------
Total 0.070 0.051
Operating expenses:
Flight operations 0.024 0.030
Maintenance 0.012 0.015
Aircraft and traffic services 0.014 0.018
Reservations, sales, and marketing 0.012 0.010
Depreciation and amortization 0.002 0.003
General and administrative 0.003 0.011
------ -------
Total 0.067 0.087
------ -------
Operating income $0.003 $(0.036)
====== =======
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
AirTran's fleet grew to ten aircraft at the end of 1996. Departures were 1,122
and 363 during March, 1996 and 1995, respectively, an increase of 859 or
236.6%. This is a direct result of the success of the strategy of serving
medium sized markets reflected in the increasing load factors and also a
result of the increase in fleet size.
OPERATING REVENUES
Total passenger revenues were $64,894,000 and $7,896,000 in 1996 and 1995,
respectively. The increase of $56,998,000 or 721.9% in 1996 reflects the fact
that AirTran had just commenced scheduled operations in the third quarter of
1995.
ASMs were 974,642,000 and 180,480,000 in 1996 and 1995, respectively, an
increase of 794,162,000 or 440.0%. This was principally the result of the
growth in departures and AirTran's fleet. Revenue Passenger Miles ("RPM"s)
were 605,130,000 and 80,783,000 in 1996 and 1995, respectively, an increase of
524,347,000 or 649.1%. This was principally the result of higher load factors
on existing routes and the addition of 13 new markets in 1996. Load factors
were 62.1% and 44.8% in 1996 and 1995, respectively, an increase of 17.3
percentage points.
AirTran also had charter revenue which is derived from making its airplanes
available to charter operators during slower periods of the year. Charter
revenues were $1,692,000 and $1,241,000 in 1996 and 1995, respectively, an
increase of $451,000 or 36.3%. The increase reflects full year
operations and more aircraft available during the year but the relatively low
year over year increase also reflects the deliberate shift of using more
aircraft in scheduled service in 1996 than in 1995.
14
<PAGE> 15
In addition, the consolidated operations include other revenues, principally
cancellation revenue, change fees, liquor sales and the sales of the FBO which,
collectively, were $1,775,000 and $470,000 in 1996 and 1995, respectively, an
increase of $1,305,000 or 277.7%. The increase in other revenues is
principally the result of full year operations.
OPERATING EXPENSES
Flight operations expense includes expenses related directly to the operation
of aircraft except for depreciation and amortization of aircraft and aircraft
improvements. Expenses for hull insurance, pilots' salaries, aircraft fuel and
flight operations administration are all included in flight operations. Flight
operations expenses were $24,067,000 and $5,747,000 in 1996 and 1995,
respectively, an increase of $18,320,000 or 318.8%. Departures were 8,861 and
1,627 in 1996 and 1995, respectively, an increase of 7,234 or 444.6% which,
together with the increased ASMs, drove the majority of the increase in flight
operations expense. Better aircraft utilization and reduced fleet ownership
costs mitigated the increase, year over year, in flight operations expense.
AirTran purchased four aircraft in 1996 which shifts fleet ownership costs to
depreciation as compared to flight operations expense.
The exemption from fuel tax for commercial aviation expired on October 1, 1995
and AirTran then became subject to that $0.043 per gallon tax. AirTran paid
the tax from October 1, 1995 through March 31, 1996 and the impact is included
in flight operations expense. Had AirTran been subject to the tax for the full
year, operating expenses would have been higher by approximately $260,000.
Various bills have been introduced in Congress to renew the exemption, however,
none have been enacted and there can be no assurance that any will be enacted.
Maintenance expense includes all expenses related to the upkeep of aircraft.
Such expenses include labor, parts, supplies and contract maintenance. The
direct cost of airframe and engine overhauls are expensed and, for leased
aircraft, paid monthly to the lessor in the form of reserves. For owned
aircraft, AirTran reserves on a per flight hour basis for future maintenance.
These reserves are recorded on AirTran's balance sheet each month as the
aircraft are flown. The reserves are then available for major overhauls when
they occur. Maintenance expenses were $11,999,000 and $2,818,000 in 1996 and
1995, respectively, an increase of $9,181,000 or 325.8%. Maintenance expense is
a semi-variable cost, facilities and administrative salaries for which are
relatively fixed while reserve expense is driven principally by block hours.
Block hours were 21,078 and 3,405 in 1996 and 1995, respectively, an increase of
17,673 or 519.0%. The increased block hours, year over year, contributed
substantially to the increased maintenance expense.
Aircraft and traffic servicing expense includes all expenses incurred at
airports, including landing fees, facilities rental, station labor, passenger
liability insurance, ground handling services, flight attendant wages, catering
expenses and flight attendant overnight expenses. Aircraft and traffic
servicing expenses were $13,412,000 and $3,167,000 in 1996 and 1995,
respectively, an increase of $10,245,000 or 323.5%. The increase is driven by
the increased number of flights, markets served, passengers, block hours and
due to higher load factors.
Reservations and sales expense includes all sales, marketing and advertising
expenses as well as the cost of reservations. Reservation expense includes
salaries of reservations personnel, computer
15
<PAGE> 16
reservation system expenses and travel agent commissions. Reservations and
sales expenses were $12,063,000 and $1,869,000 in 1996 and 1995, respectively,
an increase of $10,194,000 or 545.4%. The increase was due to increased travel
agent commissions, advertising and reservation activity associated with higher
passenger volume and increased sales of future tickets. The increased activity
was caused by the expansion of AirTran's service into new markets and higher
load factors on existing routes in 1996. AirTran had passenger volume of
685,000 and 87,000 in 1996 and 1995, respectively, an increase of 598,000 or
687.4%.
General and administrative expense includes the wages and benefits for both
companies' executive officers and various other administrative personnel. Also
included are costs for office supplies, legal expenses, accounting and
miscellaneous expenses. General and administrative expenses were $3,180,000
and $1,905,000 in 1996 and 1995, respectively, an increase of $1,275,000 or
66.9%. The principal cause of the increased expense in 1996 was the
development of headquarters and administrative infrastructure to support
AirTran's full and expanding operation. In addition, AirTran introduced a
program of profit sharing for all full time employees during 1996 which, due to
Airtran's profitability, contributed to the increase.
Depreciation and amortization expense includes depreciation on equipment,
aircraft and aircraft improvements and amortization of leasehold improvements,
goodwill and aircraft and loan acquisition costs. Depreciation and
amortization expense were $2,146,000 and $522,000 in 1996 and 1995,
respectively, an increase of $1,624,000 or 311.1%. Purchases of aircraft
completed in the latter part of 1996 were the principal cause of the increased
depreciation expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $16,437,000 and $961,000 at March 31, 1996 and
1995, respectively, an increase of $15,476,000 or 1,610.4%. Prior to the
distribution, Mesaba contributed cash and property to Airways having a book
value of approximately $20,250,000 in 1996 in addition to $8,750,000 invested in
Airways in 1995. The principal sources of cash and cash equivalents were
Mesaba's capital contribution, proceeds of long-term debt of $16,800,000 and
cash generated from operating activities of $14,063,000. The principal uses of
cash and cash equivalents were for purchases of property and equipment of
$28,380,000, acquisition of other assets (excluding deferred loan costs) of
$938,000 and payments on long-term debt of $1,142,000.
Cash and cash equivalents were $961,000 and $8,000 at March 31, 1995 and 1994,
respectively, an increase of $953,000. The principal source of cash and cash
equivalents were capital contributions of $8,831,000, most notably the
aforementioned $8,750,000 from Mesaba. The principal uses of cash and cash
equivalents were for purchases of property and equipment of $2,277,000, the
acquisition of Conquest Sun Airlines, Inc. for $2,500,000, and for the
acquisition of other assets (excluding deferred loan costs) of $1,356,000.
Airways' consolidated working capital ratio was 1.10 to 1.0 and 1.36 to 1.0 at
March 31, 1996 and 1995, respectively. The decrease in the ratio at March 31,
1996 was principally the result of investing in property and equipment during
the year.
16
<PAGE> 17
During 1996, AirTran entered into the following financing arrangements:
- - - Four Loan Agreements with a major commercial financing company to finance
the purchase of three Boeing 737-200 aircraft. The aggregate financing
amount of the loans was $13,800,000 and is secured by the aircraft. The
loans carry fixed interest rates ranging from 5.85% to 11.67%. The loans
require payments of principal and interest on a monthly basis which
amortize the borrowing by December 2000.
- - - One short-term note with the seller to finance the purchase of one Boeing
737-200 aircraft. The loan amount was $1,000,000 and is secured by the
aircraft. The note carries a variable interest rate of LIBOR rate plus
4.1%. The note requires payment of principal and interest on a monthly
basis which amortize the borrowing by December 1996.
- - - One long term loan with a major bank to finance part of the purchase of a
hangar at the Orlando International Airport. The loan amount was
$2,000,000 and is secured by the hangar as well as security interests
granted in AirTran's leasehold improvements as well as $214,000 in
cash. The loan carries a variable interest rate equal to the prime rate
plus 1%. The loan requires repayment of principal in the amount of
$25,000 monthly plus interest accrued and, at various intervals, can
require repayments of greater amounts depending on Airways' cash
flow.
- - - One installment loan with the seller to purchase aircraft equipment. The
loan amount was $400,000 and is secured by the equipment. The loan
carries a fixed interest rate of 10%. The note requires payment of
principal and interest monthly which will amortize the loan by February
1999.
Airways had consolidated current assets of $34,675,000 and $7,841,000 as of
March 31, 1996 and 1995, respectively. Management believes that such assets,
along with internally generated funds as well as financing which management
believes is or will be made available, will satisfy projected operating and
capital needs. If AirTran increases its rate of growth over current
projections, acquires another company, purchases more aircraft (rather than
leasing additional aircraft) than is presently planned, sustains losses, or
otherwise requires significant additional capital, other sources of funds will
need to be secured and there is no assurance that such funds will be secured.
The effect of inflation on either company is not considered material.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
effective for financial statements with fiscal years beginning after December
15, 1995. Among other provisions, SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, an entity should estimate the future cash flows expected to
result from the use of the assets and their eventual disposition. Measurement
for an impairment loss for long-lived assets and identifiable intangibles
expected to be held and used should be based on the fair value of the asset.
17
<PAGE> 18
Airways has determined that this pronouncement will not have a material impact
on the consolidated financial condition and results of operations.
In October, 1995 the FASB issued SFAS 123 - "Accounting for Stock-Based
Compensation" effective for financial statements with fiscal years beginning
after December 15, 1995. Among other provisions, SFAS 123 establishes a new,
alternative method based on fair values for accounting for stock-based
compensation arrangements with employees. In addition, if an entity does not
adopt the new, alternative method, the statement requires disclosure in the
footnotes of pro-forma net income and earnings per share as if the fair value
method had been adopted. Airways intends to adopt the provisions of SFAS 123
when required and will elect to continue to account for stock options under the
provisions of the Accounting Principles Board ("APB") Opinion No. 25 "Accounting
for Stock Issued to Employees" as provided for in SFAS 123.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included in Part IV, Item
14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Airways terminated its relationship with the independent public accounting firm
of Arthur Andersen LLP ("AA") on September 28, 1995. AA's report on Airways'
financial statements for the fiscal year ended March 31, 1995, did not contain
an adverse opinion or a disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope, or accounting principles. From the time AA was
engaged by Airways through the date of AA's dismissal, there were no
disagreements with AA on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of AA, would have caused it
to make reference to the subject matter of the disagreements in connection with
its report.
Airways hired the independent public accounting firm of KPMG Peat Marwick
LLP ("KPMG") for the purpose of conducting an audit for the next fiscal year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Management" in Airways' Proxy
Statement for its 1996 Annual Meeting of Shareholders is incorporated herein by
reference.
18
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in Airways'
Proxy Statement for its 1996 Annual Meeting of Shareholders is incorporated
herein by reference; provided, however, the report of the Compensation
Committee on executive compensation and the stock performance graph contained
therein shall not be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Security Ownership of Management and
Certain Beneficial Owners" in Airways' Proxy Statement for its 1996 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Transactions with Management" and in
Airways' Proxy Statement for its 1996 Annual Meeting of Shareholders is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) A listing of financial statements and financial statement schedules filed
as part of this report is set forth in the "Index to Financial Statements"
following Part IV hereof.
(b) Reports on Form 8-K: None
(c) Exhibit Index - 1996 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- - ----------- -----------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Airways Corporation (1)
3.2 Bylaws of Airways Corporation. (1)
4.0 Form of Stock Certificate of common stock of Airways Corporation. (1)
10.1 Air Carrier Certificate issued to AirTran Airways, Inc. effective June 6, 1994. (1)
10.2 Certificate of Public Convenience and Necessity for Interstate Air Transportation
issued to AirTran Airways, Inc., d/b/a AirTran Airways, effective November 30, 1994. (1)
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
10.3 FAA Repair Station Certificate. (1)
10.4.8 Secured Loan Agreement dated August 28, 1995 between Finova Capital
Corporation, as Lender, and AirTran Airways, Inc., as borrower. (2)
10.5 Distribution Agreement between AirTran Corporation, Mesaba Aviation, Inc.
AirTran Airways, Inc. and Airways Corporation. (2)
10.6 Agreement, dated May 18, 1995, between Northwest Airlines, Inc., Northwest
Aircraft, Inc., Mesaba Aviation, Inc. and AirTran Corporation. (2)
10.7 Lease of headquarters of Airways in Orlando, Florida. (1)
10.8 Airways Corporation 1995 Stock Option Plan. (1)
10.9 Airways Corporation 1995 Directors Stock Option Plan. (1)
10.10 Severance Agreement between Robert D. Swenson and AirTran Corporation,
Mesaba Aviation, Inc. and Airways Corporation dated April 28, 1995. (1)
10.11 Lease of headquarters of Airways in Orlando, Florida, dated November 1, 1995. (3)
10.13 Security Agreement dated December 28, 1995 between C. I. T. Leasing Corporation,
as lender and AirTran Airways, Inc., as borrower. (3)
10.15 Security Agreement dated December 20, 1995 between Finova Capital Corporation,
as lender and AirTran Airways, Inc., as borrower. (3)
10.16 Security Agreement dated December 20, 1995 between Finova Capital Corporation,
as lender and AirTran Airways, Inc., as borrower. (3)
10.17.1 Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater
Orlando Aviation Authority and Page AvJet Corporation dated December 11, 1989.
10.17.2 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement by
and between Greater Orlando Aviation Authority and Page AvJet Corporation dated
June 22, 1990.
10.17.3 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and AirTran
Airways, Inc. dated January 25, 1996.
10.18 Agreement between AirTran Airways, Inc. and MarketLink, Inc. dated January 26,
1996.
11.0 Statement of Computation of Weighted Average Shares and Per Share Earnings.
</TABLE>
20
<PAGE> 21
16.0 Letter re: Change in Independent Public Accountants. (4)
18.0 Preference letter re: Change in accounting principles.
21.0 Subsidiary of Airways Corporation.
23.1 Letter re: Consent of Arthur Andersen LLP.
23.1 Letter re: Consent of KPMG Peat Marwick LLP.
27.0 Financial Data Schedule (submitted only in electronic format).
(1) Incorporated by reference to Airways Corporation's Form S-4 Registration
Statement (File No. 33-93104).
(2) Incorporated by reference to the Airways Corporation's Form 10-Q for the
quarter ended September 30, 1995.
(3) Incorporated by reference to Airways Corporation's Form 10-Q for the
quarter ended December 31, 1995.
(4) Incorporated by reference to Airways Corporation's Form 8-K filed on
September 28, 1995.
21
<PAGE> 22
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.
AIRWAYS CORPORATION
REGISTRANT
By: /s/ ROBERT D. SWENSON
----------------------------------
Robert D. Swenson
Chairman of the Board, Chief
Executive Officer
Date: June 28, 1996
22
<PAGE> 23
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ----------------- ---------------------------------------------- -------------
<S> <C> <C>
/s/ ROBERT D. SWENSON Chairman of the Board, Chief Executive June 28, 1996
- - --------------------- Officer and Director of Airways and Chairman
Robert D. Swenson of the Board of AirTran Airways, Inc.
(Principal Executive Officer)
/s/ JOHN F. HORN President and Director of Airways, President June 28, 1996
- - --------------------- and Chief Executive Officer of AirTran
John F. Horn Airways, Inc.
/s/ MARK B. RINDER Vice President of Finance, Secretary June 28, 1996
- - --------------------- and Chief Financial Officer of
Mark B. Rinder Airways Corporation and Vice President of
Finance and Chief Financial Officer of
AirTran Airways, Inc.
(Principal Financial and Accounting Officer)
/s/ JOHN S. OLBRYCH Director June 28, 1996
- - ---------------------
John S. Olbrych
/s/ JOHN K. ELLINGBOE Director June 28, 1996
- - ---------------------
John K. Ellingboe
* Director June 28, 1996
- - ---------------------
Roger T. Munt
* Director June 28, 1996
- - ---------------------
Alan R. Stephen
</TABLE>
23
<PAGE> 24
AIRWAYS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
NO.
-------
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Reports. . . . . . . . . . . . . . 25
Consolidated Balance Sheets, March 31, 1996 and 1995 . . . . . . 27
Consolidated Statements of Operations for the Years ended March 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Cash Flows for the Years ended March 31,
1996, 1995 and 1994. . . . . . . . . . . . . . . . . 30
Consolidated Statements of Changes in Shareholders' Equity and Group
Equity for the Years ended March 31, 1996, 1995 and 1994. . . . . 32
Notes to Consolidated Financial Statements . . . . . . . . . 33
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts - Schedule not filed N/A
herewith is omitted because of the absence of conditions under which
it is required.
</TABLE>
24
<PAGE> 25
INDEPENDENT AUDITORS REPORT
Board of Directors
Airways Corporation:
We have audited the accompanying consolidated balance sheet of Airways
Corporation and subsidiary (the "Company") as of March 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and group
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of Airways Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Airways Corporation
and subsidiary as of March 31, 1996 and the results of its operations and its
cash flows for the year ended March 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, the Company
changed its method of accounting for credit card processing fee expense.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orlando, Florida
May 24, 1996
25
<PAGE> 26
INDEPENDENT AUDITORS REPORT
To Airways Corporation:
We have audited the combined balance sheet of The Airways Group as of March 31,
1995 and the related combined statements of operations, changes in group equity
and cash flows for the years ended March 31, 1995 and 1994. These financial
statements are the responsibility of The Airways Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 The Airways Group as of March
31, 1995 and the results of their operations and their cash flows for the years
ended March 31, 1995 and 1994, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 19, 1995
26
<PAGE> 27
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,437 $ 961
Restricted cash 11,309 3,765
Accounts receivable, net 3,135 413
Inventory, expendable parts and supplies 1,847 2,282
Prepaid expenses and deposits 1,947 420
------- -------
Total current assets 34,675 7,841
------- -------
Property and equipment, net 29,458 2,211
------- -------
Other assets:
Goodwill, net 1,891 2,026
Lease and equipment deposits 1,339 1,148
Other assets, net 997 318
------- -------
Total assets $68,360 $13,544
======= =======
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
27
<PAGE> 28
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------- -------
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,362 $ 1,774
Air traffic liability 14,912 3,628
Accrued expenses 3,082 381
Current portion of long-term debt 3,574 -
Income taxes payable 533 -
------- -------
Total current liabilities 31,463 5,783
Long-term debt, less current portion 12,484 -
Deferred income taxes 50 71
------- -------
Total liabilities 43,997 5,854
------- -------
Stockholders' equity:
Preferred stock, $.01 par value per share, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value per share, 19,000,000 shares
authorized, 8,966,937 and no shares issued and outstanding
at March 31, 1996 and 1995, respectively 90 -
Additional paid-in capital 26,350 10,954
Accumulated deficit (2,077) (3,264)
------- -------
Total stockholders' equity 24,363 7,690
------- -------
Commitments and contingencies (note 4)
Total liabilities and stockholders' equity $68,360 $13,544
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1996, 1995 and 1994
(In thousands, except per share information)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
Operating revenues:
Passenger $64,894 $ 7,896 $ -
Charter 1,692 1,241 -
General aviation and other 1,775 470 372
------- ------- ------
Total operating revenues 68,361 9,607 372
------- ------- ------
Operating expenses:
Flight operations 24,067 5,747 95
Maintenance 11,999 2,818 89
Aircraft and traffic servicing 13,412 3,167 -
Reservations, sales and marketing 12,063 1,869 -
Depreciation and amortization 2,146 522 18
General and administrative 3,180 1,905 163
------- ------- ------
Total operating expenses 66,867 16,028 365
------- ------- ------
Operating income (loss) 1,494 (6,421) 7
Interest (income) and other (1,007) (59) -
Interest expense 524 - -
------- ------- ------
Income (loss) before income taxes 1,977 (6,362) 7
Income tax expense (benefit) 790 (2,866) 3
------- ------- ------
Net income (loss) $ 1,187 $(3,496)$ 4
======= ======= ======
Net income (loss) per share (pro-forma and unaudited
in 1995 and 1994) $ .13 $ (.39)$ -
======= ======= ======
Weighted average shares outstanding (pro-forma and
unaudited in 1995 and 1994) 9,230 8,927 8,927
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,187 $ (3,496) $ 4
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,883 522 18
Compensation expense incurred in connection
with stock options granted and issued 224 - -
Change in current operating items:
Restricted cash (7,544) (3,765) -
Accounts receivable, net (2,722) (333) (38)
Inventories 435 (68) (9)
Prepaid expenses and deposits (1,527) (357) -
Accounts payable and accrued liabilities 10,289 2,124 25
Air traffic liability 11,284 3,628 -
Income tax payable 533 - -
Deferred taxes 21 - -
------- -------- ---
Net cash flows provided by (used for)
operating activities 14,063 (1,745) -
------- -------- ---
Investing activities:
Purchase of Conquest Sun Airlines, Inc. - (2,500) -
Purchases of property and equipment, net (28,380) (2,277) -
Increase in other assets, excluding deferred loan costs (938) (1,356) -
------- -------- ---
Net cash flows used for investing activities (29,318) (6,133) -
------- -------- ---
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
30
<PAGE> 31
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ----
<S> <C> <C> <C>
Financing activities:
Capital contributions 15,154 8,831 -
Proceeds from long-term debt 16,800 - -
Repayments of long-term debt (1,142) - -
Deferred loan costs (189) - -
Proceeds from issuance of common stock 108 - -
Borrowings from former parent - 458 -
Repayments to former parent - (458) -
------- ------ --
Net cash flows provided by financing activities 30,731 8,831 -
------- ------ --
Net increase in cash and short-term investments 15,476 953 -
Cash and short-term investments at beginning of year 961 8 8
------- ------ --
Cash and short-term investments at end of year $16,437 $ 961 $8
======= ====== ==
Supplemental disclosures of cash flow activities:
Cash paid for interest $ 501 $ - $-
======= ====== ==
Cash paid for income taxes $ 278 $ - $-
======= ====== ==
Supplemental disclosure of non-cash investing and financing
activities:
During the year ended March 31, 1996, the Company
purchased $400 of flight equipment with
long-term debt.
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND GROUP EQUITY
For the years ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Group Common Preferred Paid-in (Accumulated Stockholders'
Equity Shares Stock Stock Capital Deficit) Equity
------ ------ ----- ----- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1993 $ 2,123 - - - - $ 228 $ 2,351
Net Income 4 4
--------------------------------------------------------------------------------------------------
Balance, March 31,
1994 2,123 - - - - 232 2,355
Capital contributions 8,831 - - - - 8,831
Net loss (3,496) (3,496)
--------------------------------------------------------------------------------------------------
Balance, March 31,
1995 10,954 - - - - (3,264) 7,690
Shares issued and
contribution of
group equity (10,954) 8,927 $89 - $26,019 - 15,154
Stock options
granted and
exercised under
stock option plan - 40 1 - 331 332
Net Income 1,187 1,187
--------------------------------------------------------------------------------------------------
Balance, March 31,
1996 $ - 8,967 $90 - $26,350 $(2,077) $24,363
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996, 1995 and 1994
(Dollars in thousands, except share and per share amounts)
(1) CORPORATE ORGANIZATION AND BUSINESS
In June 1994, AirTran Corporation, former parent company, now doing
business as Mesaba Holdings, Inc. ("Mesaba"), acquired the common stock of
Conquest Sun Airlines, Inc. ("Conquest") for $2,500 in a transaction
accounted for under the purchase method of accounting. At the time of the
acquisition, Conquest had recently obtained U.S. Department of
Transportation ("DOT") approval to operate a jet airline. Conquest's name
was subsequently changed to AirTran Airways, Inc. ("AirTran") and scheduled
passenger service commenced on October 6, 1994.
