FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commision file number 1-13934
MIDWEST EXPRESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1828757
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6744 South Howell Avenue
Oak Creek, Wisconsin 53154
(Address of principal executive offices)
(Zip Code)
414-570-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
(Title of class) (Names of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
Indicate by checkmark 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 checkmark 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]
Aggregate market value of voting stock held by nonaffiliates as of
March 5, 1998: $489.9 million
As of March 5, 1998 there were 9,421,867 shares of Common Stock, $.01
par value, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Shareholders for the fiscal
year ended December 31, 1997 are incorporated by reference into Parts II
and IV. Portions of the definitive Proxy Statement for registrant's
Annual Meeting of Shareholders to be held on April 22, 1998 are
incorporated by reference in Part III.
<PAGE>
MIDWEST EXPRESS HOLDINGS, INC.
FORM 10-K
For the year ended December 31, 1997
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Management Officers of the Registrant 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
SIGNATURES 17
INDEPENDENT AUDITORS' REPORT 18
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS 19
EXHIBIT INDEX 20
PART I
Item 1. Business
Background
Midwest Express Holdings, Inc. was reincorporated under the laws of
the State of Wisconsin in 1996. Midwest Express Holdings, Inc. is a
holding company and its principal subsidiary is Midwest Express Airlines,
Inc. ("Midwest Express").
Midwest Express operates a single-class, premium service passenger
jet airline that caters to business travelers and serves selected major
destinations throughout the United States and Toronto, Canada, from bases
of operations in Milwaukee and Omaha, Nebraska.
Midwest Express evolved out of Kimberly-Clark Corporation's
("Kimberly-Clark") desire to provide a convenient and cost-effective way
to meet its internal transportation needs. Kimberly-Clark began daily,
nonstop aircraft shuttle service in October 1982 for its employees
traveling between offices in two cities. Key management personnel from
Kimberly-Clark who successfully operated the shuttle service became the
senior management of Midwest Express.
Midwest Express began commercial operations in June 1984 with two DC-
9-10 aircraft, serving three destinations from Milwaukee's General
Mitchell International Airport. Milwaukee, as Midwest Express' original
base of operations, has been the main focus of its route structure.
Midwest Express established Omaha as its first base of operations outside
Milwaukee in May 1994.
Astral Aviation, Inc. ("Astral"), d/b/a Skyway Airlines ("Skyway"), a
wholly owned subsidiary of Midwest Express, began operations in early 1994
by taking over routes that Mesa Airlines, Inc. ("Mesa") had operated as a
commuter feed system under a codesharing agreement between Mesa and
Midwest Express that expired that year. Under the agreement, Mesa operated
the system beginning in 1989 as "Skyway Airlines" using Midwest Express'
airline code. As of December 31, 1997, Skyway offered service in 25
Midwestern cities.
On September 27, 1995, the stock of Midwest Express was transferred
to Midwest Express Holdings, Inc. in connection with the initial public
offering ("Offering") by Kimberly-Clark of shares of common stock of
Midwest Express Holdings, Inc. Following the Offering, Kimberly-Clark
retained 20% of the shares of outstanding common stock of the Company that
it subsequently sold in a secondary public offering consummated on May 23,
1996. As used herein, unless the context otherwise requires, the "Company"
refers to Midwest Express Holdings, Inc. and its respective predecessors,
including Midwest Express Airlines, Inc. when operated as a subsidiary of
Kimberly-Clark.
Route Structure and Scheduling
Bases of Operations
Midwest Express currently has two bases of operations, Milwaukee and
Omaha. As of December 31, 1997, Midwest Express served 25 cities from
Milwaukee and was the only carrier providing nonstop service between
Milwaukee and most Midwest Express destinations. To increase utilization
of aircraft, Midwest Express provides seasonal service from Milwaukee to
four cities, Tampa, Ft. Myers and Ft. Lauderdale, Florida, and Phoenix,
which generally begins in mid-December and operates through April.
Although 12 other jet airline carriers serve Milwaukee's airport, these
carriers generally only provide nonstop flights between Milwaukee and
their respective operations' hubs.
From Omaha, Midwest Express provides nonstop service to cities that
include Los Angeles, Milwaukee, Newark, Kansas City, and Washington, D.C.
Passengers in Omaha can also travel to most other cities in the Midwest
Express route system via connections through Milwaukee. Although 11 other
jet airline carriers serve Omaha's airport, these carriers (other than
Southwest Airlines and Airtran Airways) only provide nonstop flights
between Omaha and their respective hubs.
Integration of Skyway Operations
Midwest Express coordinates Skyway routes and schedules. The Company
primarily has sought to provide Skyway service to communities where there
is the opportunity to complement Midwest Express service by giving
passengers on short haul, low-density routes the ability to connect to
Midwest Express flights in Milwaukee without switching carrier systems. To
enhance aircraft utilization, Skyway also seeks to identify short-haul,
low-density, point-to-point routes where there is likely to be a
consistent demand for air service even though there is no Milwaukee
connection. As of December 31, 1997, Skyway offered flights in 25 cities,
generally the upper Midwest.
Customer Service
Overall
Midwest Express has consistently emphasized, and been recognized by
the public for, its premium customer service which is a principal factor
that distinguishes Midwest Express from other airlines. In 1997, the
editors of Air Transport World honored Midwest Express with their 1996
"Passenger Services Award," the first time a U.S. airline has earned the
award since 1978. Conde Nast Traveler magazine readers rated Midwest
Express "Top Domestic Airline" in 1995, 1996 and 1997. In 1996, the Zagat
Airline Survey of frequent travelers rated Midwest Express as the "Best
U.S. Airline." It also ranked Midwest Express as the fourth best airline
in the world, with no other U.S. airline ranked in the top 10. In 1997, a
leading consumer travel report awarded Midwest Express the designation as
"Best U.S. Airline" for the sixth consecutive year.
Midwest Express has accomplished its unique level of customer service
through such tangible amenities as a more comfortable seating
configuration, quality cuisine and complimentary wine and champagne, as
well as such intangibles as the accommodating attitude of Midwest Express
employees. Although Skyway has less opportunity to provide premium service
due to the limited duration of its flights, it also focuses on superior
customer service within the regional airline industry.
Premium Seating
Each Midwest Express aircraft is configured with two leather-covered
seats on each side of the aisle that are larger than coach seats on most
other airlines (21 inches wide at the seat cushion compared to standard
coach seats that are 17 to 18 inches wide). There are no middle seats. The
number of seats in each aircraft is 15% to 20% less than the number of
seats that major airlines typically install in the same type of aircraft.
Midwest Express has continued to be recognized by a leading consumer
travel report, most recently in June 1997, as having the most comfortable
coach seats in its periodic surveys of U.S. airlines.
Dining Services
The high quality of Midwest Express cuisine has been recognized
repeatedly in customer surveys. Breakfast and dinner menus consist
typically of a choice of two entrees. Midwest Express offers complimentary
champagne on breakfast flights and complimentary wine on other flights.
Midwest Express spends about twice as much per revenue passenger meal
compared to the industry average for major carriers.
Fare Pricing and Yield Management
Airlines generally offer a range of fares that are distinguished by
restrictions on use, such as the times of day and days of the week for
travel, length of stay and minimum advance booking period. Midwest Express
and Skyway generally offer the same range of fares that their competitors
offer, although there are exceptions in particular markets where Midwest
Express will discount certain categories of fares or will charge a premium
compared to its competitors.
The number of seats an airline offers within each fare category is
also an important factor in pricing. Midwest Express monitors the
inventory and pricing of available seats with a computer-assisted yield
management system. The system enables Midwest Express' yield management
analysts to examine Midwest Express' and Skyway's historical demand and
increases the analysts' opportunity to establish the optimal allocation of
the number of seats made available for sale at various fares. The analysts
then monitor each flight to adjust seat allocations and actual booking
levels, with the objective of optimizing the number of passengers and the
fares paid on future flights to maximize revenues.
Marketing
Travel Agency Relationships
Midwest Express sells approximately 76% of its tickets through travel
agents. The Company maintains its own reservations center at its
headquarters for Midwest Express and Skyway flights. As with most travel
agencies, the Company's reservations center obtains airline information,
makes reservations and sells tickets through a computer reservation system
("CRS"). The Company has a contract to use the SABRE CRS until 2001.
Effective September 25, 1997, the Company changed its travel agency
commission rate structure. The Company now pays an 8% base commission
rate, down from 10%, with no commission cap.
Frequent Flyer Program
The Company operates a Frequent Flyer Program under which mileage
credits are earned by flying on Midwest Express, Skyway or other
participating airlines and by using the services of participating hotels
(including Hilton, Hyatt, Loews and Wyndham), car rental firms (including
Alamo and National), MCI telecommunications and Elan MasterCard. Members
can redeem Frequent Flyer miles for travel on Midwest Express (20,000
miles for member and 15,000 for companion), Skyway or other participating
airlines. In addition to free travel, miles can be redeemed for services
of participating hotels and car rental firms. The program is designed to
enhance customer loyalty and thereby retain and increase the business of
frequent travelers by offering incentives for their continued patronage.
The Company's Frequent Flyer program includes a Mutual Miles program
whereby members in Northwest Airlines' WorldPerks frequent flier program
and Midwest Express' Frequent Flyer members maintain their separate
accounts, but can choose to redeem award travel on either carrier or can
combine certain mileage from both programs to reach an award level. The
Company also operates the Midwest Express MasterCard program in
conjunction with Elan Financial Services of Illinois ("Elan"). The program
allows Midwest Express to offer a co-branded credit card to its Frequent
Flyer members and other members of the public to induce them to become
Frequent Flyers. The Company generates income by selling Frequent Flyer
miles to Elan, which awards the miles to cardholders for charges on their
credit cards.
As of year end 1997 and 1996, the Company had approximately 938,000
and 828,000 members enrolled in its Frequent Flyer program, respectively.
The Company estimates that as of December 31, 1997 and 1996, the total
available awards under the Frequent Flyer program were 80,000 and 64,000,
respectively, after eliminating those accounts below the minimum award
level. Free travel awards redeemed were approximately 21,000 and 16,100
during 1997 and 1996. Free travel awards accounted for 4.0% of total
Company revenue passenger miles during 1997. Midwest Express does not
believe that usage of Frequent Flyer awards results in a significant
displacement of revenue passengers.
The Company accounts for its Frequent Flyer obligation on the accrual
basis using the incremental cost method. This method recognizes an average
incremental cost to provide roundtrip transportation to one additional
passenger. The incremental cost includes the cost of meals, commissary,
reservations and insurance. The incremental cost does not include a
contribution to overhead, aircraft cost or profit. The accrual is based on
estimated redemption percentages applied to actual mileage recorded in
members' accounts. For purposes of calculating the Frequent Flyer accrual,
the Company anticipates that approximately 63% of outstanding awards will
be redeemed. No liability is recorded for hotel or car rental award
certificates that are to be honored by other parties because there is no
cost to Midwest Express for such awards.
Codesharing Agreements
In 1998, Midwest Express established a one-year renewable codesharing
agreement with American Eagle. Under the agreement, Midwest Express
provides passengers with jet service to Los Angeles or Dallas/Ft. Worth,
with American Eagle providing passengers with connecting service from Los
Angeles to eight cities in California, and from Dallas/Ft. Worth to 31
cities in the southern and southeastern United States. Both the Midwest
Express and American Eagle segments are designated in computer reservation
systems with Midwest Express airline codes.
Related Businesses
Midwest Express also offers ancillary airline services directly to
customers, including freight services and aircraft charters. The freight
business consists of transporting freight, United States mail and counter-
to-counter packages on regular passenger flights. Midwest Express operates
a DC-9-10 jet aircraft configured specifically for the purpose of
providing charter services. The primary customers of aircraft charter
services are athletic teams, business groups and tour operators. The
Company also generates revenue from providing aircraft ground handling
services for other airlines, maintenance services and inflight sales.
Competition
The Company competes with other air carriers on all routes it serves.
Many of the Company's competitors have elaborate route structures that
transport passengers to hub airports for transfer to many destinations,
including those served by Midwest Express and Skyway. Some competitors
offer flights from cities served by Midwest Express to more than one of
their hub airports, permitting them to compete in markets by offering
multiple routings. For many markets that Midwest Express serves from
Milwaukee and Omaha, the competition does not provide nonstop service, but
that condition could change. In some markets, Skyway and Midwest Express
also compete against ground transportation.
The Company has the largest market share of passengers at Milwaukee.
In 1997, the Company carried 31.5% of passengers boarded in Milwaukee,
while Northwest Airlines, which has the second largest share, carried
22.3%. In Omaha, Midwest Express had 6.0% of the market based upon
passengers boarded in 1997, compared to 25.9% boarded by United Airlines
and 12.3% by Southwest Airlines, the carriers with the two largest market
shares.
In addition to traditional competition among domestic carriers, the
industry may be subject to new forms of competition in the future. The
development of video teleconferencing and other methods of electronic
communication may add a new dimension of competition to the industry as
businesses look for lower cost substitutes to air travel.
Employees
As of December 31, 1997, Midwest Express had 2,130 employees (417 of
whom were part-time and 49 of whom were intermittents), and Skyway had 305
employees (57 of whom were part-time). The categories of employees were as
indicated on the following table:
Employees as of December 31, 1997
Employee Categories Midwest Express Skyway
Flight Operations 296 153
Inflight 346 -
Passenger Services 672 88
Maintenance 326 48
Reservations and Marketing 308 -
Accounting and Finance 107 7
Administrative 75 9
------ ------
Total 2,130 305
====== ======
The Company makes extensive use of part-time employees to increase
operational flexibility. Given the size of Midwest Express' fleet and
flight schedules, the Company does not have continuous operations at many
locations. The use of part-time employees enables Midwest Express to
schedule employees when they are needed. Part-time employees are eligible
for the Company's benefits program, subject to certain restrictions and
co-pay requirements, because doing so enables the Company to attract
quality employees and reinforces the value the Company places on part-time
employees
Labor Relations
In December 1997, Midwest Express pilots elected the Air Line Pilots
Association ("ALPA"), a labor union, for representation in collective
bargaining. Negotiations have not yet begun. In January 1998, Skyway
pilots represented by ALPA ratified a four-year labor contract. No other
employees in the Company are unionized. The Company believes management
and its employees have had excellent relations.
Regulation
General
The Department of Transportation ("DOT") has the authority to
regulate economic issues affecting air service, including, among other
things, air carrier certification and fitness, insurance, deceptive and
unfair competitive practices, advertising, CRSs and other consumer
protection matters such as on-time performance, denied boarding and
baggage liability. It also is authorized to require reports from air
carriers and to inspect a carrier's books, records and property. The DOT
has authority to investigate and institute proceedings to enforce its
economic regulations and may in certain circumstances assess civil
penalties, revoke operating authority and seek criminal sanctions.
The Federal Aviation Administration ("FAA") regulates the Company's
aircraft maintenance and operations, including flight operations,
equipment, aircraft noise, ground facilities, dispatch, communications,
training, security, weather observation, flight and duty time, crew
qualifications, aircraft registration and other matters affecting air
safety. The FAA has the authority to suspend temporarily or revoke
permanently the authority of the Company or its licensed personnel for
failure to comply with regulations promulgated by the FAA and to assess
civil penalties for such failures.
The Company also is subject to regulations or oversight by federal
agencies other than the DOT and FAA. The antitrust laws are enforced by
the U.S. Department of Justice; labor relations are generally regulated by
the Railway Labor Act, which vests certain regulatory powers in the
National Mediation Board with respect to airlines and labor unions arising
under collective bargaining agreements; and the utilization of radio
facilities is regulated by the Federal Communications Commission. Also,
the Company is generally regulated by federal, state and local laws
relating to the protection of the environment and to the discharge of
materials into the environment. In addition, the Immigration and
Naturalization Service, the U.S. Customs Service, and the Animal and Plant
Health Inspection Service of the Department of Agriculture have
jurisdiction over inspection of the Company's aircraft, passengers and
cargo to ensure the Company's compliance with U.S. immigration, customs
and import laws.
Noise Abatement
The federal Airport Noise and Capacity Act of 1990 ("ANCA") was
intended to convert the nation's commercial jet service to quieter Stage 3
operations by requiring phaseout of Stage 2 operations (as defined in Part
36 of the Federal Aviation Regulations) by December 31, 1999, subject to
certain exceptions. The FAA regulations that implement ANCA require
carriers to reduce the number of Stage 2 aircraft operated by one of two
methods. Midwest Express has chosen to comply with ANCA by operating a
fleet that is 65% Stage 3 by the end of 1996, 75% Stage 3 by the end of
1998, and 100% Stage 3 by the end of 1999. As of December 31, 1997,
Midwest Express operated 17 Stage 3 aircraft and seven Stage 2 aircraft.
ANCA also recognizes the right of airport operators with special
noise problems to implement local noise abatement procedures that do not
interfere unreasonably with the interstate and foreign commerce of the
national air transportation system. ANCA generally requires FAA approval
of local noise restrictions on Stage 3 aircraft and establishes a
regulatory notice and review process for local restrictions on Stage 2
aircraft first proposed after October 1990. As the result of litigation
and pressure from airport area residents, airport operators have taken
local actions over the years to reduce aircraft noise. These actions have
included regulations requiring aircraft to meet prescribed decibel limits
by designated dates, prohibition on operations during night time hours,
restrictions on frequency of aircraft operations, and various operational
procedures for noise abatement. While the Company has had sufficient
operational and scheduling flexibility to accommodate local noise
restrictions imposed to the present, its operations could be adversely
affected if locally-imposed regulations become more restrictive or
widespread.
Safety
In compliance with FAA regulations, the Company's aircraft are
subject to many different levels of maintenance or "checks" and
periodically go through complete overhauls. Maintenance efforts are
monitored by the FAA, with FAA representatives typically on site. The
regulations that govern aircraft with 30 seats or fewer had been less
stringent than the regulations applicable to aircraft with more than 30
seats. In March 1997, Skyway completed its conversion to certain FAA
regulations that require smaller aircraft operations to conduct business
under more stringent rules previously applicable only to aircraft with
more than 30 seats.
Slots
The FAA's regulations currently permit the buying, selling, trading
and leasing of certain airline slots at Chicago's O'Hare, New York's La
Guardia and Kennedy International, and Washington, D.C.'s National
airports. A slot is an authorization to take off or land at the designated
airport within a specified time window. The FAA must be advised of all
slot transfers and can disapprove any such transfer.
The FAA's slot regulations require the use of each slot at least 80%
of the time, measured on a bi-monthly basis. Failure to do so without a
waiver of the FAA (which is granted only in exceptional cases) subjects
the slot to recall by the FAA. In addition, the slot regulations provide
that slots may be withdrawn by the FAA at any time without compensation to
meet the DOT's operational needs (such as providing slots for
international or essential air transportation). Midwest Express' ability
to increase its level of operations at certain domestic cities currently
served is affected by the number of slots available for takeoffs and
landings.
Aircraft Fuel
Because fuel costs constitute a significant portion of the Company's
operating costs (approximately 16% and 17% in 1997 and 1996,
respectively), significant changes in fuel costs would materially affect
the Company's operating results. Fuel prices continue to be susceptible to
political events and other factors that can affect the supply of fuel, and
the Company cannot predict near- or long-term fuel prices. In the event of
a fuel supply shortage resulting from a disruption of oil imports or
otherwise, higher fuel prices or curtailment of scheduled service could
result. Changes in fuel prices may have a marginally greater impact on the
Company than on many of its competitors because of the composition of the
Company's fleet. See "Item 2. Properties Fleet Equipment."
Year 2000
The Company has developed plans to address issues related to the
impact of the year 2000 on its computer systems. Financial and operational
systems have been assessed, and initial plans have been developed to
address systems modification requirements. To date, the Company has
identified one internal system that will require a moderate amount of
correction. This system will be modified using in-house resources and will
be completed by year-end 1998. The financial impact of making the required
systems changes is not expected to be material to the Company's
consolidated financial position, results of operations or cash flows.
The Company is also participating with the airline industry to
identify potential year 2000 issues at airports and within industry
infrastructure, including common vendors, suppliers and government
agencies, including the FAA. Many critical FAA computer systems make its
operations possible; without these specialized systems, the FAA could not
effectively control air traffic, target airlines for inspection, or
provide up-to-date weather conditions to pilots and air traffic
controllers. The implications of FAA's not meeting the year 2000 deadline
could affect all airlines, resulting in customer inconvenience, increased
airline costs, grounded or delayed flights or degraded levels of safety.
Item 2. Properties
Fleet Equipment
As of December 31, 1997, Midwest Express' fleet in service consisted
of 24 McDonnell Douglas jet aircraft, consisting of eight DC-9-10 series
aircraft, fourteen DC-9-30 series aircraft and two MD-88 aircraft.
Seventeen aircraft meet Stage 3 noise requirements. None of the aircraft
owned by Midwest Express is subject to liens to secure obligations.
MIDWEST EXPRESS AIRLINES AIRCRAFT
# of Date of Stage
Tail # Type Seats Owned/Leased Manufacture Type
601ME MD-88 112 Leased 09/21/89 3
701ME MD-88 112 Leased 08/22/89 3
202ME DC-9-30 84 Leased 06/26/75 3
203ME DC-9-30 84 Leased 07/07/75 3
204ME DC-9-30 84 Leased 07/25/75 3
205ME DC-9-30 84 Leased 01/02/74 3
206ME DC-9-30 84 Leased 05/07/79 3
207ME DC-9-30 84 Leased 07/06/79 3
209ME DC-9-30 84 Leased 06/18/76 3
216ME DC-9-30 84 Leased 10/18/76 3
502ME DC-9-30 84 Owned 06/10/80 3
602ME DC-9-30 84 Owned 07/21/80 3
302ME DC-9-30 84 Owned 11/08/67 2
501ME DC-9-30 84 Owned 12/15/67 2
401ME DC-9-30 84 Owned 01/02/68 2
301ME DC-9-30 84 Owned 01/11/68 2
500ME DC-9-10 60 Owned 06/05/65 3
300ME DC-9-10 60 Owned 01/22/66 3
600ME DC-9-10 60 Owned 02/06/66 3
800ME DC-9-10 60 Owned 02/16/66 2
700ME DC-9-10 60 Owned 07/14/66 3
400ME DC-9-10 60 Owned 07/29/66 2
900ME DC-9-10 60 Owned 08/18/66 2
080ME DC-9-10 52 Owned 10/30/66 3
The two MD-88 aircraft leases expire in 2000. Eight DC-9-30 operating
leases expire as follows: three in 2001, four in 2006 and one in 2007.
The Company has acquired two DC-9-30 aircraft that will enter service
during 1998. The Company has entered into 10-year operating leases on
these aircraft.
During January 1998, Midwest Express took delivery of the first of
eight MD-80 series aircraft the Company has agreed to purchase. After
refurbishment and modification, this aircraft will enter scheduled service
in mid-1998. The remaining seven aircraft are expected to be delivered to
Midwest Express through 1999. Plans for these aircraft have not been
announced. The Company expects that this entire project, including
aircraft refurbishment, modification and support equipment, will cost
approximately $120.0 million and will be financed as deliveries take
place. The Company is currently evaluating financing alternatives.
Skyway acquired 15 new Beechcraft 1900D turboprop aircraft between
January 11, 1994 and May 18, 1995. During 1996, Skyway refinanced leases
on these aircraft from a group of five financial institutions with lease
terms of five to 12 years, and expiration dates ranging from 2001 through
2008.
Facilities
The Company has secured long-term use of gates, as well as hangar and
maintenance facilities at General Mitchell International Airport in
Milwaukee. The Company is a signatory to the airport master lease, which
expires in 2010, for 18 gates at the Milwaukee airport, including ticket
counter, baggage handling and operations space. In 1989, the Company
completed construction of its maintenance facility at the Milwaukee
airport with a lease of land from the airport that will allow the Company
to exercise a series of five-year options to extend the lease for 60
years.
During 1998, Midwest Express plans to construct a new 70,000-square-
foot hangar to handle maintenance support for its current fleet and
planned growth. The new structure will include five aircraft bays, and be
used for heavy maintenance and other long-term jobs.
In 11 of the other 25 cities Midwest Express served as of December
31, 1997, gates at the airport were leased directly from the airport
authority. For the other 14 cities, Midwest Express subleased gates from
other carriers. In Omaha, Midwest Express has exclusive rights to two
gates.
Skyway has secured long-term leases of facilities at Milwaukee's
airport. Skyway owns an aircraft hangar and office facility at the
airport. The land on which this facility is located is leased until 2010.
Skyway also owns a headquarters building. Skyway leases one gate from the
Milwaukee airport, under terms that extend until 2010, and also utilizes
one Midwest Express gate. Skyway can park several aircraft in the ramp
area serviced by these gates.
Item 3. Legal Proceedings
During the fourth quarter of 1997, Midwest Express and the U.S. Equal
Employment Opportunity Commission ("EEOC") reached an agreement to settle
and dismiss a lawsuit filed against the airline. The lawsuit filed by the
EEOC in United States District Court in Milwaukee on May 30, 1997,
involved the airlines' hiring practices related to African-American
groomers and mechanics, and the alleged failure to promote African-
Americans.
Under the terms of the settlement, Midwest Express will move forward
with a workforce diversity and training program that includes expanded
recruitment and retention efforts through partnerships with minority
community-based organizations; focused efforts to develop employees
through the Wisconsin technical college system by offering scholarships;
expanded minority education efforts; expanded career development
initiatives to advance career opportunities for minorities throughout
Midwest Express; and enriched diversity training for all employees to
enhance awareness of and respect for a diverse workforce. The agreement
also provided for the payment of a total of $115,000 divided among six
individuals identified by the EEOC as entitled to back pay or other
damages.
The Company is a party to routine litigation incidental to its
business. Management believes that none of this litigation is likely to
have a material adverse effect on the Company's consolidated financial
position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter 1997.
MANAGEMENT
Officers of the Registrant
The executive officers and other officers of the Company as of March
1, 1998 together with their ages, positions and business experience are
described below:
NAME AGE POSITION
Timothy E. Hoeksema 51 Chairman of the Board, President and
Chief Executive Officer and Director
Brenda F. Skelton 42 Senior Vice President-Marketing and
Customer Service and Director
Dennis J. Crabtree 57 Senior Vice President-Operations
Robert S. Bahlman 39 Senior Vice President, Chief Financial
Officer, Treasurer and Controller
Carol Skornicka 56 Senior Vice President-Corporate
Development, Secretary and General
Counsel
Rex J. Kessler 50 Vice President-Technical Services
Carol J. Reimer 48 Vice President-Human Resources
Lisa A. Bauer 34 Vice President-Sales and Distribution
Dennis J. O'Reilly 42 Assistant Treasurer, Director of
Investor Relations
David C. Reeve 52 President and Chief Executive Officer
of Astral Aviation, Inc.
Timothy E. Hoeksema has been a director, Chairman of the Board,
President and Chief Executive Officer of the Company since 1983. Mr.
Hoeksema was appointed President-Transportation Sector of Kimberly-Clark
in 1988 and resigned from all positions with Kimberly-Clark as of August
1, 1995.
Brenda F. Skelton has served as the Senior Vice President-Marketing
and Customer Service of the Company since March 1995. Prior thereto, Ms.
Skelton served as Vice President-Marketing for the Company from February
1993 to March 1995. Ms. Skelton also served as Director of Marketing
Programs for the Company from April 1987 to February 1993.
Dennis J. Crabtree has served as Senior Vice President-Operations of
the Company since September 1995 after joining the Company as Vice
President-Operations in May 1995. From July 1994 to May 1995, Mr. Crabtree
served as Vice President-Safety and Regulatory Compliance for Continental
Airlines, Inc. From January 1993 to July 1994, Mr. Crabtree served as the
President of Continental Express, Inc.
Robert S. Bahlman has served as the Senior Vice President, Chief
Financial Officer, Treasurer and Controller of the Company since February
1998. Mr. Bahlman served as Vice President, Chief Financial Officer,
Treasurer and Controller of the Company from December 1996 to February
1998. Mr. Bahlman served as the Controller for the Company from September
1995 to December 1996. Prior thereto, Mr. Bahlman also served as the
Financial Manager of the Company from July 1990 to August 1995.
Carol Skornicka has served as Vice President-Corporate Development,
Secretary and General Counsel of the Company since Febrary 1998. Ms.
Skornicka served as Vice President, General Counsel and Secretary of the
Company from May 1996 to February 1998. Ms. Skornicka formerly served as
Secretary of the Wisconsin Department of Industry, Labor and Human
Relations, a position she held from 1991 until joining the Company.
Rex J. Kessler has served as Vice President-Technical Services for
the Company since September 1995. Prior thereto, Mr. Kessler served as
Director-Maintenance of the Company from December 1987 to August 1995.
Carol J. Reimer has served as Vice President-Human Resources for the
Company since September 1995. Prior thereto, Ms. Reimer served as
Director-Human Resources for the Company from its commencement of
operations to August 1995 and as Director-Human Resources for K-C Aviation
Inc. from December 1982 to August 1995.
Lisa A. Bauer has served as Vice President-Sales and Distribution of the
Company since December 1997. Ms. Bauer served as Director of Sales for the
Company from November 1994 to December 1997. Prior thereto, Ms. Bauer
served as National Sales Manager from October 1992 to November 1994.
Dennis J. O'Reilly has served as the Assistant Treasurer of the
Company since February 1996. Prior thereto, Mr. O'Reilly served as
Business Analyst for the Company from November 1990 to January 1996.
David C. Reeve has served as President and Chief Executive Officer of
Astral Aviation, Inc. since March 1997. Prior thereto, Mr. Reeve served as
Director of Flight Operations for DHL Airways from June 1991 to February
1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required in this Item is incorporated by reference to
discussions of the share repurchase program in Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 23 and
to Shareholder Information on page 36 of the Company's 1997 Annual Report
to Shareholders.
Item 6. Selected Financial Data
The information required in this Item is incorporated by reference to
page 18 of the Company's 1997 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required in this Item is incorporated by reference to
pages 19 through 23 of the Company's 1997 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required in this Item is incorporated by reference to
pages 24 through 36 of the Company's 1997 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required in this Item is set forth under the heading
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," incorporated herein by reference to pages 1 through 4 and
page 17, respectively, of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 22, 1998 and "Officers of the
Registrant" in Part I following Item 4.
Item 11. Executive Compensation
The information required in this Item is set forth under the heading
"Executive Compensation," incorporated herein by reference, to pages 8
through 14 of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 22, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required in this Item is set forth under the heading
"Stock Ownership of Management and Others," incorporated herein by
reference to pages 6 through 7 of the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 22, 1998.
Item 13. Certain Relationships and Related Transactions
The information required in this Item is set forth under the heading
"Certain Transactions," incorporated herein by reference, to page 16 of
the definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on April 22, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
The consolidated financial statements of the Company as of December
31, 1997 and 1996 and for each of the three years in the period ending
December 31, 1997, together with the report thereon of Deloitte & Touche
LLP, dated January 30, 1998, appear on pages 25 through 35 of the
Company's 1997 Annual Report to Shareholders, and are incorporated herein
by reference.