In March 1995, Mesaba and Northwest Airlines, Inc. ("Northwest") entered
into an agreement to spin off AirTran Airways, Inc. and a fixed-base
operation ("FBO") in Grand Rapids, Minnesota. Under the terms of the
spin-off, on April 7, 1995, Mesaba established a new wholly-owned
subsidiary, Airways Corporation (the "Company") into which the above
operations were consolidated (and previously referred to as The Airways
Group) in order to facilitate the distribution of the Company common stock
to Mesaba shareholders (other than Northwest). In connection with the
spin-off, Mesaba made a contribution in cash and certain assets to the
Company prior to the spin-off date. The distribution was approved by
Mesaba's shareholders on August 29, 1995 and was made on September 7, 1995
to the shareholders of record (other than Northwest) on August 31, 1995.
The FBO has historically operated as a division of Mesaba. The accompanying
consolidated financial statements present the results of the combined
entities whereby significant intercompany accounts and transactions are
eliminated.
AirTran serves 21 cities from Orlando, operating as AirTran Airways. The
FBO sells aircraft parts, provides fueling and other aircraft servicing,
rentals, and flight training in Grand Rapids, Minnesota.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and are
stated at cost, which approximates market. Restricted cash represents
amounts escrowed relating to the Company's air traffic liability and to
cash collateralizing the Company's long-term debt.
33
<PAGE> 34
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2),CONTINUED
(B) INVENTORY
Expendable parts and supplies are stated at the lower of average cost
or market and consist of expendable aircraft service parts, fuel and
Fokker F-27 aircraft and parts held for sale by the FBO. Expendable
parts are charged to maintenance expense as used.
(C) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a
straight-line basis for financial reporting purposes over estimated
useful lives of four to twelve years for flight equipment and rotable
parts and three to five years for all other equipment. Leasehold
improvements are amortized over the shorter of the life of the lease or
the asset.
(D) GOODWILL
The excess of purchase price paid for Conquest over the fair market
value of net tangible assets acquired totaled $2,141 and is being
amortized over 15 years. Accumulated amortization totaled $250 and $115
at March 31, 1996 and 1995, respectively.
(E) OTHER ASSETS
Certain costs incurred in connection with the acquisition of Boeing
737-200 aircraft and the start-up of AirTran's airline service have
been deferred. As of March 31, 1996 and 1995, such costs totaled
$1,108 and $395, respectively, and consisted of initial flight crew
training, aircraft rent and insurance expenses incurred prior to
AirTran's scheduled airline service. Pre-operating costs are being
amortized over three years, and accumulated amortization totaled $293
and $77 at March 31, 1996 and 1995, respectively. Development costs
relating to new routes, obtaining regulatory approval, and
administrative and promotional costs are charged to expense as
incurred.
Certain costs incurred in connection with obtaining long-term debt have
been deferred. As of March 31, 1996, such costs totaled $189. Deferred
loan costs are being amortized over the terms of the loans and
accumulated amortization was $7 at March 31, 1996.
(F) REVENUE RECOGNITION
Passenger and charter revenues are recorded as income when the
respective services are rendered or the passenger ticket otherwise
expires. Cash received on advance ticket and charter sales is deferred
and recorded as air traffic liability.
34
<PAGE> 35
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(G) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which is an asset and liability
approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income.
(H) AIRFRAME AND ENGINE OVERHAUL EXPENSE
The Company has adopted the accrual method for recognizing the
estimated cost of airframe and engine overhaul expenses. The accrual
method provides for estimating the cost of overhauls and accruing the
cost, based on an hourly rate, to overhaul expense. The actual expense
is charged to the accrual and any deficiency or excess is charged or
credited to expense in the period incurred.
(I) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of common shares in 1996 and for prior years is on a pro-forma
basis, and, if dilutive, common stock equivalent shares (options)
outstanding during the respective periods.
(J) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts
of Airways Corporation and AirTran Airways, Inc., a wholly-owned
subsidiary of Airways Corporation. All material intercompany
transactions have been eliminated.
(K) CONCENTRATION OF CREDIT RISK
At March 31, 1996, most of the Company's receivables related to tickets
sold to individual passengers through the use of major credit cards on
the Company's flights. These receivables are short-term, generally
being settled within 14 days after sale. The Company does not believe
it is subject to any significant concentration of credit risk.
35
<PAGE> 36
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(L) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(M) FUTURE APPLICATION OF ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", effective for financial statements with fiscal years
beginning after December 15, 1995. Among other provisions, SFAS 121
requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for
recoverability, an entity should estimate the future cash flows expected
to result from the use of the assets and their eventual disposition.
Measurement for an impairment loss for long-lived assets and
identifiable intangibles expected to be held and used should be based on
the fair value of the asset. The Company has determined that this
pronouncement will not have any material impact on the financial
condition and results of operations.
In October, 1995 the FASB issued SFAS 123 - "Accounting for Stock-Based
Compensation", effective for financial statements with fiscal years
beginning after December 15, 1995. Among other provisions, SFAS 123
establishes a new, alternative method based on fair values for
accounting for stock-based compensation arrangements with employees. In
addition, if an entity does not adopt the new, alternative method, the
statement requires disclosure in the footnotes of pro-forma net income
and earnings per share as if the fair value method had been adopted.
Airways intends to adopt the provisions of SFAS 123 when required and
will elect to continue to account for stock options under the provisions
of the Accounting Principles Board ("APB") Opinion No. 25 "Accounting
for Stock Issued to Employees" as provided for in SFAS 123.
36
<PAGE> 37
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(N) RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Flight equipment, substantially pledged in 1996 $25,216 1,626
Other property and equipment 2,675 1,186
Hangar 3,615 -
------- -----
31,506 2,812
Less accumulated depreciation 2,048 601
------- -----
Net property and equipment $29,458 2,211
======= =====
</TABLE>
The Company's airline fleet consisted of ten Boeing 737-200 ("B737")
aircraft of 126 to 128 passenger capacity each, of which six are held under
operating leases as of March 31, 1996. The remaining four aircraft are
owned by the Company and had a net book value of $19,440 at March 31, 1996.
Aircraft maintenance and repairs on B737 aircraft are charged to expense
when incurred, except for the cost of major airframe and engine overhauls,
the estimated cost of which is charged to maintenance expense based upon
hours flown pursuant to the specific lease agreements and the Company's
accounting policies for owned aircraft, thus providing for the
37
<PAGE> 38
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(3),CONTINUED
overhaul cost when it occurs. Approximately $2,514 and $276 has been
accrued for major airframe and engine overhauls as of March 31, 1996 and
1995, respectively. The Company estimates that the costs of major engine
and airframe overhauls due in 1997 will total approximately $6,500,
virtually all of which is either reserved and on the balance sheet, will be
reserved during 1997 pursuant to the Company's accounting policies for
leased and owned aircraft or will be reimbursable from lessors.
The B737 operating leases require future minimum rental payments as follows
at March 31, 1996:
<TABLE>
<S> <C>
1997 $ 5,984
1998 5,579
1999 4,558
2000 3,002
2001 3,002
Thereafter 4,170
-------
$26,295
=======
</TABLE>
Rent expense under B737 operating leases totaled approximately $4,535 and
$1,225 in 1996 and 1995, respectively and is included in flight operations
in the accompanying consolidated statements of operations.
(4) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
As detailed in Note 3 the Company leases six B737 aircraft under operating
leases. In addition, the Company leases office and hangar facilities and
certain terminal facilities under operating leases which provide for
approximate future minimum rental payments of $414 in 1997. Rent expense
under all facility operating leases totaled approximately $365 in 1996,
$360 in 1995, and $16 in 1994.
CREDIT FACILITY
The Company maintains a $1,000 credit facility with a bank for purposes of
issuing letters of credit. Eight letters totaling $673 have been issued
and were outstanding at March 31, 1996. In the event advances under the
facility are drawn, the borrowings would bear interest at the
38
<PAGE> 39
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(4), CONTINUED
bank's prime rate plus 1-1/4%. No amounts were drawn under this
facility as of or during the year ended March 31, 1996.
LITIGATION
The Company is a party to ongoing legal proceedings arising in the
ordinary course of business. In the opinion of management, the resolution
of these matters will not have a materially adverse effect on the
Company's financial position, results of operations, or its cash flows.
AIRCRAFT COMMITMENTS
In order to comply with Federal Aviation Administration ("FAA")
requirements, the Company is required to purchase hush kits for its B737
aircraft. The installation of these hush kits will bring the aircraft
into compliance with FAA Stage 3 noise level requirements. The projected
payments associated with the purchase of the hush kits are $3,000 in
1997, $3,000 in 1998 and $0 in 1999 and based on those purchases combined
with AirTran's current plans for aircraft acquisitions and upcoming
aircraft lease expirations, it will continue to meet or exceed the Stage
3 requirements. The Company has contracted to purchase four hush kits
for its B737 aircraft at its installed cost of $6,000.
(5) STOCK OPTION PLAN
In 1996, the Airways Corporation Stock Option Plan and Director Stock
Option Plan (the "Plans") were established. Under these Plans, options
were granted by the compensation committee of the Company's Board of
Directors which vest one year from the date of grant and are exercisable
(subject to certain conditions) for a period not to exceed five years from
the date of grant for participants owning 10% or more of the outstanding
common stock and ten years for all other participants. The purchase price
of the stock may not be less than 110% of the fair market value of the
Company's common stock on the date of the grant for participants owning
10% or more of the outstanding common stock or 100% of the fair market
value for all other participants. A total of 1,150,000 shares of the
Company's common stock have been reserved for issuance pursuant to options
granted under the Plans. As of March 31, 1996, 625,100 incentive stock
options remain granted with exercise prices between $2.70 and $10.75 per
share. In addition, the Company has granted 87,900 nonqualified stock
options to certain of the Company's officers and directors at exercise
prices between $2.70 and $7.75 per share. These options also become
exercisable (subject to certain conditions) beginning one year from the
date of grant. As of March 31, 1996, 40,000 options had been exercised
pursuant to a change made to the Plan resulting in $225 of compensation
expense during the year ended March 31, 1996.
39
<PAGE> 40
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6) LONG-TERM DEBT
Long-term debt as of March 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $100 plus interest at 11.67%, maturing August 2000 $4,094
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $23 including interest at 5.85%, maturing August 2000 1,054
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,844
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,844
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $92 including interest at LIBOR + 4.1% (9.6 % as of
March 31, 1996), maturing December 1996 833
Installment loan, dated February 1996, collateralized by flight equipment,
payments of $13 including interest at 10%, maturing February 1999 389
Term loan, dated March 1996, collateralized by a hangar, payments of $25
plus interest at prime + 1% (9.25% as of March 31, 1996), maturing
October 2002 2,000
-------
Total long-term debt 16,058
Less current installments of long-term debt 3,574
-------
Net long-term debt $12,484
=======
</TABLE>
40
<PAGE> 41
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
The aggregate amounts of principal maturities of debt outstanding at March
31, 1996, for the five subsequent years are as follows:
<TABLE>
<S> <C>
1997 $ 3,574
1998 2,992
1999 3,269
2000 3,441
2001 2,282
Thereafter 500
---------
$ 16,058
=========
</TABLE>
(7) INCOME TAXES
Income tax expense (benefit) attributable to loss from continuing
operations for the years ended March 31, 1996, 1995 and 1994 consists of
the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996:
Federal $ 722 $(52) $ 670
State 89 31 120
-------- ----- -------
$ 811 $(21) $ 790
======== ===== =======
1995:
Federal $(2,423) $ 59 $(2,364)
State (514) 12 (502)
-------- ----- -------
$(2,937) $ 71 $(2,866)
======== ===== =======
1994:
Federal $ 3 $ - $ 3
State - - -
-------- ----- -------
$ 3 $ - $ 3
======== ===== =======
</TABLE>
41
<PAGE> 42
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(7), CONTINUED
Total income tax expense (benefit) from continuing operations for the
years ended March 31, 1996, 1995 and 1994 differed from amounts computed
by applying the U.S. federal income tax rate of 34% to loss before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $672 $(2,163) $2
(Increase) decrease in income tax expense (benefit)
resulting from:
Nondeductible expenses - (60) -
State income tax expense (benefit),
net of federal income taxes 72 (502) -
Reorganizational costs 42 - -
Other, net 4 (141) 1
---- ------ --
$790 $(2,866) $3
==== ======= ==
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets and deferred tax liabilities as of
March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Workers' compensation $ 11 $28
Alternative minimum tax credit carryforwards 337 -
Deferred maintenance costs 946 -
Other - 9
------ ---
Total gross deferred tax assets $1,294 $37
------ ---
</TABLE>
42
<PAGE> 43
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(7),CONTINUED
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation 996 108
Deferred pre-operating costs 267 -
Prepaid expenses, principally due to prepaid
commissions 46 -
Other 35 -
------ ---
Total gross deferred tax liabilities 1,344 108
------ ---
Net deferred tax (liabilities) $ (50) (71)
====== ===
Presented as:
Noncurrent deferred income tax (liabilities) (50) (71)
------ ---
$ (50) (71)
====== ===
</TABLE>
The valuation allowance for deferred tax assets as of March 31, 1996 and
1995 was $-0-. The net decrease in the total valuation allowance for the
years ended March 31, 1996 and 1995 was $-0-. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or the reversal of
deferred tax liabilities during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. Based upon management's
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences
as of March 31, 1996.
As of March 31, 1996, the Company has alternative minimum tax credit
carryforwards of $337 which are available to offset future federal regular
income taxes, if any, over an indefinite period.
43
<PAGE> 44
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(8) BENEFIT PROGRAM
The Company introduced a profit sharing arrangement during 1996 covering
substantially all employees. Profit sharing expense was $ 338 in 1996.
(9) FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is estimated using the
present value of discounted cash flows based on the borrowing rate
currently available to the Company for debt with similar remaining terms
and maturity. The carrying amounts reported in the consolidated financial
statements for cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and accrued expenses approximate fair value
due to their immediate or short-term maturities. The carrying amounts of
the Company's long-term debt with variable interest rates approximate fair
value as these instruments are repriced regularly.
The carrying amount and fair value of the Company's fixed long-term debt at
March 31, 1996 is as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Long-term debt $16,058 $16,193
</TABLE>
(10)EFFECT OF FOURTH QUARTER RESULTS
Adjustments were made to the air traffic liability during the fourth
quarter of 1996 which totaled $1,197, of which $886 and $311 were recorded
as additional passenger and other revenue, respectively. These adjustments
were made to record cancellation and change fee revenue not previously
recognized by the Company. Of those amounts, $478 related to revenue earned
in the fourth quarter and the balance related to prior quarters.
In addition, other adjustments were made to operating expenses for costs
incurred which were underaccrued in prior periods totaling $1,515.
Adjustments were made to flight operations expense - $660, maintenance -
$490, aircraft and traffic services - $85 and reservations and sales
expense - $280.
44
<PAGE> 45
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(11) CHANGE IN ACCOUNTING METHOD FOR CREDIT CARD PROCESSING FEE EXPENSE
Credit card processing fees paid are deferred and recognized when the
passenger travel has been completed. In prior years, fees were expensed
when paid. The new method was adopted to match the credit card processing
fee expense more appropriately with the related revenue and to make
treatment consistent with the Company's standard revenue recognition
policies. The effect of the change in 1996 was to increase income by
approximately $165 or $0.02 per share net of the effect of income taxes.
The cumulative effect of the change in accounting principle on prior
years is immaterial.
45
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NAME
#
<S> <C>
10.17.1 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989.
10.17.2 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement
by and between Greater Orlando Aviation Authority and Page AvJet
Corporation dated June 22, 1990.
10.17.3 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and
AirTran Airways, Inc. dated January 25, 1996.
10.18 Agreement between AirTran Airways, Inc. and MarketLink, Inc. dated
January 26, 1996.
11.0 Statement of Computation of Weighted Average Shares and Per Share Earnings.
18.0 Preference letter re: Change in accounting principles.
21.0 Subsidiary of Airways Corporation.
23.1 Letter re: Consent of Arthur Anderson LLP.
23.2 Letter re: Consent of KPMG Peat Marwick LLP.
27.0 Financial Data Schedule (submitted only in electronic format).
</TABLE>
46
<PAGE> 1
EXHIBIT 10.17.1
---------------
ORLANDO TRADEPORT
MAINTENANCE HANGAR LEASE AGREEMENT
THIS LEASE AGREEMENT entered into and to become effective this 11th
day of December, 1989, between the GREATER ORLANDO AVIATION AUTHORITY, a
public body existing under the laws of the State of Florida ("Authority"), and
PAGE AVJET CORPORATION, a corporation organized and existing under the laws of
the State of Delaware and qualified to do business in the State of Florida
("Lessee" or "Company").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
set forth, Authority and Lessee agree and covenant as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Lease and not otherwise defined shall
have the following meanings:
1.01 "Act" means the Constitution of the State of Florida, the
Florida Industrial Development Financing Act, Part II, Chapter 159, Florida
Statutes, the Greater Orlando Aviation Authority Act, Chapter 57-1658, Special
Laws of Florida 1957 as amended, and other applicable provisions of law.
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1.02 "Affiliate" of any Person shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
1.03 "Agreement" means the "Lease," as defined in Section 1.27
below.
1.04 "Airport" means Orlando International Airport, which is
located in the City.
1.05 "Attorneys' Fees" means attorneys' fees, including fees and
charges for the services of paralegals or other personnel who operate for and
under the supervision of such attorneys and whose time is customarily charged
to clients.
1.06 "Authority" means the Greater Orlando Aviation Authority, a
public body existing under the laws of the State of Florida.
1.07 "Authorized Authority Representative" means the authorized
representative of the Authority, as designated, from time to time, to serve in
such capacity by the Authority; such designation(s) shall be made by the
Authority in a writing filed with the Company and the Trustee.
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1.08 "Authorized Company Representative" means the person or
persons at the time designated to act on behalf of the Company by written
certificate furnished to the Authority and the Trustee containing the specimen
signature of such person or persons. Such certificate may designate an
alternate or alternates.
1.09 "Bond Registrar" means the Trustee who will serve as
registrar under the Indenture.
1.10 "Bonds" means the "Special Purpose Facilities Revenue Bonds,"
as defined in Section 1.39 below.
1.11 "Building Rent" shall have the meaning set forth in Section
6.03 of this Agreement.
1.12 "City" means the City of Orlando, Florida, a municipal
corporation existing under the laws of the State of Florida.
1.13 "Code" means the Internal Revenue Code of 1986, as amended,
or any applicable corresponding provision of any future laws of the United
States of America relating to Federal income taxation, and except as otherwise
provided herein or required by the context hereof, includes interpretations
thereof contained or set forth in the applicable regulations of the Department
of the Treasury (including applicable final regulations, temporary regulations
and proposed regulations), the applicable rulings of the Internal Revenue
Service (including published Revenue Rulings and private letter rulings) and
applicable court decisions.
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1.14 "Commencement Date" means the earlier of (i) November 1, 1990
or (ii) the date on which Lessee takes beneficial occupancy of any part of the
Project for the purposes set forth in this Lease.
1.15 "Company" means PAGE AVJET CORPORATION or its assignees
permitted under Section 13.03 below.
1.16 "Completion Date" means the date of completion of the
acquisition and construction of the Project, presently estimated to be on or
about November 1, 1990, as that date shall be certified as provided in Section
3.5 of Exhibit "D" to this Lease.
1.17 "Construction Fund" means the fund so designated in the
Indenture.
1.18 "Cost of Construction" or "Cost" as applied to the Project,
shall embrace, without intending thereby to limit or restrict any proper
definition of such word under the Act, all costs of acquisition and
construction and all obligations and expenses incurred by or on behalf of the
Authority or the Company with respect to the Project, as set forth in the
Indenture and Section 3.3 of Exhibit "D" to this Lease.
1.19 "Debt Service Payments" means the payments described in
Section 4.1 of Exhibit "D" to this Lease and required to be paid by the Company
thereunder.
1.20 "Development Order" means the development order, dated July
29, 1985, approving the Application for TRADEPORT Approval -- Orlando
Tradeport under Chapter 380, Florida Statutes.
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1.21 "Development Standards" means the Development Standards for
Orlando International Airport, Orlando Tradeport, Orlando Executive Airport
(August 1989), including the Electrical Standards for Orlando International
Airport and Orlando Executive Airport (October 1988) and Graphic Standards
Policy for Orlando International Airport, Tradeport, Orlando Executive Airport
(June 1989) incorporated therein by reference, in the form attached hereto as
Exhibit "B," as the same may hereafter be amended in accordance with Paragraph
27 of the Development Standards.
1.22 "Effective Date" means the date hereof, at which time this
Lease shall become effective for all purposes in accordance with its terms.
1.23 "Fiscal Year" means the twelve-month period beginning October
1st and ending on September 30.
1.24 "Ground Rent" shall have the meaning set forth in Article VI
of this Agreement.
1.25 "Improvements" includes, but is not limited to, all buildings,
structures, fixtures, fences, utility installations, parking facilities and
landscaping on the Premises, together with the equipment referred to in Section
4.03(a).
1.26 "Indenture" means the Indenture of Trust between the
Authority and the Trustee, pursuant to which (i) the Bonds are to be authorized
and issued and (ii) the Authority's interest in the Debt Service Payments is to
be pledged and
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assigned to the Trustee to secure payment of the Bonds, as from time to time
supplemented and amended.
1.27 "Independent Engineer" means the engineering firm of THE
SCHEMMER ASSOCIATES, INC. or such other engineering firm as may be designated
by the Company and approved by Authority, from time to time.
1.28 "Lease" means this Lease Agreement and the Exhibits attached
hereto, as the same may hereafter be supplemented or amended.
1.29 "Lease Premises" means the "Premises," as defined in Section
1.36 below.
1.30 "Lessee" means PAGE AVJET CORPORATION or its assignees
permitted under Section 13.03 below.
1.31 "Mortgage" shall mean a mortgage, deed of trust or collateral
assignment of lease, encumbering Lessee's leasehold interest in the Premises.
1.32 "Mortgagee" shall mean a mortgagee, beneficiary under a deed
of trust or the assignee pursuant to a collateral assignment of lease, provided
that such mortgagee, beneficiary or assignee is not an Affiliate of Lessee.
1.33 "Officer's Certificate" with reference to the Company means a
certificate in writing signed by the Chairman of its Board of Directors, the
President or any Vice-President of the Company, and with reference to the
Authority means a certificate in writing signed by the chairman, Vice-Chairman
or Secretary.
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1.34 "Opinion of Bond Counsel" means an opinion of counsel
experienced in matters relating to the validity of and exclusion from gross
income for federal income tax purposes of interest on the obligations of states
and their political subdivisions.
1.35 "Person" shall mean any natural person, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.36 " Premises" means the real property located in the Tradeport,
described on attached Exhibit "A," consisting of approximately 368,430 square
feet, together with the Improvements described in Section 4.03(a) below. The
Premises shall also include the Expansion Area and Improvements thereto in the
event Lessee exercises its option to expand in accordance with the terms of
Article VII of this Lease.
1.37 "Project" means the Improvements described in Section 4.03(a)
of the Lease.
1.38 "Qualified Project Costs" means those costs paid or incurred
after December 7, 1988, for the acquisition, construction and equipping of the
Project which are payments to provide an "exempt facility" within the meaning
of Section 142 of the Code and which will or may be charged, either with a
proper election by the Authority or but for a proper election by the Authority,
to the capital account of the Project for federal income tax purposes.
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1.39 "Special Purpose Facilities Revenue Bonds" means the Greater
Orlando Aviation Authority Special Purpose Facilities Revenue Bonds (Page Avjet
Corporation Maintenance Hangar Project), issued pursuant to the Indenture and
Section 3.06 and Exhibit "D" to this Lease, in an aggregate principal amount
not to exceed $6,000,000, to finance the Project.
1.40 "State" means the State of Florida.
1.41 "Taking" means the taking or damaging, including severance
damage by eminent domain or by condemnation, for any public or quasi-public use
or purpose of any competent authority under any statute. The transfer of title
may be either a transfer resulting from the recording of a final order in
condemnation or a voluntary transfer or conveyance to the condemning agency or
entity under threat of condemnation.
1.42 "Tradeport" means the Orlando Tradeport at the Airport.
1.43 "Tradeport Master Plan" means the Westside Master Plan, Orlando
International Airport dated May 1981.
1.44 "Trustee" means the bank or trust company named as Trustee in
the Indenture, or its successor or successors hereafter appointed in the manner
provided in the Indenture.
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ARTICLE II
PREMISES AND PRIVILEGES
2.01 Description of Premises Demised. Subject to and on the terms,
conditions, covenants and undertakings hereinafter set forth, Authority does
hereby demise and lease to Lessee and Lessee does hereby lease from Authority
the Premises located in the Tradeport in the City. Lessee hereby leases the
Premises subject to, and Lessee hereby agrees to comply with (i) all applicable
building codes, zoning regulations, and municipal, county, state and federal
laws, ordinances and regulations governing or regulating the Premises or its
use by Lessee, (ii) all covenants, easements and restrictions of record, and
(iii) the Development Standards.
2.02 Restriction of Privileges, Uses and Rights. The rights and
privileges granted Lessee hereunder are expressly limited to the construction,
operation and maintenance of Improvements permitted by Section 4.09 below,
which construction, operation and maintenance shall be subject to all of the
terms and conditions contained in this Lease and in the Development Standards.
Lessee agrees that it will not proceed with any development or operation on the
Premises that does not comply with the Development Standards, the Authority's
rules and regulations, the Tradeport Master Plan, the Development Order, all
applicable zoning and other laws, and all other terms of this Lease. The
Authority
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agrees that it will make no changes or modifications to the Development
Standards or to the Tradeport Master Plan which will materially and adversely
affect the rights of Lessee hereunder without the prior written consent of
Lessee, which consent shall not be unreasonably withheld or delayed. The Lessee
acknowledges and agrees, however, that the foregoing limitation shall not apply
to or govern the Authority's right to change or modify the Development Order.
2.03 Right to Cancel Lease.
(a) If by December 31, 1989, or by such later date as may be
agreed to in writing by the Authority and Lessee, the Authority has not issued
the Special Purpose Facilities Revenue Bonds, or obtained the grants-in-aid
referred to in Section 3.07 below, and if all of the conditions of subsection
(b) of this Section 2.03 have been satisfied by Lessee, then Lessee shall have
the right, by written notice given to the Authority by January 31, 1990, or by
such later date as may be agreed to in writing by the Authority (after
consultation with Bond Counsel) and Lessee, to cancel this Lease, in which
event neither party shall have any liability to the other arising under this
Lease, subject to the provisions of Section 3.06(iii) below.
(b) Lessee shall have no right to cancel this lease under
Subsection (a) above unless:
(i) Lessee has provided the Authority with a written
commitment from an institutional purchaser to purchase such
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Bonds in a transaction exempt from registration under Section 517.061,
Florida Statutes, on terms that have been approved by the Lessee and
that are authorized by this Lease and the Act; and
(ii) Lessee has not commenced construction of the Project,
or in the event Lessee has commenced such construction, it agrees in
writing to restore the Premises to its condition prior to commencement
of such construction.
ARTICLE III
OBLIGATIONS OF AUTHORITY
3.01 Quiet Enjoyment. Authority agrees that upon Lessee's paying
rent and performing all of the covenants and conditions herein set forth,
Lessee shall and may peaceably and quietly have, hold and enjoy the Premises
hereby demised, subject to all of the terms and conditions of this Lease.
3.02 Authority's Work.
(a) Authority agrees that on or before May 1, 1990, it
will have performed all of the work described on Exhibit "C" attached hereto
and made a part hereof.
(b) Authority shall not be deemed in default with respect
to the performance, commencement or completion of any of the work to be
performed by the Authority under this Section 3.02, if Authority's failure to
perform, commence or complete any or all of such work is due to circumstances
beyond its control such as, but not limited to, a strike, lockout, labor
dispute, shortages
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of materials or labor, fire or other casualty, litigation or governmental
action or inaction, or delay or inability to obtain the necessary financing to
perform such work. For purposes of this section, the acts of a third party
shall not be within the control of Authority unless such acts were authorized
by Authority.
3.03 Condition and Maintenance of Streets; Access.
(a) Authority will maintain the streets and roads in the
Tradeport in reasonably good condition.
(b) Lessee and its employees, patrons, guests and invitees
shall have vehicular access to the Premises, including access to and from the
air operations area of the Airport for its employees, over such roadways which
Authority shall from time to time designate for such purpose, subject to such
reasonable rules and regulations regarding the use of such roadways, and to such
fees of uniform application, as may be established by Authority from time to
time. Portions of public and controlled access roadways may be closed from time
to time in order to make repairs or renovations thereto, but Authority shall be
obligated to provide reasonable temporary access to the Premises and air
operations area. Such roadways may be closed entirely in the event of emergency;
provided, however, that in such event Authority will make a reasonable effort to
resolve the emergency expeditiously.
3.04 Wastewater Treatment Capacity. Authority will reserve a
reasonable amount of wastewater treatment capacity for the Improvements to be
constructed by Lessee on the Premises. If
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Lessee timely exercises the option provided in Article VII below, then
Authority will increase this reserved wastewater treatment capacity by a
reasonable amount to accommodate the additional Improvements constructed in the
Expansion Area. In the event Lessee is denied a building permit for
Improvements to be constructed on the Expansion Area (as defined in Section
7.01 below), and if such denial is the result of Authority's breach of its
obligations described in this Section 3.04, then Lessee's sole right and remedy
shall be an abatement of the annual Ground Rent on the portion of the Expansion
Area for which a building permit has been denied from the date of such denial
to the earlier of the date on which Authority has provided such wastewater
treatment capacity or the date on which Lessee makes any use of such portion of
the Expansion Area.
3.05 Compliance with Development Order. Subject to Lessee's
obligation to pay impact fees pursuant to Section 4.03(e) below, Authority
agrees that it will comply with the terms of the Development Order (and will
allocate development permitted thereunder) to permit Lessee to develop on the
Premises up to 75,000 square feet of building space permitted by Section 4.09
below. If Lessee is denied a building permit for Improvements to be constructed
on a portion of the Premises not yet developed, and if such denial is the
result of Authority's breach of its obligations described in this Section 3.05,
then Lessee's sole right and remedy shall be an abatement of the annual Ground
Rent on such
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portion of the Premises for which a building permit has been denied from the
date of such denial until the earlier of the date on which Authority has
complied with the terms of the Development Order or the date on which Lessee
makes any use of such portion of the Premises.
3.06 Financing of Improvements. Subject to the conditions and
limitations described in the Financing Addendum attached hereto as Exhibit "D"
and incorporated herein by reference, Authority agrees to use reasonable
diligence to finance the Cost of the Project through the issuance of Special
Purpose Facilities Revenue Bonds in an aggregate principal amount not to exceed
$6,000,000.00 (the "Bonds"); provided, however, that (i) on the date the Bonds
are issued there shall exist no default under Section 13.01 of this Lease and
no event which with the passage of time, or the giving of notice, or both,
would constitute such a default; (ii) it shall be Lessee's responsibility to
find an institutional purchaser that will purchase the Bonds in a transaction
exempt from registration under Section 517.061, Florida Statutes, and the terms
of the Bonds shall be subject to Lessee's approval; (iii) in the event the
Bonds are issued, Lessee must draw down at closing not less than two and
one-half percent (2-1/2%) of the proceeds thereof, for the payment or
reimbursement of Qualified Project Costs (not including costs of issuance of
the Bonds) actually paid or incurred prior to such request for funds, and in
the event this Lease is cancelled by Lessee pursuant
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to the terms of Section 2.03 hereof after the date the Bonds are issued, Lessee
shall continue to be responsible for all of its obligations under Exhibit "D"
hereto; (iv) the terms of the Indenture shall be subject to the Authority's
approval; (v) on the issuance of the Bonds, Lessee shall execute and deliver to
the Authority an irrevocable election binding on the Lessee and all successors
in interest under this Lease (substantially in the form of Exhibit "E"), not to
claim depreciation or an investment credit with respect to the Project financed
by the Bonds, as required by Section 142(b)(1)(B) of the Code; and (vi) in the
performance of the agreements of the Authority contained in this Section 3.06,
in said Exhibit "D" and in the Indenture, any obligation it may thereby incur
for the payment of money shall not be a general debt, liability or obligation
of the City, the Authority, the State of Florida or any other political
subdivision thereof, but shall be payable solely out of the proceeds derived
from the sale of the Bonds and from the Debt Service Payments. Authority shall
have no liability to Lessee if it is unable to finance the Cost of the Project,
or for any delay resulting from matters not in the reasonable control of
Authority in the financing of such Cost.
3.07 Grants-In-Aid. The Authority believes (but does not warrant
or guarantee) that it can obtain grants-in-aid up to a maximum of THREE
HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00)
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for seventy-five percent (75%) of the cost of the ramp to be constructed by
Lessee in accordance with the terms of Section 4.03 below. Authority shall use
reasonable diligence to seek to obtain such grants-in-aid and Lessee agrees to
provide the required matching funds (from the proposed financing or other
sources) for any such grant. Except as provided in Section 2.03 above, Lessee
shall not be relieved of any of its obligations under this Lease in the event
the Authority does not obtain such grants-in-aid.
3.08 Environmental Conditions. The Authority has furnished Lessee
with the results of all environmental studies with respect to the Premises
which it has in its possession. In the event it is determined prior to
commencement of construction that the Premises contains pollutants in amounts
which violate any applicable Federal, State or local governmental standards
("Environmental Problem"), the parties shall attempt in good faith to agree
upon mutually acceptable remedial action or an alternative maintenance hangar
site. If the parties are unable to agree upon either such solution, then either
party may terminate this Lease by written notice to the other within thirty
(30) days after such party received written notice of the Environmental
Problem. In the event an Environmental Problem is discovered after construction
has commenced which would delay such construction by more than thirty (30)
consecutive days, Lessee shall have the right to terminate this Lease by
written notice to the Authority within thirty (30) days after Lessee received
written notice of such
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Environmental Problem. Lessee shall not be responsible for remedial action with
respect to any Environmental Problem at the Premises which existed prior to the
date of this Lease. The Authority shall be responsible for undertaking, or
requiring any responsible third party to undertake, any such remedial action
with respect to an Environmental Problem at the Premises which existed prior to
the date of this Lease; provided, however, that the Authority's liability to
Lessee for any interference with the use of the Premises resulting from any
such remedial action shall be limited to an abatement of the Ground Rent on any
portion of the Premises which is rendered untenantable as a result of such
remedial action during such portion of the term of this Lease that such portion
of the Premises is rendered untenantable.
3.09 No other obligations of Authority. Lessee acknowledges that
Authority has made no representations or warranties relating to the suitability
of the Premises for any use, and that except as otherwise expressly provided in
this Article III, Section 9.01(a), or in Articles X or XI below, Authority
shall have (i) no obligation whatsoever to repair, maintain, renovate or
otherwise incur any cost or expense with respect to the Premises or any
Improvements, furnishings or equipment now or, hereafter constructed, installed
or used on the Premises, and (ii) no liability to Lessee arising out of any
defect or deficiency in the Premises or the Improvements.
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ARTICLE IV
OBLIGATIONS OF LESSEE
4.01 Net Lease.
(a) This Lease shall be without cost to Authority except for
Authority's obligations expressly set forth or referred to in Article III
above. Lessee shall, at its own expense:
(i) keep and maintain the Premises and all Improvements,
furnishings and equipment now or hereafter located thereon, and the water line
and the retention pond referred to in Section 15.01(b) below (if such water
line is installed by Lessee), in a good state of repair and working order
(reasonable wear and tear excepted) and in clean, safe condition. All
maintenance, repairs and replacements shall be of a quality at least equal to
the original in materials and workmanship;
(ii) pay all taxes in accordance with Article VIII
hereinbelow;
(iii) pay all casualty, liability and other insurance premiums
required to be paid by Lessee in accordance with Article IX hereinbelow; and
(iv) satisfy all of its other obligations under this Lease.
(b) If the Bonds have been issued by the Authority, Lessee shall
satisfy all of its obligations under the
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Financing Addendum attached hereto as Exhibit "D," whether or not the other
provisions of this Lease have expired or been terminated.
4.02 Condition of Premises.
(a) Subject to the terms of Section 3.08 above, Lessee
accepts the Premises in their present condition and agrees that the Premises
are suitable for Lessee's business activities and operations proposed to be
conducted thereon subject to:
(i) Lessee's right to construct Improvements in
accordance with the terms of this Lease; and
(ii) Authority's performance of its obligations
under Article III above.
(b) Lessee agrees that, except as otherwise expressly
provided herein, all Improvements, trade fixtures, furnishings, equipment and
Lessee's other personal property of every kind or description which may at any
time be on the Premises shall be at Lessee's sole risk, or at the sole risk of
those claiming under Lessee, and Authority shall not be liable for any damage
to said property or loss suffered by the business of Lessee caused by water
from any source whatsoever or from the bursting, overflowing or leaking of
sewer or steam pipes or from the heating or plumbing fixtures or from electric
wires or from noise, gas or odors or caused in any other manner whatsoever,
provided such damage is not the result of Authority's gross negligence or
intentional misconduct.
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4.03 Right and Obligation to Construct. Lessee agrees that it will
construct, operate and maintain all Improvements on the Premises in accordance
with the provisions of this Section 4.03 and the Development Standards.
(a) Lessee covenants that it shall construct Improvements
on the Premises consisting of (i) an aircraft maintenance hangar containing not
less than Sixty-Two Thousand Five Hundred (62,500) square feet of space with
pocket doors on each side, including maintenance support facilities and not
more than 7,400 square feet of office space, and containing equipment to be
used in connection therewith and for the purposes described in Section 4.09
below, and (ii) associated ramp space of approximately Thirty-Five Hundred
(3,500) square yards strong enough to support the wheel loads of a Boeing
727-200 aircraft, and that it shall commence construction of such hangar and
associated ramp space within one hundred fifty days (150) after the Effective
Date or such greater period as the Executive Director of Authority may permit
by written notice to Lessee. Lessee estimates that the Cost of Construction of
such Improvements is SIX MILLION and NO/100 DOLLARS ($6,000,000).
(b) Prior to commencement of construction of any
Improvements, and prior to commencing to renovate, enlarge, demolish or modify
any Improvements now or hereafter existing on the Premises, Lessee shall submit
the plans and specifications therefor and its landscape plan for the Premises
(prepared in accordance
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with the Development Standards and under the seal of a duly licensed architect
or engineer) to the Executive Director for approval by Authority. No
construction of any type shall commence prior to Lessee's receipt of
Authority's written approval of such plans and specifications, which approval
shall not be unreasonably withheld or unreasonably delayed. Within ninety (90)
days after completion of construction, Lessee shall, at its expense, provide
Authority with record drawings showing the "as built" condition of any
Improvements constructed by Lessee on the Premises.
(c) Once construction of any Improvements has been
commenced by Lessee, such construction shall be accomplished pursuant to
standard construction procedures and practices established by Authority for
work on the Airport, and shall be pursued diligently to completion. All
Improvements shall be constructed in strict accordance with the approved plans
and specifications, the Development Standards and all applicable building
codes, zoning regulations and municipal, county, state and federal laws,
ordinances and regulations unless a waiver or exemption has been obtained from
the appropriate authority.
(d) Authority's approval of any plans and specifications
submitted to it by Lessee shall not constitute the assumption of any liability
by Authority for the compliance or conformity of such plans and specifications
with applicable building codes, zoning regulations, municipal, county, state
and federal
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laws, ordinances and regulations, or for their accuracy or suitability for
Lessee's intended purpose, and Lessee shall be solely responsible for such
plans and specifications. Authority's approval of such plans and specifications
shall not constitute a waiver of Authority's right to thereafter require
Lessee, at its own expense, to amend the same so that they comply with
applicable building codes, zoning regulations, municipal, county, state or
federal laws, ordinances and regulations, and to make such construction changes
as are necessary so that the completed work is in conformity with such amended
plans and specifications. Authority's approval of such plans and specifications
shall mean that the Authority has found such plans and specifications to have
been prepared in accordance with the Development Standards, and such approval
shall waive Authority's right thereafter to require Lessee to amend the same to
comply with the Development Standards.
(e) Lessee shall obtain, at its own expense, all
necessary licenses and permits to accomplish its work as contemplated herein,
and shall pay all applicable Impact fees relating thereto. Lessee hereby
warrants and covenants to Authority that the Premises and all improvements now
or hereafter erected on the Premises shall be at all times free and clear of
all liens, claims and encumbrances arising in connection with the construction
of such Improvements and hereby agrees to indemnify and hold Authority and the
City harmless from and against any and all losses, damages
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and costs, including reasonable Attorneys' Fees relating to or arising out of
any such lien, claim or encumbrance. If any such lien or notice of such lien on
account of the alleged debt of Lessee or any notice of contract by a party
engaged by Lessee or Lessee's contractor to work on the Premises shall be filed
against the Premises or any Improvements, then Lessee shall, within thirty (30)
days after notice of the filing thereof, cause the same to be discharged of
record by payment, deposit, bond, order of a court of competent jurisdiction or
otherwise.
No work hereunder shall be commenced by Lessee until it has, at its
sole cost and expense, provided to Authority from a company reasonably
acceptable to Authority (i) a surety performance and payment bond for the
benefit of Lessee, and, on Lessee's default under this Lease, for the benefit
of Authority as Lessee's successor, in an amount equal to the total estimated
cost of the work, which bond shall guarantee both the prompt completion of the
work by Lessee's contractors in accordance with the approved plans and
specifications and the payment by such contractors of all subcontractors'
charges and charges of all other persons and firms supplying services, labor,
materials or supplies in connection with the work, and (ii) a policy of
builders' risk insurance satisfying the requirements of Sections 9.01 and 9.02
below.
(f) Authority shall have title to all Improvements now or
hereafter constructed on the Premises, and Lessee covenants to execute and
deliver to Authority any and all instruments or
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documents which Authority reasonably requests to effectively transfer title to
such Improvements in fee to Authority free and clear of all liens, claims and
encumbrances. Authority agrees that any item which constitutes a "trade
fixture" under Section 4.08 below shall not constitute an Improvement under
this Section 4.03 (f), and no such item shall be subject to reimbursement under
Section 3.06 and Exhibit "D" hereto.
(g) Nothing contained in this Lease shall be deemed or
construed in any way as constituting the consent or request of Authority,
express or implied, by inference or otherwise, to any architect, engineer,
surveyor, contractor, subcontractor, laborer, materialman, or mechanic for the
performance of any labor or the furnishing of any materials or services
requested by Lessee for or in connection with the Premises or any part thereof.
Notice is hereby given that Authority shall not be liable for any labor or
materials or services furnished or to be furnished to Lessee upon credit, and
that no mechanic's or other lien for such labor, materials or services shall
attach to or affect the fee or reversionary or other estate or interest of
Authority in the Premises or in this Lease. All persons dealing with the
Premises and with the Lessee are hereby put on notice that the Lessee does not
have the power to deal with the Premises in such a manner as to authorize the
creation of mechanic's liens, by implication or otherwise; and all persons
making improvements to the Premises, either by doing work or labor or services,
or by supplying materials thereto,
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at the request of Lessee or persons dealing by, through or under Lessee, are
hereby put upon notice that they must look solely to the Lessee and not to the
Premises or any part thereof or to the Improvements or to this Lease for the
payment of all services, labor and materials performed upon or delivered to the
Premises.
4.04 GRASS AND LANDSCAPING. Within thirty (30) days after
completion of construction of the Improvements which Lessee is required to
construct on the Premises in accordance with the terms of Section 4.03(a)
above, Lessee shall grass and landscape the Premises in accordance with the
landscape plan previously approved by Authority and the terms of the
Development Standards, and shall install on the Premises such automatic
irrigation systems as shall be necessary to adequately water such landscaping
and grass areas, and thereafter Lessee shall be obligated to keep all such
landscaping and grass areas on the Premises in a clean and well-trimmed
condition, and to keep and maintain such automatic irrigation systems in a good
state of repair. Prior to the expiration of said thirty (30) day period, and
continuously thereafter, Lessee shall keep and maintain the Premises in a neat,
clean and well-trimmed condition.
4.05 EXTERIOR SIGNS AND EXTERIOR COLORS. Lessee shall have the
right at its expense to install exterior signs on the Premises conforming to
standards contained in the Graphic Standards Policy attached hereto as part of
Exhibit "B" Lessee shall obtain
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Authority's prior written approval of all exterior colors of all Improvements,
which approval shall not be unreasonably withheld.
4.06 UTILITIES.
(a) All utility service within the Premises required by
Lessee must be obtained by direct connection to the main lines or cables
installed (or to be installed) by Authority pursuant to Section 3.02 above, and
any expenses incurred to connect into such main lines or cables shall be paid
by Lessee. The routes for all utility service lines or mains shall be approved
by Authority, and all such service lines and mains shall be placed underground
by and at the expense of Lessee. Lessee shall have the right, at its own
expense, to route such service lines and mains under the streets, but shall be
obligated to repair any damage to such streets to Authority's satisfaction and
without cost to Authority. In addition, all utility curb cuts, excavation and
trenching shall be subject to the prior written approval of Authority, and
shall be completed by and at the expense of Lessee. All backfill, tamping and
landscaping required as a result of such curb cuts, excavation and trenching
shall be completed by and at the expense of Lessee, to the reasonable
satisfaction of Authority.
(b) Lessee shall pay for all meters and measuring all
telephone and telephone lines installed by Lessee or by any utility on the
Premises and shall pay for all utilities consumed by Lessee on the Premises
(including, without limitation,
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any stormwater utility fees assessed by the City). In addition, at the time a
building permit is issued for an Improvement, Lessee shall reimburse Authority
for all sewer benefit fees and water pollution control charges paid by
Authority to the City in order to obtain sewer capacity for such Improvement.
Such reimbursement shall be in the amount determined by multiplying the
permitted sewer capacity of such Improvement by the City's prevailing cost for
such sewer capacity at the time the building permit is issued.
(c) Lessee agrees that Authority shall have no liability
to Lessee arising out of any interruption of utility service to the Premises,
whether or not caused by repairs or alterations being made to any part of the
Airport; provided, however, that to the extent that such matters are within the
control of Authority, Authority will make a reasonable effort to restore (or
cause to be restored) such utility service as promptly as reasonably possible.
For purposes of this Section 4.06(c), the acts of a third party shall not
constitute acts within the control of Authority unless such acts were
authorized by Authority.
4.07 TRASH, GARBAGE, ETC. Lessee shall make suitable arrangements
for the storage, collection and timely removal from the Airport of all trash,
garbage and other refuse on the Premises. Lessee shall provide a compactor,
metal receptacles and pallets for use in connection with the disposal of such
refuse, as appropriate, shall maintain such compactor, receptacles and pallets
in an attractive, safe and sanitary manner, and shall store such
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compactor, receptacles and pallets in inconspicuous places on the Premises that
are screened from public view.
4.07A ENVIRONMENTAL OBLIGATIONS.
(a) Lessee shall perform aircraft washing (dry or wet,
with soap or chemicals) only on a "wash rack" which is designed for such
purpose, and complies with the requirements of Subparagraph (b) below.
(b) Lessee shall comply with all applicable federal,
state and local laws, regulations, administrative rulings, orders, ordinances,
and requirements, and all Authority rules, regulations and requirements
pertaining to the protection of the environment, including but not limited to
those regulating the storage, handling and disposal of waste materials.
Further, during the term of this Lease, neither Lessee nor any agent or party
acting at the direction or with the consent of Lessee shall treat, store, or
dispose of any hazardous substance" as defined in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended from time to time ("CERCLA"), or petroleum (including crude oil or,
any fraction thereof) on the Premises; provided, however, that this sentence
shall not prohibit Lessee from defueling aircraft on the Premises, or from the
incidental use of hazardous substances or petroleum on the Premises in the
maintenance of aircraft on the Premises (including, without limitation, the
stripping and painting of such aircraft), if such
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activities are conducted in accordance with all other requirements of this
Lease. Lessee shall not Install any petroleum storage tanks at the Premises.