(a)(2) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not
applicable.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the fourth
quarter of 1997.
(c) Exhibits:
The Exhibits filed or incorporated by reference herewith are as
specified in the Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MIDWEST EXPRESS HOLDINGS, INC.
Registrant
March 13, 1998 By /s/ TIMOTHY E. HOEKSEMA
Timothy E. Hoeksema
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 13, 1998.
Signature Capacity
/s/ TIMOTHY E. HOEKSEMA Chairman of the Board of Directors,
Timothy E. Hoeksema President and Chief Executive Officer
(Principal Executive Officer)
/s/ BRENDA F. SKELTON Senior Vice President-Marketing and
Brenda F. Skelton Customer Service and Director
/s/ ROBERT S. BAHLMAN Senior Vice President,
Robert S. Bahlman Chief Financial Officer, Treasurer and
Controller (Principal Financial and
Accounting Officer)
/s/ JOHN F. BERGSTROM Director
John F. Bergstrom
/s/ OSCAR C. BOLDT Director
Oscar C. Boldt
/s/ JAMES G. GROSKLAUS Director
James G. Grosklaus
/s/ SAMUEL K. SKINNER Director
Samuel K. Skinner
/s/ RICHARD H. SONNENTAG Director
Richard H. Sonnentag
/s/ FREDERICK P. STRATTON, JR. Director
Frederick P. Stratton, Jr.
/s/ DAVID H. TREITEL Director
David H. Treitel
/s/ JOHN W. WEEKLY Director
John W. Weekly
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Midwest Express Holdings, Inc.
Oak Creek, Wisconsin
We have audited the financial statements of Midwest Express Holdings, Inc.
as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, and have issued our report thereon dated
January 30, 1998; such financial statements and report are included in you
1997 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of
Midwest Express Holdings, Inc., listed in Item 14. This financial
statement schedule is the responsibility of the Corporation's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 30, 1998
<PAGE>
Schedule II
MIDWEST EXPRESS HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged Deductions Balance
Beginning to from at End
of Year Expense Reserve of Year
Allowance for
doubtful accounts:
Year ended December 31,
1997 $207,000 $400,000 $(376,000) $231,000
Year ended December 31,
1996 $307,000 $218,000 $(318,000) $207,000
Year ended December 31,
1995 $125,000 $317,000 $(135,000) $307,000
<PAGE>
EXHIBIT INDEX
MIDWEST EXPRESS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Exhibit No. Description
( 3.1) Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form 8-B filed May 2, 1996 (File No. 1-
13934)).
( 3.2) Bylaws, as amended through December 4, 1996 (incorporated
by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 (File
No. 1-13934)).
( 3.3) Articles of Amendment relating to Series A Junior
Participating Preferred Stock (incorporated by reference
to Exhibit 3.3 to the Company's Registration Statement on
Form 8-B filed May 2, 1996 (File No. 1-13934)).
( 4.1) Credit Agreement among Firstar Bank Milwaukee, N.A; M & I
Marshall & Ilsley Bank; Bank One, Milwaukee, N.A.; and
Midwest Express Holdings, Inc. dated September 27, 1995
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 1-13934)).
( 4.2) Credit Agreement between Kimberly-Clark Corporation and
Midwest Express Holdings, Inc., dated September 27, 1995
(incorporated by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 1-13934)).
( 4.3) Rights Agreement, dated February 14, 1996, between the
Company and Firstar Trust Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed February 15, 1996 (File No. 1-
13934)).
( 4.4) Amendment to the Rights Agreement, dated April 19, 1996,
between the Company and Firstar Trust Company
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-B filed May 2, 1996 (File
No. 1-13934)).
( 4.5) Second Amendment to Credit Agreement, dated as of April
30, 1997, amending the Credit Agreement dated September
27, 1995, as amended to date, among Midwest Express
Holdings, Inc.; Firstar Bank Milwaukee, N.A.; M&I Marshall
& Ilsley Bank; and Bank One, Milwaukee, N.A. (incorporated
by reference to the Company's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1997 (File No. 1-
13934)).
(10.1) Lease Agreement between Milwaukee County and Midwest
Express, dated May 12, 1988 (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (File No. 33-95212) (the "S-1")).
(10.2) Airline Lease, as amended, between Milwaukee County and
Midwest Express, dated October 1, 1984 (incorporated by
reference to Exhibit 10.5 to the S-1).
(10.3) Omaha Airport Authority Agreement and Lease at Eppley
Airfield with Midwest Express between the Airport
Authority of the City of Omaha and Midwest Express
(incorporated by reference to Exhibit 10.6 to the S-1).
(10.4) Airline Lease, as amended, between Milwaukee County and
Astral, dated November 23, 1994 (incorporated by reference
to Exhibit 10.7 to the S-1).
(10.5) Lease Agreement between Milwaukee County and Phillip
Morris Incorporated, dated October 7, 1982, to which
Astral has succeeded as lessee (incorporated by reference
to Exhibit 10.8 to the
S-1).
(10.6) Tax Allocation and Separation Agreement among Kimberly-
Clark Corporation, K-C Nevada, Inc., Midwest Express
Holdings, Inc., Midwest Express Airlines, Inc., and Astral
Aviation, Inc., dated September 27, 1995 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995 (File No. 1-13934)).
Guarantee Fee Agreement between Kimberly-Clark Corporation
(10.7) and Midwest Express Holdings, Inc., dated September 27,
1995 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 1-13934)).
Employee Matters Agreement between Kimberly-Clark
(10.8) Corporation and Midwest Express Holdings, Inc., dated
September 27, 1995 (incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 (File No. 1-13934)).
(10.9 ) Tenth Amendment to Airline Lease between Milwaukee County
and Midwest Express, dated August 18, 1997.
(10.10) Eleventh Amendment to Airline Lease between Milwaukee
County and Midwest Express, dated December 17, 1997.
(10.11)+ Assignment of Rights Agreement between Dolphin Trade &
Finance, LTD. and Midwest Express, dated November 14,
1997.
(10.12)* Midwest Express Holdings, Inc. 1995 Stock Option Plan, as
amended through February 13, 1997 (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 (File No. 333-44253)).
(10.13)* Midwest Express Holdings, Inc. 1995 Stock Plan for Outside
Directors, as amended through September 18, 1996
(incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-13934)).
(10.14)* Annual Incentive Compensation Plan, amended through
February 11, 1998.
(10.15)* Supplemental Benefits Plan (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 1-13934)).
(10.16)* Form of Key Executive Employment and Severance Agreement
between the Company and each of Timothy E. Hoeksema,
Brenda F. Skelton, Dennis J. Crabtree and Carol Skornicka
(incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-13934)).
(10.17)* Form of Key Executive Employment and Severance Agreement
between the Company and each of Robert S. Bahlman, Rex J.
Kessler, Carol J. Reimer, David C. Reeve, Lisa A. Bauer
and Dennis J. O'Reilly (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 1-13934)).
(13) 1997 Annual Report to Shareholders (to the extent
incorporated by reference herein).
(23) Consent of Deloitte & Touche LLP, Independent Auditors.
(27) Financial Data Schedule.
____________
* A management contract or compensatory plan or arrangement.
+ Portions of this exhibit have been redacted and are subject to a
confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 24b-2 under
AMENDMENT NO. 10
TO
AIRLINE LEASE NO. AC-865
THIS AMENDMENT TO CONTRACT OF LEASE is made and entered into as of
the day of August 18, 1997, by and between MILWAUKEE COUNTY, a municipal
corporation, organized and existing as one of the counties in Wisconsin
(hereinafter referred to as "Lessor" or "County"), and MIDWEST EXPRESS
AIRLINES, INC., a corporation organized and existing under the laws of the
State of Wisconsin (hereinafter referred to as "Lessee" or "Airline").
W I T N E S S E T H:
THAT, WHEREAS, the parties hereto have heretofore entered into an
Airline Lease or Lease dated April 5, 1985, as amended, relating to space,
use and occupancy of the premises and facilities of General Mitchell
International Airport for the transportation of persons and cargo by air;
and
WHEREAS, Airline requests that Lessor assign four (4) gate hold
rooms, two (2) hold room stairwells, and 364 linear feet of ramp
associated with the four (4) gates located on Concourse D; and,
WHEREAS, County's Board of Supervisors in its meeting of September
25, 1997, approved amending Airline's Lease to add the four (4) gate hold
rooms, the hold room stairwells, and the linear feet of ramp associated
with the gate hold rooms located on Concourse D; and,
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained and other valuable
considerations, it is mutually agreed between the parties hereto that the
aforesaid agreement dated April 5, 1985, as amended, be and it is hereby
further amended in the following particulars, to wit:
1. Effective on July 1, 1997, paragraph S of Article IV shall be deleted
in its entirety and a new paragraph S inserted therefore, reading as
follows:
"S. LESSEE'S EXCLUSIVE USE SPACE
WITHIN THE TERMINAL BUILDING ON JULY 1, 1997
For purposes of calculation of Lessee's Terminal rents for
those areas designated for Lessee's exclusive use in the
Terminal Building, the following space definitions, relative
cost factors, and resultant ERUs shall be utilized:
Relative
Space Function Sq. Ft. Cost Factor ERUs
Concourse Lower Level 191.00 .20 38.20
Office Unfinished
(Unheated)
Concourse Lower Level 3,158.00 .70 2,210.60
Office Finished
(Heated)
Concourse Lower Level 21,410.90 .85 18,199.27
Office Finished
(Heated & Air
Conditioned)
Concourse Upper Level 0 .95 0
Office Unfinished
Concourse Upper Level 1,866.45 .95 1,773.13
Office Finished
Ticket Counter 661.70 1.10 727.87
Ticket Counter Office 1,307.40 .95 1,242.03
Gate Hold Rooms 24,698.00 1.00 24,698.00
Baggage Makeup Area 3,939.10 .75 2,954.33
Baggage Service Office 304.90 1.00 304.90
Hold Room Stairwell 1,966.44 .15 294.97
Basement 0 .25 0
Mezzanine Office Areas 0 .90 0
Operations Control Tower 401.00 1.08 433.08
--------- --------
TOTALS 59,904.89 52,876.38
The space outlined above are those occupied by Lessee on July 1,
1997, as shown on Exhibit "P", page 14 of 14 dated 7/97 attached
hereto and made a part hereof."
2. Effective July 1, 1997, the areas referred to in Article IV,
paragraph I, will be further amended to add approximately 364 linear
feet of ramp areas associated with the gates 52, 54, 55, and 56 on
Concourse D, as shown on Exhibit "J", Page 1 of 1, Dated "REV. 7/97."
3. Except as specifically provided herein, the terms and conditions of
the Lease heretofore entered into between the parties dated April 5,
1985, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed by their respective proper officers and their corporate seals
hereto affixed on the dates hereinafter set forth.
COUNTY
Dated at Milwaukee, Wisconsin, this 18th day of August, 1997.
APPROVED: MILWAUKEE COUNTY
a municipal corporation
/s/ Barry Bateman By /s/ Tyrone P. Dumas
Airport Director Date Tyrone P. Dumas
Director of Public Works
By /s/ Rod Lanser
Corporation Counsel Date Rod Lanser
County Clerk
AIRLINE
Dated at Milwaukee, Wisconsin, this 1st day
of August, 1997.
MIDWEST EXPRESS AIRLINES, INC.
a Wisconsin corporation
By /s/ Brenda Skelton
Title Sr. Vice President
Date 8/1/97
By ___________________________
Title ________________________
Date _________________________
STATE OF WISCONSIN )
) ss
MILWAUKEE COUNTY )
Personally came before me this 13th day of August, 1997, the above named
Tyrone P. Dumas, Director of Public Works for Milwaukee County, to me
known to be the person who executed the foregoing instrument on behalf of
Milwaukee County, and acknowledged the same to be the free act and deed of
said County, made by its authority.
/s/ Carolyn Pucci-Schiel
Notary Public, Milwaukee Co., Wis.
My commission expires 2/8/98
STATE OF WISCONSIN )
) ss
MILWAUKEE COUNTY )
Personally came before me this 18th day of August, 1997, the above named
Rod Lanser, County Clerk, of Milwaukee County, to me known to be the
person who executed the foregoing instrument on behalf of Milwaukee
County, and acknowledged the same to be the free act and deed of said
County, made by its authority.
/s/ Mark E. Ryan
Notary Public, Milwaukee Co., Wis.
My commission expires 10/15/00
STATE OF Wisconsin )
) ss
COUNTY OF Milwaukee )
Personally came before me this 1st day of August,
1997, Brenda Skelton, Sr. Vice President,
(Name) (Title)
and ____________________________, _____________________________,
(Name) (Title)
of MIDWEST EXPRESS AIRLINES, INC., Lessee above, to me known to
be the persons who executed the foregoing instrument and to me
known to be such officers of said corporation, and acknowledged
that they executed the foregoing instrument as such officers as
the deed of said corporation, by its authority.
\s\ Linda C. Snyder
Notary Public, Milwaukee, WI
My commission expires: 1/7/2001
AMENDMENT NO. 11
TO
AIRLINE LEASE NO. AC-865
THIS AMENDMENT TO CONTRACT OF LEASE is made and entered into as of
the 17th day of December, 1997, by and between MILWAUKEE COUNTY, a
municipal corporation, organized and existing as one of the counties in
Wisconsin (hereinafter referred to as "Lessor" or "County"), and MIDWEST
EXPRESS AIRLINES, INC., a corporation organized and existing under the
laws of the State of Wisconsin (hereinafter referred to as "Lessee" or
"Airline").
W I T N E S S E T H:
THAT, WHEREAS, the parties hereto have heretofore entered into an
Airline Lease dated April 5, 1985, as amended, relating to space,
occupancy and the use of the premises and facilities of General Mitchell
International Airport (GMIA) for the transportation of persons and cargo
by air; and
WHEREAS, Airline has requested County's consent to construct
additional lower level operations space for its flight crews on the ground
floor of Concourse "D" beneath Gate D-39 at GMIA; and,
WHEREAS, on February 20, 1997, County's Board of Supervisors approved
amending Airline's Lease to include approximately 2,300 square feet of
additional lower level operation space requested by Airline for its flight
crews on the ground floor of Concourse "D" beneath Gate D-39 at GMIA; and,
WHEREAS, Airline also requested that its Airline Lease be amended to
include the space being constructed and that rental credits be issued to
Airline to reimburse Airline for the actual non-tenant finish portion of
the costs of improving this lower level area; and,
WHEREAS, County's Board of Supervisors in its meeting of February 20,
1997, approved amending Airline's Lease to include the additional space
being constructed and issuing rental credits to reimburse Airline for the
actual non-tenant finish portion of the costs of improving the lower level
area; and,
WHEREAS, Airline's final construction plans indicated that the amount
of additional lower level operation space to be constructed would require
3,951 additional square feet; and,
WHEREAS, on July 17, 1997, County's Board of Supervisors approved
Airline's request to amend Airline's Lease Agreement No. AC-865 to delete
approximately 1,033.45 square feet of lower level office space on the
ground floor of the Administration Building as of the Date of Substantial
Beneficial Occupancy of the newly constructed space on the ground floor of
Concourse "D", beneath Gate D-39; and,
WHEREAS, on July 17, 1997, County's Board of Supervisors also
approved amending Airlines' Lease to include approximately 104 square feet
of additional baggage service office space; and,
WHEREAS, Airline's final construction plans indicated that the amount
of additional baggage service office space to be constructed would require
100.1 additional square feet;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained and other valuable
considerations, it is mutually agreed between the parties hereto that the
aforesaid agreement dated April 5, 1985, as amended, be and it is hereby
further amended in the following particulars, to wit:
1. Effective on August 4, 1997, paragraph S of Article IV shall be
deleted in its entirety and a new paragraph S inserted therefore,
reading as follows:
"S. LESSEE'S EXCLUSIVE USE SPACE
WITHIN THE TERMINAL BUILDING ON AUGUST 4, 1997
For purposes of calculation of Lessee's Terminal rents for
those areas designated for Lessee's exclusive use in the
Terminal Building, the following space definitions, relative
cost factors, and resultant ERUs shall be utilized:
Relative
Space Function Sq. Ft. Cost Factor ERUs
Concourse Lower Level 191.00 .20 38.20
Office Unfinished
(Unheated)
Concourse Lower Level 3,158.00 .70 2,210.60
Office Finished
(Heated)
Concourse Lower Level 25,361.90 .85 21,557.62
Office Finished
(Heated & Air
Conditioned)
Concourse Upper Level 0 .95 0
Office Unfinished
Concourse Upper Level 1,866.45 .95 1,773.13
Office Finished
Ticket Counter 661.70 1.10 727.87
Ticket Counter Office 1,307.40 .95 1,242.03
Gate Hold Rooms 24,698.00 1.00 24,698.00
Baggage Makeup Area 3,939.10 .75 2,954.33
Baggage Service Office 304.90 1.00 304.90
Hold Room Stairwell 1,966.44 .15 294.97
Basement 0 .25 0
Mezzanine Office Areas 0 .90 0
Operations Control Tower 401.00 1.08 433.08
--------- ---------
TOTALS 63,855.89 56,234.23
The spaces outlined above are those occupied by Lessee on August 4,
1997, which includes an additional 3,951 square feet of Concourse
Lower Level Office Finished (Heated and Air Conditioned) space, as
shown on Exhibit "P", page 13 of 13 dated 8/97 attached hereto and
made a part hereof."
2. Effective on October 1, 1997, paragraph S of Article IV shall be
deleted in its entirety and a new paragraph S inserted therefore,
reading as follows:
"S. LESSEE'S EXCLUSIVE USE SPACE WITHIN THE TERMINAL BUILDING ON
OCTOBER 1, 1997
For purposes of calculation of Lessee's Terminal rents for
those areas designated for Lessee's exclusive use in the
Terminal Building, the following space definitions, relative
cost factors, and resultant ERUs shall be utilized:
Relative
Space Function Sq. Ft. Cost Factor ERUs
Concourse Lower Level 191.00 .20 38.20
Office Unfinished
(Unheated)
Concourse Lower Level 3,158.00 .70 2,210.60
Office Finished
(Heated)
Concourse Lower Level 25,361.90 .85 21,557.62
Office Finished
(Heated & Air
Conditioned)
Concourse Upper Level 0 .95 0
Office Unfinished
Concourse Upper Level 833.00 .95 791.35
Office Finished
Ticket Counter 661.70 1.10 727.87
Ticket Counter Office 1,307.40 .95 1,242.03
Gate Hold Rooms 24,698.00 1.00 24,698.00
Baggage Makeup Area 3,939.10 .75 2,954.33
Baggage Service Office 304.90 1.00 304.90
Hold Room Stairwell 1,966.44 .15 294.97
Basement 0 .25 0
Mezzanine Office Areas 0 .90 0
Operations Control Tower 401.00 1.08 433.08
--------- ---------
TOTALS 62,822.44 55,252.95
The spaces outlined above are those occupied by Lessee on the
Date of Substantial Beneficial Occupancy of
Remodeled/Reconstructed areas, as shown on Exhibit "P" Page 13
of 13 (8/97), less the 1,033.45 square feet of Concourse Upper
Level Office Finished space, as shown on Exhibit "P" Page 12 of
13 (5/94, 1/96)."
3. Effective on November 1, 1997, paragraph S of Article IV shall be
deleted in its entirety and a new paragraph S inserted therefore,
reading as follows:
"S. LESSEE'S EXCLUSIVE USE SPACE WITHIN THE TERMINAL BUILDING ON
NOVEMBER 1, 1997
For purposes of calculation of Lessee's Terminal rents for
those areas designated for Lessee's exclusive use in the
Terminal Building, the following space definitions, relative
cost factors, and resultant ERUs shall be utilized:
Relative
Space Function Sq. Ft. Cost Factor ERUs
Concourse Lower Level 191.00 .20 38.20
Office Unfinished
(Unheated)
Concourse Lower Level 3,158.00 .70 2,210.60
Office Finished
(Heated)
Concourse Lower Level 25,361.90 .85 21,557.62
Office Finished
(Heated & Air
Conditioned)
Concourse Upper Level 0 .95 0
Office Unfinished
Concourse Upper Level 833.00 .95 791.35
Office Finished
Ticket Counter 661.70 1.10 727.87
Ticket Counter Office 1,307.40 .95 1,242.03
Gate Hold Rooms 24,698.00 1.00 24,698.00
Baggage Makeup Area 3,939.10 .75 2,954.33
Baggage Service Office 405.00 1.00 405.00
Hold Room Stairwell 1,966.44 .15 294.97
Basement 0 .25 0
Mezzanine Office Areas 0 .90 0
Operations Control Tower 401.00 1.08 433.08
-------- ---------
TOTALS 62,922.54 55,353.05
The spaces outlined above are those occupied by Lessee on
November 1, 1997, which included an additional 100.1 square feet
of Baggage Service Office space, as shown of Exhibit "Q" Page 1
of 2 REV. 11/97."
4. Effective July 1, 1997, based on Computer Aided Design (CAD)
measurements, the areas referred to in Article IV, paragraph I, will
be further amended to add approximately 5 linear feet of ramp area,
for a total of 369 linear feet of ramp area associated with the gates
52, 54, 55, and 56 on Concourse D, as shown on Exhibit "J", Page 1 of
1, Dated "REV. 8/97."
5. Except as specifically provided herein, the terms and conditions of
the Lease heretofore entered into between the parties dated April 5,
1985, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed by their respective proper officers and their corporate seals
hereto affixed on the dates hereinafter set forth.
COUNTY
Dated at Milwaukee, Wisconsin, this 17th day of December, 1997.
APPROVED: MILWAUKEE COUNTY
a municipal corporation
/s/ C. Barry Bateman By /s/ Tyrone P. Dumas
Airport Director Date Tyrone P. Dumas
Director of Public Works
By /s/ Rod Lanser
Corporation Counsel Date Rod Lanser
County Clerk
AIRLINE
Dated at Milwaukee , this 17th day
of December, 1997.
MIDWEST EXPRESS AIRLINES, INC.
a Wisconsin corporation
By /s/ Brenda Skelton
Title Sr. Vice President
Date 11/25/97
By ___________________________
Title ________________________
Date _________________________
STATE OF WISCONSIN )
) ss
MILWAUKEE COUNTY )
Personally came before me this 15th day of December, 1997, the above named
Tyrone P. Dumas, Director of Public Works for Milwaukee County, to me
known to be the person who executed the foregoing instrument on behalf of
Milwaukee County, and acknowledged the same to be the free act and deed of
said County, made by its authority.
/s/ Carolyn Pucci-Schiel
Notary Public, Milwaukee Co., Wis.
My commission expires 2/8/98
STATE OF WISCONSIN )
) ss
MILWAUKEE COUNTY )
Personally came before me this 17th day of December, 1997, the above named
Rod Lanser, County Clerk, of Milwaukee County, to me known to be the
person who executed the foregoing instrument on behalf of Milwaukee
County, and acknowledged the same to be the free act and deed of said
County, made by its authority.
/s/ Mark E. Ryan
Notary Public, Milwaukee Co., Wis.
My commission expires 10/15/00
<PAGE>
STATE OF Wisconsin )
) ss
COUNTY OF Milwaukee )
Personally came before me this 25th day of November,
1997, Brenda Skelton, Sr. Vice President,
(Name) (Title)
and ____________________________, _____________________________,
(Name) (Title)
of Midwest Express Airlines, Inc., Lessee above, to me known to be the
persons who executed the foregoing instrument and to me known to be such
officers of said corporation, and acknowledged that they executed the
foregoing instrument as such officers as the deed of said corporation, by
its authority.
/s/ Linda Snyder
Notary Public, Linda C. Snyder
My commission expires: 1/7/2001
ASSIGNMENT OF RIGHTS AGREEMENT
between
DOLPHIN TRADE & FINANCE, LTD.
Assignor
and
MIDWEST EXPRESS AIRLINES, INC.,
Assignee
dated November 14, 1997
Eight McDonnell Douglas Model DC-9-81 Aircraft
Manufacturer's Serial Nos. 48029, 48030,
48031, 48032, 48033, 48070, 48071 and 48072
Feltman, Karesh, Major & Farbman,
Limited Liability Partnership
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Definitions . . . . . . . . . . . . . . . . . . . . . . .
1
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Interpretation . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2. Transfer of Purchase Rights . . . . . . . . . . . . . . . 8
2.1. Transfer of Purchase Rights . . . . . . . . . . . . . . . 8
2.2. Down Payments; Initial Payment . . . . . . . . . . . . . . 8
2.3. Designation of Aircraft; Change in Scheduled Delivery Date 9
2.4. Purchase Price and Title Transfer . . . . . . . . . . . . 9
2.5. Account; Nature of Payments . . . . . . . . . . . . . . 10
2.6. Condition Upon Delivery . . . . . . . . . . . . . . . . 10
2.7. Inspection . . . . . . . . . . . . . . . . . . . . . . . 11
2.8. Alternate Delivery Mechanism . . . . . . . . . . . . . . 11
2.9. Binding Obligations . . . . . . . . . . . . . . . . . . 13
2.10. Correction of Certain Post-Stripping Discrepancies . . . 13
2.11. Delivery of Upgrade Kits . . . . . . . . . . . . . . . . 14
2.12. Delivery Condition Financial Adjustments . . . . . . . . 14
SECTION 3. Conditions to Agreement and Closing . . . . . . . . . . 15
3.1. Conditions to Effectiveness of this Agreement Against
Assignee . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2. Conditions to Effectiveness of this Agreement Against
Assignor . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3. Assignee's Delivery Date Conditions . . . . . . . . . . 16
3.4. Assignor's Delivery Date Conditions . . . . . . . . . . 17
3.5. Additional Delivery Date Conditions . . . . . . . . . . 18
SECTION 4. Sales Taxes . . . . . . . . . . . . . . . . . . . . . . 19
4.1. Sales Taxes . . . . . . . . . . . . . . . . . . . . . . 19
4.2. Assignor Liable for Sales Taxes Generally . . . . . . . 19
4.3. Assignee Liable for Sales Taxes on Resale Aircraft . . . 19
4.4. Cooperation . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5. Representations, Warranties and Covenants of Assignor . 20
5.1. Organization, Power and Authority . . . . . . . . . . . 20
5.2. Non-Contravention . . . . . . . . . . . . . . . . . . . 20
5.3. Enforceability . . . . . . . . . . . . . . . . . . . . . 20
5.4. No Consent . . . . . . . . . . . . . . . . . . . . . . . 20
5.5. Copies of JFS Documents . . . . . . . . . . . . . . . . 21
SECTION 6. Representations, Warranties and Covenants of Assignee . 21
6.1. Organization, Power and Authority . . . . . . . . . . . 21
6.2. Non-Contravention . . . . . . . . . . . . . . . . . . . 21
6.3. Enforceability . . . . . . . . . . . . . . . . . . . . . 21
6.4. No Consent . . . . . . . . . . . . . . . . . . . . . . . 22
6.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7. Disclaimer of Additional Warranties . . . . . . . . . . 22
SECTION 8. Release . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9. Termination Upon Total Loss . . . . . . . . . . . . . . 23
SECTION 10. Termination Events, Remedies and Damages . . . . . . . . 23
10.1. Assignee Termination Events . . . . . . . . . . . . . . 23
10.2. Assignor Termination Events . . . . . . . . . . . . . . 24
10.3. Termination, Damages and Remedies . . . . . . . . . . . 25
SECTION 11. Applicable Law . . . . . . . . . . . . . . . . . . . . . 27
11.1. Construction . . . . . . . . . . . . . . . . . . . . . . 27
11.2. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 27
11.3. Waiver of Objection to Venue . . . . . . . . . . . . . . 27
11.4. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 27
11.5. Service of Process by Mail . . . . . . . . . . . . . . . 27
SECTION 12. Additional Provisions . . . . . . . . . . . . . . . . . 28
12.1. Successors and Assigns . . . . . . . . . . . . . . . . . 28
12.2. Entire Agreement . . . . . . . . . . . . . . . . . . . . 28
12.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . 28
12.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 29
12.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . 30
12.6. No Brokers . . . . . . . . . . . . . . . . . . . . . . . 30
12.7. No Waiver of Enforcement . . . . . . . . . . . . . . . . 30
12.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . 30
12.9. Further Assurances . . . . . . . . . . . . . . . . . . . 30
SCHEDULE 1 -- DELIVERY DATES AND PURCHASE PRICE . . . . . . . . . . . . 32
SCHEDULE 2 -- INSURANCE REQUIREMENTS . . . . . . . . . . . . . . . . . 33
SCHEDULE 3 -- LIST OF TECHNICAL RECORDS . . . . . . . . . . . . . . . . 37
EXHIBIT A -- FORM OF ACCEPTANCE CERTIFICATE . . . . . . . . . . . . . . 44
EXHIBIT B -- FORM OF ASSIGNMENT AGREEMENT . . . . . . . . . . . . . . . 45
EXHIBIT C -- CONSENT AND AGREEMENT . . . . . . . . . . . . . . . . . . 47
EXHIBIT D -- FORM OF TECHNICAL ACCEPTANCE CERTIFICATE . . . . . . . . . 49
EXHIBIT E -- FORM OF DOLPHIN TRUSTEE'S BILL OF SALE . . . . . . . . . . 50
ASSIGNMENT OF RIGHTS AGREEMENT
This ASSIGNMENT OF RIGHTS AGREEMENT, dated November 14, 1997
(this "Agreement"), is between Dolphin Trade & Finance, Ltd., a British
Virgin Islands corporation (the "Assignor"), and Midwest Express Airlines,
Inc., a Wisconsin corporation (the "Assignee").
RECITALS:
(A) Pursuant to the Forward Purchase Agreement, Assignor has
the right to purchase from JFS Aircraft Holdings Co., Ltd. ("JFS") the
airframe, engines, parts, documentation and data described in this
Agreement, all of which are currently on lease to Japan Air Systems Co.,
Ltd. ("JAS").
(B) Assignor desires to assign to Assignee as of each Delivery
Date for each Aircraft all of its right, title and interest under the
Forward Purchase Agreement related to such Aircraft and its obligation
under the Forward Purchase Agreement to pay the purchase price for such
Aircraft, and Assignee desires to assume such right, title, interest and
obligation to purchase the Aircraft from JFS.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration whose receipt and sufficiency are
acknowledged, Assignor and Assignee agree as follows:
SECTION 1. DEFINITIONS
1.1. Definitions. In addition to the terms and expressions
defined elsewhere in this Agreement, the following terms and expressions
shall have the following meanings:
"Acceptance Certificate" means, with respect to each Aircraft,
the Acceptance Certificate signed by Assignee on the relevant Delivery
Date for such Aircraft substantially in the form attached as Exhibit A.
"Actual Cost" means actual cost of replacement parts plus the
cost of the associated labor at Assignee's lowest labor rates charged to
third parties (if the work is performed by Assignee) or at third party
costs charged to Assignee (if the work is performed by third parties) and
shall in no event include late charges, interest or other similar amounts.