(c) Lessee shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless Authority from any and all
claims, orders, demands, causes of action, proceedings, judgments, or suits and
all liabilities, losses, fines, costs and expenses (including, without
limitation, technical consultant fees, court costs, expenses paid to third
parties and reasonable Attorneys' Fees) and damages arising out of, or as a
result of, (i) any "release" as defined in Section 101(22) of CERCLA, of any
"hazardous substance," as defined in Section 101(14) of CERCLA, or petroleum
(including crude oil or any fraction thereof) placed into, on or from the
Premises at any time after the date of this Lease; (ii) any contamination of
the Premises' soil or groundwater or damage to the environment and natural
resources of the Premises, the result of actions occurring after the date of
this Lease, whether arising under CERCLA or other statutes and regulations, or
common law; and (iii) any toxic, explosive or otherwise dangerous materials or
hazardous substances which have been buried beneath, concealed within or
released on or from the Premises after the date of this Lease. The provisions
of this Section 4.07A(c) shall survive the expiration or earlier
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termination of this Lease with respect to any release, contamination, act or
omission occurring during the term of this Lease.
4.08 TRADE FIXTURES.
(a) Lessee may, from time to time, at its expense (which
shall not be subject to reimbursement under Section 3.06 and Exhibit "D" here
to) install, operate, repair and replace any trade fixtures including portable
work stations and other personal property on the Premises or in the
Improvements, all of which shall be and remain the property of Lessee and may
be removed by it at any time during the term hereof and within thirty (30) days
after expiration or earlier termination of the term hereof; provided, however,
that Lessee shall not remove any such item while in default hereunder. Lessee
shall at its own expense repair any damage to the Premises or any Improvements
caused by such removal in a manner reasonably acceptable to Authority. Failure
to remove trade fixtures or other personal property as provided herein shall
not constitute a hold-over by Lessee, but all such property not removed within
the time specified above shall be deemed to have been abandoned by Lessee, in
which case, Authority may either use or dispose of the same as it shall see fit
without any liability to Lessee therefor or may remove and store the same at
Lessee's expense. It is understood that the terms "trade fixtures" and "other
personal property" shall not include (i) any item located on the Premises on
the date hereof, (ii) any item
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hereafter installed or erected thereon by Authority, or at its own expense, or
for which Lessee has been reimbursed pursuant to Section 3.06 above and Exhibit
"D" hereto, or (iii) any item affixed to the Premises or affixed to any
Improvements and which cannot be removed without material injury to the
Premises or to any Improvements, whether or not installed by and at the expense
of Lessee.
(b) If, upon the expiration or earlier termination of the
term hereof, Lessee shall be in default hereunder, Authority may, at its
option, give notice to Lessee that Lessee may, within fifteen (15) days after
the date such notice is given, remove its trade fixtures and other personal
property, provided that such removal will not result in material injury to the
Premises or any Improvement, and that Lessee shall at its own expense repair
any damage to the Premises or any Improvement caused by such removal, in a
manner acceptable to Authority. In such event, any trade fixtures or other
personal property not so removed within such time period shall be deemed to
have been abandoned by Lessee, in which case, Authority may either use or
dispose of the same as it shall see fit without liability to Lessee therefor,
or may remove and store the same at Lessee's expense.
4.09 PERMITTED OR PROHIBITED USES. Lessee agrees that it will use
(and will permit any assignee, sublessee or other successor in interest to use)
the Premises and the Improvements only for the maintenance of jet aircraft and
turbo prop aircraft,
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the maintenance of ground equipment utilized in the servicing, loading or
unloading of such aircraft, and maintenance support and maintenance office
facilities. The Project may be used for recurring maintenance, non-recurring
maintenance and painting required to preserve and maintain aircraft. Lessee
agrees that any customization, refurbishing or conversion of aircraft occurring
at the Project will only be done in connection with, and incidental to,
necessary maintenance activities and that such customization, refurbishing or
conversion of aircraft will not be separately solicited. The Premises may
contain a cafeteria for use by employees of Lessee only, commensurate in size
and character with the size and character of the Premises, and may contain
office space required for Lessee's maintenance managers, supervisors and
foremen. The Premises may not be used as a terminal for interstate or
intrastate passenger or cargo service by any airline, air carrier or other
provider of air transportation. Nor may the Premises be used for the parking of
aircraft except in connection with Lessee's maintenance operations, or for any
warehousing operations.
ARTICLE V
TERM OF LEASEHOLD
5.01 TERM. This Lease shall be for a term which commenced on the
Effective Date, and which expires on September 30th of the Authority's
twentieth full Fiscal Year which commenced
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after the Commencement Date; provided, however that the term hereof may be
earlier terminated as provided in this Lease.
5.02 OPTION.
(a) Provided that Lessee is not in default under this
Lease, Lessee shall have the option to extend this Lease for one (1) additional
term of five (5) years by notifying Authority in writing of Lessee's exercise
of the option at least one hundred twenty (120) days prior to the twentieth
(20) anniversary of the Effective Date. In the event the option is so
exercised, the Lease shall be extended on the same terms and conditions, except
that (i) the Lease may not be further extended under this Subparagraph (a) and
(ii) Lessee shall be required to pay Building Rent as provided in Section 6.03
below.
(b) References in this Lease to the "term" of this Lease
shall mean the initial term and the additional term.
5.03 National Emergency. In the event the rights and privileges
hereunder are suspended by reason of war or other national emergency, rent
under this Lease shall not abate, the term of this Lease shall be extended by
the period of such suspension, and Lessee will have the right to make any
claim against any third party permitted by law and to receive any award paid
with respect to such claim.
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ARTICLE VI
ANNUAL RENT
6.01 Commencement and Payment of Rent.
(a) Lessee agrees to pay to Authority the annual Ground
Rent determined pursuant to this Article VI, and to pay the Debt Service
Payments determined pursuant to attached Exhibit "D," both of which shall be
considered rent for purposes of this Lease. One-twelfth of the total of said
annual Ground Rent shall be payable each month in advance, on or before the
Commencement Date, and on the first day of each subsequent calendar month during
the term of this Lease. Ground Rent for a partial month during the term of this
Lease shall be prorated based on the number of days in such month. The Debt
Service Payments shall be made at the time and in the manner provided in said
Exhibit "D."
(b) For the purpose of computing the annual Ground Rent
payable under this Lease, Authority and Lessee agree that the Premises comprise
368,430 square feet and that the initial annual Ground Rent rate is $0.24 per
square foot. The annual Ground Rent for the period from the Commencement Date
through the last day of the calendar month which includes the fifth (5th)
anniversary of the Effective Date will be EIGHTY-EIGHT THOUSAND FOUR HUNDRED
TWENTY-THREE AND NO/1OO DOLLARS ($88,423.00).
(c) If Lessee timely exercises the option provided in
Article VII below, then the annual Ground Rent shall be increased in the manner
set forth in said Article VII.
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(d) Lessee shall pay all sales or rent taxes due on any
installments of rent and on any other fees or charges accruing under any
provision of this Lease.
6.02 Readjustment of Minimum Annual Ground Rent. The annual Ground
Rent payable under this Lease shall be adjusted during the term as follows:
(a) The annual Ground Rent for each five-year period commencing
on the first day of the first calendar month following the fifth (5th), tenth
(10th), fifteenth (15th) and twentieth (20h) anniversaries of the Effective
Date, (and on the first day of the first calendar month following the
twenty-fifth (25th) anniversary of such Effective Date, if Lessee timely
exercises the option provided in Section 5.02 above) shall be adjusted to ten
percent (10%) of the then fair market value of the Premises, disregarding the
value of the Improvements, and such valuation shall be made pursuant to
subsection (b) below, as of the preceding October 1; provided, however, that the
annual Ground Rent per square foot of the Premises for any such five-year period
shall not be less than the annual Ground Rent per square foot of the Premises
charged during the last year of the immediately preceding five-year period; and
further provided, that the annual Ground Rent per square foot of the Premises
for any such five-year period shall not be increased by more than forty percent
(40%) of the annual Ground Rent per square foot of the Premises charged during
the last year of the immediately preceding five-year period.
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(b) Authority shall select a qualified appraiser ("First Appraiser")
to determine the fair market value of the Premises (disregarding the value of
the Improvements), and notify Lessee of such selection, and the First Appraiser
shall proceed to determine the fair market value of the Premises and shall
provide Lessee and Authority with a copy of such appraisal. If Lessee is not
satisfied with the First Appraiser's appraisal, Lessee, within fifteen (15) days
after receipt of such appraisal, shall notify Authority of Lessee's selection of
a second appraiser ("Second Appraiser"). If Lessee does not so select a Second
Appraiser and notify Authority of such selection within such fifteen (15) day
period, the First Appraiser's appraisal shall be conclusive as to the fair
market value of the Premises. If a Second Appraiser is so selected, such Second
Appraiser shall determine the fair market value of the Premises (disregarding
the value of the Improvements) within fifteen (15) days of the selection and
provide Lessee and Authority with a copy of such appraisal. If the fair market
value of the Premises as determined by the appraisal of such Second Appraiser is
not at least fifteen percent (15%) less than the fair market value of the
Premises as determined by the appraisal of
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the First Appraiser, then the First Appraiser and the Second Appraiser shall
meet within fifteen (15) days after the Second Appraiser has delivered his
appraisal to the Authority to select a third appraiser ("Third Appraiser"). In
such event the fair market value of the Premises (disregarding the value of
the Improvements) shall be determined by a majority of the appraisers within
fifteen (15) days after the selection of the Third Appraiser. (If the First
Appraiser and the Second Appraiser cannot agree upon a Third Appraiser within
the time period provided, or if a majority of the three appraisers cannot agree
upon the fair market value of the Premises within the time period provided,
then the Authority shall appoint a new First Appraiser and the process described
herein shall be repeated until the fair market value of the Premises is
determined.) After reaching a decision, the appraisers shall give written
notice thereof to Authority and Lessee. In the event of the failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in his
stead, which appointment shall be made in the same manner as herein before
provided for the appointment of such appraiser so failing, refusing or being
unable to act. Each party shall pay the fees and expenses of each appraiser
appointed by such party, and the fees and expenses of the Third Appraiser and
all other expenses, if any, shall be borne by Lessee, if the fair market value
of the Premises established as the result of the appraisal process described
herein is not at least ten percent (10%) less than the fair market
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value of the Premises as determined by the First Appraiser, and by the
Authority if the fair market value of the Premises established as the result of
the appraisal process described herein is at least ten percent (10%) less than
the fair market value of the Premises as determined by the appraisal of the
First Appraiser. Any appraiser designated to serve in accordance with the
provisions of this Lease shall be designated an by "MAI" appraiser by the
American Institute of Real Estate Appraisers or shall be comparably qualified
to appraise real estate, shall be disinterested, shall be qualified under
Florida law to appraise real estate of the type covered by this Lease, and
shall have been actively engaged in the appraisal of real estate situated in
Orange County, Florida for a period of not less than five (5) years immediately
preceding his appointment.
(c) In the event the fair market value of the Premises has
not been determined until after the date upon which the adjustment required
under this Section 6.02 is to become effective, the annual Ground Rent
previously in effect shall continue until such fair market value and the new
annual Ground Rent is determined. The new annual Ground Rent rate shall become
effective retroactive to the date upon which such adjustment is required, and
Lessee shall pay to Authority any additional annual Ground Rent due within ten
(10) days after the new annual Ground Rent is determined.
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6.03 Building Rent.
During the additional term only, Lessee shall pay to the Authority, in
addition to the Ground Rent, annual rent in the amount of five percent (5%)
of the fair market value of the Improvements (including, without limitation,
Improvements to the Expansion Area, hereinafter, "Building Rent"). The fair
market value of the Improvements shall be determined in the manner set forth in
Sections 6.02(b) and (c) above as of October 1 preceding the commencement of
the additional term, to be effective on the commencement of the additional
term, and the Building Rent shall be paid by Lessee to the Authority in equal
monthly installments at the same time and pursuant to the same requirements as
the Ground Rent.
6.04 Unpaid Rent, Fees and Charges.
(a) Any installment of rent and any fees or other charges
(except Debt Service Payments, late payment of which shall be governed by the
terms of Exhibit "D" and the Indenture) accruing under any provision of this
Lease that are due and not paid within ten (10) business days after Lessee's
receipt of or its refusal to accept Authority's written demand shall bear
interest from the date when the same was due according to the terms of this
Lease until paid
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by Lessee at the maximum interest rate then provided by applicable law;
provided, however, that if no maximum interest rate is then provided by
applicable law, the interest rate shall be eighteen percent (18%) per annum.
(b) If on ten (10) days prior written notice to
Lessee, Authority pays any sum or sums or incurs any obligation or expense
including reasonable Attorneys' Fees for which Lessee is obligated to pay or
reimburse Authority, or if Authority is required, or on ten (10) days' prior
written notice to Lessee elects, to pay any sum or sums or incurs any
obligation or expense because of the failure, neglect or refusal of Lessee to
perform or fulfill any of the terms or conditions of this Lease, then the same
shall be deemed additional rent due hereunder, and Lessee shall, promptly after
demand by Authority, reimburse Authority therefor. Any sums due from Lessee to
Authority under the provision of this Subsection (b) shall bear interest at
the rate of interest provided for in Subsection (a) above.
6.05 Unconditional Payment Obligation. If the Bonds have been
issued, Lessee's obligation to make Debt Service Payments shall be absolute and
unconditional and will not be affected by the occurence of any event or
circumstances whatsoever, including, without limitation, the termination or
cancellation of the Lease or a default by the Authority hereunder. Except as
otherwise provided in Article XI and Section 13.02 below, Lessee's obligation
to make the other payments provided for in this Article
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VI shall be absolute and unconditional and will not be affected by the
occurrence of any event or circumstance whatsoever.
ARTICLE VIM
OPTION TO EXPAND
7.01 Option to Expand the Premises. Lessee shall have the option to
expand the size of the Premises by adding approximately 264,000 square feet of
real property contiguous to the Premises as described on Exhibit "A" hereto
("Expansion Area") at any time prior to the third (3rd) anniversary of the
Effective Date; provided, however, that if the Authority notifies Lessee in
writing at any time during such period that the Authority has received a
written offer from a third party to lease the Expansion Area on terms
acceptable to the Authority (which offer must set forth the basic business
terms of a lease, but need not be an executed lease agreement), then Lessee
must either exercise this option within thirty (30) days of receipt of such
notice from Authority by executing an amendment to this Lease adding such
Expansion Area to the Premises, or such option will terminate upon the earlier
of (i) the execution of a lease by Authority with such third party within
ninety (90) days after the expiration of such thirty (30) day period, or (ii)
the third (3rd) anniversary of the Effective Date. In the event Lessee
exercises this option, all of the applicable terms and conditions of this
Lease shall apply with respect to such Expansion Area, except that the
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Ground Rent per square foot of the Expansion Area shall be the Authority's
prevailing ground rent per square foot at the time the option is exercised.
Lessee shall be required to construct on such Expansion Area Improvements
consisting of (i) a second aircraft maintenance hangar containing not less than
Sixty-Two Thousand Five Hundred (62,500) square feet of space with pocket doors
on each side, including maintenance support facilities and not more than at
7,400 square feet of office space, and (ii) associated ramp space of
approximately 4,200 square yards strong enough to support the wheel loads of a
Boeing 727-200 aircraft, and commence construction of such hangar and
associated ramp space within one hundred fifty (150) days after the date the
Expansion Area is added to the Premises or such longer period as the Executive
Director of Authority may permit by written notice to Lessee. The Authority
shall have no obligation to provide financing for such construction.
ARTICLE VIII
TAXES
Lessee shall, at its own expense and at all times during the term of this
Lease, pay when due all taxes and assessments levied against the Premises, its
leasehold interest therein and any Improvements thereto, and Lessee's trade
fixtures and other personal property located on the Premises or otherwise
arising out of its operations on the Premises. In the event Lessee shall
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fail to pay when due any such taxes and assessments, then whether or not
Authority exercises its right to terminate this Lease because of Lessee's
resulting default hereunder, Lessee shall also be obligated to pay all
resulting interest and penalties on such delinquent taxes and assessments.
None of the terms, covenants or conditions of this Lease shall be construed as
a release or waiver on the part of Authority or the City of the right to
assess, levy or collect any license, personal property, intangible, occupation
or other tax which they, or either of them, may lawfully assess, levy or
collect on the business or property of Lessee. Lessee may exercise any rights
provided by law to contest or pay under protest any taxes, provided that such
contest or payment under protest does not result in a lien for delinquent
taxes on the Premises or any Improvements.
If the term of this Lease expired or was earlier terminated in accordance
with the terms of this Lease prior to the close of the tax year for which any
such tax was payable or if the Effective Date is a date other than the first
day of such tax year, Lessee shall be responsible for a portion of such tax
based on the portion of such tax year that this Lease was in effect. Lessee's
obligations under this Article VIII shall survive the expiration or earlier
termination of the term of this Lease.
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ARTICLE IX
INSURANCE AND INDEMNIFICATION
9.01 Fire and Other Risks Insurance.
(a) During construction of the Improvements described in Section
4.03(a) above and any other Improvements constructed by Lessee at the Premises
(including, without limitation, the Improvements described in section 7.01
above), Lessee shall, at its expense, maintain builders risk insurance that
satisfies the requirements of this subsection. At least thirty (30) days prior
to completion of such Improvements, Lessee shall give Authority written notice
specifying the date of completion and upon completion, Authority shall obtain
and maintain or cause to be obtained and maintained throughout the term of this
Lease, for the benefit of Authority, Lessee, the trustee of certain of
Authorit's outstanding Airport revenue bonds (and if the Bonds have been
issued, the Trustee), fire and extended coverage insurance on the full
replacement cost of all Improvements now or hereafter erected on the Premises;
provided, however, that the Authority shall not be required to obtain such
insurance with respect to an Improvement unless it receives written notice
specifying the date of completion of such Improvement as described above. The
insurance required in this Section 9.01 shall be in such form and with such
company or companies and with such deductibles (not less than one percent (1%)
of the replacement cost of such Improvements) as Authority shall determine or
approve, and with a waiver of all
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rights of subrogation that the issuers of such policies might have against
Lessee or the City (or against the Authority with respect to the builders risk
insurance which Lessee is required to obtain hereunder). Lessee shall pay the
premium for such insurance as additional rent upon Authovity's demand. Lessee
shall provide Authority with such information and supporting documents
pertaining to the replacement cost of all Improvements on the Premises as
Authority may from time to time reasonably request.
(b) Lessee shall, without expense to Authority, obtain and maintain
or cause to be obtained and maintained throughout the term of this Lease, fire
and extended coverage insurance on the full replacement cost of any of
Lessee's trade fixtures, furnishings, equipment or other personal property on
the Premises, with a waiver of all rights of subrogation that the issuers of
such policies might have against Authority or the City.
9.02 Liability Insurance. Lessee shall, without expense
to Authority, obtain and maintain or cause to be obtained and maintained
throughout the 'term of this Lease, comprehensive automobile insurance (any
Auto, including Owned Autos, Non-owned Autos and Hired Autos), Hangarkeeper's
Liability Insurance, Garage Liability insurance, if applicable, and
comprehensive general liability insurance, if applicable, and comprehensive
general liability insurance (including, but not limited to Premises/Operations,
Underground, Explosion and Collapse Hazard, Products/Completed Operations,
Contractual, Independent Contractors, Broad Form Property Damage, and Personal
Injury, as applicable, and
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such other, coverage as may from time to time be generally issued by
insurance companies for businesses similar to that engaged in by Lessee on the
Premises which Authority may reasonably require) protecting Lessee, Authority
and the City, and the members (including, without limitation, members of
Authority's Board and the City's Council, and members of the citizens advisory
committees of each), officers, agents and employees of each (and if the Bonds
have been issued, the Trustee), from and against any and all liabilities
arising out of or relating to Lessee's use or occupancy of, or the conduct of
its operations on, the Premises and the Improvements, in such form and with
such company or companies as Authority shall approve with no less than TEN
MILLION DOLLARS ($10,000,000.00) combined single limit or its equivalent, per
occurrence, or such greater amount of such insurance as shall be maintained by
Lessee, with no deductible, and with contractual liability coverage for
Lessee's covenants to and indemnification of Authority and the City (and if the
Bonds have been issued, the Trustee) under this Lease. This insurance shall
provide that it is primary insurance as respects any other valid and
collectible insurance Authority may possess, including any self-insured
retention or deductible Authority may have, and that any other insurance
Authority does possess shall be considered excess insurance only. This
insurance shall also provide that it shall act for each insured and each
additional insured as though a separate policy has been written for each;
provided, however, that this
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provision shall not operate to increase the policy limits of the insurance. On
the Effective Date, and at least thirty (30) days prior to the expiration of
any insurance policy or policies theretofore provided to Authority by Lessee
hereunder, Lessee shall cause an original certificate(s) of insurance to be
furnished to Authority evidencing all coverage required under this Section
9.02. Such certificate(s) shall name Authority and the City and the members
(including without limitation, members of Authority's Board and the City's
Council, and members of the citizens advisory committees of each), officers,
employees and agents of each (and if the Bonds have been issued, the Trustee) as
additional insureds and shall provide that the policy or policies may not be
canceled or modified nor the limits thereunder decreased without thirty (30)
days' prior written notice thereof to Authority. Lessee shall also provide
Authority with copies of such endorsements and other evidence of the coverage
set forth in the certificate of insurance as Authority may reasonably request.
Lessee agrees that Authority shall have the right, exercisable on ninety (90)
days' prior written notice to Lessee, to require Lessee, from time to time,
reasonably to alter the monetary limits or coverages provided by such policy or
policies. If the nature of Lessee's use or business operations on the Premises
are such as to place any or all of its employees under the coverage of local
workers' compensation or similar statutes, Lessee shall also keep in force, at
its own expense, so long as this Lease remains in effect,
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workers' compensation or similar insurance affording the required statutory
coverage and containing the requisite statutory limits. If Lessee shall not
comply with its covenants made in this Section 9.02, Authority shall have the
right, but not the obligation, to cause insurance as aforesaid to be issued,
and in such event Lessee shall pay the premium for such insurance as additional
rent upon Authority's demand.
9.03 INDEMNIFICATION. Lessee shall indemnify, defend and hold completely
harmless Authority and the City, and the members (including, without
limitation, members of Authority's Board and the City's Council, and members of
the citizens advisory committees of each), officers, employees and agents of
each (and if the Bonds have been issued, the Trustee), from and against any and
all liabilities, losses, suits, claims, demands, judgments, fines, damages,
interest, penalties and increased interest rates, costs and expenses (including
all costs for investigation and defense thereof, including, but not limited to
court costs, expert fees and reasonable Attorneys' Fees) which may be incurred
by, charged to or recovered from any of the foregoing (i) by reason or on
account of damage to or destruction of any property of Authority or the City,
other than the property herein agreed to be insured by Authority pursuant to
Section 9.01 above during the period the Authority is required to insure such
property, or any property of, injury to or death of any Person resulting from
or arising out of the use, occupancy or maintenance of the Premises
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or any Improvements, or the Lessee's operations thereon, or the use or
maintenance of the water line or the water retention pond referred to in
Section 15.01(b) below or the quantity or quality of the water therein (if
such water line is installed by Lessee), or the acts or omissions of Lessee's
officers, agents, employees, contractors, subcontractors, licensees or
invitees, regardless of where the damage, destruction, injury or death
occurred, unless such liability, loss, suit, claim, demand, judgment, fine,
damage, interest, penalty, increased interest rate, cost or expense was
proximately caused solely by Authority's negligence or willful misconduct or by
the joint negligence or willful misconduct of Authority and any Person other
than Lessee or Lessee's officers, agents, employees, contractors,
subcontractors, licensees or invitees, or (ii) arising out of the failure of
Lessee to keep, observe or perform any of the covenants or agreements in this
Lease to be kept, observed or performed by Lessee, or (iii) by reason of, or on
account of, the loss of the exclusion from gross income for Federal income tax
purposes of interest on the Special Purpose Facilities Revenue Bonds arising
out of the failure of Lessee to keep, observe or perform the covenants and
agreements contained in Exhibit "D" hereto or arising out of the falsity of any
of the Company's representations contained therein. Authority agrees to give
Lessee reasonable notice of any suit or claim for which indemnification will be
sought hereunder, to allow Lessee or its insurer to compromise and defend the
same to the extent of its interests
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and to reasonably cooperate with the defense of any such suit or claim. The
provisions of this Section 9.03 shall survive the expiration or earlier
termination of the term of this Lease with respect to any acts or omissions
occurring during the term of the Lease (and if Bonds have been issued, the
provisions of Section 9.03(iii) shall also survive the payment in full of the
Bonds.)
ARTICLE X
DESTRUCTION OF IMPROVEMENTS BY FIRE OR OTHER CASUALTY
10.01 OBLIGATIONS OF THE PARTIES. During the term hereof (except during
the period prior to the the completion of Lessee's Improvements during which
Builders Risk Insurance will apply, and the obligations of the Authority under
this Section shall be the obligations of Lessee), should the Improvements
constructed upon the Premises be damaged or destroyed in whole or in part by
fire or other casualty, covered by Authority's policy of fire and extended
coverage insurance, then Authority shall promptly proceed to rebuild, repair,
replace or restore the same, to the extent permitted by available insurance
proceeds, as nearly as practical to the condition of the Improvements existing
immediately prior to such time. All such reconstructions, repairs,
replacements or restorations of the Improvements that are not Authority's
obligation shall be performed by Lessee at its expense, in accordance with
Section 4.03 above, and lessee shall be obligated, at its expense, to replace
all trade fixtures, furnishings, equipment
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and its other personal property. The parties shall promptly commence and
diligently proceed with their respective obligations hereunder. Lessee, on
behalf of itself and its insurer(s), hezeby waives any right of subrogation it
might otherwise have against Authority for any such loss or damage. Damage to
the Improvements shall not cause an abatement of Lessee's obligation to pay
rent to Authority or to make any other payments required to be made by Lessee
under this Lease. The expiration date of the term of this Lease shall be
extended, for the period beginning with the date of such damage or destruction
which deprived Lessee of possession of all or a substantial portion of the
Premises, and ending on the date when Authority notifies Lessee that the
reconstruction of the Improvements is ready for occupancy by Lessee, if the
Improvements constructed on the Premises are totally destroyed, and otherwise,
with respect to the partially destroyed Improvements, on the date Authority
notifies Lessee that it has completed its obligations under this Section 10.01.
ARTICLE XI
CONDEMNATION
In the event of a Taking of the entire Premises, whether or not this
Lease shall be terminated, all sums including damages and interest awarded for
the fee, leasehold or both shall be distributed and disbursed as Authority and
Lessee may agree or, in the absence thereof, in accordance with the laws of
the State
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of Florida. Lessee shall be entitled to claim, prove and receive in such
condemnation proceedings such award as may be allowed for trade fixtures and
other personal property installed by it and reasonable relocation expenditures,
but only if or to the extent such award shall be in addition to the award for
the Premises and the Improvements.
In the event of a Taking of the entire Premises, then on the date
possession thereof is required for public use the parties hereto shall be
released from any obligation thereafter arising hereunder except for payment of
Debt Service Payments, if the Bonds have been issued, and in such event, Lessee
agrees to apply its share, if any, of the proceeds of the condemnation award in
accordance with the requirements of the Indenture.
In the event of a Taking of a portion only of the Premises, all sums
including damages and interest awarded for the fee, leasehold, or both shall be
distributed and disbursed in the following order of priorities:
(a) to the cost of restoring the portion of the Premises not
affected by the Taking, including the Improvements; and
(b) to Authority and Lessee the balance as they may agree or, in
the absence thereof, in accordance with the laws of the State of Florida.
In the event of such a partial Taking, then (i) Authority shall promptly, at
its own expense, repair and restore the portion of
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the Premises not affected by the Taking (including the Improvements), to
the extent of the available proceeds of any condemnation award, but excluding
all trade fixtures, furnishings, equipment and other personal property of
every kind or description and (ii) the Ground Rent to be paid by Lessee shall
not abate, but it shall be equitably and proportionately adjusted following the
date possession of the portion of the Premises affected by the Taking is
required for public use. If the Bonds have been issued, Lessee agrees to apply
its share, if any, of the proceeds of the condemnation award in accordance
with the requirements of the Indenture.
In the event Lessee is deprived of possession of all or a substantial
part of the Premises not affected by the Taking during the period of repair or
restoration, the expiration date of the term of this Lease shall be extended,
for a period beginning with the date Lessee is deprived of such possession and
ending on the date Authority notifies Lessee that Authority has completed its
obligations under this Article XI with respect to the repair or restoration of
the Premises.
ARTICLE XII
ENCUMBRANCES
12.01 ENCUMBRANCE. Lessee may encumber its leasehold interest in the
Premises by the execution and delivery of a Mortgage. Authority will not
subordinate this Lease to any
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Mortgage. The Mortgagee of any such Mortgage may deliver to Authority a
written notice specifying:
(a) the amount of the obligation secured by the Mortgage and the date of
the maturity or maturities thereof; and
(b) the name and address of the Mortgagee.
After receipt of such notice, Authority shall serve such Mortgagee by
certified or registered mail at the latest address furnished by such Mortgagee
a copy of every notice of default or demand served by Authority upon Lessee
under the terms and provisions of this Lease so long as such Mortgage is in
effect.
12.02 MORTGAGEE'S RIGHTS. Upon receipt of a notice or demand in
accordance with Section 12.01 above, Mortgagee shall have thirty (30) days
after receipt of such notice within which, at Mortgagee's election, either:
(a) to cure the default if it can be cured by the payment or expenditure of
money; (b) to perform such other action as may be necessary to cure the
default; or (c) if the default is not a default in the payment or expenditure
of money and is curable but cannot be cured within thirty (30) days, to
commence performance within such thirty-day period and thereafter diligently
to prosecute the same to completion, in which event, the default will have been
deemed to have been cured.
12.03 RIGHTS ON FORECLOSURE. In the event of foreclosure by Mortgagee,
and subject to compliance with the applicable requirements of Section 13.03
below, the purchaser at the foreclosure sale or the Person acquiring Lessee's
interest in lieu of foreclosure
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shall succeed to and be bound by all of Lessee's rights, interests,
duties and obligations under this Lease.
ARTICLE XIII
DEFAULT, ASSIGNMENT AND SUBLETTING
13.01 DEFAULT. The occurrence of any of the following events shall
constitute a default by Lessee under this Lease:
(a) the failure of the Lessee to pay any Debt Service Payment when due
as herein provided which failure is not remedied within the applicable grace
period, if any, provided in the Indenture for payments on the Bonds;
(b) the failure of Lessee to make any payment of rent or any other
payment (except Debt Service Payments) required to be made by Lessee hereunder
when due as herein provided, which failure is not remedied within ten (10)
business days after receipt by Lessee of Authority's written demand;
(c) the breach by Lessee of any of the provisions of the Development
Standards, which breach is not remedied within thirty (30) days after receipt
by Lessee of Authority's written demand;
(d) the failure of Lessee to keep, observe or perform any of the other
covenants or agreements herein contained to be kept, observed or performed by
Lessee, and continued failure to observe or perform any such covenant or
agreement after a period of thirty (30) days after receipt by Lessee of
Authrity's
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written demand, or the discovery by the Authority that any material statement
of fact made by Lessee to Authority herein (including, without limitation,
Exhibit "D" hereto) is false or materially misleading; provided, however, that
if such failure to observe or perform any such covenant or agreement is curable
and does not involve Lessee's covenants or agreements contained in Sections
4.03, 4.09, Article IX, Section 13.03 or Exhibit "D", and cannot be cured within
such thirty-day period, then Lessee shall not be in default as long as it
commences to cure such failure within such thirty-day period, continues the
curing thereof with due diligence, and fully cures such failure within one
hundred eighty (180) days; and provided further that Lessee shall not be in
default as a result of a misrepresentation or a breach of any covenant or
agreement of the Lessee set forth in Sections 1.1, 3.3, 5.1, 5.2, 5.3 or 7.3 of
Exhibit "D" hereto, whether or not such misrepresentation or breach of covenant
or agreement results in a "Determination of Taxability" as defined in Section
6.3 of Exhibit "D," unless Lessee shall also fail to make a Debt Service
Payment which failure is not remedied within the applicable grace period, if
any, provided in the Indenture for payment on the Bonds.
(e) the repeated failure (defined for this purpose as at least three (3)
such failures within any consecutive twelve-month period) to make any payment
of rent or any other payment required to be made by Lessee after such payment
is due as herein provided (provided that notice of such late payment shall have
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been given to Lessee, but whether or not Lessee shall have made any such
payment within the time provided for in such notice);
(f) the repeated failure (defined for this purpose as at least three (3)
such failures within any consecutive twelve-month period) to keep, observe or
perform any of the other covenants or agreements herein contained to be kept,
observed or performed by Lessee (provided that notice of such failure shall
have been given to Lessee, but whether or not Lessee shall have remedied any
such failure within the time provided for in such notice);
(g) commencement by the Lessee or by any surety or guarantor of this
Lease, in any court pursuant to any statute of the United States or of any
state, territory or government, of an insolvency or bankruptcy proceeding,
including, without limitation, a proceeding for liquidation, reorganization or
the readjustment of its indebtedness;
(h) commencement of any insolvency or bankruptcy proceeding (including,
without limitation, a proceeding for liquidation, reorganization or
readjustment of indebtedness) against the Lessee or any surety or guarantor of
this Lease, if an order for relief is entered against such party (unless such
judgment or order is stayed or vacated within thirty (30) days after entry
thereof), or if such party fails to secure a discharge of the proceedings
within sixty (60) days after the filing thereof;
(i) insolvency of the Lessee or any surety or guarantor of this Lease;
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(j) the making by Lessee or by any surety or guarantor of this Lease
of an assignment for the benefit of its creditors or the filing of a petition
for or the entering into of an arrangement with its creditors;
(k) the appointment or sufferance of a receiver, trustee or custodian to
take possession of all or substantially all of the property of the Lessee or of
any surety or guarantor of this Lease, which is not discharged within sixty
(60) days, whether or not judicial proceedings are instituted in connection
with such appointment or sufferance; or
(1) the placement of any lien upon the Premises or any Improvements
(excluding liens for taxes which are not delinquent and any Mortgage of
Lessee's leasehold interest in the Premises permitted hereunder) which is not
discharged of record within thirty (30) days, or any levy under any such lien.
In any of the aforesaid events, Authority may take immediate possession of
the Premises and any Improvements and remove Lessee's effects without being
deemed guilty of trespassing; and Authority may concurrently exercise any of
the other remedies described in Section 13.02 below.
13.02 Remedies Upon Lessee's Default.
(a) Upon the occurrence of any default, as defined in Section 13.01
above, Authority, besides any other rights or remedies it may have, shall have
the option to:
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(i) Immediately terminate this Lease, resume possession of the Premises
for its own account and recover immediately from the Lessee (1) all unpaid rent
that had been earned at the time of termination of this Lease, together with
(2) the worth, at the time of the award by a court of competent jurisdiction,
of the amount by which the unpaid rent that would have been earned after the
date of termination of this Lease until the time of award exceeds the amount
of the loss of rent that Lessee proves could have reasonably been avoided,
together with (3) the worth, at the time of the award by a court of competent
jurisdiction, of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of the loss of rent that Lessee
proves could reasonably be avoided, together with (4) any other amount and
court costs necessary to compensate Authority for all damages proximately
caused by Lessee's default (for purposes of this Section 13.02, the worth, at
the time of award by a court of competent jurisdiction, of any such amount
shall be determined by discounting such amount in accordance with accepted
financial practice at 'the rate of six percent (6%) per annum to its present
worth); or
(ii) Without terminating this Lease, resume possession and attempt to
re-lease or re-rent the Premises for the remainder of the term of this Lease
for the account of Lessee and recover from Lessee, at the end of the term of
this Lease or at the time each payment of rent comes due under this Lease, as
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the Authority may choose, the difference between the rent provided for in this
Lease and the rent received on the re-leasing or re-rental, together with all
costs and expenses of Authority in connection with the re-leasing or re-rental
and collection of rent and the cost of all repairs or renovations reasonably
necessary in connection with the releasing or re-rental, including without
limitation, brokerage and reasonable Attorneys' Fees; if this option is
exercised, Authority shall in addition be entitled to recover from Lessee
immediately any other amount, and court costs, necessary to compensate
Authority for all damages proximately caused by Lessee's default.
No action by the Authority shall be deemed to terminate this Lease
pursuant to this Section 13-02, and such termination shall occur only upon
written notice of termination from the Authority to Lessee. In any event and
irrespective of any option exercised, Lessee shall pay upon demand all of
Authority's costs, charges and expenses, including reasonable Attorneys' Fees,
and fees of agents and others retained by Authority, incurred in connection
with the recovery of sums due under this Lease, or because of the breach of
any covenant or agreement of lessee contained in this Lease or for any other
relief against Lessee. Lessee hereby expressly waives any notices of default
not specifically provided for in Section 13.01 above, including, without
limitation, the three-day notice required by Section 83.20, Florida Statutes,
and all rights of redemption, if any, granted
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by or under any present or future law in the event Lessee shall be lawfully
evicted or dispossessed for any cause, or in the event Authority shall lawfully
obtain possession of the Leased Premises by virtue of the provisions of this
Lease, or otherwise.
(b) No waiver of any covenant or condition or of the breach of any
covenant or condition of this Lease shall constitute a waiver of any subsequent
breach of such covenant or condition, or justify or authorize the nonobservance
on any other occasion of the same or of any other covenant or condition hereof.
The acceptance of rent by Authority at any time when Lessee is in default under
this Lease shall not be construed as a waiver of such default or of Authority's
right to exercise any remedy arising out of such default, nor shall any waiver
or indulgence granted by Authority to Lessee be taken as an estoppel against
Authority, it being expressly understood that Authority may at any time
thereafter, if such default continues, exercise any such remedy in the manner
hereinbefore provided or as otherwise provided by law or in equity.
(c) The rights and remedies given to Authority by this Lease shall not be
exclusive, and in addition thereto, Authority shall have such other rights and
may pursue such other remedies as are provided by law or in equity. All such
rights and remedies shall be deemed to be cumulative,
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and the exercise of one such right or remedy by Authority shall not impair its
standing to exercise any other right or remedy.
13.03 ASSIGNMENT AND SUBLETTING.
(a) Lessee shall not at any time sublet or assign this Lease, in
whole or in part, or assign any of its rights or obligations hereunder without
the prior written consent of Authority, which consent shall not be
unreasonably withheld. Any assignee shall be required, as a condition of such
assignment, to expressly assume in writing and agree to perform all of Lessee's
obligations under this Lease, including the exhibits hereto. Authority shall
have no obligation, in the event it consents to such assignment, to release
Lessee from any liability arising under this Lease.
(b) In the event of any subletting or assignment authorized under
this Section 13.03, Authority shall be entitled, effective as of the date of the
sublease or assignment, to increase the Ground Rent to the then fair market
rental value of the Premises (excluding the value of the Improvements) and, if
applicable, the Building Rent to five percent (5%) of the then fair market
value of the Improvements, notwithstanding any limitations on increases in the
annual Ground Rent per square foot of the Premises contained in Section 6.02
above; provided, however, that the terms of this Section 13.03(b) shall not
apply with respect to subleases to customers of Lessee while Lessee is
performing
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work for such customers at the Premises to the extent that Lessee does not
sublease to any single customer more than an aggregate of two hundred (200)
square feet.
(c) For purposes of the foregoing Subsections of this Section 13.03, an
assignment shall include any transfer of this Lease by merger, consolidation or
liquidation, or by operation of law, or if Lessee is a corporation (except in
the case of a lessee the stock of which is publicly traded) any change in
ownership of or power to vote a majority of the outstanding voting stock of
Lessee from the owners of such stock or those controlling the power to vote
such stock on the date of this Lease, or if Lessee is a limited or a general
partnership, any transfer of an interest in the partnership which results in a
change in control of such partnership. Notwithstanding the foregoing, a
transfer of stock of the Lessee among its current stockholders or among its
current stockholders and their immediate families, any transfer of stock
resulting from the death of a stockholder, a transfer of partnership interests
in Lessee among existing partners or among existing partners and their
immediate families, or any transfer of a partnership interest resulting from
the death of a partner, shall not be deemed an assignment for purposes of
Subsection (a) of this Section 13.03.
(d) In the event of a proceeding involving Lessee under the Bankruptcy
Code, 11 U.S.C. Section 101 et seq., if this Lease is assumed by Lessee or its
trustee in bankruptcy, then this Lease
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may not be assigned by the Lessee or such trustee to a third party, unless such
party (i) has been approved by Authority, (ii) executes and delivers to
Authority an agreement in recordable form whereby such party assumes and agrees
with Authority to assume and discharge all obligations of Lessee under this
Lease; and (iii) has a net worth and operating experience at least comparable
to that possessed by Lessee and any surety or guarantor of this Lease as of the
date of the execution of this Lease.
13.04 LANDLORD'S LIEN. It is expressly agreed that in the event of default
by Lessee hereunder (except as otherwise provided in the Indenture if the Bonds
have been issued), Authority shall have a lien upon all trade fixtures, goods,
chattels, personal property and equipment of any description belonging to
Lessee which are located on, or become a part of the Premises or any
Improvements, as security for rent and other payments due and to become due for
the remainder of the term of this Lease, which lien shall not be in lieu of or
in any way affect the statutory landlord's lien given by law, but shall be
cumulative thereof, and Lessee shall not remove or permit the removal of any of
such property until all defaults under this Lease have been cured.
13.05 AUTHORITY'S DEFAULT. In the event the Authority violates any of
the terms of this lease, Lessee shall provide the Authority with written notice
of such violation. If the Authority fails to commence to cure such violation
within twenty (20) days after the receipt of such written notice, and
thereafter pursue
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such cure diligently to completion, then Lessee shall have the right (which
shall be its exclusive remedy) to cure such violation and bring an action for
money damages arising from the Authority's violation of the terms of the Lease.
Lessee shall not be entitled to set off the cost of curing any such violation
against the Ground Rent, the Building Rent, the Debt Service Payments or any
other obligation hereunder, and Lessee's obligations under this Lease (including
Exhibit "D" hereto if the Bonds have been issued) shall remain unimpaired and in
full force and effect.
ARTICLE XIV
REOUIRED PROVISIONS
14.01 AUTHORITY'S RESERVED RIGHTS. Authority reserves the right for
itself and others to utilize and maintain utility and drainage easements over,
under or across the Premises, and to run water, sewer, electrical, telephone,
gas, drainage and other lines over, under or through the Premises and to grant
necessary utility easements therefor; provided, however, that in the exercise
of such rights, Lessee's use of the Premises and any Improvements shall not be
unreasonably impaired and any damage to the Premises or any Improvements caused
by Authority as a result thereof shall be repaired within a reasonable time
without cost to Lessee.
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14.02 DISCRIMINATION NOT PERMITTED.
(a) Lessee, for itself, its successors in interest and its
assigns, as a part of the consideration hereof, does hereby covenant and agree
as a covenant running with the land that (i) no person on the grounds of
race, color or national origin shall be excluded from participation in, denied
the benefits of, or be otherwise subject to discrimination in the use of the
Premises, any Improvements or the Airport under the provisions of this Lease;
(ii) that in the construction of any Improvements on, over or under the Premises
and the furnishing of services thereon, no person on the grounds of race, color
or national origin shall be excluded from participation in, denied the benefits
of, or otherwise be subject to discrimination; and (iii) that Lessee shall use
the Premises and the Improvements in compliance with all other requirements
imposed pursuant to Title 49, Code of Federal Regulations, Department of
Transportation, Subtitle A, Office of the Secretary, Part 21,
Non-discrimination in Federally-assisted programs of the Department of
Transportation-effectuation of Title VI of the Civil Rights Act of 1964, and
as said Regulations may be amended. Likewise, Lessee shall comply with the
laws of the State of Florida prohibiting discrimination because of race, color,
religion, sex, national origin, age, handicap or marital status. Should the
Lessee authorize another person, with Authority's prior written consent, to
provide services or benefits upon the Premises or the Improvements, Lessee shall
obtain from such person a written
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agreement pursuant to which such person shall, with respect to the services
or benefits which it is authorized to provide, undertake for itself the
obligations contained in this Subsection. Lessee shall furnish the original or a
true copy of such agreement to Authority.
(b) Authority may from time to time be required by the United States
Government, the State of Florida, or one or more of its agencies, to adopt
additional or amended provisions including non-discrimination provisions,
concerning the use and operation of the Airport, and Lessee agrees that it will
adopt any such requirements as a part of this Lease.
(c) If Lessee shall furnish any services to the public at the Airport, it
shall furnish said services on a fair, equal and not unjustly discriminatory
basis to all users thereof, and shall charge fair, reasonable and not unjustly
discriminatory prices for each unit of service, provided that Lessee shall be
allowed to make reasonable and non-discriminatory discounts, rebates and other
similar types of price reductions to volume purchasers, if any.
(d) In the event of breach of any of the above non-discrimination
covenants, Authority shall have the right to terminate this lease and to
re-enter and repossess said Premises and the Improvements, and hold the same
as if this Lease had never been made or issued. The right granted to Authority
by the foregoing sentence shall not be effective until all applicable
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procedures of Title 49, CFR Part 21 are followed and completed, including
exercise or expiration of appeal rights.
(e) Further, Lessee assures Authority that no person shall be excluded on
the grounds of race, creed, color, national origin or sex from participating in
or receiving the services or benefits of any program or activity covered by
Title 14, CFR Part 152, Subpart E, Federal Aviation Administration,
Non-discrimination in Airport Aid Program, and that it will be bound by and
comply with all other applicable provisions of such Subpart E, as it may be
amended. Lessee also assures Authority that it will require its covered
suborganizations to provide written assurances to the same effect and provide
copies thereof to Authority.
14.03 FEDERAL AVIATION ADMINISTRATION RECRUIREMENTS.
(a) Authority reserves unto itself, and unto its successors and
assigns, for the use and benefit of the public, a right of flight for the
passage of aircraft through the airspace above the surface of the Premises,
together with the right to cause in said airspace such noise as may be inherent
in the operation of aircraft now known or hereafter used, and for navigation of
or flight in the said airspace, and use of said airspace for landing on,
taking off from or operating on the Airport.
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(b) Lessee expressly agrees, on behalf of itself and its successors and
assigns, to restrict the height of structures, vegetation and other
obstructions on the Premises in compliance with the requirements of Federal
Aviation Administration Regulations, 14 CFR Part 77.
(c) Lessee expressly agrees, on behalf of itself and its successors and
assigns, to prevent any use of the Premises and any Improvements which would
interfere with or adversely affect the operation or maintenance of the Airport,
or which would otherwise constitute a hazard at the Airport.
ARTXCLE XV
OTHER PROVISIONS
15.01 FIRE PROTECTION SYSTEM.
(a) Lessee shall, at its own cost and expense, install and
maintain in good working order in each building on the Premises where the same
is required by applicable fire and safety standards a quality fire protection
system sufficient in view of the uses of such building by Lessee, which Lessee
shall cause to be certified as meeting all applicable fire and safety standards
upon installation, and recertified at least annually thereafter, by a qualified
fire protection system inspector, with a copy of each such certification
provided to Authority.
(b) Lessee shall have the right, at its sole expense, to install and
maintain a water line in the water line corridor area identified
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<PAGE> 70
on attached Exhibit "A", to connect the water deluge system to be included as
part of the fire protection system referred to in this Section 15.01 to the
retention pond identified on said Exhibit "A", and to draw water from such
retention pond solely to test and to operate the water deluge system.
Notwithstanding any other provision of this Lease, that portion of the
Premises identified on Exhibit "A" as the "Pump House Area" shall be used
solely for the operation of a pump house in connection with Company's fire
protection system. Lessee shall also have the right, at its sole expense, to
increase the depth (but not the area) of such retention pond if additional
water storage capacity is required in order for the water deluge system to
satisfy the fire code of the City of Orlando and any other applicable legal
requirements. Lessee acknowledges that the Authority has made no
representation or warranty that the use of such retention pond will satisfy the
fire code of the City of Orlando or any other applicable legal requirements, or
that there will always be a sufficient quantity (or satisfactory quality) of
water in such retention pond to operate the water deluge system. Lessee hereby
releases the Authority from any liability arising directly or indirectly out of
Lessee's use of the water line or the retention pond, or the failure of the
water deluge system to operate properly or at all as a result of its
connection to such retention pond, whether such failure is caused by Lessee's
failure to properly maintain the water line or the retention pond, because of
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<PAGE> 71
the quantity or the quality of the water in the retention pond, or for any
other reason whatsoever. Lessee shall be obligated to obtain, at its expense,
any permits required for Lessee to lawfully connect the water deluge system to
the retention pond, to draw water from the retention pond to test or operate
the water deluge system or to deepen the pond to increase its water retention
capacity. The Authority agrees to execute any applications for such permits to
the extent the Authority is legally required to be the applicant or to join in
the application for such permits.