"Additional Insured" means (i) the Indemnitees, (ii) JFS, (iii)
Credit Lyonnais, Tokyo Branch, Nippon Aircraft Leasing, Inc., Ryoshin
Leasing Corporation and The Toyo Trust & Banking Co., Ltd., as lenders to
JFS (the "Lenders"), (iv) Credit Lyonnais, Tokyo Branch as agent for the
Lenders, (v) the Mortgagee, and (vi) Credit Lyonnais/PK AIRFINANCE.
"Affiliate" means, in relation to any Person, any other Person
controlled directly or indirectly by that Person, any other Person that
controls directly or indirectly that Person or any other Person under
common control with that Person. For purposes of this definition,
"control" of any Person means ownership of a majority of the voting power
of such Person.
"Aircraft" means, collectively, each of the Airframes and its
related Engines and Technical Records and, individually, any of such
Airframes and its related Engines and Technical Records.
"Airframe" means each of eight McDonnell Douglas Model DC-9-81
airframes bearing manufacturer's serial nos. 48029, 48030, 48031, 48032,
48033, 48070, 48071 and 48072, excluding the Engines related to such
airframe or any engine from time to time installed on such airframe and
including any and all Parts attached to, incorporated in, installed on or
appurtenant to such airframe.
"Applicable Law" means all applicable (i) laws, treaties and
international agreements of any national government, (ii) laws of any
state, province, territory, locality or other political subdivision of a
national government, and (iii) rules, regulations, judgments, decrees,
orders, injunctions, writs, directives, licenses and permits of any
Governmental Body or arbitration authority.
"Assignee Potential Termination Event" means an Assignee
Termination Event or an event that, with the giving of notice, the passage
of time, or both, would constitute an Assignee Termination Event.
"Assignee Termination Event" has the meaning given such term in
Section 10.1.
"Assignee's Counsel" means Foley & Lardner with offices at
Firstar Center, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-
5367.
"Assignment Agreement" means, for each Aircraft, an Assignment
Agreement in the form attached as Exhibit B pursuant to which, on the
Delivery Date for such Aircraft, Assignor shall assign to Assignee all
right, title and interest of Assignor under the Forward Purchase Agreement
relating to such Aircraft and the obligation to pay the JFS Purchase Price
for such Aircraft on such Delivery Date.
"Assignor Potential Termination Event" means an Assignor
Termination Event or an event that, with the giving of notice, the passage
of time or both, would constitute an Assignor Termination Event.
"Assignor Termination Event" has the meaning given such term in
Section 10.2.
"Assignor's Counsel" means Feltman, Karesh, Major & Farbman,
Limited Liability Partnership with offices at Carnegie Hall Tower, 152
West 57th Street, New York, New York 10019.
"Bills of Sale" means, with respect to each Aircraft, the FAA
Bill of Sale covering such Airframe and the Warranty Bill of Sale covering
such Aircraft.
"Business Day" means any day other than a Saturday, a Sunday or
a day on which commercial banking institutions in New York, New York and
Tokyo, Japan are authorized or required to be closed.
"Consent and Agreement" means a Consent and Agreement, dated the
date of this Agreement, by JFS in the form attached as Exhibit C pursuant
to which, among other things, JFS consents to the assignment of Assignor's
rights to purchase each Aircraft on its respective Delivery Date pursuant
to the Assignment Agreement for such Aircraft.
"Delivery" means, with respect to each Aircraft, the transfer to
Assignee of title to such Aircraft in accordance with this Agreement by
the delivery to Assignee of the applicable Warranty Bill of Sale covering
such Aircraft.
"Delivery Date" means for each Aircraft the date on which the
Delivery of such Aircraft occurs.
"Delivery Location" means (i) for each Aircraft other than a
Resale Aircraft, the location for delivery of such Aircraft determined
pursuant to Section 2.2 of the Forward Purchase Agreement, and (ii) for
each Resale Aircraft, the location determined pursuant to Section 2.8(b).
"Dollars" or "$" means the legal currency of the United States
of America.
"Dolphin Trustee" means First Security Bank, National
Association or another commercial bank or trust company reasonably
selected by Assignor, acting as owner trustee pursuant to a trust
agreement that qualifies such trustee as a "citizen of the United States"
for purposes of 11 U.S.C. Section 40102(a)(15).
"Down Payments" means, collectively, the First Down Payment and
the Second Down Payment.
"Engines" means the 16 Pratt & Whitney Model JT8D-217C aircraft
engines meeting the requirements set forth in Article 17.2(3) of the Lease
and any and all Parts attached to, incorporated in, installed on or
appurtenant to any such engine and, with respect to any Airframe, the two
Engines specifically identified in the Acceptance Certificate and Warranty
Bill of Sale with respect to such Airframe.
"FAA" means the U.S. Federal Aviation Administration or any
successor agency administering Subtitle VII of Title 49 of the United
States Code.
"FAA Bill of Sale" means (i) with respect to each Aircraft other
than a Resale Aircraft, the FAA form bill of sale (AC Form 8050-2)
transferring title to the Airframe from JFS to Assignee, and (ii) with
respect to each Resale Aircraft, the FAA form bill of sale (AC Form 8050-
2) transferring title to the Airframe from the Dolphin Trustee to
Assignee.
"First Down Payment" means the amount of $ * .
___________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
"Forward Purchase Agreement" means the Forward Purchase
Agreement dated as of December 15, 1995 between JFS, as seller, and
Assignor, as buyer, as amended by Amendment No. 1 to Forward Purchase
Agreement, dated as of September 30, 1997, between JFS and Assignor, and
as supplemented by the letter agreement, dated November 13, 1997, between
JFS and Assignor.
"Governmental Body" means any department, commission, board,
bureau, court, legislature, agency, instrumentality or authority of any
national government or any political subdivision thereof.
"Indemnitees" means Assignor and its shareholders, Affiliates,
subsidiaries, directors, officers, agents and employees and, with respect
to any Resale Aircraft, the Dolphin Trustee and its shareholders,
Affiliates, subsidiaries, directors, officers, agents and employees.
"Initial Payment" means, with respect to each Aircraft, the
amount of $ * due to be paid by Assignee to Assignor 90 days before
the Scheduled Delivery Date for such Aircraft.
___________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
"JAA" means from time to time the Governmental Body of Japan
that has jurisdiction over the registration, airworthiness and operation
of the Aircraft.
"JFS Purchase Price" means the "Purchase Price" as such term is
defined in the Forward Purchase Agreement.
"Lease" means, collectively, (i) the Aircraft Lease Agreement,
dated as of December 15, 1995, between JFS and JAS with respect to the
Aircraft , (ii) the Aircraft Lease Agreement, dated September 30, 1997,
between JFS and Lessee with respect to the Aircraft bearing manufacturer's
serial no. 48031, (iii) the Aircraft Lease Agreement, dated September 30,
1997, between JFS and Lessee with respect to the Aircraft bearing
manufacturer's serial no. 48033, and (iv) the Memorandum of Understanding
for Lease Extension, dated 28 March 1997, between Lessee, JFS and
Assignor.
"LIBOR" means for each Monthly Period the USD-LIBOR-BBA rate for
one-month periods that appears on Telerate Page 3750 at or about 11:00
a.m. London time on the second London Banking Day before the first day of
such Monthly Period. If no quotation appears on Telerate Page 3750,
"LIBOR" shall be the rate per annum determined by the Paying Agent to be
the average (rounded to the nearest hundredth of one percent) of the rates
at which Dollar deposits are offered for one-months periods by leading
reference banks to banks in the London Interbank Market at or about 11:00
a.m. London time on the second London Banking Day before the first day of
such Monthly Period. If fewer than two quotations are provided by such
reference banks, the applicable rate will be the arithmetic mean of the
rates quoted by major banks in New York City, selected by the Paying
Agent, at approximately 11:00 a.m. New York City time on the Business Day
which is two Business Days before the first day of such Monthly Period for
loans in Dollars to leading European banks for the one-month period during
the applicable Monthly Period and in an amount equal to the amount of the
aggregate Down Payments and Initial Payments then held by Paying Agent.
"Lien" means any mortgage, chattel mortgage, pledge, lien,
charge, encumbrance, lease, exercise of rights, security interest or lease
in the nature thereof (including any conditional sales agreement,
equipment trust agreement or other title retention agreement), statutory
rights in rem or claim of any kind whatsoever.
"London Banking Day" means a day on which foreign exchange
markets in London, England and in New York City, New York are open for the
transaction of the business required for the Paying Agent to determine
LIBOR.
"Manufacturer" means The Boeing Company, as successor by merger
to the McDonnell Douglas Corporation.
"Monthly Period" means the period beginning on the 5th day of
any calendar month (commencing September 5, 1997) and ending on the 4th
day of the next succeeding calendar month.
"Mortgagee" means Credit Lyonnais, Tokyo Branch, as security
agent for the Lenders.
"Operative Documents" means this Agreement, the Assignment
Agreement for each Aircraft, the Consent and Agreement, the Acceptance
Certificate for each Aircraft, the Technical Acceptance Certificate for
each Resale Aircraft, the Bills of Sale for each Aircraft, the Releases of
Mortgage for each Aircraft and the Paying Agency Agreement.
"Parts" means any and all appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment or components
of whatever nature (other than complete Engines or engines) incorporated
in, installed in, attached to or appurtenant to the Aircraft.
"Paying Agent" means Credit Lyonnais/PK AIRFINANCE, a
corporation organized and existing under the laws of the Grand Duchy of
Luxembourg.
"Paying Agency Agreement" means the Paying Agency Agreement,
dated the date of this Agreement, between Assignee, Assignor and the
Paying Agent pursuant to which the Paying Agent will receive and disburse
the JFS Purchase Price and the Purchase Price for each Aircraft on the
Delivery Date.
"Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
Governmental Body.
"Post-Stripping Discrepancies" means discrepancies found to the
Aircraft following the stripping of paint from the Airframe as a result of
(i) lightning strikes to the Airframe not having been repaired or treated
in accordance with the SRM, and (ii) damage caused by sanding of paint
during previous painting of the Airframe not repaired in accordance with
the SRM, but excluding in each case any discrepancy that was discovered
before return of the Aircraft under the Lease and that JAS was required to
correct in accordance with the terms of the Lease.
"Purchase Price" means, with respect to each Aircraft, the
amount set forth on Schedule 1 for such Aircraft.
"Resale Aircraft" has the meaning set forth in Section 2.8.
"Releases of Mortgage" means, with respect to each Aircraft, (i)
the release to be executed by Mortgagee extinguishing the Liens of the
security agreements in favor of the Mortgagee in such Aircraft and in the
Forward Purchase Agreement with respect to such Aircraft, and (ii) the
release to be executed by Assignor extinguishing the Liens of the security
agreements in favor of Assignor in such Aircraft and in the Forward
Purchase Agreement with respect to such Aircraft, in each case in scope
and form reasonably acceptable to Assignee.
"Second Down Payment" means the amount of $ * .
__________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
"Scheduled Delivery Date" means for a particular Aircraft one of
the dates set forth on Schedule 1.
"Special FAA Counsel" means Fellers, Snider, Blankenship, Bailey
& Tippens with offices at Bank One Tower, 100 North Broadway, Suite 1700,
Oklahoma City, Oklahoma 73102.
"SRM" means the Structural Repair Manual as promulgated from
time to time by the Manufacturer.
"Technical Acceptance Certificate" means, with respect to a
Resale Aircraft, an acceptance certificate in the form attached as Exhibit
D.
"Technical Records" means, with respect to each Aircraft, the
records, logs, manuals and other documentation and data that JAS has
maintained with respect to the Aircraft and is obligated to transfer to
JFS pursuant to the Lease.
"Telerate Page 3750" means the display page so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on
that service, or such other service as Assignor, Assignee and the Paying
Agent may agree to be nominated as the information vendor) for the purpose
of displaying London Interbank Offered Rates of leading reference banks.
"Total Purchase Price" means $ * .
___________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
"Upgrade Kits" means the parts and documentation set forth in
the Manufacturer's Kit Configuration Notices K699, K691, K620 and K507 to
convert three McDonnell Douglas Model DC-9-81 aircraft to McDonnell
Douglas Model DC-9-82 aircraft, as purchased by Assignor from the
Manufacturer pursuant to Letter C1-L44-97-P1574C, dated February 13, 1997.
"Warranty Bill of Sale" means (i) with respect to each Aircraft
other than a Resale Aircraft, a Full Warranty Bill of Sale substantially
in the form attached as Exhibit A to the Forward Purchase Agreement, as
amended pursuant to the Consent and Agreement, and (ii) with respect to
each Resale Aircraft, a bill of sale in the form attached as Exhibit E.
1.2. Interpretation. This Agreement shall be governed by and
interpreted in accordance with the following provisions:
(a) Headings and divisions in this Agreement are made and
employed for convenience and reference only and are not intended to affect
the interpretation of this Agreement.
(b) References in this Agreement to a "Section", "Schedule" or
"Exhibit", unless otherwise indicated, shall refer to a Section, Schedule
or Exhibit of or to this Agreement.
(c) Unless otherwise indicated, any law, statute, treaty or
ordinance defined or referred to in this Agreement means or refers to such
law, statute, treaty or ordinance as amended from time to time, any
successor or replacement law, statute, treaty or ordinance as amended from
time to time, and the rules and regulations promulgated from time to time
under such law, statute, treaty or ordinance.
(d) Unless otherwise indicated, any agreement defined or
referred to in this Agreement means or refers to such agreement as
amended, modified or supplemented from time to time or as the terms of
such agreement are waived or modified, in each case in accordance with its
terms and as permitted under this Agreement.
(e) Terms defined in this Agreement in the singular include the
plural of such terms, and terms defined in this Agreement in the plural
include the singular of such terms.
(f) The term "including", when used in this Agreement, means
"including without limitation" and "including but not limited to".
SECTION 2. TRANSFER OF PURCHASE RIGHTS
2.1. Transfer of Purchase Rights. Subject to the satisfaction
of the conditions set forth in Section 3, on the Delivery Date for each
Aircraft (except as provided in Section 2.8), Assignor shall assign to
Assignee (a) all of Assignor's right, title and interest under the Forward
Purchase Agreement with respect to such Aircraft and (b) Assignor's
obligation under the Forward Purchase Agreement to pay the JFS Purchase
Price for such Aircraft, and Assignee shall accept such assignment and
shall purchase such Aircraft from JFS pursuant to the Forward Purchase
Agreement, except that the Assignor hereby reserves and does not transfer
its right, title and interest in any indemnities, insurance proceeds or
other payments under the Forward Purchase Agreement in favor of the
Assignor relating to any Aircraft to the extent that such indemnities,
insurance proceeds or payments were paid, accrued in favor of or became
payable to Assignor prior to the Delivery Date for such Aircraft
(collectively, and individually for each Aircraft, the "Reserved Rights").
In consideration for the assignment to Assignee of such rights, title,
interest and obligation for all Aircraft other than Aircraft sold pursuant
to Section 2.8, and in consideration for the sale by Assignor of the
Aircraft covered by Section 2.8, Assignee shall pay the Total Purchase
Price in accordance with the terms of this Agreement. Except for the
obligation to pay the JFS Purchase Price, Assignee shall not be liable for
any of the obligations or duties of Assignor under the Forward Purchase
Agreement, all of which obligations (including the obligations pursuant to
Section 12(b) of the Forward Purchase Agreement) shall be retained by
Assignor. Assignor and Assignee expressly acknowledge and agree for the
benefit of JFS that Assignor shall remain fully liable to perform all of
the duties and to fulfill all of the obligations of Assignor under the
Forward Purchase Agreement (i) to the extent Assignee is relieved of its
obligations hereunder by virtue of a default by Assignor to perform its
obligations hereunder or (ii) that have not been expressly assigned to
Assignee hereunder or expressly assumed by JFS in the Consent and
Agreement.
2.2. Down Payments; Initial Payment. (a) On July 9, 1997,
Assignee paid the First Down Payment to the Paying Agent on behalf of
Assignor, receipt of which is acknowledged by Assignor. On September 5,
1997, Assignee paid the Second Down Payment to the Paying Agent on behalf
of Assignor, receipt of which is acknowledged by Assignor. On September
22, 1997, Assignee paid the Initial Payment with respect to the first
Aircraft to be delivered to the Paying Agent on behalf of the Assignor,
receipt of which is acknowledged by Assignor.
(b) On or before the date that is 90 days before each Scheduled
Delivery Date, Assignee shall make an Initial Payment to Assignor that,
upon identification pursuant to Section 2.3 of the Aircraft to be
delivered on or about such Scheduled Delivery Date, will become the
Initial Payment with respect to such Aircraft. So long as no Assignee
Termination Event has occurred and is continuing, (i) at the time the
Initial Payment is due for each of the third through seventh Aircraft to
be Delivered to Assignee pursuant to this Agreement and the Forward
Purchase Agreement, Assignor shall apply $ * from the aggregate
amount of Down Payments to such Initial Payment so that the payment to be
made by Assignee in each case shall be $ * and (ii) at the time the
Initial Payment is due for the eighth Aircraft to be Delivered to Assignee
pursuant to this Agreement and the Forward Purchase Agreement, Assignor
shall apply the remaining amount of the Down Payments then held by the
Paying Agent to such Initial Payment so that the payment to be made by
Assignee shall be $ * minus the amount of the Down Payments then
held by Paying Agent.
___________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
(c) Pursuant to the Paying Agency Agreement, interest on all
Down Payments and Initial Payments held by the Paying Agent shall accrue
beginning and with effect from September 5, 1997 until the Down Payments
and Initial Payments are applied pursuant to this Agreement. Interest
shall accrue during each Monthly Period on the Down Payments and any
Initial Payments held by the Paying Agent from time to time during such
Monthly Period at an interest rate per annum equal to LIBOR minus 0.25%,
and so long as no Assignee Potential Termination Event has occurred and is
continuing, all interest accrued on the Down Payments and the Initial
Payments shall be paid to Assignee on the 15th day of January, April, July
and October, beginning January 15, 1998, and promptly following the
Delivery of the eighth Aircraft to Assignee pursuant to this Agreement and
the Forward Purchase Agreement.
2.3. Designation of Aircraft; Change in Scheduled Delivery Date.
(a) At least 60 days before each of the Scheduled Delivery Dates listed
in Schedule 1, Assignor shall specify by written notice to Assignee the
Aircraft to be delivered on such Scheduled Delivery Date. Assignor shall
not amend any Scheduled Delivery Date with JFS to either postpone or
accelerate such Scheduled Delivery Date in an amount greater than 15 days
without the prior written consent of Assignee, but this sentence shall not
affect the provisions of Section 3.3 of the Forward Purchase Agreement.
Any amendment to the Scheduled Delivery Date of any Aircraft shall be
promptly reflected in an amendment to Schedule 1 to this Agreement.
(b) In the event that Assignor is required to purchase one or
more Aircraft before the remaining Scheduled Delivery Dates pursuant to
the provisions of Section 3.3 of the Forward Purchase Agreement, Assignor
shall be obligated to sell to Assignee and Assignee shall be obligated to
purchase from Assignor such Aircraft on the Scheduled Delivery Dates (and
not earlier unless Assignee otherwise agrees), for the Purchase Price, in
the delivery condition required pursuant to Section 2.6 and giving
Assignee inspection rights at least equal to those it would have enjoyed
pursuant to Section 2.7.
2.4. Purchase Price and Title Transfer. (a) At least two
Business Days in advance of the Scheduled Delivery Date for each Aircraft,
Assignee shall deposit the Purchase Price for such Aircraft, less the
Initial Payment for such Aircraft, with the Paying Agent pursuant to the
Paying Agency Agreement. If the Purchase Price for such Aircraft is less
than the JFS Purchase Price for such Aircraft, at least two Business Days
in advance of the Scheduled Delivery Date for such Aircraft, Assignor
shall deposit the balance of the JFS Purchase Price for such Aircraft with
the Paying Agent pursuant to the Paying Agency Agreement.
(b) On the Delivery Date for each Aircraft (other than a Resale
Aircraft), Assignor shall assign to Assignee and Assignee shall assume all
of Assignor's right, title and interest with respect to such Aircraft
under the Forward Purchase Agreement, including Assignor's right to
purchase such Aircraft from JFS, and Assignor shall assign to Assignee and
Assignee shall assume Assignor's obligation to pay the JFS Purchase Price
for such Aircraft to JFS on the Delivery Date, subject to the Reserved
Rights. On the Delivery Date for each such Aircraft, Assignor and
Assignee shall execute and deliver to each other an Assignment Agreement
for such Aircraft. Immediately thereafter, Assignee shall purchase such
Aircraft from JFS pursuant to and in accordance with the Forward Purchase
Agreement.
(c) On the Delivery Date for each Aircraft (other than a Resale
Aircraft) and in consideration for the assignment to Assignee of
Assignor's right to purchase such Aircraft from JFS and Assignee's
purchase of such Aircraft from JFS pursuant to the Forward Purchase
Agreement, Assignee hereby directs the Paying Agent to apply the Purchase
Price for such Aircraft and any other amounts for such Aircraft deposited
pursuant to Sections 2.2(b) and 2.4(a) with respect to such Aircraft as
follows:
(i) to pay the JFS Purchase Price to JFS in accordance
with the Forward Purchase Agreement; and
(ii) to pay the balance of the Purchase Price, if any, to
Assignor by wire transfer in immediately available funds to the
account of Assignor designated in the Paying Agency Agreement.
(d) Concurrent with Delivery of each Aircraft (other than a
Resale Aircraft) by JFS to Assignee, title to and risk of loss and damage
to or destruction of such Aircraft shall forthwith transfer from JFS to
Assignee. In addition, concurrent with the delivery of the Warranty Bill
of Sale for such Aircraft by JFS to Assignee and delivery of the
Acceptance Certificate for such Aircraft by Assignee to Assignor and JFS,
Assignor and Assignee shall deliver the documents provided in Sections 3.3
and 3.4, respectively.
2.5. Account; Nature of Payments. (a) All Down Payments,
Initial Payments and payments of the Purchase Price shall be paid to the
Paying Agent on behalf of Assignor pursuant to the Paying Agency Agreement
by wire transfer to the following account:
Credit Lyonnais, New York
ABA No. 026008073
Account No. 01-19991-0001-00
In favor of: CL/PK AIRFINANCE
CHIPS UID No. 351877
Reference: MEH71
(b) All payments of the Down Payments, the Initial Payments and
the Purchase Price and all other payments under this Agreement shall be
made in Dollars and in immediately available funds for full credit on the
date payment is due under this Agreement, except that payments of the JFS
Purchase Price to JFS shall be made by the Paying Agent on behalf of
Assignee in accordance with the Forward Purchase Agreement. All such
payments shall be made in full (i) without any deduction for offset or
counterclaim and (ii) without any withholding in respect of any duties or
taxes imposed by any jurisdiction that would not have been imposed but for
the presence of the Assignee or a principal of the Assignee in such
jurisdiction.
2.6. Condition Upon Delivery. On the Delivery Date for each
Aircraft, such Aircraft shall comply with the delivery conditions set
forth in Article 17 of the Lease and shall be accompanied by the Technical
Records and other aircraft documents listed in Schedule 3; provided, that
Assignee acknowledges JFS is not obligated under the Forward Purchase
Agreement to deliver any aircraft documents other than the Technical
Records, as listed in Appendix Five of the Lease, and Assignor confirms
that the obligation to deliver any aircraft documents listed in Schedule 3
that do not constitute "Technical Records" is Assignor's alone. Except as
provided in Section 2.8, on the later of the Scheduled Delivery Date for
an Aircraft or the date on which the inspection set forth in Section 2.7
for such Aircraft has been completed and such Aircraft meets the delivery
conditions set forth in Article 17 of the Lease, Assignee shall accept
such Aircraft at the Delivery Location "AS IS, WHERE IS WITH ALL FAULTS"
AND SUBJECT TO EACH AND EVERY DISCLAIMER OF WARRANTY AND REPRESENTATION
SET FORTH IN SECTION 7. Assignee acknowledges that it has reviewed the
Forward Purchase Agreement and Article 17 of the Lease and accepts and
agrees to the sufficiency of the provisions regarding the condition for
return of the Aircraft to JFS as lessor under the Lease and delivery of
the Aircraft to Assignor as buyer under the Forward Purchase Agreement.
Assignee shall be deemed to have unconditionally accepted each item of an
Aircraft for all purposes of this Agreement upon Assignee's acceptance
from JFS of the Warranty Bill of Sale for such Aircraft. Such acceptance
shall be evidenced by the delivery to Assignor and JFS of the Acceptance
Certificate with respect to such Aircraft on the Delivery Date for such
Aircraft.
2.7. Inspection. The Assignor hereby appoints Assignee as the
Assignor's attorney-in-fact and agent (such appointment being coupled with
an interest and immediately and without further notice or action
effective) to inspect and conduct the test flights with respect to the
Aircraft in accordance with Sections 8.2 and 9.2 of the Forward Purchase
Agreement. The foregoing agency shall immediately be revoked on the
occurrence and during the continuation of an Assignee Termination Event or
any other termination of this Agreement. Assignee hereby assumes all
responsibility for confirming that all Aircraft returned to JFS as lessor
under Article 17 of the Lease shall satisfy the return conditions set
forth in Article 17 of the Lease on the Delivery Date and at the delivery
location specified in accordance with Section 2.2 of the Forward Purchase
Agreement, and satisfaction of such return conditions shall be deemed
satisfaction of all delivery conditions of such Aircraft under this
Agreement.
2.8. Alternate Delivery Mechanism. At the option of Assignee,
for the first Aircraft to be delivered under the Forward Purchase
Agreement, such option to be exercised before December 14, 1997, and for
any subsequent Aircraft agreed by Assignor and Assignee at least 15 days
before the Scheduled Delivery Date for such Aircraft (each, a "Resale
Aircraft"), the following alternative delivery mechanism shall apply:
(a) On the Scheduled Delivery Date for a Resale Aircraft, or on
such later date as JFS meets the delivery conditions set forth in the
Forward Purchase Agreement for such Resale Aircraft, (i) Assignee shall
sign a Technical Acceptance Certificate for such Resale Aircraft
unconditionally accepting such Resale Aircraft for all purposes of this
Agreement, and (ii) Assignor shall purchase such Resale Aircraft pursuant
to and in accordance with the provisions of the Forward Purchase Agreement
and, as soon thereafter as possible, contribute such Resale Aircraft to
the trust estate held by the Dolphin Trustee and cause the Dolphin Trustee
to register such Resale Aircraft with the FAA. The execution by Assignee
of the Technical Acceptance Certificate constitutes unconditional and
irrevocable acceptance and agreement to the sufficiency of the condition
of such Resale Aircraft for all purposes of this Agreement.
(b) At least 15 days before the Scheduled Delivery Date for any
Resale Aircraft, Assignee shall notify Assignor of a proposed storage
location for such Resale Aircraft in the United States of America, which
shall be in a jurisdiction that will not impose any sales, use, transfer
or similar taxes on the sale of such Resale Aircraft by the Dolphin
Trustee to Assignee. If Assignor accepts the proposed location, such
proposed location shall become the "Delivery Location" for such Resale
Aircraft. If the proposed location might, in the reasonable opinion of
Assignor and Assignor's Counsel, impose a sales, use, transfer or similar
tax on the sale of such Resale Aircraft by the Dolphin Trustee to
Assignee, then Assignor shall so advise Assignee in writing and, at least
five days before the Scheduled Delivery Date for such Resale Aircraft,
Assignor and Assignee shall agree on an alternative location within the
United States of America that will not impose any sales, use, transfer or
similar taxes on the sale of such Resale Aircraft by the Dolphin Trustee
to Assignee and that shall be the "Delivery Location" for such Resale
Aircraft.
(c) Following purchase of a Resale Aircraft by the Dolphin
Trustee and upon registration of such Resale Aircraft with the FAA,
Assignee shall cause such Resale Aircraft to be ferried as soon as
possible to the Delivery Location for such Resale Aircraft, and thereafter
the "Delivery Date" for such Resale Aircraft shall be the earlier of (i) a
Business Day specified by written notice from Assignee to Assignor given
at least three Business Days before the specified date and (ii) the 20th
day after the purchase of such Resale Aircraft by the Dolphin Trustee from
JFS (or, if such 20th day is not a Business Day, the immediately preceding
Business Day). The Assignee shall be responsible for all costs and
arrangements in connection with the ferry of such Resale Aircraft from the
delivery location specified in Section 2.2 of the Forward Purchase
Agreement to the Delivery Location, including insurance complying with the
provisions of Schedule 2 and applying for an Export Certificate of
Airworthiness for such Resale Aircraft from the JAA, and such ferry shall
be accomplished in accordance with all Applicable Law, including all
applicable JAA and FAA regulations. The Assignee shall also be
responsible for all costs and arrangements in connection with the storage
of such Resale Aircraft at the Delivery Location, including insurance
complying with the provisions of Schedule 2, and such storage shall be
accomplished in accordance with all Applicable Law, including an
FAA-approved maintenance or storage program. Before the Scheduled
Delivery Date of such Resale Aircraft, Assignee shall deliver to Assignor
and the Dolphin Trustee a certificate of insurance and a letter of
undertaking from independent insurance brokers reasonably acceptable to
Assignor and the Dolphin Trustee evidencing that for such ferry flight and
thereafter such Resale Aircraft is covered by insurance policies in
accordance with Schedule 2. Assignor shall, and shall cause the Dolphin
Trustee to, cooperate with all reasonable requests and take all actions
reasonably requested by Assignee in connection with the removal of a
Resale Aircraft from Japan and the ferry and storage of a Resale Aircraft
as contemplated by this Agreement, including applying to the JAA for the
issuance of an Export Certificate of Airworthiness for each Resale
Aircraft.
(d) On the Delivery Date for such Resale Aircraft, Assignor
shall cause the Dolphin Trustee to sell and deliver to Assignee, and
Assignee shall purchase and accept from the Dolphin Trustee, such Resale
Aircraft for the Purchase Price. At the Delivery, Assignor shall deliver,
and shall cause the Dolphin Trustee to deliver, to Assignee the Warranty
Bill of Sale and the FAA Bill of Sale for such Resale Aircraft, and in
consideration Assignee hereby directs the Paying Agent to pay the Purchase
Price for such Resale Aircraft to Assignor by wire transfer in immediately
available funds to the account of Assignor designated in the Paying Agency
Agreement. Concurrent with Delivery of each such Resale Aircraft by the
Dolphin Trustee to Assignee, title to and risk of loss and damage to or
destruction of such Resale Aircraft shall forthwith transfer from the
Dolphin Trustee to Assignee, and Assignor and Assignee shall deliver the
documents provided in Sections 3.3 and 3.4, respectively.