15.02 ENGINE RUNUPS. Except to the extent that noise restrictions of any
governmental authority having jurisdiction thereover may preclude or limit
the same, Lessee shall have the right to conduct engine runups at the
Premises, and/or the non-exclusive right in common with others, to conduct
engine runups on the Airport at such location or locations as Authority may
designate from time to time for such purposes, in reasonable proximity to the
Premises on the Airport, and subject to the reasonable rules and regulations
of Authority.
15.03 AIRPORT SECURITY. Lessee shall comply with all applicable
regulations of the Federal Aviation Administration ("FAA") relating to Airport
security and shall control the Premises so as to prevent or deter unauthorized
persons from obtaining access to the air operations area of the Airport.
Lessee shall pay all fines imposed by the FAA upon Authority or Lessee
resulting from a failure of Lessee to comply with such regulations or to
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<PAGE> 72
prevent unauthorized persons from obtaining access to the air operations
area of the Airport.
15.04 RIGHT TO SERVICE AIRCRAFT. Lessee agrees that it will not exercise
or grant any right or privilege which would operate to prevent any person, firm
or corporation operating aircraft on the Airport from performing any service
(including, but not limited to maintenance and repair) on its own aircraft with
its own employees that it may choose to perform.
15.05 SUBORDINATION. Lessee covenants and agrees that this Lease shall
be subject and subordinate to the provisions of any existing or future
agreement between Authority and the United States Government relative to the
operation or maintenance of Airport, the execution of which has been or will
be required as a condition precedent to the granting of federal funds for the
development of Airport to the extent that the provisions of any such existing
or future agreements are generally required by the United States at other civil
airports receiving federal funds. In the event that the Federal Aviation
Administration or its successors shall require any modifications to this Lease
as a condition precedent to the granting of such federal funds, Lessee shall
promptly consent in writing to any such modifications.
15.06 ADDITIONAL RESERVED RIGHTS OF AUTHORITY. Authority reserves the
right (i) to further develop, improve, repair and alter the Airport and all
roadways, parking areas, terminal facilities, landing areas and taxiways as it
may reasonably see
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<PAGE> 73
fit, and Authority shall be free from any and all liability to Lessee for loss
of business or damages of any nature whatsoever to Lessee occasioned during the
making of such improvements, repairs, alterations and additions, subject to the
provisions of Section 3.03(b) above, and (ii) subject to Lessee's rights under
any other applicable agreement between Authority and Lessee, to establish such
fees and charges for the use of the Airport by Lessee (excluding any additional
charge for use of the Premises) and all others as Authority may deem advisable.
15.07 NO RIGHT TO OPERATE AIRCRAFT AT AIRPORT. Nothing contained in this
Lease shall give Lessee the right to take off or land aircraft at the Airport.
The right to take off or land aircraft at the Airport may be obtained by a
qualified lessee from Authority by executing an operating agreement or Orlando
Airline-Airport Lease and Use Agreement in the form prescribed by Authority.
ARTICLE XVI
GENERAL PROVISIONS
16.01 NOTICE. All notices permitted or required to be given under the
terms of this Lease shall be in writing, properly addressed, and sent by
certified or registered mail, postage prepaid, return receipt requested, or by
courier service providing a written record of the date of delivery, to the
address shown
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<PAGE> 74
below or to such other address as either party may from time to time
designate by written notice.
To Authority: Executive Director
Greater Orlando Aviation Authority
Orlando International Airport
One Airport Boulevard
Orlando, FL 32827-4399
To Lessee: President
Page Avjet Corporation
7380 Sand Lake Road
Orlando, FL 32817
16.02 MEMBER PROTECTION. No recourse under or upon any obligation,
covenant or agreement contained in this Lease, or any other agreement or
document pertaining to the operations of Lessee hereunder, as such may from
time to time be altered or amended in accordance with the provisions hereof, or
under any judgment obtained against Authority, or by the enforcement of any
assessment or by any legal or equitable proceeding by virtue of any statute or
otherwise, under or independent of this Lease, shall be had against any member
(including, without limitation, members of Authority's Board and members of
Authority's citizens advisory committees), officer, employee or agent, as
such, past, present and future, of Authority, either directly or through
Authority or otherwise, for any claim arising out of this Lease or the
operations conducted pursuant to it, or for any sum that may be due and unpaid
by Authority. Any and all personal liability of every nature, whether at
common law or in equity, or by statute or by
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<PAGE> 75
constitution or otherwise, of any Authority member, officer, employee or
agent, as such, to respond by reason of any act or omission on his or her part
or otherwise for any claim arising out of this Lease or the operations conducted
pursuant to it, or for the payment for or to Authority, or any receiver
therefor or otherwise, of any sum that may remain due and unpaid by Authority,
is hereby expressly waived and released as a condition of and as consideration
for the execution of this Lease.
16.03 AUTHORITY RULES AND REGULATIONS. Lessee shall observe and comply
with all reasonable rules and regulations of Authority which now exist or may
hereinafter be promulgated from time to time governing all matters relating to
the Airport, including, without limitation, access, use, safety and conduct of
operations at the Airport and the safe use of Airport facilities. Authority
shall, at Lessee's written request, furnish a copy of all such rules and
regulations, and any amendments thereto, to Lessee.
16.04 AUTHORITY ACCESS TO PREMISES. Lessee shall grant Authority and
its authorized agents full and free access to the Premises and all Impmovements
located thereon at all reasonable times (on at least twenty-four (24) hours'
prior notice, except in the event of an emergency) for the purpose of examining
the same and seeing that all of the obligations of Lessee hereunder are being
met and performed, and shall permit them to enter any building or structure on
the Premises at any time in the event of
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<PAGE> 76
an emergency. Neither the Authority nor its authorized agents shall be liable
to Lessee for any damage to Lessee's property arising out of any action taken
pursuant to this Section 16.04 unless such action was taken out of malice and
not for reasonable cause, or was taken for reasonable cause but was conducted
in a grossly negligent manner. Authority and its employees, licensees,
invitees, agents, patrons and suppliers, and the employees, licensees,
invitees, agents, patrons and suppliers of Authority's tenants, shall have the
right of vehicular and pedestrian access, ingress and egress over all of the
streets and roadways on the Airport including any private streets and roadways
on the Premises.
16.05 CITY AS AUTHORITY'S SUCCESSOR. The Authority presently operates the
Airport under an Operation and Use Agreement with the City dated September 27,
1976, as amended (such operation and Use Agreement, as amended, is hereinafter
the "Operation and Use Agreement"), which provides that on its termination for
any reason, responsibility for operating the Airport would revert to the City.
Authority and the Lessee agree that on the termination for any reason of the
Operation and Use Agreement between the City and Authority, (i) the City shall
be deemed to be the lessor hereunder, and (ii) all references herein contained
to "Authority" shall be deemed to refer to the City.
16.06 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by Authority or Lessee or by any third party to create the
relationship of principal and agent
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<PAGE> 77
or of partnership or of joint venture or of any association whatsoever between
Authority and Lessee, it being expressly understood and agreed that neither the
computation of rent nor any other provisions contained in this Lease nor any
act or acts of the parties hereto shall be deemed to create any relationship
between Authority and Lessee other than the relationship of landlord and tenant.
16.07 NO EXCLUSIVE RIGHTS. The rights granted to Lessee under this Lease
are not exclusive, and the Authority expressly reserves the right to grant to
third parties rights and privileges on other portions of the Airport which are
identical, in whole or in part, to those granted to Lessee hereunder.
16.08 MISCELLANEOUS PROVISIONS.
(a) The section headings contained in this Lease are inserted only as a
matter of convenience and for reference, and in no way define, limit or
describe the scope or intent of any provision of this Lease.
(b) Except as otherwise provided herein, the provisions of this Lease
shall bind and inure to the benefit of the successors and assigns of the
parties hereto.
(c) Time is expressed to be of the essence of this Lease.
(d) In the event that any legal proceedings at law or in equity arise
hereunder or in connection herewith (including
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<PAGE> 78
any appellate proceedings or bankruptcy proceedings), the prevailing party
shall be awarded costs, reasonable expert witness fees and reasonable
Attorneys' Fees incurred in connection with such legal proceedings.
(e) Any right, interest or remedy which shall have accrued during the
term of this Lease shall not be terminated or extinguished by the expiration or
earlier termination of this Lease, but may be enforced by the party for whose
benefit such right, interest or remedy shall have accrued in accordance with
the terms of this Lease as if it had not terminated or expired.
(f) This Lease was made in and shall be governed by and construed in
accordance with the laws of the State of Florida. It is agreed that if any
covenant, condition or provision contained in this Lease is held to be invalid
by any court of competent jurisdiction, such invalidity shall not affect the
validity of any other covenant, condition or provision herein contained.
(g) Lessee represents and warrants to Authority that, to the best of its
knowledge, except as may be disclosed in an addendum hereto, no officer,
employee or agent of Authority has any interest, either directly or indirectly,
in the business of Lessee to be conducted hereunder.
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<PAGE> 79
(h) This Lease, together with the exhibits attached hereto,
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof, and any representations or statements heretofore
made with respect to such subject matter, whether verbal or written, are merged
herein. This Lease may be altered or amended only by written instrument
executed by both parties hereto.
(i) Except as otherwise expressly provided in the Lease, all rights
and remedies of Authority and Lessee herein enumerated shall be cumulative and
none shall exclude any other right or remedy allowed by law or in equity.
Likewise, except as otherwise expressly provided in the Lease, the exercise by
Authority or Lessee of any remedy provided for herein or allowed by law or in
equity shall not be to the exclusion of any other remedy.
(j) words of gender used in this Lease shall be held and construed to
include any other gender; and words in the singular shall be held to include
the plural and vice versa unless the context otherwise requires.
(k) Authority and Lessee represent and warrant to each other that
they have dealt with no broker or realtor in connection with this Lease and the
transactions contemplated hereby, and each agrees to indemnify and hold the
other harmless in the event its representation and warranty contained herein is
not true.
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<PAGE> 80
(1) At the request of either party, the other shall with reasonable
promptness deliver to the requestinq party a written and acknowledged
statement that this Lease in unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and that to the best of the responding
party's knowledge, the requesting party is not in default under this Lease (or
if the responding party has knowledge that the requesting party is in default,
identifying the default). In addition, at Authority's request, Lessee shall
promptly execute and return to Authority a short form memorandum of this Lease
which may be recorded in the public records in Authority's sole discretion.
IN WITNESS WHEREOF, the parties hereto by their duly authorized officers
have caused this Lease to be executed in their names and their seals to be
affixed hereto as of the day and year first above written.
LESSOR
GREATOR ORLANDO AVIATION AUTHORITY
ATTEST:
/s/ ??? By: /s/ ???
- - ----------------------------- ---------------------------------
(OFFICIAL SEAL) Chairman
Approved as to Form and Legality
this 8th day of December 1988
FOLEY & LARONER, Van der BERY
GAY, BURKE, WILSON
By:
---------------------------------
General Counsel
Greator Orlando Aviation Authority
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<PAGE> 81
LESSEE
PAGE AVJET CORPORATION,
ATTEST: a Delaware corporation
By: /s/ Paul D. Meunier
- - --------------------------- -------------------------
(CORPORATE SEAL) Paul D. Meunier
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<PAGE> 1
EXHIBIT 10.17.2
---------------
AMENDMENT NO. 1 TO ORLANDO TRADEPORT
MAINTENANCE HANGAR LEASE AGREEMENT
THIS FIRST AMENDMENT ("Amendment") to Orlando Tradeport
Maintenance Hangar Lease Agreement, dated December 11, 1989 ("Lease"), entered
into this 22nd day of June, 1990 by and between the GREATER ORLANDO AVIATION
AUTHORITY, a public body existing under the laws of the State of Florida
("Authority"), and PAGE AVJET CORPORATION, a corporation organized and existing
under the laws of the State of Delaware and qualified to do business in the
State of Florida ("Lessee").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the terms of the
Lease;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in the Lease and in this Amendment, Authority and Lessee
hereby agree to amend the Lease as follows:
1. Section 12.02 of the Lease is hereby amended by adding
the following:
In addition, upon the occurrence of a default which either (i)
cannot be cured or (ii) cannot be cured by a Mortgagee until it obtains
possession of the Premises, the Authority shall not exercise its rights under
Section 13.02 as a result of such default if a Mortgagee promptly commences
foreclosure or similar proceedings with respect to Lessee's interest in this
Lease and
<PAGE> 2
pursues such proceedings diligently to completion whether by foreclosure sale
or conveyance in lieu of foreclosure, and if the default can be cured by
Mortgagee upon obtaining possession of the Premises, Mortgagee commences to
cure such default immediately upon obtaining possession of the Premises and
thereafter diligently prosecutes the same to completion, in which event such
default shall be deemed to have been cured; provided, however, that the
provisions of this sentence shall not prevent Authority from exercising any of
its other rights under the last paragraph of Section 13.01 and under Section
6.04(b).
2. Section 13.03(b) of the Lease is hereby amended by
adding the following:
Notwithstanding the foregoing provisions of this Section 13.03,
in the event a Mortgagee or any other person obtains Lessee's leasehold
interest under the Lease by foreclosure sale or conveyance in lieu of
foreclosure, or in the event a Mortgagee assigns its leasehold interest under
this Lease in accordance with the terms of the Lease within one hundred twenty
(120) days after obtaining Lessee's leasehold interest by foreclosure sale or
conveyance in lieu of foreclosure, Authority agrees not to exercise its right
to increase the Ground Rent to the then fair market value of the Premises and,
if applicable, the Building Rent to five percent (5%) of the then fair market
value of the Improvements as a result of such assignment.
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<PAGE> 3
3. Except as modified herein, the Lease shall continue in
full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
officers have caused this Lease to be executed in their names and their seals
to be affixed hereto as of the day and year first above written.
LESSOR:
ATTEST: GREATER ORLANDO AVIATION AUTHORITY
By:
- - -------------------------------- ---------------------------
Secretary Chairman
[OFFICIAL SEAL]
LESSEE
ATTEST: PAGE AVJET CORPORATION,
a Delaware corporation
By:
- - -------------------------------- ---------------------------
Asst. Secretary Title: Pres.
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 10.17.3
---------------
AGREEMENT AND SECOND AMENDMENT TO
ORLANDO TRADEPORT MAINTENANCE HANGER LEASE AGREEMENT
THIS AGREEMENT AND SECOND AMENDMENT TO ORLANDO TRADEPORT MAINTENANCE
HANGER LEASE AGREEMENT ("this Second Amendment") is made and entered into this
25th day of January, 1996 by and between the GREATER ORLANDO AVIATION AUTHORITY,
a public body existing under the laws of the State of Florida, ("AUTHORITY")
and AIRTRAN AIRWAYS, INC., a Delaware corporation, ("AIRTRAN").
RECITALS:
A. Authority and Page Avjet Corporation, a Delaware corporation, ("PAC")
entered into that certain Orlando Tradeport Maintenance Hanger Lease Agreement
dated December 11, 1989 and that certain Amendment No. 1 to Orlando Tradeport
Maintenance Hanger Lease Agreement dated June 22, 1990 (collectively, "the
Lease").
B. The Lease evidences the long term lease of the land described on
Exhibit "A" to the Lease, and on the Memorandum of Lease recorded June 22, 1990
in Official Records Book 4194, Page 2005, Public Records of Orange County,
Florida, together with improvements ("the Improvements") constructed on the
land by PAC, (collectively, "the Premises").
C. Construction of the Improvements to the Premises was financed through
the issuance by Authority of the "Greater Orlando Aviation Authority Special
Purpose Facilities Revenue Bond (Page Avjet Corporation Maintenance Hanger
Project), Series 1990" ("the Bond Financing").
D. Page Avjet Holding Corporation, a Delaware corporation, ("PAHC")
assumed PAC's rights and obligations under the terms of the Lease and Bond
Financing pursuant to that certain Assumption Agreement between PAC and PAHC
executed on or about October 3, 1995. PAC and PAHC are sometimes herein
referred to collectively as "the Sellers".
E. The Sellers and AirTran have entered into an agreement pursuant to
which the Sellers have agreed to assign to AirTran, and AirTran has agreed to
assume, all of the Sellers' rights and obligations under the terms of the
Lease, and the Sellers have agreed to redeem and pay off the Bond Financing in
its entirety.
F. AirTran's agreement to assume the obligations of the Sellers under the
Lease is contingent, among other things, upon the execution and delivery by
AirTran and Authority of an amendment to the Lease which is acceptable to
AirTran and Authority.
<PAGE> 2
G. The past and proposed assignments and assumptions of the Lease require
the approval of Authority, which approval the Authority is willing to grant.
H. AirTran and Authority desire to amend further the Lease, and to
memorialize their agreements on several matters pertaining to assignments of
the Lease.
AGREEMENTS:
NOW, THEREFORE, for and in consideration of the mutual advantages arising
hereunder, the covenants and conditions contained herein, the sum of Ten
Dollars ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Authority and AirTran agree
as follows:
1. RECITALS. The foregoing recitals are true and correct and incorporated
herein by this reference.
2. DEFINED TERMS. Unless otherwise provided in the Second Amendment,
capitalized terms used in this Second Amendment shall have the meanings
ascribed to such terms in the Lease.
3. CONSENTS BY AUTHORITY. Effective upon the date of this Second
Amendment, and as required by Section 13.03(a) of the Lease, Authority hereby
consents to the following:
(a) Assumption Agreement. The Assumption Agreement between PAC and PAHC
pursuant to which PAHC assumed the rights, liabilities and obligations of PAC
under the Lease and the Bond Financing, in the form attached to this Second
Amendment as Exhibit "A" ("the Assumption Agreement");
(b) Assignment. The assignment by the Sellers, and the assumption by
AirTran, of all of the Sellers' rights and obligations under the terms of the
Lease, in the form attached to this Second Amendment as Exhibit "B" ("the
Assignment"); and
(d) Sublease The sublease of the Premises by the Sellers to AirTran for
a term commencing on signature of the Sublease and continuing until the earlier
of the closing of the Assignment or the termination of this Second Amendment
pursuant to Paragraph 6 hereof, in the form attached to this Second Amendment
as Exhibit "C" ("the Sublease"). The Sublease shall be at the sole option of
AirTran and AirTran shall not be obligated to GOAA to proceed with the
Sublease.
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<PAGE> 3
4. WAIVERS.
(a) Prior Defaults. Authority hereby waives in favor of AirTran and
AirTran's successors and assigns only, but not in favor of PAC or PAHC, all
prior defaults of the Lessee under the terms of the Lease, of any nature and
whether or not now known to Authority or AirTran, including without limitation
any default arising out of or caused by the Assumption Agreement. Authority
agrees that the Lease is in good standing and without default as of the date of
this Second Amendment. Authority shall send to AirTran copies of all default
notices sent by Authority to PAHC or PAC regarding any Lease defaults occurring
between the date of this Second Amendment and the earlier of closing of the
Assignment or termination of this Second Amendment, and, between the date of
this Second Amendment and the earlier of the closing of the Assignment or
termination of this Second Amendment, AirTran shall be afforded the same cure
period and opportunity to cure the alleged default as is provided to a
leasehold mortgagee under Section 12.02 of the Lease.
(b) Changes to Lease Terms. Effective upon the date of this Second
Amendment, Authority hereby waives Authority's rights under Section 13.03(b) of
the Lease to increase the Ground Rent or otherwise alter the terms of the Lease
due to the Assumption Agreement, the Assignment, or the Sublease, but Authority
expressly reserves such right (as modified by this Second Amendment) due to
future subleases or assignments.
5. ASSUMPTION. Effective upon the closing of the Assignment, AirTran
assumes all of the Lessee's obligations which thereafter accrue under and by
virtue of the Lease, as modified by this Second Amendment, and AirTran
covenants and agrees with Authority to perform and comply thereafter with each
and every one of the terms of the Lease, as modified by this Second Amendment.
Except to the extent and for the time period provided in the Sublease, if
signed, AirTran does not assume liability for, nor shall AirTran be obligated
to perform, comply with or assume liability for any of the obligations or
duties (including without limitation any notice, performance, cooperation,
payment, rebate, insurance, construction, maintenance, repair, reimbursement,
indemnification, defense and hold harmless obligations) of the Lessee under the
Lease which have accrued in the past or which relate to the period preceding
the closing of the Assignment ("Pre-Assumption Obligations"). In addition,
AirTran shall not be obligated to perform, comply with or assume liability for
any of the obligations related to or arising out of the Bond Financing ("Bond
Financing Obligations"). Authority expressly exonerates AirTran from any
liability for Pre-Assumption Obligations and Bond Financing Obligations, and
Authority agrees to look solely to PAC or PAHC for enforcement or collection of
Pre-Assumption Obligations and Bond Financing Obligations. Nothing in this
Second Amendment shall be construed to be as a release by Authority of PAC or
PAHC from past, present or future obligations of the Lessee under the Lease,
and any such release shall be covered by a separate agreement.
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<PAGE> 4
6. WHEN EFFECTIVE; CONTINGENCY. Except for those provisions hereof which
expressly take effect upon the execution hereof, this Second Amendment shall
take effect only if and when the Assignment is closed, the Bond Financing
redeemed in full, and Authority receives written evidence of such closing of
the Assignment and redemption of the Bond Financing (the "Conditions for
Effectiveness"); provided, however, that if the Conditions for Effectiveness do
not occur on or before February 29, 1996, then either AirTran or Authority may
thereafter terminate this Second Amendment by serving upon the other party, at
any time prior to the occurrence of the Conditions for Effectiveness, written
notice of election to terminate this Second Amendment. Any such termination of
this Second Amendment shall be effective at 5:00 p.m. on the tenth (10th) day
after notice described above is served. If this Second Amendment is so
terminated, then, except under those provisions hereof which expressly survive
the termination of this Second Amendment, neither AirTran nor Authority shall
have any further liability hereunder and the Lease shall continue in full force
and effect between PAC, PAHC and Authority according to the terms existing
prior to the execution of this Second Amendment. Except as to provisions
hereof which provide for an earlier effective date, and provided that this
Second Amendment is not sooner terminated in accordance with the provisions of
this Paragraph 6, this Second Amendment shall take effect automatically upon
the occurrence of the Conditions for Effectiveness without the need of any
further action by either AirTran or Authority.
7. CHANGES IN TERMS OF LEASE. The following changes to the Lease shall
take effect upon the closing of the Assignment:
(a) Lease Term and Extensions. Section 5.01 of the Lease is hereby
deleted and the following new Section 5.01 is hereby inserted in lieu thereof:
"5.01 Term. This Lease shall be for a term which commenced
on December 11, 1989 and which expires January 31, 2011."
(b) Section 5.02 of the Lease is hereby deleted and the following new
Section 5.02 is hereby inserted in lieu thereof:
"5.02 Options.
(a) Provided that Lessee is not in default under this Lease,
Lessee shall have options to extend this Lease for two (2)
separate, consecutive five (5)-year additional terms. In order to
exercise the first five (5)-year extension option (i.e., February
1, 2011 through January 31, 2016), Lessee must notify Authority in
writing of Lessee's exercise of that option not later than June 1,
2010. In the event the first five (5)-year extension option is
exercised, this Lease shall be extended on the same terms and
conditions as are applicable to the initial term. Provided that
Lessee exercises the first
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<PAGE> 5
five (5)-year extension option, Lessee may exercise the second five
(5)-year extension option (i.e., February 1, 2016 through January 31,
2021) by notifying Authority in writing of Lessee's exercise of that
option not later than June 1, 2015. In the event the second five
(5)-year extension option is exercised, this Lease shall be extended on
the same terms and conditions as are applicable to the initial term,
except that (i) this Lease may not be further extended under this
Subsection (a), and (ii) Lessee shall be required to pay Building Rent
as provided in Section 6.03 below.
(b) References in this Lease to the "term" of this Lease
shall mean the initial term and each of the additional five
(5)-year terms actually taken by Lessee."