(e) Assignee indemnifies Assignor and the Dolphin Trustee and
agrees to hold Assignor and the Dolphin Trustee harmless against any and
all reasonable liabilities, damages, claims, costs and expenses, and to
reimburse Assignor and the Dolphin Trustee for any reasonable legal or
other fees or expenses, incurred by either of them in connection with,
arising out of or resulting from the creation and maintenance of the
Dolphin Trustee, the purchase of any Resale Aircraft by Assignor and the
sale of any Resale Aircraft to Assignee as contemplated by this
Section 2.8; provided, that Assignee shall have no obligation to indemnify
or hold harmless Assignor or the Dolphin Trustee for any liabilities,
damages, claims, costs or expenses (i) that would have been incurred by
Assignor pursuant to the Forward Purchase Agreement or this Agreement in
connection with any Resale Aircraft if the alternative delivery mechanism
set forth in this Section 2.8 had not been used, or (ii) that result from
Assignor's or the Dolphin Trustee's gross negligence or wilful misconduct.
(f) Except as set forth in this Section 2.8, none of the
obligations of Assignee or Assignor in this Agreement shall be limited or
waived, specifically including the obligation of Assignee set forth in
Section 2.4(a) to pay the balance of the Purchase Price for each Aircraft
(whether or not a Resale Aircraft) to the Paying Agent.
2.9. Binding Obligations. This Agreement is intended to set
forth the binding obligation of Assignor to assign to Assignee Assignor's
rights under the Forward Purchase Agreement to purchase the Aircraft and
Assignor's obligation to pay the JFS Purchase Price for the Aircraft and
the binding obligation of Assignee to assume and perform such rights and
obligation, subject to the Reserved Rights. On or prior to each Delivery
Date (a) Assignor shall cause each of the conditions set forth in Section
3.3 to be satisfied and shall take all other actions necessary to perform
its obligations under the Operative Documents, and (b) Assignee shall
cause each of the conditions set forth in Section 3.4 to be satisfied and
shall take all other actions necessary to perform its obligations under
the Operative Documents.
2.10. Correction of Certain Post-Stripping Discrepancies.
(a) Assignor and Assignee agree that following Delivery of an Aircraft to
Assignee pursuant to this Agreement, Assignee intends to strip the
existing paint from the Aircraft. Assignor agrees to reimburse Assignee
in accordance with this Section 2.10 for the Actual Cost to Assignee of
repairing any Post-Stripping Discrepancies, up to an aggregate of $280,000
for all Aircraft.
(b) Assignee shall notify Assignor as soon as reasonably
practicable before stripping an Aircraft of paint following Delivery to
Assignee, and Assignee shall permit any representatives designated by
Assignor to be present at the stripping of such Aircraft and the
inspection of the Aircraft immediately following such stripping. The
stripping of the Aircraft shall be performed in accordance with the SRM
and Assignee's FAA-approved maintenance program. Upon completion of such
stripping and inspection, the representatives of Assignor and Assignee
shall agree in writing upon any Post-Stripping Discrepancies that exist,
and if any such Post-Stripping Discrepancies exist, Assignee shall
promptly correct (or cause to be corrected) such Post-Stripping
Discrepancies.
(c) Within one month after completion of the correction of all
Post-Stripping Discrepancies with respect to an Aircraft, Assignee shall
submit to Assignor (i) an invoice evidencing the correction of such
Post-Stripping Discrepancies, (ii) a written request for the payment of an
amount equal to the lesser of (1) the Actual Costs of such correction and
(2) $280,000 less all amounts previously paid by Assignor pursuant to this
Section 2.10, and (iii) documentation relating to the amount of such
Actual Costs, including invoices for all third party charges and
substantiating data from Assignee or other maintenance providers that
performed the correction, together with any documentation reasonably
requested by Assignor. Assignor shall be obligated to pay the Actual Cost
of correcting all Post-Stripping Discrepancies, up to $280,000, within 10
Business Days after submission by Assignee to Assignor of such invoice and
supporting documentation.
2.11. Delivery of Upgrade Kits. On or within 30 days before
the Delivery Date for each of the Aircraft bearing manufacturer's serial
nos. 48070, 48071 and 48072, Assignor shall deliver to Assignee, at
Assignee's address set forth in Section 12.3(b) or at such other location
in the continental United States as Assignee shall designate, an Upgrade
Kit for such Aircraft. On delivery of each Upgrade Kit, pursuant to the
terms of this Agreement, Assignor irrevocably assigns to Assignee all of
Assignor's rights under any warranty, express or implied, service policy
or product agreement of the Manufacturer with respect to such Upgrade Kit
to the extent that such rights are assignable and are not extinguished as
a result of this Agreement or such assignment. From time to time upon the
reasonable request of Assignee, Assignor shall give notice to the
Manufacturer of the assignment of such warranties to Assignee. Assignor
shall enforce on Assignee's behalf and at Assignor's time and expense all
such rights that are not assignable or would be extinguished as a result
of this Agreement or such assignment, provided that Assignee shall pay in
advance or reimburse Assignor for any reasonable out-of-pocket costs and
expenses incurred by Assignor in rendering such assistance.
2.12. Delivery Condition Financial Adjustments. Pursuant to
the letter agreement, dated November 13, 1997, between JFS and Dolphin
constituting a part of the Forward Purchase Agreement (the "FPA Side
Letter"), in connection with each Aircraft delivered by JFS pursuant to
the Forward Purchase Agreement, JFS has agreed to pay to Dolphin any and
all "Lessee Payments" (as defined in the FPA Side Letter) paid by or on
behalf of JAS to JFS under the Lease, and Dolphin has agreed to pay to JAS
on behalf of JFS any and all "Lessor Maintenance Payments" (as defined in
the FPA Side Letter) required to be paid under the Lease. In connection
with the Delivery of each Aircraft to Assignee under this Agreement, on
the Delivery Date for each Aircraft (a) Assignor shall pay to Assignee any
and all "Lessee Payments" paid by JFS to Assignor pursuant to the FPA Side
Letter, and (b) Assignee shall pay to Assignor any and all "Lessor
Maintenance Payments" (as defined in the FPA Side Letter) required to be
paid by Assignor to JAS under the FPA Side Letter.
SECTION 3. CONDITIONS TO AGREEMENT AND CLOSING
3.1. Conditions to Effectiveness of this Agreement Against
Assignee. Before or concurrent with the execution and delivery of this
Agreement by Assignee, Assignor shall perform or satisfy each of the
following conditions precedent:
(a) Assignor shall obtain all approvals and consents of any
trustees or holders of any indebtedness or obligations of Assignor that
are required in connection with any transaction contemplated by the
Operative Documents.
(b) This Agreement, the Consent and Agreement and the Paying
Agency Agreement shall have been duly authorized, executed and delivered
by Assignor, the Consent and Agreement and the Paying Agency Agreement
shall have been duly authorized, executed and delivered by JFS and the
Paying Agency Agreement shall have been duly authorized, executed and
delivered by the Paying Agent, and executed counterparts of such documents
shall have been delivered to Assignee.
(c) Assignee shall have received a copy of the Memorandum and
Articles of Association of Assignor and resolutions of the Board of
Directors of Assignor, duly authorizing the assignment of its rights in
the Forward Purchase Agreement with respect to each Aircraft under this
Agreement and the execution, delivery and performance by Assignor of the
Operative Documents to which it is or is to be a party and each other
document required to be executed and delivered by Assignor in accordance
with the provisions of the Operative Documents for the Delivery of the
Aircraft, in each case certified by a Director of Assignor.
(d) Assignee shall have received an incumbency certificate of
Assignor as to the individuals authorized to execute and deliver the
Operative Documents to which it is or is to be a party and each other
document to be executed on behalf of Assignor in connection with the
transactions contemplated by the Operative Documents for the Delivery of
the Aircraft, including the signatures of such individuals.
(e) Assignee shall have received an opinion of Assignor's
Counsel, dated the date of this Agreement.
(f) Assignee shall have received true, complete and correct
copies of originals of the following: (i) the JFS Bill of Sale; (ii) the
JAS Bill of Sale; and (iii) the McDonnell Douglas Bill of Sale (each as
defined in the Forward Purchase Agreement).
3.2. Conditions to Effectiveness of this Agreement Against
Assignor. Before or concurrent with the execution and delivery of this
Agreement by Assignor, Assignee shall perform or satisfy each of the
following conditions precedent:
(a) Assignee shall obtain all approvals and consents of any
trustees or holders of any indebtedness or obligations of Assignee that
are required in connection with any transaction contemplated by the
Operative Documents.
(b) This Agreement, the Consent and Agreement and the Paying
Agency Agreement shall have been duly authorized, executed and delivered
by Assignee, the Consent and Agreement and the Paying Agency Agreement
shall have been duly authorized, executed and delivered by JFS and the
Paying Agency Agreement shall have been duly authorized, executed and
delivered by the Paying Agent, and executed counterparts of such documents
shall have been delivered to Assignor.
(c) Assignor shall have received a copy of the Articles of
Incorporation and By-Laws of Assignee and resolutions of the Board of
Directors of Assignee, duly authorizing the assumption of rights and
obligations under the Forward Purchase Agreement with respect to each
Aircraft under this Agreement and the execution, delivery and performance
by Assignee of the Operative Documents to which it is or is to be a party
and each other document required to be executed and delivered by Assignee
in accordance with the provisions of the Operative Documents for the
Delivery of the Aircraft, in each case certified by the Secretary or an
Assistant Secretary of Assignee.
(d) Assignor shall have received an incumbency certificate of
Assignee as to the individuals authorized to execute and deliver the
Operative Documents to which it is or is to be a party and each other
document to be executed on behalf of Assignee in connection with the
transactions contemplated by the Operative Documents for the Delivery of
the Aircraft, including the signatures of such individuals.
(e) Assignor shall have received an opinion of Assignee's
Counsel, dated the date of this Agreement.
3.3. Assignee's Delivery Date Conditions. The obligation of
Assignee to pay the Purchase Price for any Aircraft and, with respect to
any Aircraft which is not a Resale Aircraft, to acquire the rights to
purchase such Aircraft from JFS on the Delivery Date for such Aircraft is
subject to the satisfaction (or waiver by Assignee) of each of the
following conditions precedent:
(a) All approvals and consents of any trustees or holders of
any indebtedness or obligations of Assignor that are required in
connection with any transaction contemplated by the Operative Documents
shall be in full force and effect.
(b) Each of the Operative Documents to which Assignor or JFS is
a party shall have been duly authorized, executed and delivered by
Assignor or JFS, respectively, and shall be in full force and effect with
respect to Assignor or JFS, respectively, and executed counterparts shall
be delivered to Assignee.
(c) Assignee shall have received an Assignment of Warranties,
together with the Consent of the Manufacturer, and shall have received a
copy of the relevant McDonnell Douglas Detail Specification in respect of
such Aircraft, all in accordance with (and as such terms are defined in)
the provisions of the Forward Purchase Agreement.
(d) On such Delivery Date, the representations and warranties
of Assignor contained in Section 5 shall be true and accurate as though
made on and as of such date.
(e) Assignee shall have received a certificate, dated such
Delivery Date, signed by a Director of Assignor, addressed to Assignee and
certifying (i) that the certificates delivered by Assignor pursuant to
Sections 3.1(c) and (d) are still true and correct and (ii) as to each of
the matters stated in Sections 3.3(a) and (d).
(f) Such Aircraft shall meet the delivery conditions set forth
in Article 17 of the Lease.
(g) Assignor shall have caused JFS to perform its obligations
under Section 8.3 of the Forward Purchase Agreement with respect to such
Aircraft.
(h) JFS shall have satisfied all of the conditions precedent
set forth in Section 9.1 of the Forward Purchase Agreement (or Assignor
and Assignee shall have agreed to waive any such conditions precedent not
satisfied).
(i) Assignee shall have received a "bring-down" letter from
Assignor's Counsel, dated such Delivery Date, confirming that the opinion
furnished by Assignor's Counsel pursuant to Section 3.1(e) is true and
correct on such Delivery Date with respect to all Operative Documents to
which Assignor is a party.
3.4. Assignor's Delivery Date Conditions. The obligation of
Assignor to sell and deliver any Resale Aircraft to Assignee and to assign
its rights in the Forward Purchase Agreement with respect to any Aircraft
other than a Resale Aircraft to Assignee on the Delivery Date for such
Aircraft is subject to the satisfaction (or waiver by Assignor) of each of
the following conditions precedent:
(a) All approvals and consents of any trustees or holders of
any indebtedness or obligations of Assignee that are required in
connection with any transaction contemplated by the Operative Documents
shall be in full force and effect.
(b) Each of the Operative Documents to which Assignee is a
party shall have been duly authorized, executed and delivered by Assignee
and shall be in full force and effect with respect to Assignee, and
executed counterparts shall have been delivered to Assignor.
(c) Assignee shall have paid the Purchase Price for such
Aircraft in accordance with Sections 2.2 and 2.4.
(d) On such Delivery Date, the representations and warranties
of Assignee contained in Section 6 shall be true and accurate as though
made on and as of such date.
(e) Assignor shall have received a certificate, dated such
Delivery Date, signed by a duly authorized executive officer of Assignee,
addressed to Assignor and certifying (i) that the certificates delivered
by Assignee pursuant to Sections 3.2(c) and (d) are still true and correct
and (ii) as to each of the matters stated in Sections 3.4(a) and (d).
(f) Assignor shall have received a certificate, dated such
Delivery Date, from Assignee's independent insurance brokers certifying
that the insurance required pursuant to Section 6.5 is in effect for such
Aircraft, and a letter of undertaking from such brokers certifying that
such insurance complies with the requirements of Section 6.5 and Schedule
2 and as to such additional matters as Assignor may reasonably request.
(g) Assignor shall have received a "bring-down" letter from
Assignee's Counsel, dated such Delivery Date, confirming that the opinion
furnished by Assignee's Counsel pursuant to Section 3.2(e) is true and
correct on such Delivery Date with respect to all Operative Documents to
which Assignee is a party.
3.5. Additional Delivery Date Conditions. The obligation of
Assignee to pay the Purchase Price for any Aircraft and the obligation of
Assignor to sell and deliver any Resale Aircraft to Assignee and to assign
its rights in the Forward Purchase Agreement with respect to any Aircraft
other than a Resale Aircraft to Assignee are further subject to the
satisfaction of the following additional conditions precedent on the
Delivery Date for such Aircraft:
(a) No order, judgment or decree shall have been issued by any
Governmental Body to set aside, restrain, enjoin or prevent the execution,
delivery or performance of the Operative Documents or the consummation of
the transactions contemplated by the Operative Documents with respect to
such Aircraft.
(b) The Paying Agency Agreement shall be in full force and
effect with respect to the Paying Agent.
(c) Such Aircraft shall have been deregistered by the JAA, and
Assignor and Assignee shall have used their reasonable best efforts to
make application to the JAA for the deregistration of such Aircraft, and
cause such Aircraft to be deregistered by the JAA.
(d) Assignor and Assignee shall have received an opinion from
Special FAA Counsel to the effect either that such Aircraft has been
registered with the Aircraft Registry of the FAA in the name of Assignee
or, upon the filing by Assignee of the FAA Bill of Sale (AC Form 8050-2)
with respect to such Aircraft with the FAA, such Aircraft will be
registered with the Aircraft Registry of the FAA in the name of Assignee.
SECTION 4. TAXES
4.1. Sales Taxes. The Purchase Price does not include the
amount of any sales, use, consumption, excise, transfer, gross receipts or
other similar taxes, fees or charges ("Sales Taxes") that may be imposed
by any Governmental Body in any jurisdiction as a result of the sale and
delivery of any Resale Aircraft to Assignee or the assignment by Assignor
to Assignee of Assignor's right to purchase any Aircraft other than a
Resale Aircraft under the Forward Purchase Agreement.
4.2. Assignor Liable for Sales Taxes Generally. Without
limiting the obligations of JFS under the Forward Purchase Agreement
(including Section 4.11 of the Forward Purchase Agreement), Assignor shall
indemnify Assignee and hold Assignee harmless from the payment of any and
all Sales Taxes arising under the laws of Japan or the British Virgin
Islands as a result of (a) the assignment by Assignor to Assignee of
Assignor's right to purchase any Aircraft other than a Resale Aircraft
under the Forward Purchase Agreement and the purchase of such Aircraft by
Assignee and (b) the sale of any Resale Aircraft by JFS to Assignor
pursuant to the Forward Purchase Agreement, excluding (i) Sales Taxes
resulting from any act or omission of Assignee prohibited by or
constituting an Assignee Potential Termination Event or a default under
the Operative Documents, and (ii) Sales Taxes resulting from the willful
misconduct or gross negligence of Assignee. Upon demand of any
Governmental Body in Japan or the British Virgin Islands for payment of
any Sales Taxes indemnified by Assignor pursuant to this Section 4.2,
Assignee shall immediately notify Assignor and Assignor shall pay such
Sales Taxes; provided, however, that in the event that Assignee is
required to pay any such Sales Taxes, Assignee shall invoice Assignor for
the amount of such Sales Taxes paid by it and Assignor shall promptly
reimburse Assignee for such amount.
4.3. Assignee Liable for Sales Taxes on Resale Aircraft.
Assignee shall indemnify Assignor and hold Assignor harmless from the
payment of any and all Sales Taxes arising under the laws of the United
States of America or any jurisdiction thereof as a result of the purchase
of any Resale Aircraft by Assignee from the Dolphin Trustee pursuant to
this Agreement, excluding (i) Sales Taxes resulting from any act or
omission of Assignor prohibited by or constituting an Assignor Potential
Termination Event or a default under the Operative Documents, and (ii)
Sales Taxes resulting from the willful misconduct or gross negligence of
Assignor. Upon demand of any Governmental Body in the United States of
America for payment of any Sales Taxes indemnified by Assignee pursuant to
this Section 4.3, Assignor shall immediately notify Assignee and Assignee
shall pay such Sales Taxes; provided, however, that in the event that
Assignor is required to pay any such Sales Taxes, Assignor shall invoice
Assignee for the amount of such Sales Taxes paid by it and Assignee shall
promptly reimburse Assignor for such amount.
4.4. Excise Tax on Foreign Parts. Assignor and Assignee believe
that the importation of the Aircraft into the United States of America
will not cause any excise tax to be levied on the foreign-made Parts of
the Aircraft. However, if the importation of the Aircraft is subject to
the imposition of such an excise tax, Assignor and Assignee agree that (a)
Assignor shall bear and be responsible for, and shall indemnify and hold
harmless Assignee from, such excise tax up to $5,000 for each Aircraft,
and (b) Assignor and Assignee shall each bear and be responsible for
one-half of any such excise tax in excess of $5,000 for each Aircraft.
4.5. Cooperation. Assignor and Assignee shall cooperate and
take all actions reasonably requested by the other that are not in
contravention of any provision of the Operative Documents or Applicable
Law to minimize the amount of any Sales Taxes or other taxes applicable to
this Agreement or the consummation of the transactions contemplated by
this Agreement.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ASSIGNOR
Assignor represents, warrants and covenants to Assignee as of
the date of this Agreement and as of each Delivery Date as follows:
5.1. Organization, Power and Authority. Assignor is and shall
remain a duly organized and validly existing corporation in good standing
under the laws of the British Virgin Islands and has and will continue to
have the corporate power and authority to carry on its business as
presently conducted and to execute, deliver and perform its obligations
under each of the Operative Documents to which it is a party, and each of
such Operative Documents has been duly authorized by all necessary
corporate action on its part and does not require any approval of the
stockholder of Assignor that has not been obtained.
5.2. Non-Contravention. The execution, delivery and performance
of the Operative Documents to which Assignor is a party and the
consummation of the transactions contemplated by the Operative Documents
do not and will not contravene any law binding on Assignor or result in
any breach of, or constitute any default under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan or
credit agreement, corporate charter, by-law or other agreement or
instrument to which Assignor is a party or by which Assignor or its
properties may be bound or affected.
5.3. Enforceability. Each of the Operative Documents to which
Assignor is a party has been duly executed and delivered by Assignor and,
upon the due authorization, execution and delivery of such Operative
Documents by the other parties to such Operative Documents, will
constitute the legal, valid and binding agreement of Assignor, enforceable
against Assignor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally, or by equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law).
5.4. No Consent. The execution, delivery and performance by
Assignor of the Operative Documents to which it is a party do not require
the consent, approval, order or authorization of, the giving of notice to,
the registration with or the taking of any other action by or in respect
of any Governmental Body or any other Person, except (i) the application
by JFS to the JAA for the deregistration of each Aircraft, (ii) the
deregistration of such Aircraft by the JAA, (iii) the relinquishment by
JFS of the Certificate of Airworthiness of such Aircraft, (iv) the
application by Assignee for an Export Certificate of Airworthiness for
such Aircraft, (v) the issuance by JAA of an Export Certificate of
Airworthiness for such Aircraft, (vi) the performance by JAS of its
obligations under Article 17 of the Lease, (vii) the performance by JFS of
its obligations under the Forward Purchase Agreement, and (viii) the
filing for recordation by JFS and/or Assignor, as the case may be, of an
FAA Bill of Sale covering such Aircraft with the FAA's Aircraft Registry.
5.5. Copies of JFS Documents. Assignor has delivered to
Assignee complete and correct (other than as to pricing information)
photocopies of original counterparts of the Forward Purchase Agreement and
complete and correct photocopies of Article 17 of the Lease (collectively,
the "JFS Documents"). Until termination of this Agreement with respect to
any Aircraft, Assignor shall not (a) assign its rights, title and interest
in the Forward Purchase Agreement to any other Person, other than the
existing assignment for security purposes of such rights to the Mortgagee,
(b) amend, modify or waive any provision of the JFS Documents without the
Assignee's prior written consent, which consent shall not be unreasonably
withheld so long as the interests of Assignee are not adversely affected,
and (c) agree to any delivery location pursuant to Section 2.2 of the
Forward Purchase Agreement other than Haneda Airport without Assignee's
prior written consent.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ASSIGNEE
Assignee represents, warrants and covenants to Assignor as of
the date of this Agreement and as of each Delivery Date as follows:
6.1. Organization, Power and Authority. Assignee is and shall
remain a duly organized and validly existing corporation in good standing
under the laws of the State of Wisconsin or of another State of the United
States of America, and has and will continue to have the corporate power
and authority to carry on its business as presently conducted and to
execute, deliver and perform its obligations under the Operative Documents
to which it is a party, and each of such Operative Documents has been duly
authorized by all necessary corporate action on its part and does not
require any approval of any stockholder of Assignee that has not been
obtained.
6.2. Non-Contravention. The execution, delivery and performance
of the Operative Documents to which Assignee is a party and the
consummation of the transactions contemplated by the Operative Documents
do not and will not contravene any law binding on Assignee or result in
any breach of, or constitute any default under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan or
credit agreement, corporate charter, by-law or other agreement or
instrument to which Assignee is a party or by which Assignee or its
properties may be bound or affected.
6.3. Enforceability. Each of the Operative Documents to which
Assignee is a party has been duly authorized, executed and delivered by
Assignee and, upon the due authorization, execution and delivery of such
Operative Documents by the other parties to such Operative Documents, will
constitute the legal, valid and binding agreement of Assignee, enforceable
against Assignee in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally, or by equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law).
6.4. No Consent. The execution, delivery and performance by
Assignee of the Operative Documents to which it is a party do not require
the consent or approval of, the giving of notice to, the registration with
or the taking of any other action by or in respect of any Governmental
Body or any other Person, except the actions listed in clauses (i) through
(vii) of Section 5.4.
6.5. Insurance. For a period of two years from the Delivery
Date of each Aircraft or, if earlier, until the date of the next "D" Check
with respect to such Aircraft, Assignee shall maintain or cause to be
maintained in full force and effect comprehensive aviation legal liability
insurance on such Aircraft (including engines installed from time to time
on the Airframe) complying with Paragraph 2 of Schedule 2.
SECTION 7. DISCLAIMER OF ADDITIONAL WARRANTIES
THE WARRANTIES OF ASSIGNOR SET FORTH IN THIS AGREEMENT ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF ASSIGNOR, WHETHER
WRITTEN, ORAL OR IMPLIED. ASSIGNEE ACKNOWLEDGES AND AGREES THAT ASSIGNOR
SHALL NOT, BY VIRTUE OF HAVING OWNED AND SOLD THE RIGHTS TO PURCHASE THE
AIRCRAFT OR OTHERWISE, BE DEEMED TO HAVE MADE ANY REPRESENTATION OR
WARRANTY AS TO THE MERCHANTABILITY, FITNESS, DESIGN OR CONDITION OF, OR AS
TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, THE AIRCRAFT, OR TO HAVE
MADE ANY OTHER REPRESENTATIONS OR WARRANTIES (EXCEPT THE EXPRESS
WARRANTIES SET FORTH IN THIS AGREEMENT). ASSIGNOR DISCLAIMS AND ASSIGNEE
WAIVES ALL WARRANTIES AND LIABILITIES, EXPRESS OR IMPLIED, ARISING BY LAW
OR OTHERWISE (INCLUDING STRICT LIABILITY IN TORT), WITH RESPECT TO THE
MERCHANTABILITY, FITNESS, DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP IN, THE AIRCRAFT, WHETHER OR NOT OCCASIONED BY
ASSIGNOR'S NEGLIGENCE. The foregoing disclaimer of warranty shall not be
construed to be a waiver by Assignee of claims of Assignee against
Assignor arising from Assignor's breach of the terms, covenants,
conditions, representations and warranties of Assignor set forth in any
Operative Document.
SECTION 8. RELEASE
Assignee hereby releases Assignor, its stockholders,
subsidiaries and other Affiliates and any of the directors, servants,
agents, employees, successors and assigns of such Persons from all claims
by Assignee or any successor or assign of Assignee for injury to or for
death of any individual or damage to property (including personnel and
property of Assignee or Assignor) directly or indirectly arising out of
the use, operation, control, storage or condition of any Aircraft and for
any defects (latent or patent) in the Aircraft arising from any
maintenance, service, repair or testing of any Aircraft; provided, that
the foregoing release shall not apply to claims of Assignee against
Assignor arising from Assignor's breach of the terms, covenants,
conditions, representations and warranties of Assignor set forth in any
Operative Document.
SECTION 9. TERMINATION UPON TOTAL LOSS
If any Aircraft suffers a "Total Loss" (as defined in Section
9.1 of the Lease) before the Delivery of such Aircraft to Assignee,
neither Assignor nor Assignee shall have any further obligation or
liability to the other under the Operative Documents with respect to such
Aircraft only, except that if Assignee has made an Initial Payment with
respect to such Aircraft (a) so long as no Assignee Potential Termination
Event has occurred and is continuing Assignor shall promptly instruct the
Paying Agent to return the Initial Payment with respect to such Aircraft
to Assignee, including the amounts, if any, applied from the Down Payments
to such Initial Payment in accordance with Section 2.2(b), plus interest
on all such amounts, or (b) so long as an Assignee Potential Termination
Event has occurred and is continuing, Assignor may instruct the Paying
Agent to retain the Initial Payment with respect to such Aircraft pending
application pursuant to Section 10.3 or, upon cure of all Assignee
Potential Termination Events, the payment to Assignee in accordance with
the preceding clause (a).
SECTION 10. TERMINATION EVENTS, REMEDIES AND DAMAGES
10.1. Assignee Termination Events. The occurrence of any of
the following events, whether voluntary or involuntary, arising or
effected by operation of law or pursuant to or in compliance with any
judgment, decree, order, rule or regulation of any Governmental Body, not
cured within the applicable cure period, if any, shall constitute an
"Assignee Termination Event":
(a) the failure of Assignee to pay when due and payable any
payment of the Purchase Price relating to an Aircraft pursuant to Section
2.4(a);
(b) the failure of Assignee to pay when due and payable any
Initial Payment for an Aircraft, and such failure continues for three
Business Days;
(c) the failure of Assignee to pay when due and payable any
amount, other than Initial Payments or Purchase Price, that may become due
under any of the Operative Documents and such failure continues for ten
days after the giving of written notice to Assignee by Assignor of such
failure;
(d) any lapse of or failure by Assignee to preserve and
maintain its corporate existence as required by Section 6.1 and Assignee
does not cure such failure or lapse within five Business Days after the
earlier of actual knowledge thereof by Assignee or the giving of written
notice thereof by Assignor;
(e) any failure by Assignee to fulfill any covenant or to
perform any obligation under any Operative Document other than as set
forth in Sections 10.1(a) through (d) above, and such failure is not cured
within 30 days after the giving of written notice thereof by Assignor;
(f) if any representation or warranty made by Assignee in any
Operative Document proves to have been untrue, inaccurate or incomplete in
any material respect at the time when made or when effective and Assignee
fails to do that which shall be necessary in order that said
representation or warranty shall be true, accurate or complete within 30
days after the earlier of actual knowledge thereof by Assignee or the
giving of written notice thereof by Assignor;
(g) if Assignee is in default of any covenant or agreement
relating to any obligation of Assignee for borrowed money in excess of
$1,000,000 or for the deferred purchase price or the rental of property
with an original cost in excess of $1,000,000;
(h) if one or more final, nonappealable judgments or decrees
(not paid or fully covered by insurance) are entered against Assignee
involving individually or in the aggregate a liability in excess of
$1,000,000 and all such judgments or decrees shall remain undischarged for
a period of 30 days during which execution shall not be effectively
stayed;
(i) if Assignee (i) applies for or consents to the appointment
of a custodian, receiver, trustee, liquidator or similar officer for it or
for all or any substantial part of its property, (ii) makes a general
assignment for the benefit of its creditors, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) generally
does not pay its debts as they become due, (v) files a voluntary petition
under 11 U.S.C. Section Section 101 et seq., (vi) files a voluntary
petition or an answer seeking reorganization in a proceeding under any
bankruptcy law or an answer admitting the material allegations of a
petition filed against Assignee in any such proceeding, (vii) by voluntary
petition, application or answer, consents or otherwise institutes any
proceeding or seeks relief under the provisions of any law relating to
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debts, dissolution, liquidation or the like in respect of the
reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors, or
(viii) takes corporate action for the purpose of any of the foregoing; and
(j) if an involuntary petition under 11 U.S.C. Section Section
101 et seq. or seeking readjustment of Assignee's debts or for any other
relief under any bankruptcy, insolvency, or other similar act or law of
any jurisdiction, domestic or foreign, now or hereafter existing, is filed
against Assignee, or if an order, judgment or decree is entered by any
Governmental Body of competent jurisdiction appointing, without the
application or consent of Assignee, a custodian, receiver, trustee,
liquidator, sequestrator or similar officer for Assignee or for all or any
substantial part of its property, or if a substantial part of the property
of Assignee is sequestered, and any of such events continues for 60 days
undismissed, unbonded or undischarged.
10.2. Assignor Termination Events. The occurrence of any of
the following events, whether voluntary or involuntary, arising or
effected by operation of law or pursuant to or in compliance with any
judgment, decree, order, rule or regulation of any Governmental Body, not
cured within the applicable cure period, if any, shall constitute an
"Assignor Termination Event":
(a) the failure of Assignor to pay when due and payable any
balance of the JFS Purchase Price for an Aircraft pursuant to Section
2.4(a);
(b) any lapse of or failure by Assignor to preserve and
maintain its corporate existence as required by Section 5.1 and Assignor
does not cure such failure or lapse within five Business Days after the
earlier of actual knowledge thereof by Assignor or the giving of written
notice thereof by Assignee;
(c) any failure by Assignor to fulfill any covenant or to
perform any obligation under any Operative Document other than as set
forth in Sections 10.2(a) and (b) above, and such failure is not cured
within 30 days after the giving of written notice thereof by Assignee;
(d) if any representation or warranty made by Assignor in any
Operative Document proves to have been untrue, inaccurate or incomplete in
any material respect at the time when made or when effective and Assignor
fails to do that which shall be necessary in order that said
representation or warranty shall be true, accurate or complete within 30
days after the earlier of actual knowledge thereof by Assignor or the
giving of written notice thereof by Assignee;
(e) if Assignor (i) applies for or consents to the appointment
of a custodian, receiver, trustee, liquidator or similar officer for it or
for all or any substantial part of its property, (ii) makes a general
assignment for the benefit of its creditors, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) generally
does not pay its debts as they become due, (v) files a voluntary petition
or an answer seeking reorganization in a proceeding under any bankruptcy
law or an answer admitting the material allegations of a petition filed
against Assignor in any such proceeding, (vi) by voluntary petition,
application or answer, consents or otherwise institutes any proceeding or
seeks relief under the provisions of any law relating to bankruptcy,
insolvency, reorganization, arrangement, readjustment of debts,
dissolution, liquidation or the like in respect of the reorganization or
winding-up of corporations, or providing for an agreement, composition,
extension or adjustment with its creditors, or (vii) takes corporate
action for the purpose of any of the foregoing; and
(f) if an involuntary petition or action seeking readjustment
of Assignor's debts or for any other relief under any bankruptcy,
insolvency, or other similar act or law of any jurisdiction, domestic or
foreign, now or hereafter existing, is filed against Assignor, or if an
order, judgment or decree is entered by any Governmental Body of competent
jurisdiction appointing, without the application or consent of Assignor, a
custodian, receiver, trustee, liquidator, sequestrator or similar officer
for Assignor or for all or any substantial part of its property, or if a
substantial part of the property of Assignor is sequestered, and any of
such events continues for 60 days undismissed, unbonded or undischarged.
10.3. Termination, Damages and Remedies. (a) If the
Delivery of an Aircraft does not occur on the Scheduled Delivery Date for
such Aircraft as a result of the failure of Assignor to cause each of the
conditions set forth in Section 3.3 to be satisfied or if an Assignor
Termination Event has occurred and is continuing other than as a result of
the failure of either JAS or JFS to fulfill its obligations under the
Lease or the Forward Purchase Agreement, respectively, and such failure by
Assignor continues for 30 days, then Assignee may by written notice to
Assignor terminate its obligations to acquire the rights from Assignor to
purchase such Aircraft and related Technical Records from JFS and any
other Aircraft and their related Technical Records not previously
Delivered to Assignee pursuant to this Agreement. Upon termination of its
obligations to acquire the rights to purchase any such Aircraft, Assignee
shall be entitled (i) if Assignee has made an Initial Payment with respect
to such Aircraft, to the return of such Initial Payment, together with all
interest earned thereon, (ii) if Assignee terminates its obligations to
acquire the rights to purchase all Aircraft not previously Delivered to
Assignee, to the return of the Down Payments then held by the Paying Agent
pursuant to the Paying Agency Agreement together with all interest earned
thereon, plus the payment of an additional amount equal to such Down
Payments, and (iii) to exercise any and all rights and remedies, and
recover all additional damages, available at law or in equity, excluding
consequential damages and loss of profit, for Assignor's failure to
perform its obligations with respect to such Aircraft.
(b) If the Delivery of an Aircraft does not occur on the
Scheduled Delivery Date for such Aircraft as a result of the failure of
either JAS or JFS to fulfill its obligations under the Lease or the
Forward Purchase Agreement, respectively, and such failure continues for
60 days, then Assignee may by written notice to Assignor terminate its
obligations to acquire the rights to purchase such Aircraft and related
Technical Records from Assignor; provided, however, that Assignee shall
remain obligated to acquire the rights to purchase the other Aircraft.
Upon termination of its obligations to purchase such Aircraft, Assignee
shall be entitled, if Assignee has made an Initial Payment with respect to
such Aircraft, to the return of such Initial Payment, together with all
interest earned thereon, but shall otherwise not be entitled to any
further damages, at law or in equity, as a result of Assignor's failure to
perform its obligations with respect to such Aircraft.
(c) If the Delivery of an Aircraft does not occur on the
Scheduled Delivery Date for such Aircraft as a result of the failure of
Assignee to cause each of the conditions set forth in Section 3.4 to be
satisfied, or if an Assignee Termination Event has occurred and is
continuing, then Assignor may by written notice to Assignee terminate its
obligations to assign to Assignee the rights to acquire such Aircraft and
related Technical Records as well as any other Aircraft and their related
Technical Records not previously Delivered to Assignee pursuant to this
Agreement. Upon termination of its obligations to assign the rights to
purchase any Aircraft, Assignor shall be entitled (i) to retain any
Initial Payment made by Assignee for such Aircraft, (ii) if Assignor
terminates its obligations to assign the rights to purchase all Aircraft
not previously Delivered to Assignee, to retain and have paid to it the
Down Payments then held by the Paying Agent pursuant to the Paying Agency
Agreement together with all interest earned thereon, and (iii) to exercise
any and all rights and remedies, and recover all additional damages,
available at law or in equity, excluding consequential damages and loss of
profit, for Assignee's failure to perform its obligations with respect to
such Aircraft.
(d) Assignee and Assignor agree that the determination of
damages upon a default by Assignor in the performance of its obligations
hereunder or by Assignee in the performance of its obligations hereunder
will be subjective and difficult, given the economic effect of non-
monetary terms in aircraft sale transactions, the time to negotiate and
consummate aircraft sale and purchase transactions and other factors, and
therefore the liquidated damages set forth in Section 10.3(a)(ii) and in
Sections 10.3(c)(i) and (ii) represent the good faith agreement of
Assignor and Assignee to estimate the damages to Assignee or Assignor,
respectively, for loss of a bargain from the defaults described in Section
10.3(a) and Section 10.3(c), respectively, and are not intended to be a
penalty.
SECTION 11. APPLICABLE LAW
11.1. Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable
to contracts entered into and to be performed entirely within the State of
New York by residents of such State, without giving effect to any choice
or conflict of law provision which would cause the application of the laws
of any jurisdiction other than the State of New York.
11.2. Jurisdiction. Each of Assignor and Assignee
irrevocably submits to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York and of the New York
Supreme Court located in the Borough of Manhattan, County of New York (the
"Agreed Courts"). Such submission to jurisdiction shall not limit the
right of either Assignor or Assignee to bring suit or institute other
judicial proceedings against the other party or any of the other party's
assets in the courts of any country, state or place where such other party
or such assets may be found, nor shall the bringing of suits in the Agreed
Courts or the courts of any jurisdiction preclude the taking of
proceedings in any other jurisdiction, whether concurrently or not. Final
judgment against Assignor or Assignee rendered by any Agreed Court in any
suit shall be conclusive and may be enforced in any other jurisdiction by
suit on a judgment, a certified or true copy of which shall be conclusive
evidence of the facts and of the amount of any indebtedness or liability
of such party.
11.3. Waiver of Objection to Venue. Each of Assignor and
Assignee irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding brought in
any Agreed Court and further irrevocably waives any claim that any such
suit, action or proceeding brought in any Agreed Court has been brought in
an inconvenient forum.
11.4. Waiver of Jury Trial. Each of Assignor and Assignee
hereby waive trial by jury in any judicial proceeding to which they are
parties involving, directly or indirectly, any matter arising out of or
relating to the Operative Documents.
11.5. Service of Process by Mail. Without prejudice to any
other mode of service, each of Assignor and Assignee consents to the
service of process relating to any proceedings involving, directly or
indirectly, any matter arising out of or relating to the Operative
Documents by U.S. Postal Service registered mail (prepaid, return receipt
requested) of a copy of the process to the address for Assignor or
Assignee, as the case may be, set forth in Section 12.3.
SECTION 12. ADDITIONAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of Assignor and Assignee and
their respective successors and permitted assigns. Assignor may not
assign its rights or obligations under the Operative Documents in whole or
in part without the prior written consent of Assignee, which consent shall
not be unreasonably withheld. Assignee may assign all of its rights and
obligations under this Agreement, but only to a Person reasonably
acceptable to Assignor and JFS and provided such assignment will not
result in any adverse tax or other consequences to Assignor or JFS. Any
such assignment by Assignee will not release Assignee from any obligations
under the Operative Documents.
12.2. Entire Agreement. The Operative Documents and their
schedules and exhibits embody the entire agreement and understanding
between Assignor and Assignee with respect to the subject matter thereof.
None of the Operative Documents may be modified or amended except in
writing signed by Assignor, Assignee and any other Person party to such
Operative Document. This Agreement terminates and supersedes all prior or
independent agreements and understandings between Assignor and Assignee
covering the same subject matter.
12.3. Notices. (a) Every notice or other communication
under this Agreement shall be in writing and in English and may be given
or made by telefax or recognized overnight international courier.
(b) Every notice or communication under this Agreement shall be
sent to Assignor or Assignee at their respective addresses and telefax
numbers as follows:
(i) to Assignor: Dolphin Trade & Finance, Ltd.
c/o Interadvice Anstalt
Landstrasse 25
L-9490 Vaduz, Liechtenstein
Attention: Mr. George Kieber
Telephone: +41-75-232-2412
Telefax: +41-75-232-0542
(ii) to Assignee: Midwest Express Airlines, Inc.
6744 South Howell Avenue, HQ-14
Oak Creek, Wisconsin 53154-1402
Attention: Mr. Robert S. Bahlman
Vice President-Chief Financial
Officer
Telephone: +1-414-570-4001
Telefax: +1-414-570-9666
(c) Every notice or demand shall be deemed to have been
received (i) in the case of a notice sent by recognized overnight
international courier, when actually delivered to Assignor or Assignee at
its address set out in Section 12.3(b) or as of the date on which receipt
of such notice is refused or the courier advises that such notice is not
deliverable at the address set out in Section 12.3(b) with respect to
Assignor or Assignee, as the case may be, and (ii) in the case of a
telefax, at the time of receipt by the sender of a transmission report
indicating that all pages of the telefax transmission were properly
transmitted (unless the recipient notifies the sender promptly, or if
received after 5:30 p.m. local time, by no later than 10:00 a.m. local
time the following Business Day, that the transmission was incomplete or
illegible, in which case the telefax shall be deemed to have been received
at the time of receipt by the sender of a further clear transmission
report on retransmitting the telefax) so long as the relevant telefax
transmission (or retransmission, as the case may be) was transmitted to
the receiver between 9:00 a.m. and 5:30 p.m. local time at the place of
receipt, and if it was transmitted other than between 9:00 a.m. and 5:30
p.m. local time then it shall be deemed to have been received at 9:00 a.m.
local time on the succeeding Business Day.
(d) A copy of all notices or other communications sent to
Assignor shall be sent to Feltman, Karesh, Major & Farbman, Limited
Liability Partnership, Carnegie Hall Tower, 152 West 57th Street, New
York, New York 10019, Attention: Loren M. Dollet, Esq., telephone:
+1-212-586-3800, telefax: +1-212-586-0951. Copies of all notices or other
communications sent to Assignor shall be sent to the aforesaid party in
accordance with this Section 12.3.
(e) A copy of all notices or other communications sent to
Assignee shall be sent to Foley & Lardner, Firstar Center, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-5367, Attention: James T.
Tynion III, telephone: +1-414-271-2400, telefax: +1-414-297-4900. Copies
of all notices or other communications sent to Assignee shall be sent to
the aforesaid party in accordance with this Section 12.3.
(f) Assignor or Assignee may change its address, telefax number
or the address or party to whom copies of notices shall be sent by giving
notice to the other in accordance with this Section 12.3.
12.4. Expenses. Except as otherwise set forth in this
Agreement, Assignor and Assignee shall bear the expenses of the
transactions contemplated by the Operative Documents as follows:
(a) Assignor shall bear its own expenses incurred in
connection with the Operative Documents and the transactions
contemplated by the Operative Documents, including the fees and
disbursements of Assignor's Counsel;
(b) Assignee shall bear its own expenses incurred in
connection with the Operative Documents and the transactions
contemplated by the Operative Documents, including the fees and
disbursements of Assignee's Counsel and all expenses related to its
inspection of the Aircraft;
(c) without limiting the obligations of JAS and JFS under
the Lease and Forward Purchase Agreement, Assignor shall indemnify
and hold Assignee harmless from any expenses incurred by JAS, JFS or
their respective counsel;
(d) Assignee shall bear the fees and disbursements of
Special FAA Counsel; and
(e) Assignor and Assignee shall bear the fees and expenses
of the Paying Agent as set forth in Section 5(c) of the Paying Agency
Agreement.
12.5. Survival. All representations, warranties and
agreements of Assignor and Assignee under the Operative Documents shall
survive the sale of the Aircraft.
12.6. No Brokers. Each of Assignor and Assignee represents
and warrants that it has retained no brokers or finders with respect to
the transactions contemplated by this Agreement and that it has no
liability for any broker's or finder's fees, costs or expenses relating to
this Agreement, except that Assignor represents that it has retained
Credit Lyonnais/PK AIRFINANCE as its broker and agent in connection with
the transactions contemplated by the Forward Purchase Agreement and this
Agreement. In the event that a claim is made by a broker or finder, the
party responsible for the breach of this Section 12.6 shall indemnify the
other for any damages, including reasonable attorneys' fees and expenses,
arising from such claim.
12.7. No Waiver of Enforcement. Any failure at any time of
Assignor or Assignee to enforce any provision of this Agreement shall not
constitute a waiver of such provision or prejudice the right of either
party to enforce such provision at any subsequent time.
12.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original document.
12.9. Further Assurances. Each of Assignor and Assignee
shall promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the other party
may reasonably request in order to carry out the purposes and intent of
this Agreement, so long as such instruments or documents do not adversely
affect the rights or obligations of Assignor or Assignee under this
Agreement.
[signature page follows]
IN WITNESS WHEREOF, Assignor and Assignee have caused this
Assignment of Rights Agreement to be executed by their duly authorized
officers as of the date first above written.
DOLPHIN TRADE & FINANCE, LTD.,
as Assignor
By:/s/ G.M. Bjorg
Name: G.M. Bjorg
Title: Director
MIDWEST EXPRESS AIRLINES, INC., as Assignee
By:/s/ Robert S. Bahlman
Name: Robert S. Bahlman
Title: Chief Financial Officer
<PAGE>
SCHEDULE 1 -- DELIVERY DATES AND PURCHASE PRICE
1. Scheduled Delivery Dates.
(a) The Aircraft bearing manufacturer's serial nos. 48070, 48071 and
48072 and their respective related Technical Records are
scheduled for Delivery as follows:
(i) one on December 22, 1997;
(ii) one on April 30, 1998; and
(iii) one on June 30, 1998.
(b) The other five Aircraft and their respective related Technical
Records are scheduled for Delivery as follows:
(i) one on September 30, 1998,
(ii) two on December 31, 1998; and
(iii) two on September 30, 1999;
provided, that JAS has an option, exercisable not later than December
31, 1998, to extend for up to six months the term of the Lease
relating to the two Aircraft scheduled to be returned on September
30, 1999. If JAS exercises its option to extend the term of the Lease
relating to either or both of such Aircraft, promptly upon notice
from JFS Assignor shall advise Assignee of the expiration date of the
Lease for such Aircraft, which date shall become the "Scheduled
Delivery Date" for such Aircraft.
2. Purchase Price.
(a) The Purchase Price for each of the Aircraft bearing
manufacturer's serial nos. 48070, 48071 and 48072, including
their Upgrade Kits and related Technical Records, is $ * .
(b) The Purchase Price for each of the next three Aircraft to be
delivered, including their related Technical Records, is $ * .
(c) The Purchase Price for each of the last two Aircraft to be
delivered, including their related Technical Records, is $ * .
_________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
<PAGE>
SCHEDULE 2 -- INSURANCE REQUIREMENTS
1. (a) Hull and War Risks Insurance. At all times after the purchase
by the Dolphin Trustee of a Resale Aircraft and until delivery
of such Resale Aircraft to Assignee, Assignee shall maintain in
full force and effect the following insurance coverages in
respect of such Resale Aircraft and its related Technical
Records (including engines installed from time to time on the
Airframe of such Resale Aircraft):
(i) Hull "All Risks" insurance against loss or damage while
flying and on the ground with respect to any Resale
Aircraft for an agreed value equal to 105% of the Purchase
Price for such Resale Aircraft and with a deductible not
exceeding $750,000;
(ii) Hull "War and Allied Perils" insurance covering those risks
excluded from the Hull "All Risks" insurance policy to the
extent such coverage is available from the leading
international insurance markets, including confiscation and
requisition by the state of registration, for an agreed
value equal to 105% of the Purchase Price for such Resale
Aircraft; and
(iii) "All Risks" property insurance (including war and allied
risk except when on the ground or in transit other than by
air or sea) on all Engines and Parts when not installed on
the Resale Aircraft (to the extent not covered under the
hull insurances described in Paragraphs 1(a)(i) and (ii)
above), including Engine test and running risks, in an
amount equal to replacement value in the case of the
Engines.
(b) Policy Terms. All required hull, war risk and spares insurance
specified in Paragraph 1(a) above, so far as it relates to a
Resale Aircraft, shall be in form and substance reasonably
acceptable to Assignor and any financing party designated by
Assignor (the "Bridge Lender") and shall:
(i) include Assignor, the Dolphin Trustee, the Bridge Lender
and their respective successors and assigns as additional
assureds (warranted no operational interest);
(ii) provide that any loss will be settled jointly with
Assignor, Assignee and the Bridge Lender, and any claim
that becomes payable on the basis of a total loss shall be
paid in Dollars to Assignor (or, if designated by Assignor,
the Bridge Lender) as sole loss payee, with any other claim
being payable as may be necessary for the repair of the
damage to which it relates;
(iii) if separate Hull "All Risks" and "War Risks" insurances
are arranged, include a 50/50 provision in the terms of
Lloyd's endorsement AVN103; and
(iv) confirm that the insurers are not entitled to replace the
Resale Aircraft in the event of a total loss.
2. (a) Legal Liability Insurance. At all times after the purchase of
an Aircraft by Assignee (and at all times after the purchase by
the Dolphin Trustee of a Resale Aircraft) and so long as
required pursuant to Section 6.5, Assignee shall procure and
maintain in full force and effect comprehensive aviation legal
liability insurance in respect of the Aircraft (including
engines installed from time to time on the Airframe) against
public liability risks (including contractual liability, bodily
injury and property damage coverage inclusive of liability to
third parties and passengers and coverage for baggage, cargo and
mail), including war and related perils to the fullest extent
available in the principal insurance markets from time to time,
in all cases with respect to or arising out of the servicing,
maintenance, use, operation, ownership or leasing of the
Aircraft (and any engines from time to time affixed to the
Airframe), including any part attached to the Aircraft and any
Engines when not installed on the Airframe. All such insurance
shall be:
(i) in amounts which are not less than the public liability and
property damage insurance maintained from time to time for
similar aircraft and engines in Assignee's fleet, but in no
event less than a single limit of $350,000,000 per
occurrence;
(ii) of the types and in the form usually carried by
certificated air carriers engaged in the same or similar
business as Assignee, similarly situated as Assignee and
owning or operating similar aircraft and engines and that
cover risks of the kind customarily insured against by such
Persons; and
(iii) carried with reputable insurers of internationally
recognized standing.
(b) Policy Terms. Each policy of insurance carried in accordance
with Paragraph 2(a):
(i) shall name each Additional Insured as an additional
insured, but without the Additional Insureds being liable
for premiums in respect of such insurance (but reserving
the right to pay the same should any of them elect to do
so);
(ii) shall be payable in Dollars;
(iii) shall provide that the insurers shall waive any right to
any setoff or counterclaim or any other deduction, by
attachment or otherwise, with respect to any liability of
the Additional Insureds;
(iv) shall not permit any aviation legal liability insurance
deductible or self-insurance provision other than the
aviation insurance industry standard deductibles for
baggage, hangarkeepers and cargo legal liability;
(v) shall provide that no amount due from Assignee or any other
person to any insurer or broker shall be deducted from any
amount payable to an Additional Insured under such
insurance policy;
(vi) shall provide that in respect of the interest of the
Additional Insureds in such policies such insurance shall
not be invalidated by any action or inaction of the
Assignee or any other insured and shall insure the
Additional Insureds regardless of any breach or violation
of any warranty, declaration or condition contained in such
policies by Assignee or any other insured, assuming no
operation of the Aircraft by such Additional Insured;
(vii) shall provide that if such insurance is canceled for any
reason, any material adverse change is made in policy terms
or conditions or such insurance is allowed to lapse for
nonpayment of premium, such cancellation, change or lapse
shall not be effective as to any Additional Insured for 30
days (seven days or such lesser period as may be provided
in the policy from time to time with respect to war risk
and allied perils coverage) after receipt by such
Additional Insured of written notice from such insurers of
such cancellation, change or lapse;
(viii)shall provide that such insurers shall hold harmless and
waive any rights of subrogation against any Additional
Insured;
(ix) shall be primary without right of contribution from any
other insurance which is carried by any Additional Insured;
(x) shall expressly provide that all the provisions of such
policy, except the limits of liability, shall operate in
the same manner as if there were a separate policy with and
covering each insured; and
(xi) if the lead insurance provider is not a U.S. insurer, a
U.S. service of suit clause.
3. Insurance Reports.
(a) On or before the Scheduled Delivery Date for each Resale
Aircraft and on or before the Delivery Date for each other
Aircraft, Assignee shall cause its independent insurance
brokers, who shall be of recognized international standing, to
furnish to Assignor and, with respect to a Resale Aircraft, to
the Dolphin Trustee and any Bridge Lender (i) a certificate of
insurance describing in reasonable detail the insurance carried
on or with respect to such Aircraft, and (ii) a report stating
that in the opinion of such broker such insurance complies with
the terms of this Schedule 2 and confirming that all premiums
due in respect of such insurance have been paid.
(b) Before the renewal date of any insurance required under this
Agreement, Assignee shall cause its independent insurance
brokers to furnish to Assignor (i) a certificate of insurance
describing in reasonable detail the insurance carried on or with
respect to all Aircraft Delivered to Assignee, and (ii) a report
stating that in the opinion of such broker such insurance
complies with the terms of this Schedule 2.
(c) At the time of each of the reports furnished pursuant to
Paragraphs 3(a) and 3(b) of this Schedule 2, Assignee shall
cause its independent insurance brokers to advise Assignor in
writing (i) promptly of any defaults in the payment of any
premium and of any other act or omission on the part of Assignee
or of any event of which they have knowledge that might
invalidate or render unenforceable in whole or in part any
insurance on the Aircraft, and (ii) of any expiration or
termination of such insurance at least 30 days prior to such
expiration or termination or if any insurer cancels or gives
notice of cancellation of such insurance. The reports and
certifications to be given under this Paragraph 3 shall confirm
that the insurance extends to any Engine or Part while removed
from the Airframe or any Engine.
<PAGE>
SCHEDULE 3 -- LIST OF TECHNICAL RECORDS
GENERAL
Requirement
ME/FAA Current carryovers, consolation items, and MEL deferred items on
the airframe and engines and components
FAA The original paperwork of the most recent repetitive maintenance
tasks, inspections and overhaul teardowns performed on the
aircraft, engines and components as required by the inspection
program the aircraft is presently operated under, if the
aircraft is between operators then the last program it was
operated under.
ME All computer runs must be signed by the head of Quality Control
attesting to their accuracy and completeness.
FAA The aircraft must meet Type Certificate as originally exported.
FAA The aircraft must be in a condition to be ferried IAW FAA DAR
requirements
ME All aircraft engineering data in paper and electronic format
will be included.
ME Photocopy of the Certificate of Airworthiness, current or last
ME Photocopy of the aircraft registration current or last.
ME Photocopy of the aircraft radio license, current or last.
FDA Photocopy of the aircraft Certificate of Sanitary Construction.
FAA A history of the incident or accidents the aircraft has been
involved in.
FAA A list of all operator produced parts used in the repair or
alteration of the aircraft.
ME A list of all airframe component vendors.
ME A letter from Quality Control allowing vendors to release data
of work performed by them to Midwest Express for components that
Midwest will be the operator of.
FAA A list of components that the operator has performed maintenance
on off the aircraft and returned to service.
FAA List of vendors who perform substantial maintenance for the
operator.
POWERPLANT
FAA Engine/Trend Monitoring ECM data for the most recent 12 month
period. Identify the program used by Title and Vendor. Include
Training records of those individuals performing these
functions, if available.
FAA A listing of all service bulletins which have been complied with
on the engines.
FAA Copies of all repairs accomplished to the engines that were not
IAW the Manufacturers Manual or manufacturer instructions and
that do not show FAA approval on them.
FAA Engine O/H and repair data back to the last equivalent engine
overhaul to include all 337's and/or FAA Form 8130-3s.
FAA Statement from the engine shop performing the work to confirm
that the engine maintenance performed in the shop was done IAW
the Manufacturers Manuals.
FAA LIFE LIMITED PARTS:
The current status of each life limited part including--
a. A record of the total time-in-service of the part, expressed by
each applicable standard ( i.e. Hours, Cycles, Years ).
b. The specified life limit, as expressed by each applicable
standard.
c. A record of each removal and installation back to manufacture of
each life-limited part as expressed in each applicable standard.
d. A record of any action that has altered the part's life limit or
has changed the parameters of the life limit.
FAA AIRWORTHINESS DIRECTIVES:
The current status of applicable airworthiness directives, for each
airframe, aircraft engine, appliance, component, or part
including--
a. The identification of the particular airframe, aircraft engine,
appliance, component or part to which the airworthiness
directive applies.
b. The airworthiness directive number and, if applicable , its
revision number, revision date, or amendment number.
c. The date on which the required action was last accomplished.
d. The total-time-in-service, as expressed by the applicable
standard, as required by the AD.
e. The method of compliance, by reference to a specific action
described in the airworthiness directive, a specific description
of the work performed, or a description of an alternative method
of compliance with a copy of the FAA or JAA approval.
f. If recurring action is required by the airworthiness directive the
interval to the next required action as express by the
applicable standard.
g. Dirty fingerprint compliance for repetitive and terminated
Airworthiness Directives
ME Copy of all FAA equivalent CAA Airworthiness Directives.
FAA Statement confirming that all engine parts were Pratt and Whitney
authorized and no parts were manufactured by the owner,
operator, or engine repair shop for the installed engines.
FAA APU log books
FAA Engine log books
ME A list of all engine, and engine component vendors
FAA Engine oil analysis reports for the last 2,000 operating hours, if
available
AIRFRAME
FAA AIRWORTHINESS DIRECTIVES:
The current status of applicable airworthiness directives, for each
airframe, aircraft engine, appliance, component, or part
including--
a. the identification of the particular airframe, aircraft engine,
appliance, component or part to which the airworthiness
directive applies.
b. The airworthiness directive number and, if applicable , its
revision number, revision date, or amendment number.
c. The date on which the required action was last accomplished.
d. The total-time-in-service, as expressed by the applicable
standard, as required by the AD.
e. The method of compliance, by reference to a specific action
described in the airworthiness directive, a specific description
of the work performed, or a description of an alternative method
of compliance with a copy of the FAA approval.
f. If recurring action is required by the airworthiness directive the
interval to the next required action as expressed by the
applicable standard.
g. The actual signed off methods of compliance for repetitive and
terminated AD's
ME Copy of foreign equivalent Airworthiness Directives referenced in
documentation.
FAA LIFE LIMITED PARTS:
The current status of each life limited part by part number and
serial number including--
a. A record of the total time-in-service of the part, expressed by
each applicable standard (i.e. Hours, Cycles, Years ).
b. The specified life limit, as expressed by each applicable
standard.
c. A record of each removal and installation back to manufacture of
each life-limited part as expressed in each applicable standard.
d. A record of any action that has altered the part's life limit or
has changed the parameters of the life limit.
FAA ALTERATIONS:
Records for each major alteration to each airframe, engine,
appliance, component, or part since manufacture including--
a. the identification of the particular airframe, engine, appliance,
component, or part to which the major alteration applies.
b. The date on which the alteration was accomplished
c. The method of accomplishment.
d. References to approved/accepted technical data.
e. Actual signed off accomplishment paperwork.
Copies of all applicable modifications which have been incorporated
since manufacture.
List and copy of previous operators Modifications.
Supplements of Maintenance Manuals, Illustrated Parts Catalogs and
Wiring Diagram Manuals affected by modification.
FAA REPAIRS:
Records for each major repair to each airframe, engine, appliance,
component, or part since manufacture including--
a. The identification of the particular airframe, engine, appliance
component, or part to which the major repair applies.
b. The date on which the repair was accomplished.
c. The method of accomplishment.
d. References to the FAA approved/accepted technical data
e. Dirty fingerprint compliance.
FAA Copies of all applicable repairs which have been incorporated since
manufacture.
FAA All repairs accomplished IAW the SRM meet the latest revision of the
SRM.
FAA Copy of the last Compass swing
FAA Aircraft Maintenance and Flight Logbooks, current and past.
FAA Passenger cabin drawings (LOPA).
FAA Export Certificate of Airworthiness (from departing country)
FAA Company part number to vendor cross reference document.
INSPECTION PROGRAM
ME Major checks (those which are accomplished at 2,000 hour intervals or
greater) will have more than 1/2 life left.
ME Summary of routine Maintenance record which shows each major check
accomplishment.
FAA All most recent Major inspection job cards and squawks cards.
FAA Component time status list.
FAA All Aircraft flight and maintenance log books.
FAA Data to determine TAT/TAC on individual days.
ME All CPCP reports for the aircraft.
ME All SID inspection results.
FAA Aging Aircraft S/B requirement status.
FAA X-ray pictures, current and last.
MANUALS
FAA 1.Current FAA Approved Flight Manual
FAA 2.Current Manufacturer and Operator Crew Operating Manual
FAA 3.Aircraft Weight and Balance Manual, and current operator weight and
balance data
FAA 4.Current Wiring Diagram Manual, Item Lists and Supplements
FAA 5.Current Manufacturer Maintenance Manuals - Aircraft, Engine and APU
- Manufacturer and Operator and Supplements
FAA 6.MM and IPC for post production installed equipment
FAA 7.Current Illustrated Parts Catalogs - Aircraft, Engine, and APU and
Supplements
FAA 8.Current Structural Repair Manual
FAA 9.Last flight test report
FAA 10.Original Export Certificate of Airworthiness issued by FAA
ME/FAA 11.If available, the operator will provide a copy of their
equivalent of:
General Maintenance Manual
Time Limits Manual
Inspection Procedures
Reliability Manual.