(c) Re-adjustment of Minimum Annual Ground Rent. Subsection 6.02(a) of
the Lease is hereby deleted and the following new Subsection 6.02(a) is hereby
inserted in lieu thereof:
"(a) The annual Ground Rent was previously adjusted to
twenty nine cents ($.29) per square foot in accordance with the
terms of this Lease effective as of December 1, 1994. The Ground
Rent as so adjusted shall remain in effect through and including
January 31, 2001. Thereafter, the Ground Rent shall be further
adjusted as hereinafter provided effective as of February 1, 2001,
February 1, 2006, February 1, 2011 (if the first five (5)-year
extension option is exercised), and February 1, 2016 (if the
second five (5)-year extension option is exercised). On each of
the aforementioned future adjustment dates, the Ground Rent shall
be adjusted to ten percent (10%) of the then fair market value of
the Premises, disregarding the value of the Improvements, and such
valuation shall be made pursuant to Subsection (b) below, as of
October 1 preceding the effective date of the adjustment;
provided, however, that the annual Ground Rent per square foot of
the Premises for any such prospective five (5) year period shall
not be increased by more than forty percent (40%) of the annual
Ground Rent per square foot of the Premises charged during the
last year of the immediately preceding period; and further
provided, however, that, except for possible reduction in Ground
Rent caused by the cap on Ground Rent during the first five
(5)-year extension period and possible reduction in the total of
the Ground Rent and Building Rent caused by the cap on the total
of Ground Rent and Building Rent during the second five (5)-year
extension period, the annual Ground Rent per square foot of the
Premises for any such prospective five (5) year period shall not
be less than the annual Ground Rent per square foot of the
Premises charged during the last year of the immediately preceding
period."
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<PAGE> 6
(d) Commencement of Building Rent. Section 6.03 of the Lease is amended
to provide that Building Rent shall be due and payable only during the second
five (5)-year extension period (i.e., from and after February 1, 2016). There
shall be no Building Rent during the initial term or during the first five
(5)-year extension term, if taken.
(e) Rent Caps. The following new Section 6.06 is hereby added to the
Lease:
"6.06 Maximum Ground Rent and Building Rent. Except as
provided in the last sentence of Section 7.01 and in the last
sentence of the second paragraph of Section 13.03(b), in no event
shall the annual Ground Rent during the first five (5)-year
extension period exceed One Hundred Eighty Seven Thousand Five
Hundred Dollars ($187,500.00), nor shall the total of annual
Ground Rent and annual Building Rent during the second five
(5)-year extension period exceed Six Hundred Thousand Dollars
($600,000.00) per annum."
(f) Expansion Option. Section 7.01 of the Lease is hereby deleted and the
following new Section 7.01 is hereby inserted in lieu thereof:
"7.01 Option to Expand the Premises. Lessee shall have the
option to expand the size of the Premises by adding to this Lease
the approximately two hundred sixty four thousand (264,000) square
feet parcel of real property ("the Expansion Area") lying
contiguous to the Premises as shown on Exhibit "A" to this Lease.
Lessee may exercise this expansion option by written notice to
Authority sent any time on or before February 1, 2001, whereupon
Lessee and Authority shall execute an amendment to this Lease and
record in the public records notice of the expansion of the
Premises; provided, however, that if Authority notifies Lessee in
writing at any time prior to the earlier of exercise of the
expansion option by Lessee or February 1, 2001 that Authority has
received a written offer from a third party to lease the Expansion
Area on terms acceptable to Authority (which offer must set forth
the basic business terms of a lease, but need not be an executed
lease agreement), then Lessee must either exercise this option
within thirty (30) days of receipt of such notice from Authority,
and promptly thereafter execute an amendment to this Lease adding
such Expansion Area to the Premises, or this expansion option will
terminate upon the execution of a lease by Authority with such
third party (provided that such lease is executed within ninety
(90) days after the expiration of Lessee's said thirty (30) day
period). In the event Lessee exercises this option, all of the
applicable terms and conditions of this Lease shall apply with
respect to such Expansion Area, except that the Ground Rent per
square foot of the Expansion Area shall be the Authority's
prevailing ground rent per square foot at the time the option is
exercised. The annual Ground Rent shall be subject to adjustment
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<PAGE> 7
thereafter in accordance with Section 6.02. There shall be no
Building Rent on the improvements to the Expansion Area until
February 1, 2016, at which time annual Building Rent shall be
determined in accordance with the formula set forth in Section
6.03. The caps on Ground Rent and Building Rent set forth in
Section 6.06 shall not apply to the annual Ground Rent and annual
Building Rent applicable to the Expansion Area. The limit on
increases to Ground Rent set forth in Subsection 6.02(a) shall be
applicable to the Expansion Area, but such limit shall be applied
separately to the Ground Rent on the Premises (excluding the
Expansion Area) and the Ground Rent on the Expansion Area. "
(g) Bond Financing. Upon the occurrence of the Conditions for
Effectiveness, all references, covenants and agreements in the Lease to the
Bond Financing, and the covenants and agreements pertaining solely to the Bond
Financing, are hereby deleted, but such deletion shall have no effect on the
Authority's rights against PAC and PAHC, or upon the obligations of PAC and
PAHC with respect to the Lease or the Bond Financing. Subject to and without
limiting the generality of the foregoing, Sections 1.01, 1.09, 1.10, 1.13,
1.17, 1.18, 1.19, 1.26, 1.27, 1.34, 1.38, 1.39, 1.44, 2.03, 3.06 and 3.07,
Subsections 4.01(b), 9.03(iii) and 13.01(a), the Financing Addendum attached as
Exhibit "D" to the Lease, and all references in the Lease to Debt Service
Payments, are hereby terminated, declared to be of no further force or effect,
and removed from the Lease as to AirTran and AirTran's successor and assigns.
AirTran assumes no liability for any sums due or payable under the terms of the
Financing Addendum or the Bond Financing documents.
(h) Subleasing. The following additional language is hereby added as a
new second paragraph to Subsection 13.03(b) of the Lease:
"The terms of this Subsection 13.03(b) shall also not apply
to any sublease for a term of one year or less (including any
built-in extension options) as to which Lessee agrees with
Authority to pay to Authority one half (1/2) of any rent per
square foot of the subleased premises (excluding pass throughs of
Lessee's taxes, insurance, maintenance, utilities, interest and
other out-of-pocket expenses), if, as and when received under such
sublease, in excess of one hundred ten percent (110%) of the sum
of (1) the per square foot Ground Rent and Building Rent, if any,
then payable to the Authority under this Lease, plus (2) $5.08 per
square foot of building area included in the sublease. The
applicable formula is: 0.5 x {A-[1.1x(B+C+D)]}, where:
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<PAGE> 8
A = Rent per square foot under sublease (excluding pass through expense
recovery)
B = Ground Rent per square foot under this Lease
C = Building Rent per square foot under this Lease
D = $5.08 per square foot of subleased space within the building
Hypothetical Example:
If for example:
A = $8.00
B = $0.29
C = $0.0
D = $5.08
And the subleased space is located entirely within the building
Then,
0.5 x {$8.00 - [1.1 x ($0.29 + $0.0 + $5.08)]}
0.5 x {$8.00 - [1.1 x $5.37]}
0.5 x {$8.00 - $5.91}
0.5 x $2.09
$1.045 (Authority's share of sublease rent per square foot of building
area)
With respect to increases in Ground Rent or Building Rent permitted by this
Subsection 13.03(b) in cases where the sublease is not covered by the first
sentence of this second paragraph to said Subsection 13.03(b), the rental
increases shall only apply on a proportionate basis determined by the ratio of
the area of the land and/or Improvements covered by the sublease to the total
area of the land and/or Improvements. The cap on Ground Rent, and the cap on,
the total of Ground Rent and Building Rent applicable to the extension periods
shall not apply to rent adjustments under the first or second paragraphs of
this Subsection 13.03(b)."
-8-
<PAGE> 9
(i) Unconditional Payment Obligation. Section 6.05 of the Lease is hereby
deleted and the following new Section 6.05 is hereby inserted in lieu thereof:
"6.05 Unconditional Payment Obligation. Except as
otherwise provided in Article XI and Section 13.02 below, Lessee's
obligation to make the payments provided for in this Article VI
shall be absolute and unconditional and will not be affected by
the occurrence of any event or circumstance whatsoever."
(j) Additional Remedies. In addition to the cure remedy now provided
under Section 13.05 of the Lease, if Authority fails to keep, observe or
perform any covenant or agreement of Authority under the Lease, and if
Authority fails to commence to cure such failure within twenty (20) days after
receipt of Lessee's written notice of failure and demand for cure or thereafter
fails to pursue such cure diligently to completion, then Lessee shall have the
additional rights and remedies of suit for damages, specific performance and
injunctive relief for default by Authority of Authority's obligations under the
Lease.
(k) Exclusivity. Section 15.04 shall not be construed or applied in a
manner which interferes with Lessee's exclusive possession of the Premises or
Lessee's right to control who will perform any service (including but not
limited to maintenance and repair) on any aircraft within the Premises.
Section 16.07 shall not be construed or applied in any manner which deprives
Lessee of exclusive possession and occupancy of the Premises during the term of
the Lease.
(l) Notices to Lessee. Lessee's address for notices pursuant to Section
16.01 is amended to read as follows:
"To Lessee: AirTran Airways, Inc.
6280 Hazeltine National Drive
Orlando, Florida 32822
Attention: President"
(m) Authorized Company Representative. The Authorized Company
Representative is the President of Lessee at the address listed in Subparagraph
(l), above, and whose signature is affixed at the end of this Second Amendment.
This Second Amendment serves as the certificate of Company Authorized
Representative required under Section 1.08 of the Lease.
(n) Permitted Uses. Section 4.09 of the Lease is hereby deleted and the
following new Section 4.09 is hereby inserted in lieu thereof:
"4.09 Permitted Uses. Lessee agrees that it will use (and
will permit any authorized assignee, sublessee or other successor
in interest to use) the
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<PAGE> 10
Premises and the Improvements only for any and all lawful uses and
purposes (excluding any use as a passenger terminal) incidental to the
ownership and operation of one or more passenger airlines, cargo
airlines, and airline and aircraft operations, maintenance,
refurbishment and support businesses, including without limitation
aircraft and equipment refurbishment and maintenance operations and
facilities (without limitation as to type or ownership), headquarters or
secondary offices (without limitation as to floor area or activity),
reservations center, flight support center, training center, employee
and customer parking and employee cafeteria, and storage, as such uses
may vary or expand from time to time at the discretion of the tenant;
provided, however, the foregoing permitted uses must at all times
comply with, and they shall be subject to the requirements of, the
Tradeport Master Plan, the Development Order, and all applicable
zoning and other laws. In addition, Lessee shall not be permitted
to use the Premises to fuel aircraft of a third party unless
Lessee satisfies the requirements to be an Essential Services
Operator under the Authority's then applicable Standards of
Operation and Maintenance for a Fixed Base Operator.
In addition, the limitation on the number of square feet of office space
contained in Subsection 4.03(a) is hereby deleted from the Lease. The
prohibition against petroleum storage tanks contained in Section 4.07A(b) of
the Lease shall not apply to the water pump fuel tank(s) installed on the
Premises as part of the emergency fire deluge system.
8. ASSURANCES BY AIRTRAN. AirTran represents and warrants to Authority
that: (a) the person signing this Second Amendment on behalf of AirTran and the
Lease Guaranty on behalf of Airways Corporation is authorized to do so and has
the power to bind AirTran to the terms of this Second Amendment and Airways
Corporation to the Lease Guaranty; (b) all formal corporate action required for
the authorization and execution of this Second Amendment by AirTran and the
Lease Guaranty by Airways Corporation has been obtained and is in effect; (c)
AirTran and Airways Corporation exist in good standing under the laws of
Delaware, are authorized to transact business in Florida, and they are in good
standing under Delaware and Florida law; and (d) the execution and delivery of
this Second Amendment by AirTran and the execution and delivery of the Lease
Guaranty by Airways Corporation does not violate or conflict with the articles
of incorporation, bylaws, or any other corporate action or document of AirTran
or Airways, or any covenant or agreement binding upon AirTran or Airways
Corporation.
9. ASSURANCES BY AUTHORITY. Authority represents and warrants to AirTran
that: (a) Authority is the owner and holder of the rights of the lessor under
the terms of the Lease; (b) except in connection with the closing and securing
of the Bond Financing, Authority has not previously assigned, pledged,
encumbered or transferred any of Authority's right, title or interest in the
Lease, the Authority's delegated power and authority to operate and lease the
Premises pursuant to the Operation and Use
-10-
<PAGE> 11
Agreement, or Authority's ownership interest in the Improvements; (c) all
formal action by Authority and City of Orlando for the authorization and
execution of this Second Amendment by Authority has been obtained and is in
effect; (d) the person signing this Second Amendment on behalf of Authority is
authorized to do so and has the power to bind Authority to the terms of this
Second Amendment; (e) the execution and delivery of this Second Amendment does
not violate or conflict with the authorizing legislation or governing
documents of Authority or any covenant or agreement binding upon Authority or
the Premises; (f) there are no modifications or amendments to the Lease other
than Amendment No. 1 dated June 22, 1990; (g), prior to the date of this
Second Amendment, Authority has delivered to AirTran copies of Authority's
rules and regulations described in Section 16.03 of the Lease, as amended
through the date hereof, the as-built drawings of the hanger which were
received by Authority from PAC and approved by Authority under Subsection
4.03(b) of the Lease, the Tradeport Master Plan, and the Development Order;
and (h) there are no closures affecting the Premises or access thereto
initiated or contemplated by Authority pursuant to Section 3.03 of the Lease.
10. NO BROKERS. AirTran and Authority each represents and warrants to
each other that it has not dealt with any real estate broker, salesman or
finder in connection with the Assignment or this Second Amendment. If a claim
for brokerage commission or other compensation is made by any broker, salesman
or finder claiming to have dealt through or on behalf of one of the parties
hereto ("Indemnitor"), Indemnitor shall, to the extent permitted by law,
indemnify, defend and hold harmless the other party hereunder ("Indemnitee"),
and Indemnitee's officers, directors, agents and representatives, from all
liabilities, damages, claims, costs, fees and expenses whatsoever (including
reasonable attorney's fees and court costs at trial and all appellate levels)
with respect to said claim for commission compensation. This Paragraph 10
shall take effect on the date of this Second Amendment and shall survive
termination of this Second Amendment.
11. ASSIGNMENT; PARTIES. This Second Amendment may not be assigned by
AirTran except pursuant to the terms and conditions set forth in Section
13.03(a) of the Lease. Except as provided in the preceding sentence, this
Second Amendment shall bind and inure to the benefit of the parties to this
Second Amendment and their respective successors and assigns.
12. MISCELLANEOUS.
(a) This Second Amendment shall be construed and governed in accordance
with the laws of the State of Florida. Both of the parties to this Second
Amendment have participated fully in the negotiation and preparation hereof
and, accordingly, this Second Amendment shall not be more strictly construed
against either one of the parties hereto.
(b) In the event any term or provision of this Second Amendment is
determined by appropriate judicial authority to be illegal or otherwise
invalid, such provision shall be given
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<PAGE> 12
its nearest legal meaning or be construed as deleted as such judicial
authority determines, and the remainder of this Second Amendment shall be
construed to be in full force and effect.
(c) In the event of any litigation between the parties arising out of
this Second Amendment or the transaction herein described, the substantially
prevailing party shall be entitled to recover from the party not substantially
prevailing the substantially prevailing party's reasonable attorneys',
paralegals' and consultants' fees and costs, and all reasonable expenses,
incurred in all hearings, trials, retrials, and in all appellate,
administrative and governmental proceedings. The provisions of this
subparagraph shall survive termination of this Second Amendment.
(d) This Second Amendment constitutes the entire agreement between the
parties respecting the transaction herein described and it supersedes all prior
representations, warranties, negotiations, understandings, and agreements
between the parties hereto respecting this transaction, the Lease and the
Premises.
13. DEPOSIT. At the closing of the Assignment, and as a condition
precedent to the taking effect of Authority's consent to the Assignment,
AirTran shall deliver to Authority a check in the amount of Twenty Six Thousand
Seven Hundred Eleven and 19/100ths Dollars ($26,711.19) ("the Deposit"). The
Deposit represents three (3) months Ground Rent under the Lease to be held by
Authority as a security deposit to ensure timely payment by AirTran of Ground
Rent and compliance with all of the other obligations of AirTran under the
Lease. Authority shall hold the Deposit in an account at SunTrust Bank, N.A.
Provided that AirTran is not then in default of AirTran's obligations under
the Lease, Authority shall return the Deposit to AirTran on May 1, 1996; but,
if AirTran defaults under any material term of the Lease prior to May 1, 1996,
then Authority shall be entitled to delay the return of the Deposit to AirTran
until the expiration of eighteen (18) consecutive months during which AirTran
committed no default under any material term of the Lease.
14. RECORD NOTICE. Upon the closing of the Assignment, the parties shall
execute and record in the Orange County official records an amended short form
memorandum and notice of the Lease, and of the option on the Expansion Area,
the Assignment and this Second Amendment. The notice shall be recorded at the
expense of AirTran.
15. STATUTORY DISCLOSURES.
(a) Florida Statutes, Section 287.133(2)(c), provides as follows: "A
person or affiliate who has been placed on the convicted vendor list following
a conviction for a public entity crime may not submit a bid on a contract to
provide any goods or services to a public entity, may not submit a bid on a
contract with a public entity for the construction or repair of a public
building or public work, may not submit bids on leases of real property to a
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<PAGE> 13
public entity, may not be awarded or perform work as a contractor, supplier,
subcontractor or consultant under a contract with any public entity, and may
not transact business with any public entity in excess of the threshold amount
provided in S.287.017 for CATEGORY TWO [currently, $10,000] for a period of 36
months from the date of being placed on the convicted vendor list."
(b) Florida Statutes, Section 404.056(8) requires the following language
on at least one document executed prior to or simultaneously with this Lease:
"Radon is a naturally occurring radioactive gas that, when it is accumulated in
a building in sufficient quantities, may present health risks to persons who
are exposed to it over time. Levels of radon that exceed federal and state
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public
health unit."
16. STATUS OF LEASE. Except as modified by this Second Amendment, the
Lease shall continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed by their lawful officers, hereunto duly authorized, as of the
date first above written.
GREATER ORLANDO AVIATION
ATTEST: AUTHORITY
/s/ By: /s/ Robert B. Bullock
- - -------------------------------- --------------------------
Name: Name: ROBERT B. BULLOCK
--------------------------- -----------------------
ASSISTANT SECRETARY Title: EXECUTIVE DIRECTOR
- - -------------------------------
Name:
--------------------------
AIRTRAN AIRWAYS, INC.
A Delaware Corporation
/s/ By: /s/ JOHN HORN
- - ------------------------------- ----------------------------
Name: Name: John Horn
-------------------------- Title: President
/s/ Kimbra K. Leach
- - -------------------------------
Name: KIMBRA K. LEACH
--------------------------
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<PAGE> 14
CONSENT
By their signatures below, the undersigned hereby (i) consent to the
changes in the terms of the Lease provided for in paragraph 7(a)-(n) above, and
(ii) acknowledge that they shall remain liable jointly and severally, for all
past, present and future obligations of the Lessee or PAC and PAHC (as defined
above) under the Lease, as amended, provided that such obligations accrue prior
to January 31, 2011. Notwithstanding the foregoing, the undersigned shall not
be responsible for (i) any Ground Rent or other obligation of Lessee with
respect to the Expansion Area, or (ii) any liability, damages or expenses
resulting from environmental contamination of the Premises which results from
an act, omission or event occurring after the closing of the Assignment.
PAGE AVJET CORPORATION
Attest:
By /s/ Paul J. Mokris By: /s/ Elizabeth A. Haskins
------------------------- --------------------------------
Name: Paul J. Mokris Name: Elizabeth A. Haskins
---------------------- ---------------------------
Title: Secretary Title: Senior Vice President
--------------------- ---------------------------
PAGE AVJET HOLDING CORPORATION
Attest:
By:/s/ Paul J. Mokris By: /s/ Elizabeth A. Haskins
------------------------- --------------------------------
Name: Paul J. Mokris Name: Elizabeth A. Haskins
---------------------- ------------------------------
Title: Special Counsel Title: Vice President
--------------------- -----------------------------
By its signature below, the undersigned hereby approves this Consent and
agrees to the limitations on the liability of PAC and PAHC (as defined above)
set forth in this Consent.
GREATER ORLANDO AVIATION AUTHORITY
ATTEST:
/s/ By: /s/ Robert B. Bullock
- - -------------------------------- ---------------------------------
Name: Name: Robert B. Bullock
--------------------------- ------------------------------
Assistant Secretary Title: Executive Director
- - --------------------------------
Name:
---------------------------
- 14 -
<PAGE> 15
LEASE GUARANTY
In order to induce the GREATER ORLANDO AVIATION AUTHORITY ("Landlord") to
consent to the assignment to AIRTRAN AIRWAYS, INC., a Delaware corporation
("Tenant") of the lessee's rights and obligations under that certain Orlando
Tradeport Maintenance Hangar Lease Agreement, dated December 11, 1989, as
amended by Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease
Agreement dated June 22, 1990, (collectively, the "Lease"), and in order to
induce Landlord to sign the foregoing Agreement and Second Amendment to Orlando
Tradeport Maintenance Hangar Lease Agreement (the "Second Amendment"), (which
consent and signature Landlord would be unwilling to grant and affix without
this Lease Guaranty), the undersigned unconditionally guarantees to Landlord
the full and timely payment of all installments of rent and other sums due
Landlord from Tenant under the Lease, as modified by the Second Amendment, and
the prompt performance of all of the other obligations of Tenant under the
Lease, as modified by the Second Amendment.
The undersigned's obligations hereunder shall be direct and immediate and
not conditional or contingent upon Landlord's pursuit of its remedies against
Tenant, and shall remain in full force and effect notwithstanding (i)
amendments or modification to the Lease entered into by Landlord and Tenant
without the undersigned's knowledge or consent, (ii) waivers of compliance with
or any default under the Lease granted by Landlord to Tenant without the
undersigned's knowledge or consent, (iii) the discharge of Tenant from its
obligations under the Lease as a result of any proceeding initiated under the
Bankruptcy Code of 1978, as the same has been or may be amended (the
'Bankruptcy Code"), or any similar State or Federal law, the rejection of the
Lease pursuant to the provisions of the Bankruptcy Code, or any limitation of
the liability of Tenant or its estate as a result of any such proceeding, or
(iv) any other action taken by Landlord or Tenant that would, in the absence of
this clause, result in the release or discharge by operation of law of the
undersigned from its obligations hereunder. The undersigned hereby
unconditionally waives any subrogation to the rights of Landlord against
Tenant, any other claim against Tenant which arises as a result of payments
made by the undersigned pursuant to this agreement, and any claim for
contribution against any co-guarantor until all of the Tenant's obligations to
the Landlord have been paid or performed in full and are not subject to any
right of recovery.
The obligations of the undersigned under this Guaranty shall include the
obligation to reimburse the Landlord for any preferential payments received by
Landlord from the Tenant under or pursuant to the Lease in the event that the
Tenant becomes a debtor under the Bankruptcy Code. If a bankruptcy petition
has been filed by or against the Tenant during any preferential period (as
established by the Bankruptcy Code or other applicable law) and the Tenant has
made payments to the Landlord under the Lease during said preferential period,
this Guaranty shall not be terminated unless and until a
<PAGE> 16
final, nonappealable decision by a court of competent jurisdiction or other
agreement has been entered or reached pursuant to which the Landlord shall be
entitled to retain all such monies paid during such preferential period.
The undersigned agrees to pay all costs and expenses (including reasonable
attorneys' fees) paid or incurred by Landlord for the enforcement of the
undersigned's obligations hereunder. This Guaranty shall inure to the benefit
of Landlord, it successors and assigns, and shall be binding upon the
undersigned and its successor and assigns. This Guaranty may not be amended or
modified except by written agreement signed by the parties hereto. In the
event it becomes necessary for Landlord to enforce this Guaranty by legal
action, Guarantor hereby agrees that jurisdiction and venue of such action
shall be laid in Orange County, Florida, and that Landlord shall be entitled to
recover any and all expenses Landlord may incur in connection with such action,
including reasonable attorney's fees at the trial level and in any appellate
proceeding.
Any provision of this Guaranty to the contrary notwithstanding, this
Guaranty shall not take effect unless and until the closing of the Assignment,
and nothing herein shall be construed to be a guaranty of Tenant's obligations
under the Sublease, as those terms are defined in the Second Amendment.