Last 12 months of Reliability reports
ME 12.LAMM Schematics
<PAGE>
EXHIBIT A -- FORM OF ACCEPTANCE CERTIFICATE
ACCEPTANCE CERTIFICATE [___]
Midwest Express Airlines, Inc., a Wisconsin corporation
("Assignee"), acknowledges receipt of the delivery to it by [JFS Aircraft
Holdings Co., Ltd. ("JFS")]* at ____ hours on this date at
_______________, _____ of the following described property, together with
all parts, components and other equipment attached to and included with
such property, in accordance with the terms of the [Forward Purchase
Agreement, dated as of December 15, 1995, between JFS, as seller, and
Dolphin Trade & Finance, Ltd., as buyer ("Assignor"), as assigned by
Assignor to Assignee pursuant to the]** Assignment of Rights Agreement,
dated November 14, 1997, between Assignor and Assignee (the "Assignment of
Rights Agreement"):
(1) one McDonnell Douglas DC-9-81 airframe bearing
manufacturer's serial no. ______, together with all parts,
appliances, equipment, instruments, components and accessories
attached to, installed in, incorporated in or appurtenant to such
airframe;
(2) two Pratt & Whitney Model JT8D-217C aircraft engines
bearing manufacturer's serial nos. ______ and ______, together with
all parts, appliances, equipment, instruments, components and
accessories attached to, installed in, incorporated in or appurtenant
to such engines; and
(3) all Technical Records (as such term is defined in the
Assignment of Rights Agreement), including without limitation, the
documents and records set forth on Schedule 1 attached hereto
[Schedule 3 to be attached].
IN WITNESS WHEREOF, the Assignee has duly executed this
Acceptance Certificate [___] this ____ day of _______, ____.
MIDWEST EXPRESS AIRLINES, INC.
By:_______________________________
Name:
Title:
* Delete if the Aircraft is a Resale Aircraft and insert names of
Dolphin and Dolphin Trustee.
** Delete if the Aircraft is a Resale Aircraft.
<PAGE>
EXHIBIT B -- FORM OF ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT [___]
This ASSIGNMENT AGREEMENT [___], dated _________, ____ (the
"Assignment"), is between Dolphin Trade & Finance, Ltd. (the "Assignor")
and Midwest Express Airlines, Inc. (the "Assignee").
RECITALS:
(A) The Assignor and Assignee have entered into that certain
Assignment of Rights Agreement, dated November 14, 1997 ( the "Assignment
of Rights Agreement").
(B) Pursuant to the Assignment of Rights Agreement, Assignor
has agreed to assign to Assignee on their respective Delivery Date all of
its rights under the Forward Purchase Agreement with respect to the
Aircraft (other than the Resale Aircraft) to be delivered on such Delivery
Date and its obligation to pay the purchase price with respect to such
Aircraft in the amount set forth in the Assignment of Rights Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the Assignor and Assignee agree as follows:
1. Definitions. Capitalized terms used but not defined in
this Assignment shall have the meanings given such terms in the Assignment
of Rights Agreement.
2. Assignment. The Assignor hereby sells, assigns, transfers
and conveys to the Assignee (a) all of the Assignor's right, title and
interest in and to the Forward Purchase Agreement with respect to the
aircraft and engines set forth on the attached Annex 1 (the "Aircraft")
and its related Technical Records, and (b) the Assignor's obligation to
pay the JFS Purchase Price (the "Payment Obligation") with respect to the
Aircraft, except that the Assignor hereby reserves and does not transfer
the Reserved Rights with respect to the Aircraft.
3. Assumption by Assignee. The Assignee hereby accepts the
foregoing sale, assignment, transfer and conveyance of, and assumes, all
of the Assignor's right, title and interest in the Forward Purchase
Agreement, subject to the Reserved Rights, and of the Payment Obligation
with respect to the Aircraft.
4. Obligations of Assignor. Assignor acknowledges and
confirms for the benefit of JFS that, without limiting the Payment
Obligation of Assignee, nothing set forth in the Assignment of Rights
Agreement or this Assignment shall relieve or release Assignor from its
liability for the full and punctual performance of all obligations of
"Forward Purchaser" under the Forward Purchase Agreement.
5. Governing Law. This Assignment shall be governed by and
construed in accordance with the laws of the State of New York applicable
to contracts executed in the State of New York by residents of such State
and to be performed entirely within such State, without giving effect to
any choice or conflict of law provision which would cause the application
of the laws of any jurisdiction other than the State of New York.
6. Counterparts. This Assignment may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same Assignment.
IN WITNESS WHEREOF, Assignor and Assignee have caused this
Assignment Agreement [___] to be executed by their duly authorized
officers as of the date first above written.
DOLPHIN TRADE & FINANCE, MIDWEST EXPRESS AIRLINES, INC., as
LTD., as Assignor Assignee
By:_______________________________ By:_______________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT C -- CONSENT AND AGREEMENT
This CONSENT AND AGREEMENT, dated November 14, 1997 (this
"Consent"), is issued by JFS Aircraft Holdings Co., Ltd., a Japanese
corporation ("JFS"), for the benefit of Dolphin Trade & Finance, Ltd.,
("Assignor") and Midwest Express Airlines, Inc., a Wisconsin corporation
("Assignee").
In consideration of Ten Dollars and for other good and valuable
consideration whose receipt and sufficiency JFS hereby acknowledges, JFS
agrees as follows:
1. Capitalized terms used but not defined in this Consent
shall have the meaning given such terms in the Assignment of Rights
Agreement, dated November 14, 1997, between Assignor and Assignee (the
"Assignment of Rights Agreement").
2. JFS acknowledges and consents to all of the terms of the
Assignment of Rights Agreement, including (a) the assignment by Assignor
to Assignee and the assumption by Assignee on each Delivery Date of (i)
all of Assignor's right, title and interest in the Aircraft to be
Delivered on such Delivery Date, subject to Assignor's retention of the
Reserved Rights, and (ii) the Payment Obligation with respect to such
Aircraft, in each case as set forth in the Assignment Agreement for each
Aircraft to be executed and delivered on the Delivery Date for such
Aircraft, and (b) the appointment set forth in Section 2.7 of the
Assignment of Rights Agreement of Assignee as Assignor's agent for
purposes of inspecting the Aircraft under the Forward Purchase Agreement
and for conducting the test flights for such Aircraft.
3. Except for the Payment Obligation, Assignee shall not be
liable for any of the obligations or duties of Assignor under the Forward
Purchase Agreement, nor shall any of the Operative Documents give rise to
any duties or obligations on the part of Assignee to JFS, including
without limitation, under Section 3.3 of the Forward Purchase Agreement;
provided, however, that it is expressly understood that Assignor shall
remain responsible with respect to each of such duties and obligations.
4. JFS acknowledges and agrees that Assignee shall be
designated by JFS as an AInspector@ pursuant to Article 18 of the Lease
and shall cooperate with Assignee to ensure compliance by Lessee with the
terms thereof.
5. Upon confirmation by the Paying Agent to JFS before each
Delivery Date that the Paying Agent is holding the JFS Purchase Price for
the Aircraft to be delivered on such Delivery Date, JFS shall perform its
obligations under the Forward Purchase Agreement with respect to such
Aircraft for the benefit of Assignee as well as Assignor, including the
following agreements supplementing the agreements of JFS set forth in the
Forward Purchase Agreement:
(a) JFS shall cooperate with Assignor and Assignee by
taking all actions reasonably necessary to enable Assignor and
Assignee to (i) cause the issuance by the JAA of an Export
Certificate of Airworthiness for such Aircraft; (ii) make application
to the JAA for the deregistration of such Aircraft, and (iii) cause
such Aircraft to be deregistered by the JAA, and in connection with
the Assignor and Assignee taking such actions JFS shall relinquish
the Certificate of Airworthiness of such Aircraft;
(b) on each Delivery Date with respect to each Aircraft
(other than a Resale Aircraft), JFS shall deliver to Special FAA
Counsel on behalf of Assignee (i) an FAA Bill of Sale on AC Form
8050-2 covering the Aircraft to be Delivered to Assignee on such
Delivery Date, and (ii) a Full Warranty Bill of Sale in the form
attached as Exhibit A to the Forward Purchase Agreement covering such
Aircraft (except that references in such Warranty Bill of Sale to
Assignor and the registered address of Assignor shall be amended to
refer to Assignee and to the address of Assignee set forth in Section
12.3(b) of the Assignment of Rights Agreement); and
(c) on each Delivery Date with respect to each Resale
Aircraft, JFS shall deliver to Special FAA Counsel on behalf of
Assignee (i) an FAA Bill of Sale on AC Form 8050-2 covering the
Resale Aircraft to be Delivered to Assignor on such Delivery Date,
and (ii) a Full Warranty Bill of Sale in the form attached as Exhibit
A to the Forward Purchase Agreement covering such Resale Aircraft.
6. From and after the Delivery Date of an Aircraft pursuant to
the Forward Purchase Agreement and the receipt of payment in full for such
Aircraft, JFS will not assert any lien or claim against such Aircraft or
any part thereof, or against Assignee relating to such Aircraft or any
part thereof, arising prior to the time of such Delivery or in respect of
any work or services performed on such Aircraft prior to the time of
Delivery.
7. This Consent shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in the State of New York by residents of such State and to be
performed entirely within such State, without giving effect to any choice
or conflict of law provision which would cause the application of the laws
of any jurisdiction other than the State of New York.
IN WITNESS WHEREOF, JFS has caused this Consent and Agreement to
be executed by its duly authorized officer as of the date first above
written.
JFS AIRCRAFT HOLDINGS CO., LTD.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT D -- FORM OF TECHNICAL ACCEPTANCE CERTIFICATE
TECHNICAL ACCEPTANCE CERTIFICATE [___]
Midwest Express Airlines, Inc., a Wisconsin corporation
("Assignee"), hereby acknowledges delivery to Dolphin Trade & Finance,
Ltd. ("Assignor") by JFS Aircraft Holdings Co., Ltd. ("JFS") on this date
of the following described property, together with all parts, components
and other equipment attached to and included with such property
(collectively, the "Resale Aircraft"), in accordance with the terms of the
Forward Purchase Agreement, dated as of December 15, 1995, between JFS, as
seller, and Assignor, as buyer:
(1) one McDonnell Douglas DC-9-81 airframe bearing
manufacturer's serial no. ______, together with all parts,
appliances, equipment, instruments, components and accessories
attached to, installed in, incorporated in or appurtenant to
such airframe;
(2) two Pratt & Whitney Model JT8D-217C aircraft
engines bearing manufacturer's serial nos. ______ and ______,
together with all parts, appliances, equipment, instruments,
components and accessories attached to, installed in,
incorporated in or appurtenant to such engines; and
(3) all Technical Records (as such term is defined in
the Assignment of Rights Agreement), including without
limitation, the documents and records set forth on Schedule 1
attached hereto [Schedule 3 to be attached].
Assignee hereby unconditionally and irrevocably accepts and
agrees to the sufficiency of the condition of such Resale Aircraft for all
purposes of the Assignment of Rights Agreement, dated November 14, 1997,
between Assignor and Assignee (the "Assignment of Rights Agreement"),
including for purposes of the Delivery of such Resale Aircraft from
Assignor or the "Dolphin Trustee" (as such term is defined in the
Assignment of Rights Agreement) to Assignee.
IN WITNESS WHEREOF, the Assignee has duly executed this
Technical Acceptance Certificate [___] this ____ day of _______, ____.
MIDWEST EXPRESS AIRLINES, INC.
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT E -- FORM OF DOLPHIN TRUSTEE'S BILL OF SALE
Bill of Sale
DOLPHIN TRADE & FINANCE, LTD., a British Virgin Islands company
("Dolphin") and [NAME OF DOLPHIN TRUSTEE], not in its individual capacity
but solely as owner trustee f/b/o Dolphin (the "Dolphin Trustee"), hereby
certify jointly and severally that they are the owners of a certain
McDonnell Douglas DC-9-81 aircraft bearing manufacturer's serial number
_____ and the registration mark N_____, and equipped with the engines
bearing serial numbers ______ and ______, together with all appliances,
parts, instruments, appurtenances, accessories, furnishings, modules,
radar, radio and other equipment and property installed on or attached to
said aircraft and said engines or destined for use with respect to the
same (the "Aircraft") and all technical data, manuals, log books and other
records relating to each Aircraft or any part thereof (the "Technical
Records"), free and clear from all liens, claims, mortgages, charges,
pledges, leases or other rights or encumbrances of any nature created by,
or arising out of, Dolphin or the Dolphin Trustee.
In consideration of the receipt of the sum of US$1.00 and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Dolphin and the Dolphin Trustee do hereby grant,
convey, transfer, bargain and sell, deliver and set over to Midwest
Express Airlines, Inc., a Wisconsin corporation (the "Buyer"), all of
Dolphin's and Dolphin Trustee's right, title and interest in and to the
Aircraft and the Technical Records.
Dolphin and the Dolphin Trustee hereby warrant jointly and
severally to the Buyer and its successors and assigns that there is hereby
transferred to Buyer all right, title and interest in and to the Aircraft
and the Technical Records transferred to Dolphin and the Dolphin Trustee
by JFS Aircraft Holdings Co., Ltd. pursuant to the Full Warranty Bill of
Sale, dated ___________, ____, an original of which is attached, free and
clear of all liens, claims, mortgages, charges, pledges, leases or other
rights or encumbrances of any nature whatsoever created by arising out of
Dolphin or the Dolphin Trustee, and Dolphin and Dolphin Trustee hereby
agree jointly and severally with Buyer and its successors and assigns that
Dolphin and Dolphin Trustee will warrant and defend such title hereunder
forever against all claims and demands whatsoever.
This Bill of Sale shall in all respects be governed by and
construed in accordance with the internal laws of New York (but without
regard to any conflicts of laws rule which might result in the application
of the laws of any other jurisdiction).
Made and delivered in on this day of
, 19 .
For and on behalf of DOLPHIN TRADE &
FINANCE, LTD.
By
Name:
Title:
For and on behalf of [NAME OF DOLPHIN
TRUSTEE], not in its individual capacity but
solely as Owner Trustee f/b/o Dolphin
By
Name:
Title:
Read and agreed
For and on behalf of
MIDWEST EXPRESS AIRLINES, INC.
as Buyer
By
Name:
Title:
MIDWEST EXPRESS HOLDINGS, INC
ANNUAL INCENTIVE PLAN
(as amended through February 11, 1998)
1. PURPOSE
The purpose of this Annual Incentive Plan (the "Plan") of Midwest
Express Holdings, Inc. (the "Company") is to provide an incentive
compensation system that promotes and rewards the maximization of
shareholder value over the long term through:
(a) the annual establishment of Company objectives which are deemed
by the Committee to be in the best long-range interests of the Company,
and
(b) the annual payment of Incentive Awards to each Participant in the
form of an award of cash and/or stock, provided his or her performance has
meaningfully contributed to the attainment of the Company's objectives.
2. EFFECTIVE DATE
The Plan, as amended, is effective as of January 1, 1998.
3. BASIC DEFINITIONS
"Administrator" means, with respect to Participants who are then
executive officers of the Company, the Committee and, with respect to
Participants who are not then executive officers of the Company, the Chief
Executive Officer of the Company.
"Affiliate" means any company in which the Company directly or
indirectly owns 20% or more of the equity interest (collectively, the
"Affiliates").
"Board" means the Board of Directors of the Company.
"CEO" means the Chief Executive Officer of the Company.
"Committee" means the Compensation Committee of the Board.
"Control Measures" shall have the meaning set forth in section 10 of
this Plan.
"Incentive Award" means an award to a Participant under this Plan
payable based upon the achievement of preestablished objectives in cash
and/or stock.
"Measurement Period" means the fiscal year of the Company.
"Participant" shall have the meaning set forth in section 8 of this
Plan.
"Percentage Weighting" shall have the meaning set forth in section 9
of this Plan.
"Target Award" shall mean the amount determined by multiplying the
market value applicable to a Participant's position for the Measurement
Period by the Target Award Percentage.
"Target Award Percentage" means a percentage designated by the
Administer in its sole discretion at the beginning of the Measurement
Period, which percentage need not be the same for each Participant.
4. SVA DEFINITIONS
"Actual SVA" means the SVA as calculated for the Company or a
subsidiary of the Company, as the case may be, for the Measurement Period.
"Adjustment Factor" means an adjustment determined by the
Administrator to the calculated target SVA to ensure alignment of the
incentive plan with shareholders' interests and employee profit sharing.
"Capital" means the net investment employed in the operations of the
Company or a subsidiary of the Company, as the case may be. The
components of Capital are as follows:
Current assets
Plus: Net property, plant and equipment
Plus: Net landing slots
Plus: Present Value of Operating Leases
Plus: Other assets
Less: Air traffic liability
Less: Current liabilities & noncurrent maintenance reserves
Equals: Capital
Each component of Capital will be measured by computing an average balance
based on the ending monthly balance for the twelve months of the
Measurement Period in question.
"Cost of Capital" is determined by the Administrator based on the
weighted average of the after tax cost of debt and equity for the
Measurement Period in question. The Cost of Capital will be reviewed and
revised, if necessary, annually on a prospective basis. Calculations will
be carried to one decimal point.
"Capital Charge" means the deemed opportunity cost of employing
Capital in the Company or a subsidiary of the Company, as the case may be,
for the Measurement Period in question. The Capital Charge is computed as
follows:
Capital Charge = Capital x Cost of Capital
"Net Operating Profit After Tax" or "NOPAT"
"NOPAT" means the after tax cash earnings attributable to the capital
employed in the Company or a subsidiary of the Company, as the case may
be, for the Measurement Period in question. The components of NOPAT are
as follows:
Earnings before income taxes
Plus: Imputed interest on operating leases
Plus: Interest expense
Plus: Change in frequent flyer liability
Plus: Change in accrued pension & OPEB*
Less: Income taxes .
Equals: Net operating profit after tax
____________
* Before year-end contributions to pension fund.
"Present Value of Operating Leases" means the present value, as
calculated by the Chief Financial Officer of the Company subject to review
and revision by the Administrator in its discretion, of the future minimum
lease payments of the Company or a subsidiary of the Company, as the case
may be, required under operating leases having initial or remaining
noncancellable lease terms in excess of one year, which calculation shall
be based upon the amounts used to generate the "Leases" footnote to the
Company's financial statements.
"Shareholder Value Added" or "SVA" means, for the period in question,
the NOPAT of the Company or a subsidiary of the Company, as the case may
be, that remains after subtracting the relevant Capital Charge, expressed
as follows:
NOPAT
Less: Capital Charge
Equals: SVA
SVA may be positive or negative.
"Target SVA" means the level of SVA for the Company or a subsidiary
of the Company, as the case may be, that is expected for the Measurement
Period in question in order for a Participant to receive one hundred
percent (100%) of the Target SVA Award that relates to the entity in
question.
Target SVA for the Company or a subsidiary of the Company, as the
case may be, is calculated according to the following formula:
Target SVA = Prior Yr's Actual SVA + Prior Yr's Target SVA +
Current Yr's Budget SVA + Adj. Factor
3
5. DEFINITION AND COMPUTATION OF ACTUAL AWARD
In accordance with section 9, each Participant shall have his Target
Award subdivided into component targets that may consist of a Target SVA
Award relating to the Company, Target SVA Awards relating to a subsidiary
or subsidiaries of the Company and/or the Target Value Driver Award.
"Target SVA Award" relating to an entity means the percentage of the
Target Award that is based on SVA results of that entity.
"Target Value Driver Award" means the percentage of the Target Award
that is based on the individual's ability to meet or exceed specific
performance measures that drive shareholder value as determined by the
Administrator.
"SVA Award" means an award earned by a Participant based on SVA
results of the entity in question and is calculated by multiplying the
Target SVA Award relating to the entity in question by a percentage that
is determined as follows:
[Actual SVA - Target SVA] + 1
[Award Table Generator]
No Participants will be eligible for an SVA Award in the event that
the Company does meet or exceed the "Some Progress" performance level
under the Midwest Express Airlines, Inc. Profit Sharing Plan. Any negative
SVA Award calculation will be treated as a zero award. Payment of an
award that a Participant has earned will be made only in accordance with
the terms of this Plan.
"Award Table Generator" means a dollar amount chosen annually by the
Administrator in respect of each of the Company and each subsidiary of the
Company for the purpose of calculating the effect that differences between
Actual SVA and Target SVA will have on the amount of an SVA Award. The
effect of such amount is that if Actual SVA of an entity exceeds the
Target SVA by such amount, then a Participant will be entitled to an SVA
Award relating to such entity equal to 200% of the Target SVA Award, and
if the Target SVA of an entity exceeds Actual SVA by such amount, then a
Participant will be entitled to no SVA Award relating to such entity.
"Performance Measure Award" means the award earned by a Participant
based on individual value drivers, performance measures and/or individual
objectives and is calculated by multiplying the Target Value Driver Award
by the percentage of specific individual value driver performance measures
that a Participant has met or exceeded for the Measurement Period in
question. The Administrator will determine whether or not a Participant
has successfully met an individual value driver performance measure
target.
6. DESCRIPTION OF AWARD BANKS AND AWARD PAYOUTS
Establishment of an Award Bank. To encourage a long-term commitment
by Participants to the Company, all extraordinary awards (amounts above
Target Award) shall be credited to "at risk" accounts with the level and
timing of payout contingent on sustained high performance and improvements
and continued employment as provided herein.
"Award Bank" means, with respect to each Participant, a bookkeeping
record of an account to which amounts are credited from time to time under
the Plan and from which award payments to such Participant are debited.
"Bank Balance" means, with respect to each Participant, a bookkeeping
record of the net balance of the amounts credited to such Participant's
Award Bank. A Participant's Bank Balance shall initially be equal to
zero.
The aggregate award earned by a Participant for a Measurement Period
and the Participant's Bank Balance shall be paid to the Participant as
follows:
(a) The Company shall pay to the Participant any award earned up to
the amount of the Participant's Target Award following the completion of
the Measurement Period in accordance with section 12.
(b) The Company shall credit to the Participant's Award Bank the
amount of any award earned in excess of the Participant's Target Award.
(c) After any addition relating to a Measurement Period under
paragraph (b) (but whether or not there is an addition), the Company shall
pay to the Participant one-third of the amount of the Participant's Bank
Balance following the completion of the Measurement Period in accordance
with section 12, the amount of such payment to be debited to the Award
Bank.
(d) Any remaining Bank Balance shall be carried forward to be paid
in accordance with the terms of this Plan.
7. ADMINISTRATION
The Plan shall be administered by the Committee, which in its
absolute discretion shall have the power to amend, interpret and construe
the Plan, and to resolve all questions arising hereunder. Any action by
the Committee shall be final and conclusive as to all individuals affected
thereby.
The Committee may delegate to any officer or employee such
ministerial or administrative duties relating to the Plan as deemed
appropriate by the Committee. No member of the Committee or the CEO shall
be liable for any act done or omitted to be done by such person or by any
other person in connection with the Plan, except for such person's own
willful misconduct or as expressly provided by statute.
8. ELIGIBILITY
The Committee shall, in its sole discretion, determine for each
Measurement Period those officers and employees of the Company or any
Affiliate who shall be eligible to participate in the Plan (the
"Participants") for such Measurement Period based upon such Participants'
opportunity to have a substantial impact on the Company's operating
results. Nothing contained in the Plan shall be construed as or be
evidence of any contract of employment with any Participant for a term of
any length, or as a limitation on the right of the Company to discharge
any Participant with or without cause.
9. WEIGHTINGS
Prior to the beginning of each Measurement Period, or as soon as
reasonably practicable thereafter, the Administrator shall make any
determinations required under this Plan in respect of the Measurement
Period and establish any subdivision of a Participant's Target Award that
may consist of a Target SVA Award relating to the Company, Target SVA
Awards relating to a subsidiary or subsidiaries of the Company and/or the
Target Value Driver Award, which subdivision shall include a percentage
weighting ("Percentage Weighting") applicable to each component. The
total of all Percentage Weightings for a Participant shall be 100 percent.
10. CONTROL MEASURES
At the time the Administrator makes any determinations required under
this Plan in respect of a Measurement Period, there may also be
established certain conditions known as control measures ("Control
Measures") which are either personal as to one individual, or general as
to a group of individuals. Failure to fulfill a Control Measure may
partially or totally deprive the individual to whom the Control Measure
applies of the right to receive an award, notwithstanding the level of
performance attained on any or all objectives.
11. ADJUSTMENT OF INCENTIVE AWARD
Except as otherwise determined by the Committee, in its sole and
absolute discretion, the amount of any Incentive Award may be adjusted by
the CEO, or the Committee in the case of employees who are officers of the
Company, in their sole discretion, to more accurately reflect an
individual Participant's performance during the Measurement Period.
The amount of the Incentive Award, in the event of transfers to, from
or between eligible positions, may be reviewed, and may be adjusted or
prorated, on such basis as shall be determined fair and appropriate by the
CEO, or the Committee in the case of employees who are officers of the
Company.
Termination of employment for any reason other than death,
retirement, or total and permanent disability during the Measurement
Period shall result in a forfeiture of any remaining Bank Balance of the
Participant and of any Incentive Award attributable to performance during
the Measurement Period in which termination occurred. A Participant's
death, retirement or total and permanent disability during the Measurement
Period may result in the pro rata or other adjustment to the amount of the
Incentive Award on such basis as shall be determined fair and appropriate
by the Administrator.
Notwithstanding any provision of this Plan, no payment in respect of
a Participant's Award Bank or Incentive Award shall be paid to any
Participant who, in any Measurement Period, has discharged the principal
accountabilities of his or her position in an unsatisfactory manner.
12. PAYMENT OF INCENTIVE AWARDS
Subject to the terms of this Plan, Incentive Awards shall be
determined by the Administrator and paid in one lump sum in the first
quarter following the Measurement Period to which an Incentive Award
relates. An Incentive Award shall be paid in cash or, in the discretion
of the Administrator exercised at any time prior to payment of the
Incentive Award, in whole or in part by delivering shares of common stock
of the Company having a Fair Market Value (as hereinafter defined),
determined as of the last business day of the Measurement Period to which
an Incentive Award relates, equal to the amount of the Incentive Award to
be paid in shares of such common stock. In the discretion of the
Administrator, the form of payment may vary from Participant to
Participant. "Fair Market Value" means the mean between the high and low
sales price of such common stock, on the relevant date as reported on the
composite list used by the Wall Street Journal for reporting stock prices,
or if no such sale shall have been made on that day, on the last preceding
day on which there was such a sale, or if no such prior sale information
is available then as determined by the Administrator. Notwithstanding the
above, the Administrator may make payments at such earlier times as it
may, in its sole discretion, determine, and the Administrator, or the CEO,
in their sole discretion, will make such determinations as to performance,
and establish procedures (including repayment of any overpayment which is
determined after the completion of the final audit), implementing such
early payment. The Company shall have the right to deduct from the
payment any taxes required by law to be withheld thereon. The Committee
may at its discretion establish rules and procedures providing for a
Participant to elect to defer payment of his/her Incentive Award to a
future date or dates.
13. MISCELLANEOUS PROVISIONS
(a) Except as provided in this Plan, no right of any Participant
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, attachment,
garnishment, execution, levy, bankruptcy, or any other disposition of any
kind, whether voluntary or involuntary, prior to actual payment of an
Incentive Award. No Participant or any other person shall have any
interest in any fund, or in any specific asset or assets of the Company,
by reason of an Incentive Award that has been made but has not been paid
or distributed.
(b) The Committee may, at any time, amend this Plan, order the
temporary suspension of its application, or terminate it in its entirety,
provided, however, that (i) no such action shall adversely affect the
rights or interests of Participants theretofore vested hereunder and (ii)
the Committee may not amend the first sentence of Section 13(d) of this
Plan without approval by the Board.
(c) The terms of the Plan shall be governed, construed,
administered, and regulated by the laws of the state of Wisconsin and
applicable federal law. In the event that any provision of the Plan shall
be determined to be illegal or invalid for any reason, the other
provisions shall continue in full force and effect as if such illegal
provision had never been included herein.
(d) The total number of shares of common stock of the Company
subject to issuance under the Plan may not exceed 37,500, subject to
adjustment as provided below. The shares of common stock of the Company
to be delivered under the Plan may consist, in whole or in part, of
authorized but unissued stock or treasury stock, not reserved for any
other purpose. In the event of any change in the shares of the Company's
common stock by reason of a declaration of a stock dividend (other than a
stock dividend declared in lieu of an ordinary cash dividend), spin-off,
merger, consolidation, recapitalization, or split-up, combination or
exchange of shares, or otherwise, the aggregate number of shares available
under this Plan shall be appropriately adjusted by the Committee, using
the same standards and/or formulas as it uses in making adjustments under
the Midwest Express Holdings, Inc. 1995 Stock Option Plan.
(e) All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
(f) Except and until expressly granted pursuant to the Plan, nothing
in the Plan shall be deemed to give any employee any contractual or other
right to participate in the benefits of the Plan.
(g) Any rights provided to an employee under the Plan shall be
personal to such employee, shall not be transferable (except by will or
pursuant to the laws of descent or distribution), and shall be
exercisable, during his lifetime, only by such employee.
(h) Upon termination of the Plan, the Bank Balance of each
Participant who is then an employee of the Company or any subsidiary of
the Company shall be distributed as soon as practicable but in no event
later than 90 days from such event. The Administrator, in its sole
discretion, may accelerate distribution of the Bank Balance, in whole or
in part, at any time without penalty.
14. LIMITATION
No Continued Employment. Nothing contained herein shall provide any
employee with any right to continued employment or in any way abridge the
rights of the Company to determine the terms and conditions of employment
and whether to terminate employment of any employee.
No Vested Rights. Except as otherwise provided herein, no employee
or other person shall have any claim of right (legal, equitable, or
otherwise) to any award, allocation, or distribution or any right, title,
or vested interest in any amounts in his Award Bank and no officer or
employee of the Company or any other person shall have any authority to
make representations or agreements to the contrary. No interest conferred
herein to a Participant shall be assignable or subject to claim by a
Participant's creditors. The right of the Participant to receive a
distribution hereunder shall be an unsecured claim against the general
assets of the Company and the Participant shall have no rights in or
against any specific assets of the Company as the result of participation
hereunder.
Not Part of Other Benefits. The benefits provided in this Plan shall
not be deemed a part of any other benefit provided by the Company to its
employees. The Company assumes no obligation to Plan Participants except
as specified herein. This is a complete statement, along with the
Exhibits attached hereto, of the terms and conditions of the Plan.
Other Plans. Nothing contained herein shall limit the Company or the
Committee's power to grant Awards to employees of the Company, whether or
not Participants in this Plan.
Limitations. Neither the establishment of the Plan nor the grant of
an award hereunder shall be deemed to constitute an express or implied
contract of employment for any period of time or in any way abridge the
rights of the Company to determine the terms and conditions of employment
or to terminate the employment of any employee with or without cause at
any time.
Unfunded Plan. This Plan is unfunded. Nothing herein shall create
or be construed to create a trust of any kind, or a fiduciary relationship
between the Company and any Participant.
[page 18]
FIVE-YEAR FINANCIAL AND OPERATING DATA
MIDWEST EXPRESS HOLDINGS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total operating revenues $ 344,557 $304,746 $259,155 $203,592 $165,056
Total operating expenses 306,087 270,387 227,781 192,328 149,159
Operating income 38,470 34,359 31,374 11,264 15,897
Net income 24,940 21,750 19,129 6,662 9,086
Net income per share
basic (1) 2.64 2.27 1.84 0.50 N/A
Net income per share
diluted (1) 2.61 2.26 1.84 0.50 N/A
Balance Sheet Data:
Property and equipment,
net 89,156 70,903 55,919 57,626 56,486
Total assets 166,748 129,135 92,833 95,436 80,161
Intercompany receivable
(2) 0 0 61 17,923 3,199
Long-term debt 3,333 0 0 0 0
Shareholders' equity $63,398 $40,341 $21,264 $37,840 $31,178
Selected Operating and
Other Data (3):
Midwest Express Airlines:
Revenue passenger miles
(000s) 1,409,528 1,239,966 1,150,338 972,809 785,391
Available seat miles
(000s) 2,198,179 1,954,151 1,794,924 1,600,437 1,314,522
Passenger load factor (%) 64.1% 63.5% 64.1% 60.8% 59.7%
Revenue yield (cents per
RPM) 19.4 19.3 17.8 16.7 19.0
Cost per total ASM (cents
per mile) 12.1 12.0 11.0 10.8 11.1
Aircraft in service at
year-end 24 22 19 19 16
Average aircraft
utilization (hours per
day) 9.3 9.2 9.0 8.6 8.3
Number of FTE employees
at year-end 1,889 1,624 1,411 1,334 1,082
Astral Aviation, d/b/a Skyway
Airlines (4):
Revenue passenger miles
(000s) 69,277 71,165 66,415 43,219 N/A
Available seat miles
(000s) 158,912 160,488 156,113 103,759 N/A
Passenger load factor (%) 43.6% 44.3% 42.5% 41.7% N/A
Revenue yield (cents per
RPM) 55.1 52.7 49.9 48.3 N/A
Cost per total ASM (cents
per mile) 23.8 21.6 19.4 17.9 N/A
Aircraft in service at
year-end 15 15 15 13 N/A
Average aircraft utilization
(hours per day) 7.7 7.8 7.9 7.9 N/A
Number of FTE employees
at year-end 277 245 217 177 N/A
(1) Net income per share data is presented on a pro forma basis for 1995 and 1994 results.
(2) Intercompany receivable reflects amounts receivable from Kimberly-Clark in connection with the Company's participation
in Kimberly-Clark's cash management program prior to the Company's initial public offering.
(3) Revenue passenger miles, available seat miles, passenger load factor and revenue yield are for scheduled service
operations. The other statistics include charter operations.
(4) Because Astral began service in February 1994, results for 1994 reflect less than a full year of operations. Before
Astral commenced operations, Mesa Airlines, Inc. ("Mesa"), pursuant to a codesharing agreement with Midwest Express,
operated routes similar to those that Astral now operates. Because Mesa is not affiliated with the Company, information
relating to Mesa's results of operations for these routes is not shown.
</TABLE>
<PAGE>
[pages 19-22]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1997 Overview
1997 operating income for Midwest Express Holdings, Inc. (the "Company")
was $38.5 million, an increase of $4.1 million over 1996. Net income in
1997 increased by $3.2 million to $24.9 million. The favorable change in
financial results was primarily caused by continued strong demand for air
travel, successful results from new operations, lower fuel prices and
improved results from supplemental revenue programs.
The Company increased scheduled service capacity in 1997 by 11.5%, while
traffic increased 12.8%. This resulted in a load factor increase of .7
points, with almost no deterioration in revenue yield. Both of the new
markets served by Midwest Express Airlines, Inc. ("Midwest Express"),
Milwaukee-Orlando and Kansas City-New York, performed well. Revenue yield
decreased .4% in 1997, but this was offset by a 3.2% increase in average
passenger trip length. Revenue yield was actually very strong during 1997
as 1996 yields benefited more from the temporary suspension of the 10%
federal excise tax.
The Company benefited from significantly lower fuel prices in the fourth
quarter, which averaged 19.5% less than in the fourth quarter 1996. During
1997 fuel prices decreased 5.3%, resulting in a favorable impact on
operating income of $2.8 million.
Improved results from supplemental revenue programs at Midwest Express
also favorably impacted financial results in 1997. Midwest Express' credit
card program generated $2.3 million more revenue in 1997 than in 1996,
charter services revenue increased $1.2 million in 1997, and revenue from
ground handling services for other airlines increased $1.2 million in
1997. Each of these programs has high operating margins.
Negatively impacting operating income was a 13.2% increase in operating
expenses. Significant increases occurred in labor and maintenance, which
are explained in the subsequent section.
The following table provides operating revenues and expenses for the
Company expressed as cents per total available seat miles ("ASM"),
including charter operations, and as a percentage of total operating
revenues for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
Per Per Per
Total Total Total
ASM % ASM % ASM %
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Passenger service 12.95 90.3% 12.81 90.8% 12.03 92.0%
Cargo .48 3.3% .52 3.7% .53 4.0%
Other .92 6.4% .77 5.5% .52 4.0%
----- ----- ----- ----- ----- -----
Total operating
revenues 14.35 100.0% 14.10 100.0% 13.08 100.0%
Operating expenses:
Salaries, wages
and benefits 3.84 26.7% 3.61 25.6% 3.18 24.3%
Aircraft fuel
and oil 2.09 14.5% 2.19 15.5% 1.78 13.6%
Commissions 1.31 9.2% 1.31 9.3% 1.26 9.6%
Dining services .72 5.0% .70 4.9% .75 5.7%
Station rental/
landing/other fees 1.02 7.1% 1.00 7.1% .98 7.5%
Aircraft maintenance
materials/repairs 1.17 8.2% .99 7.0% .88 6.7%
Depreciation and
amortization .36 2.5% .35 2.5% .38 2.9%
Aircraft rentals .73 5.1% .74 5.3% .75 5.8%
Other 1.51 10.5% 1.62 11.5% 1.54 11.8%
----- ----- ----- ----- ----- -----
Total operating
expenses 12.75 88.8% 12.51 88.7% 11.50 87.9%
===== ===== ===== ===== ===== =====
Total ASM (millions) 2,401.3 2,160.9 1,962.1
======= ======= =======
</TABLE>
Note: Numbers in this table cannot be recalculated due to rounding.
Year Ended December 31, 1997
Compared to Year Ended December 31, 1996
Operating Revenues
The Company's operating revenues totalled $344.6 million in 1997, a $39.8
million, or 13.1%, increase over 1996. Passenger revenues accounted for
90.3% of total revenues and increased $34.2 million, or 12.4%, from 1996
to $311.0 million. The increase was attributable to a 12.8% increase in
passenger volume, as measured by revenue passenger miles, offset by a .4%
decrease in revenue yield.
Midwest Express' passenger revenue increased $33.6 million, to $272.9
million, from 1996, or 14.1%. This increase was caused by a 12.3% increase
in origin and destination passengers and a .3% increase in revenue yield.
Midwest Express' capacity, as measured by scheduled service ASM, increased
12.5%. The increase in capacity is primarily due to the addition of two
DC-9 aircraft to scheduled service during the year. Load factor increased
from 63.5% in 1996 to 64.1% in 1997. During the year, revenue yield was
negatively impacted by the reinstatement of the federal excise tax on
passenger tickets effective March 7, 1997 and competitive pricing
pressures on several new routes. Service initiated in March 1997 in the
Milwaukee-Orlando market resulted in lower yields as expected, but higher
load factors than the remainder of the Midwest Express system. Fare
increases late in the third quarter 1997 contributed favorably to revenue
yield.
Passenger revenue of Astral Aviation, Inc. ("Skyway") increased by $.6
million to $38.1 million, or 1.6%, in 1997. This increase was caused by a
4.4% increase in revenue yield, offset by a 4.3% decrease in origin and
destination passengers. Total capacity decreased by 1.0%, as one aircraft
was required for scheduled maintenance during most of the year. Load
factor decreased from 44.3% in 1996 to 43.6% in 1997.
Mail and cargo revenue increased $.2 million, or 1.3%, in 1997. This
increase was due to the aircraft added to scheduled service during the
year.
Revenue from other services increased $5.4 million, or 32.6%, in 1997.
Midwest Express benefited from increased revenue of $2.3 million from the
Midwest Express MasterCard program and additional ground service contracts
of $1.2 million. Charter services revenue increased $1.2 million, because
Midwest Express had one aircraft dedicated to charter operations during
the first four months of 1997 but did not have a dedicated aircraft until
the second quarter of 1996. During portions of the second and third
quarters of 1997, Midwest Express had delays with an aircraft
refurbishment that required the use of the dedicated charter jet aircraft
for scheduled service.
Operating Expenses
1997 operating expenses increased $35.7 million, or 13.2%, from 1996,
primarily due to expanded operations. On a cost per total ASM basis,
Midwest Express' operating expenses increased 1.4%, from 11.97 cents in
1996 to 12.14 cents in 1997. Cost per total ASM at Skyway increased 10.0%
from 21.59 cents to 23.75 cents.
Salaries, wages and benefits increased $14.2 million, or 18.2%, from 1996.
On a cost per total ASM basis, these costs increased from 3.61 cents in 1996
to 3.84 cents, or 6.4%, in 1997. The labor cost increase was primarily due
to an increase in the number of employees necessary for expanded service
and administrative requirements. Midwest Express added employees throughout
the organization to support the aircraft placed in service during 1996 and
1997. In addition, employees were added to support aircraft ground
handling operations in Boston, Kansas City and Washington, D.C., which
were previously contracted from other airlines. Salaries, wages and
benefits were also adversely affected by an unanticipated delay in
completing several new aircraft modifications and refurbishments as
initially scheduled. This delay caused a temporary excess in aircraft
flight crews during 1997's second and third quarters. The labor cost
increase was also due to an adjustment in pay scales for most operations'
employees at Midwest Express effective January 1, 1997. These rate
adjustments were implemented based on industry salary surveys and
management's desire to increase pay scales to maintain a competitive
position in the industry. Profit sharing decreased $.5 million in 1997
from 1996.
Aircraft fuel and oil and associated taxes increased $2.8 million, or
6.0%, from 1996. Into-plane fuel prices decreased 5.3% in 1997, averaging
73.1 cents per gallon in 1997 and 77.2 cents in 1996. The Company
experienced continued low fuel costs in January 1998, averaging 65.7 cents
per gallon. Fuel consumption increased 12.0% in 1997 because Midwest Express
operated 12.1% more aircraft hours.
Commissions increased by $3.2 million, or 11.4%, due to increased
passenger revenue. Of the increase, $2.3 million related to increased
travel agency commissions and $.9 million to increased credit card fees.
Commissions as a percent of passenger revenue decreased from 10.2% in 1996
to 10.1% in 1997 due to a new commission rate structure effective
September 25, 1997, which lowered travel agent commissions from 10% to 8%.
The Company's 1997 operating income would have increased approximately
$3.2 million had the new commission rate structure been in place during
the entire year.
Dining services costs increased by $2.1 million, or 13.9%, due to
increased passenger volume. Total dining services costs (including food,
beverages, linen, catering equipment and supplies) increased from $10.95
per Midwest Express passenger in 1996 to $11.11 in 1997.
Station rental, landing and other fees increased by $2.9 million, or
13.3%, in 1997. Airport costs at Midwest Express increased $2.6 million as
a result of a 9.8% increase in flight segments. In addition, the Company
incurred higher landing fees, security costs and facility rental costs at
most airports.
Aircraft maintenance, materials and repairs increased by $6.9 million, or
32.2%, from 1996. Midwest Express maintenance costs increased by $5.4
million, or 31.1%, and Skyway maintenance costs increased $1.5 million, or
36.5%. The increase was attributable in part to an unscheduled repair of
one MD-88 engine, which adversely affected costs by $1.3 million. The
increase was also attributable to more flight hours at Midwest Express, an
increase in the number and cost of aircraft component repairs, and an
increase in Skyway maintenance due to scheduled landing gear and propeller
repairs and unscheduled engine maintenance.
Depreciation and amortization increased by $1.0 million, or 12.8%, in
1997, primarily as a result of the depreciation associated with capital
spending and the decision to exercise purchase options on two leased jet
aircraft in October 1996, offset by two jet aircraft becoming fully
depreciated during both 1996 and 1997.
Aircraft rental costs increased $1.4 million, or 8.7%, in 1997 as a result
of Midwest Express leasing two additional aircraft. The increased cost was
partially offset by lower lease costs for Skyway's 15 turboprop aircraft
that were refinanced in the second and third quarter of 1996, and the
decision to exercise purchase options on two leased aircraft in October
1996. In addition, the Company leased a second spare engine for its MD-88
fleet for nine months during 1997.
Other operating expenses increased by $1.2 million, or 3.5%, from 1996.
Other operating expenses consist primarily of advertising and promotion,
insurance, property taxes, reservation fees, administration and other
items. Travel expenses increased $.5 million due to additional overnight
costs associated with flight schedule changes, professional and financial
services increased by $.3 million, software costs increased $.7 million,
and telecommunication costs increased $.7 million. The increased costs
were partly offset by decreases in property taxes of $.4 million,
facilities rental of $.3 million, and headquarter relocation costs of $.3
million. Other operating expenses on a cost per total ASM basis decreased
6.9% from 1.62 cents in 1996 to 1.51 cents in 1997.
Interest Income
Interest income reflects interest income on the Company's cash and cash
equivalents.
Other Income and Expense
Other expenses in 1996 primarily reflected the costs of the secondary
public offering completed in the second quarter.
Provision for Income Taxes
Income tax expense in 1997 was $14.7 million, an increase of $1.2 million
from 1996. The effective tax rates for 1997 and 1996 were 37.1% and 38.3%,
respectively. For purposes of calculating the Company's income tax expense
and effective tax rate for periods after the Company's initial public
offering ("Offering"), the Company treats amounts payable to an affiliate
of Kimberly-Clark Corporation ("Kimberly-Clark") under a tax allocation
and separation agreement entered into in connection with the Offering as
if payable to taxing authorities.
Net Income
Net income increased by $3.2 million, or 14.7%, in 1997. The net income
margin increased to 7.2% in 1997 from 7.1% in 1996.
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
Operating Revenues
The Company's operating revenues totalled $304.7 million in 1996, a $45.6
million, or 17.6%, increase over 1995. Passenger revenues accounted for
90.8% of total revenues and increased $38.4 million, or 16.1%, from 1995
to $276.8 million. The increase was attributable to a 7.8% increase in
passenger volume, as measured by revenue passenger miles, and a 7.7%
increase in revenue yield.
Midwest Express passenger revenue increased $34.0 million to $239.3
million, or 16.6%, from 1995. This increase was caused by a 6.0% increase
in origin and destination passengers and an 8.1% increase in revenue
yield. Midwest Express' capacity, as measured by scheduled service ASM,
increased 8.9%. The increase in capacity is primarily due to the addition
of two aircraft to scheduled service during May and September 1996, partly
offset by flight cancellations caused by poor weather in the second
quarter. Load factor decreased from 64.1% in 1995 to 63.5% in 1996.
Revenue yield increased primarily because of an improved competitive
environment, most importantly the discontinuation of Continental Airlines
"Lite" product in the second quarter 1995. Revenue yield also increased
due to the temporary elimination of the 10% excise tax on tickets (January
through August 1996) and improved pricing throughout the industry. Yield
gains were broad-based, with almost every market realizing improvement.
Skyway passenger revenue increased by $4.4 million to $37.5 million, or
13.2%, in 1996. This increase was caused by a 4.9% increase in origin and
destination passengers, a 5.6% increase in revenue yield and a 4.9%
increase in average passenger trip length. The volume increase was
attributable to two aircraft that were placed in service in the second
quarter of 1995 and to an increase in load factor, from 42.5% in 1995 to
44.3% in 1996.
Mail and cargo revenue increased $.9 million, or 8.4%, in 1996. This
increase was due to the aircraft added to scheduled service in May and
September 1996.
Revenue from other services increased $6.3 million, or 61.6%, in 1996. The
Midwest Express MasterCard program, initiated in October 1995, generated
an additional $4.1 million in revenue during 1996. Charter services
revenue increased $2.2 million, reflecting the addition of a dedicated
charter aircraft again in the second quarter of 1996 after not having a
dedicated charter aircraft since the second quarter of 1995. Revenue from
other Frequent Flyer agreements increased $.3 million. The revenue
increase was partly offset by $1.1 million less revenue from maintenance
contract services, as the maintenance function was more fully utilized to
maintain Midwest Express aircraft in 1996 and completed fewer services for
other airlines.
Operating Expenses
1996 operating expenses increased $42.6 million, or 18.7%, from 1995,
primarily due to higher fuel prices, higher labor rates, Midwest Express'
profit sharing plans, added costs of being a public company,
pre-operating costs associated with recently acquired aircraft, and
service expansions in May and September 1996. On a cost per total ASM
basis, Midwest Express' operating expenses increased 8.8%, from 11.00
cents in 1995 to 11.97 cents in 1996. Cost per total ASM at Skyway
increased 11.4% from 19.38 cents to 21.59 cents.
Salaries, wages and benefits increased $15.1 million, or 23.9%, from 1995.
On a cost per total ASM basis, these costs increased from 3.18 cents in 1995
to 3.61 cents, or 13.5%, in 1996. Approximately $5.5 million of the labor
cost change was due to increased labor rates. Most of this change was due
to an adjustment in pay scales for pilots and other operations employees.
Salaries, wages and benefits increased $5.2 million because of accruals
for Midwest Express' profit sharing plans that were implemented on January
1, 1996. The profit sharing plans, which benefit substantially all Midwest
Express employees, were based entirely on achieving certain levels of
profitability and were paid in February 1997. Benefit costs increased by
$2.1 million at the Company in 1996, and were 24.3% of salaries and wages
in 1996 and 25.5% in 1995. The remainder of the change in labor costs was
primarily due to an increase in the number of employees required due to
expanded service and administrative requirements.
Aircraft fuel and oil and associated taxes increased $12.1 million, or
34.3%, from 1995. Into-plane fuel prices increased 23.7% in 1996,
averaging 77.2 cents per gallon in 1996 and 62.4 cents in 1995. Fuel
consumption increased 8.6% because Midwest Express operated 5.9% more
flight segments, primarily due to the service expansions in May and
September 1996.
Commissions increased by $3.4 million, or 13.8%, due to increased
passenger revenue. Of the increase, $2.6 million related to increased
travel agency commissions and $.8 million to increased credit card fees.
Commissions as a percent of passenger revenue decreased from 10.4% in 1995
to 10.2% in 1996.
Dining services costs were almost identical in 1996 and 1995 despite
volume increases. Total dining services costs (including food, beverages,
linen, catering equipment and supplies) decreased from $11.45 per Midwest
Express passenger in 1995 to $10.95 in 1996. The decrease was primarily
due to a reduction in costs following the negotiation of a long-term
contract with the primary food caterer for Midwest Express. Reduced
pricing was effective January 1, 1996. The reduction in the cost per
passenger was offset by increased passenger volume.
Station rental, landing and other fees increased by $2.2 million, or
11.3%, in 1996. Airport costs at Midwest Express increased $2.1 million, a
result of a 5.9% increase in flight segments.
Aircraft maintenance, materials and repairs increased by $4.0 million, or
22.8%, from 1995. Midwest Express maintenance costs increased by $2.9
million, or 19.6%, and Skyway maintenance costs increased $1.1 million, or
37.4%. The increased costs at Midwest Express were caused by 10.5% more
aircraft flight hours and an increase in aircraft component and
unscheduled engine repair costs. In addition, Midwest Express completed
major airframe maintenance (D-Checks) on several aircraft sooner than
previously planned to facilitate aircraft maintenance and refurbishment
scheduling. Maintenance accruals were increased to reflect this change.
Increased costs at Skyway were caused by a 3.9% increase in flight hours,
the expiration of warranties on most aircraft and higher component repair
costs.
Depreciation and amortization increased by $.1 million in 1996, primarily
as a result of the depreciation associated with capital spending and the
decision to exercise purchase options on two leased jet aircraft in
October 1996, offset by two jet aircraft becoming fully depreciated during
the year.
Aircraft rental costs increased $1.1 million, or 7.4%, in 1996. The
increase is primarily attributable to the addition of more aircraft to the
fleet (Midwest Express leased three additional aircraft in 1996 and Skyway
added two aircraft in May 1995), offset by the decision to exercise
purchase options on two leased jet aircraft in October 1996.
Other operating expenses increased by $4.5 million, or 14.6%, from 1995.
Other operating expenses consist primarily of advertising and promotion,
property and liability insurance, property taxes, reservation fees,
administration and other items. Professional, legal and financial
services increased $1.4 million in 1996 due to the costs associated with
being a stand-alone public company for the full year, travel expenses
increased $.7 million because of more crew rooms required due to flight
schedule changes, charter costs increased $.4 million due to increased
charter volume, insurance costs increased $.4 million due to the increased
number of aircraft and passengers, reservation booking fees increased $.3
million due to higher passenger volumes, and corporate communications
costs increased $.3 million due to 1996 being the Company's first full
year as a public company. The increased costs were partly offset by a
decrease in advertising and promotional expenditures of $.5 million. Other
operating expenses on a cost per total ASM basis increased 5.2% from 1.54
cents in 1995 to 1.62 cents in 1996.
Interest Income
Interest income in 1995 relates to an intercompany cash management program
the Company had with Kimberly-Clark prior to the Offering. Market rates
of interest were earned on the amount of cash the Company had advanced to
Kimberly-Clark. Interest income in 1996 reflected interest income on the
Company's cash and cash equivalents.
Other Income and Expense
Other expenses in 1996 primarily reflected the costs of the secondary
public offering completed in the second quarter. Other expenses in 1995
include an employee stock grant of $.9 million and costs
associated with the Offering of $.7 million.
Provision for Income Taxes
Income tax expense in 1996 was $13.5 million, an increase of $1.1 million
from 1995. The effective tax rates for 1996 and 1995 were 38.3% and 39.3%,
respectively. The higher tax rate in 1995 was generally attributable to
costs of the Offering that were not deductible for income tax purposes.
Net Income
Net income increased by $2.6 million, or 13.7%, in 1996. The net income
margin decreased to 7.1% in 1996 from 7.4% in 1995.
<PAGE>
[pages 22-23]
Liquidity and Capital Resources
The Company's cash and cash equivalents totalled $32.1 million at December
31, 1997 compared to $27.6 million at December 31, 1996. Net cash provided
by operating activities totalled $48.9 million during 1997. Net cash used
in investing activities totalled $56.6 million, primarily due to aircraft
acquisitions and related modifications in 1997 of $12.5 million that were
financed by or intended to be financed by sale and leaseback transactions,
and due to capital expenditures of $27.6 million. Net cash provided by
financing activities totalled $12.1 million, primarily due to proceeds
from sale and leaseback transactions of $15.6 million offset by the
purchase of treasury stock totalling $2.0 million.
The Company had a working capital deficit of $12.9 million as of December
31, 1997, versus a $5.8 million deficit on December 31, 1996. The working
capital deficit is due to the Company's air traffic liability (advance
bookings, whereby passengers have purchased tickets for future flights),
accrued scheduled maintenance expense and accrued lease payments. Because
of these items, the Company expects to operate periodically with a working
capital deficit, which is not unusual for the industry.
As of December 31, 1997, the Company's two credit facilities, a $55.0
million revolving bank credit facility and a $20.0 million secondary
revolving credit facility with Kimberly-Clark, have not been used,
except for letters of credit totalling approximately $11.4 million that
reduce the amount of available credit. The letters of credit are used to
secure certain reserve amounts for stipulated airframe and engine
maintenance performed on Midwest Express' MD-88 aircraft, to support two
aircraft leases and for various other purposes.
During August 1997, the Company purchased a headquarters building, which
it previously leased. As part of the transaction, the Company assumed $3.5
million of long-term debt. The mortage note has an interest rate of 8.25%
and is payable in monthly installments through April 2011.
The Company expects to incur capital expenditures of approximately $27.0
million in 1998. The majority of the spending, $9.0 million, relates to
the expansion of Midwest Express' hangar facility, discussed in the next
paragraph. The Company also anticipates capital expenditures in 1998 for
capitalized airframe and engine overhauls, aircraft interior noise
reduction kits, ground equipment and airport modifications to support
planned growth, and computer equipment to automate and improve processes
throughout the organization. Future aircraft acquisition costs, including
noise hush kits and aircraft refurbishment, are not included in the $27.0
million capital spending forecast for 1998.
During 1998, Midwest Express will construct a new 70,000-square-foot
hangar to handle maintenance support for its current fleet and planned
growth. The new structure will include five aircraft bays and will be used
for heavy aircraft maintenance work.
Aircraft acquisitions and modifications financed by or intended to be
financed by sale and leaseback transactions totalled $12.5 million during
1997. In addition, during 1997 the Company finalized operating lease
financing on the acquisition and related modifications of three DC-9-30
aircraft. In 1998, the Company intends to finalize sale and leaseback
transactions on two DC-9-30 aircraft, in which case the Company will be
reimbursed for approximately $6.0 million of related aircraft acquisition
and modification costs incurred during 1997.
During 1997, the Company executed definitive purchase documents to acquire
eight McDonnell Douglas MD-80 series aircraft and made deposits totalling
$14.5 million. Four of the aircraft will be received in 1998 and the
remaining four in 1999. During 1998, the Company expects that this
project, including aircraft refurbishment, modification and support
equipment, will cost approximately $67.9 million and will be financed as
deliveries take place.Leases relating to three Midwest Express jet
aircraft are guaranteed by Kimberly-Clark. The Company pays Kimberly-
Clark a guarantee fee equal to 1.25% annually of the outstanding lease
commitments. Kimberly-Clark will continue to guarantee the leases for the
three jet aircraft until the expiration of their initial lease terms. The
first of these jet aircraft leases expires in 2001. Aircraft lease
guarantee fees in 1998 will be approximately $.1 million.
During the second quarter of 1997, the Company's Board of Directors
approved increasing the Company's share repurchase program by $10.0
million over and above the original $5.0 million limit authorized in
December 1995. During the third quarter of 1997, the Company repurchased
80,000 shares of common stock totalling $2.0 million. As of December 31,
1997, the Company has purchased a total of 235,550 shares of common stock
at a cost of $4.8 million under the share repurchase program.
The Company believes existing cash and cash equivalents, cash flow from
operations, funds available from credit facilities and available long-term
financing for the acquisition of jet and turboprop aircraft will be
adequate to meet its current and anticipated working capital requirements
and capital expenditures.
Pending Developments
This Annual Report, and particularly this Pending Developments section,
contains forward-looking statements that may state the Company's or
management's intentions, hopes, beliefs, expectations or predictions for
the future. It is important to note that the Company's actual results
could differ materially from those projected results due to factors that
include, but are not limited to, uncertainties related to general economic
factors, industry conditions, scheduling developments, government
regulations, labor relations, aircraft maintenance and refurbishment
schedules, and potential delays relating to acquired aircraft. Additional
information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained from
time to time in the Company's SEC filings, including but not limited to
the Company's prospectus dated May 23, 1996 included in Registration
Statement on Form S-1 No. 333-03325.
DC-9 Aircraft - As of December 31, 1997, two DC-9 aircraft acquired during
1996 had not yet been placed into service. The first aircraft will
initially be used as a maintenance support aircraft beginning in the
second quarter of 1998. The second aircraft will be placed into service
during the second quarter of 1998; plans for this aircraft have not been
announced.
MD-80 Series Aircraft - During January 1998, Midwest Express took delivery
of the first of eight MD-80 series aircraft the Company recently agreed to
purchase, and after refurbishment and modification, this aircraft will
enter scheduled service in mid-1998. The remaining seven aircraft are
expected to be delivered to Midwest Express continuing through 1999. Plans
for these aircraft have not been announced. The Company expects that this
entire project, including aircraft refurbishment, modification and support
equipment, will cost approximately $120.0 million and will be financed
as deliveries take place. The Company is currently evaluating financing
alternatives.
Labor Relations - In December 1997, Midwest Express pilots elected the Air
Line Pilots Association ("ALPA") for representation in collective
bargaining. Negotiations have not yet begun. In January 1998, Skyway
pilots represented by ALPA ratified a four-year labor contract. No other
employees in the Company are unionized.
Sales Taxes - During 1996, the Wisconsin Department of Revenue asserted
that Wisconsin sales taxes should be paid in connection with Midwest
Express' purchase of meals from its food caterer. While Midwest Express
does not believe any such sales tax is payable, if the Department of
Revenue successfully asserts its position, then Midwest Express would be
liable for back taxes and associated interest in the amount of
approximately $.6 million, and Midwest Express would have to pay
approximately $.3 million in additional sales taxes annually in
the future.
Year 2000 - The Company has developed plans to address issues related to
the impact of the year 2000 on its computer systems. Financial and
operational systems have been assessed, and initial plans have been
developed to address systems modification requirements. To date, the
Company has identified one internal system that will require a moderate
amount of correction. This system will be modified using in-house
resources and will be completed by year-end 1998. The Company believes
that the financial impact of making the required system changes will not
be material to the Company's consolidated financial position, results of
operations or cash flows. The Company is also participating with the
airline industry to identify potential year 2000 issues at airports and
within industry infrastructure.
<PAGE>
[page 24]
MIDWEST EXPRESS HOLDINGS, INC.
REPORT OF MANAGEMENT
To the Shareholders of Midwest Express Holdings, Inc.:
The management of Midwest Express Holdings, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial
statements and other information contained in this annual report. The
financial statements were prepared using generally accepted accounting
principles, applied on a consistent basis. The statements have been
audited by Deloitte & Touche LLP, independent auditors, whose report
appears on the next page.
The Company maintains a system of internal control that is supported by
written policies and procedures, and is monitored by management and the
internal audit function. Although all internal control systems have
inherent limitations, including the possibility of circumvention and
overriding controls, management believes the Company's internal control
system provides reasonable assurance as to the integrity and reliability
of the financial statements and that its assets are safeguarded against
unauthorized acquisition, use or disposition. Appropriate actions are
taken by management to correct deficiencies as they are identified.
The Audit Committee of the Board of Directors is composed entirely of
outside directors. The Committee meets periodically with the Company's
management and internal audit function and with its independent auditors
to review auditing, internal control and financial reporting matters.
Based on its assessment of internal control as of December 31, 1997,
management believes its system of internal control over the preparation of
financial statements and the safeguarding of assets is effective.
/S/ TIMOTHY E. HOEKSEMA
Timothy E. Hoeksema
Chairman of the Board, President and Chief Executive Officer
/S/ ROBERT S. BAHLMAN
Robert S. Bahlman
Senior Vice President, Chief Financial Officer, Treasurer and Controller
<PAGE>
[page 25]
MIDWEST EXPRESS HOLDINGS, INC.