IN WITNESS WHEREOF, the undersigned has caused this Lease Guaranty to be
executed by it officer hereunto duly authorized on this 1st day of February,
1996.
Signed, sealed and delivered AIRWAYS CORPORATION
in the presence of: a Delaware corporation
/s/ By: /s/ John Horn
- - ------------------------------- --------------------------------
Name: Name: John Horn
--------------------------- Title: President
/s/ Kimbra K. Leach
- - --------------------------------
Name: Kimbra K. Leach
---------------------------
2
<PAGE> 17
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("this Assignment") is made and
entered into this 29th day of February, 1996 ("the Effective Date") by and
between PAGE AVJET CORPORATION, a Delaware corporation, ("PAC"), PAGE AVJET
HOLDING CORPORATION, a Delaware corporation, ("PAHC") and AIRTRAN AIRWAYS,
INC., a Delaware corporation, ("AIRTRAN"). PAC and PAHC are sometimes
collectively referred to as "the Sellers" in this Agreement.
RECITALS:
A. Greater Orlando Aviation Authority, a public body existing under the
laws of the State of Florida, ("Authority") and PAC entered into that certain
Orlando Tradeport Maintenance Hanger Lease Agreement dated December 11, 1989
and that certain Amendment No. 1 to Orlando Tradeport Maintenance Hanger Lease
Agreement dated June 22, 1990 (collectively, "the Lease").
B. The Lease evidences the long term lease of the land described on
Exhibit "A" to the Lease, together with the widebody aircraft hanger and other
improvements ("the Improvements") constructed on that land by PAC,
(collectively, "the Leased Premises").
C. Construction of the Improvements was financed through the issuance by
Authority of the "Greater Orlando Aviation Authority Special Purpose Facilities
Revenue Bond (Page Avjet Corporation Maintenance Hanger Project), Series 1990"
("the Bond Financing").
D. PAHC assumed and became co-owner of, and co-obligor with PAC under,
all of PAC's rights and obligations under the Lease and Bond Financing
pursuant to that certain Assumption Agreement executed by the Sellers on or
about October 3, 1995.
E. The Sellers and AirTran entered into that certain Agreement for
Purchase and Sale of Leasehold Interest and Personal Property dated January 16,
1996 ("the Purchase Agreement") pursuant to which the Sellers agreed to sell
and assign to AirTran, and AirTran agreed to purchase and acquire from the
Sellers and assume future responsibility for, all right, title, interest and
certain obligations (collectively, "the Leasehold Interest") of the Sellers in,
to and under the Lease. A true and complete copy of the Lease is attached as
Exhibit "A" to the Purchase Agreement.
F. AirTran and Authority have entered into that certain Agreement and
Second Amendment to Orlando Tradeport Maintenance Hanger Lease Agreement dated
January 25, 1996 ("the Second Amendment") which further modifies the Lease.
<PAGE> 18
AGREEMENTS:
NOW, THEREFORE, for and in consideration of the mutual advantages arising
hereunder, the covenants and conditions contained herein, the sum of Ten
Dollars ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PAC, PAHC and AirTran agree as
follows:
1. RECITALS. The foregoing recitals are true and correct and incorporated
herein by this reference.
2. ASSIGNMENT. The Sellers hereby sell, assign, transfer, convey and
confirm to AirTran, and AirTran hereby accepts, the Leasehold Interest and all
of the Sellers' right, title and interest in and to the Leased Premises.
3. ASSUMPTION. AirTran hereby assumes and agrees to comply with and
perform all of the tenant's obligations and duties which accrue on or after the
Effective Date under and by virtue of the Lease, as modified by the Second
Amendment. AirTran does not assume liability for or agree to perform or comply
with any of the obligations or duties (including without limitation any notice,
performance, cooperation, payment, rebate, insurance, construction,
maintenance, repair, reimbursement, indemnification, defense and hold harmless
obligations) of the tenant under the Lease which have accrued prior to the
Effective Date or which relate to the period preceding the Effective Date
("Pre-Assumption Obligations"). In addition, AirTran shall have no obligation
or liability whatsoever in connection with or arising out of the Bond Financing
("Bond Financing Obligations"). The Sellers expressly exonerate AirTran from
any liability for Pre-Assumption Obligations and all Bond Financing
Obligations. The Sellers agree to protect, hold harmless, indemnify and defend
AirTran (with counsel acceptable to AirTran and paid for by the Sellers) from
and against all Pre-Assumption Obligations and all Bond Financing Obligations,
and against all losses, claims, damages, liabilities, attorneys' fees, costs of
litigation and all other expenses related to, growing out of, or arising from
breach of the Pre-Assumption Obligations or the Bond Financing Obligations.
Unless and until the Sellers are specifically released by Authority from
liability under the Lease, AirTran agrees to protect, hold harmless, indemnify
and defend the Sellers (with counsel acceptable to the Sellers and paid for by
AirTran) from and against all obligations and duties (including without
limitation any notice, performance, cooperation, payment, insurance,
construction, maintenance, repair, reimbursement, indemnification, defense and
hold harmless obligations) of the tenant under the Lease, as amended by the
Second Amendment, which relate to the period following the closing of this
transaction ("Post-Assumption Obligations"), and against all losses, claims,
damages, liabilities, attorneys' fees, costs of litigation and all other
expenses related to, growing out of, or arising from breach of the
Post-Assumption Obligations by AirTran.
4. WARRANTY. Except for the Permitted Encumbrances referred to in the
Purchase Agreement, the Sellers hereby fully warrant the title to the Leasehold
Interest and agree to defend the title thereto against the lawful claims of all
persons whomsoever.
-2-
<PAGE> 19
This warranty is in addition to warranties and representations of the Sellers
set forth in the Purchase Agreement. All of the provisions of the Purchase
Agreement are incorporated herein by this reference and shall survive the
execution and delivery of this Assignment.
IN WITNESS WHEREOF, the Sellers and AirTran have executed this Assignment
on the dates set forth below.
Signed, sealed and delivered PAGE AVJET HOLDING CORPORATION,
in the presence of: a Delaware corporation
/s/ Paul J. Mokris By: /s/ Elizabeth A. Haskins
- - ------------------------------- -------------------------------
Name: Paul J. Mokris Name: Elizabeth A. Haskins
--------------------------- Title: Vice President
/s/
- - -------------------------------
Name:
--------------------------
PAGE AVJET CORPORATION,
a Delaware corporation
/s/ Paul J. Mokris
- - ------------------------------- By:/s/ Elizabeth A. Haskins
Name: Paul J. Mokris -------------------------------
-------------------------- Name: Elizabeth A. Haskins
Title: Senior Vice President
/s/
- - -------------------------------
Name:
--------------------------
AIRTRAN AIRWAYS, INC.,
a Delaware corporation
/s/ Peter J. Fides, II By: /s/ John Horn
- - ------------------------------- ------------------------------
Name: Peter J. Fides, II Name: John Horn
-------------------------- Title: President
/s/ Carol H. Camden
- - -------------------------------
Name: Carol H. Camden
--------------------------
-3-
<PAGE> 20
STATE OF FLORIDA )
) SS:
COUNTY OF ORANGE )
The foregoing Assignment and Assumption Agreement was acknowledged before
me this 27th day of February, 1996 by Elizabeth A. Haskins, the Vice
President of Page Avjet Holding Corporation. She is personally known to me or
produced _________________________________________________________ as
identification.
/s/ Kandace Keenan
-------------------------------
Signature of Person Taking
Acknowledgment
Notary Stamp Print Name: Kandace Keenan
---------------------
Title: Notary Public
Serial No. (if any)
--------------
Commission Expires: 11/8/99
-------------
STATE OF FLORIDA )
) SS:
COUNTY OF ORANGE )
The foregoing Assignment and Assumption Agreement was acknowledged before
me this 27th day of February, 1996 by Elizabeth A. Haskins, the Senior Vice
President of Page Avjet Corporation. She is personally known to me or produced
__________________________________________________________ as identification.
/s/ Kandace Keenan
----------------------------------
Signature of Person Taking
Acknowledgment
Print Name: Kandace Keenan
---------------------
Notary Stamp Title: Notary Public
Serial No. (if any)
--------------
Commission Expires: 11/8/99
-------------
-4-
<PAGE> 21
STATE OF FLORIDA )
) SS:
COUNTY OF ORANGE )
The foregoing Assignment and Assumption Agreement was acknowledged before
me this 29th day of February, 1996 by John Horn, the President of AirTran
Airways, Inc. He is personally known to me or produced Minnesota driver's
license as identification.
/s/ Carol H. Campen
----------------------------------
Signature of Person Taking
Acknowledgment
Notary Stamp Print Name: Carol H. Campen
---------------------
Title: Notary Public
Serial No. (if any)
--------------
Commission Expires:
-------------
- 5 -
<PAGE> 1
EXHIBIT 10.18
-------------
AGREEMENT BETWEEN AIRTRAN AIRWAYS, INC.
AND
MARKETLINK, INC.
THIS AGREEMENT is made this 26th day of January 1996, (the "Agreement")
between AirTran Airways, Inc., a Delaware corporation ("AirTran"), and
MarketLink, Inc., a Minnesota corporation ("MarketLink").
WHEREAS, AirTran is in the business of providing scheduled service air
transportation; and
WHEREAS, MarketLink is in the business of providing interactive multimedia
systems for a variety of industries; and
WHEREAS, AirTran wishes to contract with MarketLink for an airline
information system.
IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS.
a. Confidential Information. Confidential Information shall consist of
all information disclosed by the parties to each other, including, but not
limited to, the terms and conditions of this Agreement and the System.
b. Enhancements. Enhancements shall include, but not be limited, to
modifying, upgrading, improving, altering or adding software and/or
hardware to the System.
c. System. The System shall mean the 24 line UNIX based platform
including, but not limited to, the software, hardware and any associated
accessories furnished by MarketLink which provides flight information over
telephone lines to the general public and, in addition, routes calls to
AirTran to the area within the airline selected by the caller.
2. INSTALLATION. Installation of the System will be completed within
Thirty (30) days of the execution of this Agreement, plus agreement by the
parties on database configuration and approval of application design.
3. RESPONSIBILITIES AND REPRESENTATIONS. During the term of this
Agreement, the parties shall have the responsibilities and representations
outlined below:
a. MarketLink shall, at its own expense:
i. Provide and maintain in proper working order all necessary
hardware and software required for the operation of the System.
<PAGE> 2
ii. Provide a 24-hour-a-day telephone number for AirTran to report
any hardware or software failure and investigate and seek to correct
such problems as soon as possible. MarketLink shall respond to a
notification of a hardware or software failure within four hours.
MarketLink will stock at AirTran's location a spare CPU, hard drive and
a network card for the System.
iii. MarketLink will provide AirTran at no charge any new
MarketLink software releases. Other Enhancements will be as agreed upon
by AirTran and MarketLink.
b. AirTran shall, at its own expense:
i. Provide a suitable site for the System and pay for all telephone
and related charges.
ii. Provide a suitable link between its flight information database
and the System.
iii. Update the flight information database as necessary.
iv. Enhance its internal phone system as necessary for the
operation of the System.
4. TERM. The term of this Agreement shall be for thirty six (36) months
from the date of installation of the System at a location designated by AirTran.
5. CONSIDERATION. As consideration for the lease of the System and related
services AirTran shall pay to MarketLink the sum of the following (the
"Consideration"):
a. A one time installation fee of One Thousand Dollars ($1,000.00).
b. Four Thousand Four Hundred Dollars ($4,400.00) per calendar month.
c. Ninety Five Dollars ($95.00) per hour, plus directly related out of
pocket costs, for all development, programming, testing and installation
provided for applications requested by AirTran for purposes other than
specified in Section 1.c. of this Agreement. Any additional or replacement
hardware required as a result of the implementation of these applications
will be invoiced either in amounts previously agreed upon or at
MarketLink's standard pricing.
6. PAYMENT TERMS. Upon the execution of this Agreement, AirTran shall pay
to MarketLink a deposit of Five Thousand Four Hundred Dollars ($5,400.00). This
deposit shall be applied to the Consideration due under Section 5.a. for
installation of the system and the first calendar month charges due Section 5.b.
Payments due under Section 5.b. shall be received by MarketLink on or before the
first day of each calendar month. Payments under Section 5.c. shall be made to
MarketLink within Fifteen (15) days of AirTran receiving an invoice from
MarketLink.
2
<PAGE> 3
If the development, programming, testing and installation provided under Section
5.c. is estimated to be in excess of Twenty Five (25) hours MarketLink will
invoice one half of the estimated total cost following the agreement to proceed
with the application and the balance will be invoiced upon completion of the
application. Payments due, but not received within ten days of the dates
specified in this Section, shall be considered late and subject to a late fee
equal to one and one half percent (1.5%) per month on any outstanding late
balance.
7. CONFIDENTIALITY. Confidential Information shall not be disclosed by
either party to third persons without the other party's prior written consent.
The parties shall exercise at least the same degree of care with the
Confidential Information obtained from the other party as they normally exercise
in preserving their own Confidential Information of a similar nature. Upon
termination of this Agreement, each party shall, upon the request of the other,
return, without change, or destroy all copies of any Confidential Information
disclosed or provided to it by the other party. The obligations under this
paragraph shall indefinitely survive the termination or cancellation of this
Agreement. Obligations hereunder shall terminate with respect to any particular
portion of the Confidential Information:
a. when the receiving party can document that:
i. it was in the public domain at the time of the disclosing
party's communication thereof to the receiving party; or
ii. it entered the public domain through no action of the receiving
party or its employees subsequent to the time of the disclosing party's
communication thereof to the receiving party; or
b. when it is communicated by the disclosing party to a third party
free of any obligation of confidence; or
c. upon obtaining the prior consent of the disclosing party.
8. OWNERSHIP. During the term of this Agreement, and thereafter,
MarketLink shall retain all right, title and interest to the hardware, and any
Enhancements, inventions, discoveries, improvements, upgrades and alterations,
the software, and all other intellectual property developed in connection with
the development, trial or implementation of the System. During the term of this
Agreement and thereafter, MarketLink shall retain all right, title and interest
to all software developed in connection with the development, trial or
implementation of the services provided pursuant to this Agreement.
9. WARRANTY. MARKETLINK'S OBLIGATIONS UNDER THIS AGREEMENT SHALL BE VALID
AND ENFORCEABLE ONLY IF THE SYSTEM IS USED IN THE WAY AND FOR THE PURPOSE
CONTEMPLATED BY THE PARTIES HERETO. AIRTRAN SHALL BE SOLELY RESPONSIBLE FOR ANY
AND ALL COSTS MADE NECESSARY BY ANY USE OR MISUSE OF THE SYSTEM, INCLUDING COSTS
OF MAINTENANCE OR REPAIRS RESULTING THEREFROM.
10. OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NO EXPRESS OR
IMPLIED WARRANTY IS MADE WITH RESPECT TO THE PROGRAM OR GOODS OR SERVICES TO BE
SUPPLIED BY MARKETLINK OR ITS SUBSIDIARIES, IF ANY, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. THE
3
<PAGE> 4
TOTAL LIABILITY FOR ANY BREACH OF WARRANTY BY MARKETLINK SHALL NOT IN ANY EVENT
EXCEED AMOUNTS ACTUALLY PAID HEREUNDER BY AIRTRAN.
11. LIMITATION ON LIABILITIES. THE TOTAL LIABILITY, IF ANY, OF MARKETLINK
AND ITS SUBSIDIARIES, IF ANY, INCLUDING BUT NOT LIMITED TO LIABILITY ARISING OUT
OF CONTRACT, TORT, BREACH OF WARRANTY, INFRINGEMENT OR OTHERWISE SHALL NOT IN
ANY EVENT EXCEED AMOUNTS ACTUALLY PAID HEREUNDER BY AIRTRAN.
12. INDEMNIFICATION. Each party (the "Indemnifier") shall indemnify and
hold harmless the other party (the "indemnifiee") from and against (and shall
reimburse the Indemnifiee on demand for) any and all actual expenses, damages,
costs, losses, obligations, and liabilities incurred by the Indemnifiee, for any
actions arising out of or related to the acts of the Indemnifier or any of its
affiliated companies, agents, employees or other related parties under this
Agreement, including, but not limited to, actions arising out of the use of any
information, and any and all claims, actions, suits proceedings, demands,
assessments, penalties, obligations, judgments, costs, and reasonable legal and
other expenses incident to any of the foregoing or incurred in investigating,
defending or attempting to avoid the same, opposing the imposition thereof or in
enforcing this indemnity.
13. ASSIGNMENT. Either party may assign this Agreement to any wholly-owned
subsidiary, parent corporation or any of its parent's wholly-owned subsidiaries
without the consent of the other party, provided that such assigning party shall
remain liable for and will guarantee its assignee's performance, including
payment of all monies, under this Agreement. Subject to these restrictions, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties and their permitted assigns. No other assignment of this Agreement
shall be permitted without the express prior written consent of the
non-assigning party.
14. FORCE MAJEURE. Neither party nor its affiliates, subsidiaries,
subcontractors, parent corporation, if any, or any of its parent's affiliates or
subsidiaries, if any, shall be liable in any way for delay, failure in
performance, loss or damage due to force majeure conditions beyond such parties'
reasonable control, including but not limited to: Fire, strike, embargo,
explosion, power blackout, earthquake, volcanic action, flood, war, water, the
elements, labor disputes, civil or military authority, acts of God, public
enemy, inability to secure raw materials, inability to secure products, or acts
or omissions of carriers.
15. OTHER EVENTS OUTSIDE PARTIES' CONTROL. Neither party nor its
affiliates, subsidiaries, subcontractor, parent corporation or any of its
parent's affiliates or subsidiaries, if any, shall be liable in any way for
delay, failure in performance, loss or damage due to conditions beyond such
parties' reasonable control, including but not limited to telephone line outage
or any acts or omissions of telephone companies.
16. DEFAULT. Upon any breach or default by a party to this Agreement, the
other party may notify the breaching or defaulting party of the breach or
default in writing. Failure of the breaching or defaulting party to cure any
breach or default within thirty (30) days after the receipt of such notice shall
entitle the other party to terminate its own performance of this Agreement and
exercise any or all remedies available to it at law or in equity.
4
<PAGE> 5
17. NOTICES. All notices required by this Agreement shall be in writing
and shall be sent by overnight delivery or certified mail, return receipt
requested, prepaid and addressed as follows:
To AirTran: ------------------------------
------------------------------
------------------------------
------------------------------
To MarketLink: President/CEO
MarketLink, Inc.
10340 Viking Drive; Suite 150
Eden Prairie, MN 55344
Notices shall be effective upon receipt or three (3) days after mailing,
whichever occurs earlier. Each party is responsible for reporting, to the other
party, in writing, any change of address.
18. WAIVER. No consent or waiver by either party of any breach or default
by the other party under this Agreement shall be effective unless such consent
or waiver is set forth in a written instrument signed by the non-breaching
party. The failure of a party to enforce at any time any of the provisions of
this Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way shall it affect the validity of this Agreement, or any
part hereof, or the right of any party to enforce each and every provision
hereof. No waiver of any breach of this Agreement shall be held to be a waiver
of any other or subsequent breach hereunder.
19. SURVIVAL. The provisions of Sections 7, 8, 9, 10, 11 and 12 herein and
any other provision of this Agreement, which by its sense and context, is
intended to survive performance by either or both parties shall so survive the
termination or cancellation of this Agreement.
20. SEVERABILITY. In case any one or more of the provisions of this
Agreement shall, for any reason, be held by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any response, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement. Such provision or provisions shall be ineffective only to the extent
of such invalidity, illegality or unenforceability without invalidating the
remainder of such provision or provisions or the remaining provisions of this
Agreement. This Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein, unless
the deletion of such provision or provisions would result in such a material
change as to cause performance by a party to be unreasonable, in which case, the
parties shall negotiate a replacement.
21. SECTION HEADINGS. The headings of the sections hereunder are for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
22. AMENDMENTS, MODIFICATIONS, AND SUPPLEMENTS. Amendments, modifications,
supplements or changes to this Agreement, including extensions or cancellations
of the term, must be in writing and signed by a duly authorized representative
of the party against whom such amendments, modifications and supplements are
sought to be enforced.
5
<PAGE> 6
23. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Florida.
24. ENTIRE AGREEMENT. The terms and conditions of this Agreement
constitute the entire Agreement and understanding between the parties with
respect to the subject matter hereof. Prior written or oral agreements,
proposals or understandings between the parties on the same or related subject
including, but not limited to, the Prior Agreement are hereby superseded and
replaced in all respects by the terms contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives the day and year
above written.
AIRTRAN AIRWAYS, INC.
By: /s/
-----------------------------------
Its: Vice President, Finance
---------------------------------
MARKETLINK, INC.
By: /s/
-----------------------------------
Its: Vice President
---------------------------------
6
<PAGE> 1
EXHIBIT 11
----------
AIRWAYS CORPORATION
COMPUTATION OF WEIGHTED AVERAGE SHARES AND PER SHARE EARNINGS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common
shares outstanding 8,940 - -
Pro-forma impact of:
shares issued upon incorporation in 1996 - 22 22
shares issued in conjunction with
spin-off in 1996 - 8,905 8,905
Net effect of assumed exercise of stock
options based on treasury stock method
using average market price 290 - -
----------------------------------------
Weighted average shares outstanding
(pro-forma in 1995 and 1994) 9,230 8,927 8,927
========================================
Net income $1,187 $(3,496) $ 4
========================================
Net income per common share (pro-forma
in 1995 and 1994) $ .13 $ (.39) $ -
========================================
</TABLE>
<PAGE> 1
EXHIBIT 18
----------
May 24, 1996
Airways Corporation,
We have audited the consolidated balance sheet of Airways Corporation and
subsidiary (the "Company") as of March 31, 1996 and the related consolidated
statements of operations, changes in stockholders' equity and group equity, and
cash flows for the year then ended and have reported thereon under date of May
24, 1996. The aforementioned consolidated financial statements and our audit
report thereon are included in the Company's annual report on Form 10-K for the
year ended March 31, 1996. As stated in Note 11 to those financial statements,
the Company changed its method of accounting for credit card processing fee
expense and states that the newly adopted accounting principle is preferable in
the circumstances because credit card processing fee expense is more
appropriately matched with the related revenue and the treatment of such costs
is consistent with the Company's standard revenue recognition policies. In
accordance with your request, we have reviewed and discussed with Company
officials the circumstances and business judgement and planning upon which the
decision to make this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of the
Company's compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgement and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT 21
----------
AIRWAYS CORPORATION AND SUBSIDIARY
SUBSIDIARY OF THE REGISTRANT
The only operating subsidiary of Airways Corporation, a Delaware corporation,
is listed below and is included in the consolidated financial statements:
<TABLE>
<CAPTION>
STATE IN WHICH
LEGAL NAME OF SUBSIDIARY INCORPORATED
- - ------------------------ ------------
<S> <C>
AirTran Airways, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on the 1995 and 1994 combined financial statements of The Airways
Group included in this form 10-K, into the Company's previously filed
registration Statement File No. 33-98566.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 28, 1996
<PAGE> 1
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Airways Corporation and Subsidiary:
We consent to incorporation by reference in the registration statement (No. 33
- - - 98566) on Form S-8 of Airways Corporation and subsidiary of our report dated
May 24, 1996, relating to the consolidated balance sheet of Airways Corporation
and subsidiary as of March 31, 1996 and the related consolidated statements of
operations, changes in stockholders' equity and group equity and cash flows for
the year then ended, which report appears in the March 31, 1996 annual report
on Form 10-K of Airways Corporation and subsidiary.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orlando, Florida
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRWAYS CORPORATION FOR THE YEAR ENDED MARCH 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 27,746
<SECURITIES> 0
<RECEIVABLES> 3,135
<ALLOWANCES> 0
<INVENTORY> 1,847
<CURRENT-ASSETS> 34,675
<PP&E> 31,506
<DEPRECIATION> 2,048
<TOTAL-ASSETS> 68,360
<CURRENT-LIABILITIES> 31,463
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 24,273
<TOTAL-LIABILITY-AND-EQUITY> 68,360
<SALES> 0
<TOTAL-REVENUES> 18,361
<CGS> 0
<TOTAL-COSTS> 66,867
<OTHER-EXPENSES> (1,007)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> 1,977
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,187
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