REPORT OF MANAGEMENT
To the Shareholders and Board of Directors of Midwest Express Holdings,
Inc.:
We have audited the accompanying consolidated balance sheets of Midwest
Express Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Midwest Express Holdings,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 30, 1998
<PAGE>
[pages 26-35]
CONSOLIDATED STATEMENTS OF INCOME
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995
Operating revenues:
Passenger service . . . . . . . $311,022 $276,792 $238,422
Cargo . . . . . . . . . . . . . 11,466 11,316 10,440
Other . . . . . . . . . . . . . 22,069 16,638 10,293
------- ------- -------
Total operating revenues . . . 344,557 304,746 259,155
------- ------- -------
Operating expenses:
Salaries, wages and benefits . 92,207 78,015 62,964
Aircraft fuel and oil . . . . . 50,107 47,274 35,212
Commissions . . . . . . . . . . 31,535 28,310 24,878
Dining services . . . . . . . . 17,181 15,078 14,882
Station rental, landing and
other fees . . . . . . . . . . 24,526 21,652 19,451
Aircraft maintenance materials
and repairs . . . . . . . . . 28,190 21,316 17,356
Depreciation and amortization . 8,645 7,663 7,515
Aircraft rentals . . . . . . . 17,453 16,054 14,954
Other . . . . . . . . . . . . . 36,243 35,025 30,569
------- ------- -------
Total operating expenses . . . 306,087 270,387 227,781
------- ------- -------
Operating income . . . . . . . . 38,470 34,359 31,374
Other income (expense):
Interest income . . . . . . . . 1,419 1,084 1,695
Interest expense . . . . . . . (95) - (36)
Other income (expense), net . . (162) (211) (1,507)
Total other income (expense) . 1,162 873 152
------- ------- -------
Income before income taxes . . . 39,632 35,232 31,526
Provision for income taxes. . . . 14,692 13,482 12,397
------- ------- -------
Net income . . . . . . . . . . . $24,940 $21,750 $19,129
======= ======= =======
Net income per share basic . . . $2.64 $2.27 $1.84(1)
======= ======= =======
Net income per share diluted . . $2.61 $2.26 $1.84(1)
======= ======= =======
(1) Pro forma
<PAGE>
CONSOLIDATED BALANCE SHEETS
MIDWEST EXPRESS HOLDINGS, INC.
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS) 1997 1996
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $32,066 $27,589
Accounts receivable:
Traffic, less allowance for doubtful
accounts of $231 in 1997 and $207 in 1996 . . 5,106 4,639
Other receivables . . . . . . . . . . . . . . 444 592
------- -------
Total accounts receivable . . . . . . . . . . 5,550 5,231
Inventories . . . . . . . . . . . . . . . . . . 3,942 3,122
Prepaid expenses:
Commissions . . . . . . . . . . . . . . . . . 1,509 1,364
Other . . . . . . . . . . . . . . . . . . . . 1,905 2,883
------- -------
Total prepaid expenses . . . . . . . . . . . 3,414 4,247
Aircraft and modifications intended to
be financed by sale and leaseback
transactions . . . . . . . . . . . . . . . . . 6,000 9,046
Deferred income taxes . . . . . . . . . . . . . 4,655 3,334
------- -------
Total current assets . . . . . . . . . . . . 55,627 52,569
------- -------
Property and equipment, net . . . . . . . . . . . 89,156 70,903
Landing slots and leasehold rights, less
accumulated amortization of $1,850 in
1997 and $1,522 in 1996 . . . . . . . . . . . . 4,900 5,228
Purchase deposits on flight equipment . . . . . . 14,500 -
Other assets . . . . . . . . . . . . . . . . . . 2,565 435
------- -------
Total assets . . . . . . . . . . . . . . . . . . $166,748 $129,135
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $5,560 $3,684
Air traffic liability . . . . . . . . . . . . . 28,934 22,043
Accrued liabilities:
Scheduled maintenance expense . . . . . . . . 7,115 5,961
Accrued profit sharing . . . . . . . . . . . . 4,855 5,345
Vacation pay . . . . . . . . . . . . . . . . . 3,586 2,957
Frequent Flyer awards . . . . . . . . . . . . 3,400 2,869
Other . . . . . . . . . . . . . . . . . . . . 15,033 15,504
------- -------
Total current liabilities . . . . . . . . . . 68,483 58,363
------- -------
Long-term debt . . . . . . . . . . . . . . . . . 3,333 -
Deferred income taxes . . . . . . . . . . . . . . 12,509 9,894
Noncurrent scheduled maintenance expense . . . . 7,594 7,771
Accrued pension and other postretirement
benefits . . . . . . . . . . . . . . . . . . . 5,462 6,138
Other noncurrent liabilities . . . . . . . . . . 5,969 6,628
------- -------
Total liabilities . . . . . . . . . . . . . . . . 103,350 88,794
------- -------
Shareholders' equity:
Preferred stock, without par value, 5,000,000
shares authorized, no shares issued or
outstanding . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 25,000,000
shares authorized, 9,642,807 shares issued
in 1997 and 6,428,571 in 1996 . . . . . . . . 96 64
Additional paid-in capital . . . . . . . . . . 9,531 9,545
Treasury stock, at cost; 223,490 shares
in 1997 and 99,039 shares in 1996 . . . . . . (4,572) (2,672)
Retained earnings . . . . . . . . . . . . . . . 58,343 33,404
------- -------
Total shareholders' equity . . . . . . . . . . . 63,398 40,341
------- -------
Total liabilities and shareholders' equity . . . $166,748 $129,135
======= =======
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1997 1996 1995
Operating activities:
Net income . . . . . . . . . . . . . $24,940 $21,750 $19,129
Items not involving the use of cash:
Depreciation and amortization . . . 8,645 7,663 7,515
Deferred income taxes . . . . . . . 1,294 (3,918) 2,177
Other . . . . . . . . . . . . . . . 4,335 3,245 2,212
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . . . (319) 483 1,427
Inventories . . . . . . . . . . . . (820) (396) (633)
Prepaid expenses . . . . . . . . . . 833 (715) (428)
Accounts payable . . . . . . . . . . 1,876 (3) (1,285)
Accrued liabilities . . . . . . . . 1,236 12,139 2,465
Air traffic liability . . . . . . . 6,891 4,793 3,433
------- ------- -------
Net cash provided by operating
activities . . . . . . . . . . . . . 48,911 45,041 36,012
------- ------- -------
Investing activities:
Capital expenditures . . . . . . . . (27,617) (25,607) (7,980)
Aircraft acquisitions and
modifications financed by or
intended to be financed by
sale and leaseback transactions . . (12,520) (86,771) (16,558)
Purchase deposits on flight
equipment . . . . . . . . . . . . . (14,500) - -
Proceeds from sale of property and
equipment . . . . . . . . . . . . . 196 22 327
Other . . . . . . . . . . . . . . . . (2,128) (151) (284)
------- ------- -------
Net cash used in investing
activities . . . . . . . . . . . . . (56,569) (112,507) (24,495)
------- ------- -------
Financing activities:
Proceeds from sale and leaseback
transactions . . . . . . . . . . . . 15,566 83,895 15,323
Purchase of treasury stock . . . . . (1,977) (2,790) -
Net decrease in advances to
Kimberly-Clark . . . . . . . . . . . - - 19,988
Dividends to Kimberly-Clark . . . . . - - (35,705)
Other . . . . . . . . . . . . . . . . (1,454) (676) 3,503
------- ------- -------
Net cash provided by financing
activities . . . . . . . . . . . . . 12,135 80,429 3,109
------- ------- -------
Net increase in cash and cash
equivalents . . . . . . . . . . . . 4,477 12,963 14,626
Cash and cash equivalents, beginning
of year . . . . . . . . . . . . . . 27,589 14,626 -
------- ------- -------
Cash and cash equivalents, end
of year . . . . . . . . . . . . . . $32,066 $27,589 $14,626
======= ======= =======
Supplemental cash flow information:
Cash paid for:
Income taxes, net of refunds . . . $11,948* $19,776* $11,899
======= ======= =======
Interest . . . . . . . . . . . . . . $ 95 $ - $ -
======= ======= =======
Supplemental schedule of non-cash
financing activities:
Long-term debt assumed in connection
with capital expenditures . . . . . $ 3,487 $ - $ -
======= ======= =======
Transfer of assets and liabilities
from Kimberly-Clark:
Accrued pension and other
postretirement benefits . . . . $ - $ - $3,597
Deferred income taxes . . . . . . - - (1,471)
------- ------- ------
Increase in advances to
Kimberly-Clark, net . . . . . . $ - $ - $2,126
======= ======= ======
* Included in taxes paid are amounts paid to Kimberly-Clark in accordance
with the Tax Agreement totalling $5,996 in 1997 and $9,243 in 1996.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<CAPTION>
Common Stock Additional Total
$.01 par No par Paid-in Treasury Retained Shareholders'
value value Capital Stock Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ - $9,610 $ - $ - $28,230 $37,840
Net income . . . . . . . . - - - - 19,129 19,129
Dividends to Kimberly-Clark - - - - (35,705) (35,705)
Issuance and transfer of
common stock . . . . . . . 64 (9,610) 9,546 - - -
------- ------- ------- -------- ------- -------
Balances at December 31, 1995 64 - 9,546 - 11,654 21,264
Net income . . . . . . . . - - - - 21,750 21,750
Purchase of 103,700 shares
of treasury stock . . . . - - - (2,790) - (2,790)
Issuance of treasury stock upon
exercise of stock options and
related tax benefits . . . - - (5) 107 - 102
Other . . . . . . . . . . . - - 4 11 - 15
------- ------- ------- -------- ------- -------
Balances at December 31, 1996 64 - 9,545 (2,672) 33,404 40,341
Net income . . . . . . . . - - - - 24,940 24,940
Stock split effected in the
form of a dividend . . . . 32 - (31) - (1) -
Purchase of 80,000 shares of
treasury stock . . . . . . - - - (1,977) - (1,977)
Issuance of treasury stock upon
exercise of stock options and
related tax benefits . . . - - 3 52 - 55
Other . . . . . . . . . . . - - 14 25 - 39
------- ------- -------- ------- ------- -------
Balances at December 31, 1997 $ 96 $ - $9,531 $(4,572) $58,343 $63,398
======= ======= ======== ======= ======= =======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Note 1. Business and Basis of Presentation
Organization
The accompanying Consolidated Financial Statements reflect the operations
of the following (collectively, the "Company"): (a) for periods prior to
September 27, 1995, Midwest Express Airlines, Inc. ("Midwest Express"),
a subsidiary of Kimberly-Clark Corporation ("Kimberly-Clark"), and (b)
for periods on and after September 27, 1995, Midwest Express Holdings,
Inc.
On September 27, 1995, Kimberly-Clark and the Company entered into a Stock
Agreement providing for the transfer by Kimberly-Clark to the Company of
all the outstanding capital stock of Midwest Express in exchange for
6,428,571 shares of the Company's $.01 par value common stock.
On September 27, 1995, Kimberly-Clark completed, in an initial public
offering ("Offering"), the sale of the Company's common stock. Following
the Offering, Kimberly-Clark retained 20% of the outstanding common stock
of the Company, which was subsequently sold in a secondary public offering
completed on May 23, 1996. The Company did not receive any proceeds from
either of the offerings.
On April 23, 1997, the Company announced that its board of directors had
approved a plan to split its stock 3-for-2 in the form of a 50% stock
dividend. The new shares were issued May 28, 1997, to shareholders of
record as of May 12, 1997. Accordingly, net income per share amounts and
weighted average shares outstanding have been adjusted to reflect the
effect of the stock dividend.
Basis of Presentation
The Consolidated Financial Statements include the accounts of Midwest
Express and its wholly owned subsidiary, Astral Aviation, Inc.
("Astral"), which does business as Skyway Airlines. All significant
intercompany balances and transactions have been eliminated.
For all periods prior to September 27, 1995, the accompanying Consolidated
Financial Statements include the revenues and expenses directly related to
the Company's operations under Kimberly-Clark. Certain corporate, general
and administrative expenses of Kimberly-Clark and certain affiliates were
allocated to the Company on a basis which, in the opinion of management,
was reasonable (see Note 10). The financial information for the periods
prior to September 27, 1995, included herein may not necessarily be
indicative of the results of operations and cash flows had the Company
operated as a separate, stand-alone company during the entirety of the
periods presented.
Nature of Operations
Midwest Express is a U.S. air carrier providing scheduled passenger
service from Milwaukee to 25 cities as of December 31, 1997. The Company
also provided aircraft charter services, aircraft maintenance for other
airlines, air freight and other airline services. Midwest Express
established Omaha, Nebraska, as its first base of operations outside of
Milwaukee in May 1994. Midwest Express provides jet service nonstop
between Omaha and seven destinations. Astral provides regional scheduled
passenger service to cities primarily in the upper Midwest.
Note 2. Accounting Policies
The accounting policies of the Company conform to generally accepted
accounting principles and to accounting practices generally followed in
the airline industry. Significant policies followed are described below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. They are
carried at cost, which approximates market.
Inventories
Inventories consist primarily of maintenance parts, aircraft and
maintenance supplies and fuel stated at the lower of cost on the first-in,
first-out (FIFO) method or market and are expensed when used in
operations.
Property and Equipment
Property and equipment is stated at cost and is depreciated on the
straight-line method applied to each unit of property for financial
reporting purposes and by use of accelerated methods for income
tax purposes. Aircraft are depreciated to estimated residual values, and
any gain or loss on disposal is reflected in income. The depreciable lives
for the principal asset categories are as follows:
Asset Category Depreciable Life
Flight equipment 10 years
Other equipment 5 to 8 years
Office furniture and equipment 5 to 20 years
Buildings 40 years
Building improvements Lesser of 20 years or
remaining life of building
Other Assets
Airport take-off and landing slots have an unlimited life, have
historically appreciated in value and are occasionally traded, sold or
leased among airlines. The cost of take-off and landing slots is amortized
on the straight-line method over 20 years, consistent with industry
practice. The cost of airport leasehold rights is amortized on the
straight-line method over the term of the lease. The cost of software is
amortized on the straight-line method over five years or less.
Revenue Recognition
Passenger and cargo revenues are recognized in the period when the service
is provided. Contract maintenance revenue is recognized when work is
completed and invoiced. The estimated liability for sold, but unused,
tickets is included in current liabilities as air traffic liability.
Maintenance and Repair Costs
Routine maintenance and repair costs for owned and leased aircraft are
charged to expense when incurred, except for major airframe and engine
maintenance. Depending on the particular aircraft, these latter costs are
either (1) accrued to expense on the basis of estimated future costs and
the estimated number of hours to be flown or the number of future take-
offs and landings or (2) capitalized when incurred and amortized on the
basis of estimated hours to be flown or the number of future take-offs and
landings over the period of time between overhauls. The actual maintenance
and repair costs to be incurred could differ from the Company's estimates.
Frequent Flyer Program
The estimated incremental cost of providing future transportation in
conjunction with the Company's Frequent Flyer program is accrued based on
estimated redemption percentages applied to actual mileage recorded in
members' accounts. The ultimate cost, however, will depend on the actual
redemption of Frequent Flyer miles and may be greater than amounts accrued
at December 31, 1997.
Postretirement Health Care and Life Insurance Benefits
The costs of health care and life insurance benefit plans for retired
employees are accrued over the working lives of employees in accordance
with Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires that deferred income
taxes be determined under the asset and liability method. Deferred income
taxes have been recognized for the future tax consequences of temporary
differences by applying enacted statutory tax rates applicable to
differences between the financial reporting and the tax bases of assets
and liabilities.
Prior to the Offering, the Company was a member of the Kimberly-Clark
consolidated group and, as such, filed a consolidated federal income tax
return with Kimberly-Clark and its U.S. subsidiaries. The Company also
filed consolidated state tax returns with Kimberly-Clark and certain of
its subsidiaries, as well as separately in various states. Income tax
expense and deferred income tax assets and liabilities are reflected in
the Company's financial statements in accordance with SFAS No. 109.
Leases
Rental obligations under operating leases for aircraft, facilities and
equipment are charged to expense on the straight-line method over the term
of the lease.
Hedging Transactions
The Company has entered into hedging arrangements to reduce its exposure
to fluctuations in the price of jet fuel. Contracts entered into were not
material as of December 31, 1997. Net settlements are recorded as
adjustments to aircraft fuel expense.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the year. Future results could differ from those
estimates.
Accounting Standards to Be Adopted
In 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is
currently in the process of evaluating the accounting and disclosure
effects of these Statements.
Reclassifications
Certain reclassifications have been made in prior year financial
statements to conform to the current year presentation.
Note 3. Property and Equipment
As of December 31, 1997 and 1996, property and equipment consisted of the
following (in thousands):
1997 1996
Flight equipment $119,409 $105,180
Other equipment 8,547 7,410
Buildings and improvements 16,911 7,758
Office furniture and equipment 8,430 5,289
Construction in progress 6,751 5,155
------- -------
160,048 130,792
Less accumulated depreciation (70,892) (59,889)
------- -------
Property and equipment, net $89,156 $70,903
======= =======
Note 4. Leases
The Company leases aircraft, terminal space, office space and warehouse
space. Future minimum lease payments required under operating leases
having initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1997 were as follows
(in thousands):
Year ended December 31,
1998 . . . . . . . . . . . . . . . . . . . . $22,018
1999 . . . . . . . . . . . . . . . . . . . . 22,695
2000 . . . . . . . . . . . . . . . . . . . . 19,061
2001 . . . . . . . . . . . . . . . . . . . . 5,022
2002 . . . . . . . . . . . . . . . . . . . . 2,948
2003 and thereafter . . . . . . . . . . . . . 68,531
-------
$160,275
=======
As of December 31, 1997, the Company had 10 of its jet aircraft in service
under operating leases, three of which have been guaranteed by Kimberly-
Clark. These leases have expiration dates ranging from 1998 through 2008
and can generally be renewed, based on fair market value at the end of the
lease term, for one to three years. Five of the leases include purchase
options at or near the end of the lease term at fair market value, but
generally not in excess of the defined lessor's cost of the aircraft.
As of December 31, 1997, the Company's turboprop fleet was financed under
operating leases with initial lease terms of five to 12 years, and
expiration dates ranging from 2001 through 2008. These leases permit
renewal for various periods at rates approximating fair market value and
purchase options at or near the end of the lease term at fair market
value.
Rent expense for all operating leases, excluding landing fees, was
$25,435,000, $24,356,000 and $21,884,000 for 1997, 1996 and 1995,
respectively.
Note 5. Financing Agreements
At December 31, 1997, the Company had available two credit facilities: (1)
a $55,000,000 revolving credit facility with three banks and (2) a
$20,000,000 secondary revolving credit facility with Kimberly-Clark.
Borrowings under the Kimberly-Clark facility must be repaid prior to
repayments on the bank credit facility. The bank credit facility requires
an annual commitment fee of 12.5 basis points on the average unused
commitment with interest payable on the outstanding principal balance at
LIBOR plus 50 basis points. The Kimberly-Clark facility does not require a
commitment fee, and interest will be at a rate equal to the then-current
rate of interest under the bank credit facility plus 100 basis points.
There were no outstanding borrowings under these agreements at December
31, 1997, except for letters of credit totalling approximately $11,400,000
that reduce the amount of available credit.
During August 1997, the Company purchased a headquarters building, which
it previously leased. As part of the transaction, the Company assumed
$3,487,000 of long-term debt. The mortgage note has an interest rate of
8.25% and is payable in monthly installments through April 2011. Future
maturities of long-term debt for the next five years are as follows:
$117,000 in 1998; $127,000 in 1999; $138,000 in 2000; $182,000 in 2001;
$214,000 in 2002. The fair value of the Company's borrowing under this
agreement approximates its carrying value as of December 31, 1997.
Note 6. Retirement and Benefit Plans
Defined Benefit Plans
Midwest Express has two defined benefit pension plans covering
substantially all of its employees. The benefits for these plans are based
primarily on years of service and employee compensation. It is Midwest
Express' policy to annually fund at least the minimum contribution as
required by the Employee Retirement Income Security Act of 1974.
The following table sets forth the funded status of the plans at December
31 (in thousands):
Midwest Express Supplemental
Pension Plan Pension Plan
1997 1996 1997 1996
Benefit obligation
Vested . . . . . . . $10,178 $6,243 $410 $204
Nonvested . . . . . 1,765 1,119 32 -
------- ------- ------- -------
Accumulated benefit
obligation . . . . . . . $11,943 $7,362 $442 $204
======= ======= ======= =======
Projected benefit
obligation . . . . . . . $18,552 $11,881 $1,152 $ 511
Plan assets at fair value 12,331 7,449 - -
------- ------- ------- -------
Projected benefit obligation
less plan assets . . . . 6,221 4,432 1,152 511
Unrecognized transition
asset . . . . . . . . (109) (131) (19) (23)
Unrecognized net prior
service cost . . . . . . 31 33 (55) (60)
Unrecognized net loss . . (3,856) (516) (672) (179)
Adjustment required to
recognize minimum
liability . . . . . . . - - 36 -
------- ------- ------- -------
Accrued pension cost . . $2,287 $3,818 $442 $249
======= ======= ======= =======
The weighted average discount rate used to determine the projected benefit
obligation was 7.25% and 7.75% as of December 31, 1997 and 1996,
respectively. The calculation also assumed a 4.25% weighted average rate
of increase for future compensation levels for 1997 and 1996. The expected
long-term rate of return on plan assets used in 1997 and 1996 was 10%. The
unrecognized net loss is amortized on a straight-line basis over the
average remaining service period of employees expected to receive a plan
benefit.
The net periodic pension cost of defined benefit pension plans since the
Offering includes the following (in thousands):
Midwest Express
Pension Plan
1997 1996 1995
Service cost (benefits earned
during the period) . . . . . $1,656 $ 1,488 $ 345
Interest cost on projected
benefit obligations . . . . 1,132 915 216
Actual return on plan assets (1,515) (1,424) (130)
Net amortization and
deferral . . . . . . . . . . 579 868 28
------ ------- ------
Net periodic pension cost . . $1,852 $ 1,847 $ 459
====== ======= ======
Supplemental
Pension Plan
1997 1996 1995
Service cost (benefits earned
during the period) . . . . . . . $ 45 $ 19 $ 4
Interest cost on projected
benefit obligations . . . . . . 73 38 9
Net amortization and
deferral . . . . . . . . . . . . 39 21 5
----- ------ -----
Net periodic pension cost . . . . $ 157 $ 78 $ 18
===== ====== =====
Prior to the Offering, substantially all Midwest Express employees
participated in the defined benefit pension plans of Kimberly-Clark. The
liabilities related to the Kimberly-Clark benefit plans were carried on
the books of Kimberly-Clark and were not allocated separately to
subsidiaries. The portion of pension costs attributable to these employees
and reflected as expense in the accompanying financial statements was
$953,000 in 1995.
Postretirement Health Care and Life Insurance Benefits
Midwest Express allows retirees to participate in unfunded health care and
life insurance benefit plans. Benefits are based on years of service and
age at retirement. The plans are principally noncontributory for current
retirees, and are contributory for most future retirees.
The following table sets forth the status of the plans at December 31
(in thousands):
1997 1996
Accumulated postretirement
benefit obligation (APBO) . . . $2,151 $1,195
Unrecognized net (loss) gain . . (254) 350
------ ------
Accrued postretirement benefit cost $1,897 $1,545
====== ======
Midwest Express' APBO is unfunded. Net postretirement benefit cost since
the Offering includes the following components (in thousands):
1997 1996 1995
Service cost (benefits
attributed to service during
the period) . . . . . . . . $211 $180 $43
Interest on APBO . . . . . . 141 89 23
Net amortization and
deferral . . . . . . . . . . - (6) (1)
----- ----- -----
Net postretirement
benefit cost . . . . . . . . $352 $263 $65
===== ===== =====
The assumed health care cost trend rate was approximately 10% declining
annually to a rate of 6% by the year 2004, and remaining level thereafter.
Increasing the rate by one percentage point would not be significant. The
weighted-average discount rates used in determining the APBO for 1997 and
1996 were 7.25% and 7.75%, respectively.
Prior to the Offering, substantially all retired employees of Midwest
Express participated in unfunded health care and life insurance benefit
plans of Kimberly-Clark. The portion of postretirement health care and
life insurance benefits costs attributable to Midwest Express' employees
and reflected in the accompanying income statements was $200,000 in 1995.
Defined Contribution Plans
The Company has two voluntary defined contribution investment plans
covering substantially all employees. Under these plans, the Company
matches a portion of employee contributions. During 1995, the Company made
a one-time contribution of 55,500 shares of its common stock to the
Midwest Express investment plan for the benefit of Midwest Express
employees. Amounts expensed and reflected in the accompanying income
statements were $1,498,000, $1,175,000 and $1,958,000 in 1997, 1996 and
1995, respectively.
Profit Sharing Plans
The Company has three profit sharing plans: an employee profit sharing
plan for substantially all employees of Midwest Express, an employee
profit sharing plan for substantially all employees of Astral and an
Annual Incentive Plan for key management personnel. Company contributions
for both plans currently are based entirely on achieving specified levels
of profitability and are payable annually. During 1997 and 1996, the
Company expensed $4,855,000 and $5,345,000 under these plans,
respectively.
Note 7. Net Income Per Share
Effective for 1997, the Company adopted SFAS No.128, "Earnings Per Share,"
which established new standards for the calculation of net income per
share effective for interim and annual periods ending after December 15,
1997. Accordingly, previously reported net income per share has been
restated. Reconciliations of the numerator and denominator of the basic
and diluted per share computations are summarized as follows (in
thousands, except per share amounts):
Pro Forma
1997 1996 1995
Net Income Per Share - Basic:
Net income (numerator) . . $24,940 $21,750 $17,775
Weighted average shares
outstanding (denominator) 9,465 9,593 9,643
------ ------ ------
Net income per share - basic $2.64 $2.27 $1.84
====== ====== ======
Net Income Per Share - Diluted:
Net income (numerator) . . $24,940 $21,750 $17,775
Weighted average shares
outstanding . . . . . . 9,465 9,593 9,643
Effect of dilutive securities
Stock options . . . . . 76 49 10
Shares issuable under the
1995 Stock Plan for Outside
Directors . . . . . . 6 2 -
------ ------ ------
Weighted average shares
outstanding assuming dilution
(denominator) . . . . . 9,547 9,644 9,653
------ ------ ------
Net income per share -
diluted . . . . . . . . $2.61 $2.26 $1.84
====== ====== ======
Note 8. Shareholders' Equity
In 1996, the Board of Directors adopted a shareholders' rights plan and
made a dividend distribution of one Preferred Share Purchase Right
("Right") on each outstanding share of the Company's common stock. As a
result of the 3-for-2 stock split effected in May 1997, two-thirds of a
Right is now associated with each share of common stock. The Rights are
exercisable only if a person or entity acquires 15% or more of the common
stock or announces a tender offer for 15% or more of the common stock of
the Company. Each Right initially entitles its holders to buy one one-
hundredth share of the Company's Series A Preferred Stock at an exercise
price of $100, subject to adjustment. If a person or entity acquires 15%
or more of the Company's common stock, then each Right will entitle its
holder to purchase, at the Right's then-current exercise price, Company
common stock valued at twice the exercise price. The Board of Directors is
also authorized to reduce the 15% thresholds referred to above to not less
than 10%. The Rights expire
in 2006.
Under the Company's 1995 Stock Option Plan, the Compensation Committee of
the Board of Directors may grant options, at its discretion, to purchase
shares of common stock to certain employees. An aggregate of 1,038,750
shares of common stock is reserved for issuance under the Plan. Under the
Plan, options granted have an exercise price equal to 100% of the fair
market value of the underlying stock at the date of grant. Granted options
become exercisable 30% after the first year, 30% after the second year and
the remaining 40% after the third year, unless otherwise determined, and
have a maximum term of 10 years.
Transactions with respect to the Plan have been adjusted to reflect the
effect of the stock dividend and are summarized as follows:
Weighted Average
Shares Exercise Price
Options outstanding at January 1, 1995 . . . - -
Granted . . . . . . . . . . . . . . . . . 195,000 $12.00
------- ------
Options outstanding at December 31, 1995 . . 195,000 12.00
Granted . . . . . . . . . . . . . . . . . 15,000 21.00
Exercised . . . . . . . . . . . . . . . . (6,750) 12.00
Forfeited . . . . . . . . . . . . . . . . (25,500) 12.00
------- ------
Options outstanding at December 31, 1996 . . 177,750 $12.76
Granted . . . . . . . . . . . . . . . . . 190,500 24.05
Exercised . . . . . . . . . . . . . . . . (4,500) 12.00
Forfeited . . . . . . . . . . . . . . . . (3,000) 24.17
------- ------
Options outstanding at December 31, 1997 . . 360,750 $18.64
======= ======
Options exercisable at December 31, 1997 . . 96,750 $12.42
======= ======
Options exercisable at December 31, 1997 included 92,250 options with an
exercise price of $12.00 and 4,500 options with an exercise price of
$21.00. The following table summarizes information
concerning currently outstanding options:
Weighted
Average Weighted
Remaining Average
Number Contractual Exercise
Range of Exercise Prices Outstanding Life Price
$12.00 . . . . . . . . . . . 158,250 7.8 years $12.00
$21.00 - $24.17 . . . . . . . 202,500 9.1 years 23.82
------- --------- ------
Options outstanding at
December 31, 1997 . . . . . 360,750 8.5 years $18.64
======= ========= ======
In 1996, the Company adopted the disclosure requirements of SFAS No. 123
"Accounting for Stock-Based Compensation" (SFAS 123). The Company has
elected to continue to follow the provisions of Accounting Principles
Board No. 25 "Accounting for Stock Issued to Employees" and its related
interpretations; accordingly, no compensation cost has been reflected in
the financial statements for its stock option plan. Had compensation cost
for the Company's stock option plan been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of SFAS 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
1997 1996 1995
Net income:
As reported . . . . . . . . $24,940 $21,750 $19,129
Pro forma . . . . . . . . . $24,461 $21,535 $19,077
Net income per share - basic:
As reported . . . . . . . . $2.64 $2.27 $1.84
Pro forma . . . . . . . . . $2.58 $2.24 $1.84
Net income per share - diluted:
As reported . . . . . . . . $2.61 $2.26 $1.84
Pro forma . . . . . . . . . $2.56 $2.23 $1.84
For purposes of these disclosures, the fair value of each option granted
was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
1997 1996 1995
Expected volatility . . . . . . 27.4% 42.2% 42.2%
Risk-free interest rate . . . . 5.4% 5.3% 5.3%
Forfeiture rate . . . . . . . . 5.0% 4.0% 4.0%
Dividend rate . . . . . . . . . 0.0% 0.0% 0.0%
Expected life in years . . . . 5 5 5
Note 9. Income Taxes
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 consisted of the following (in thousands):
1997 1996 1995
Currently payable:
Federal . . . . . . . . . . . . $11,314 $14,780 $8,260
State . . . . . . . . . . . . 2,084 2,620 1,960
------ ------ ------
13,398 17,400 10,220
------ ------ ------
Deferred (Credit):
Federal . . . . . . . . . . . . 1,169 (3,991) 2,077
State . . . . . . . . . . . . 125 73 100
------ ------ ------
1,294 (3,918) 2,177
------ ------ ------
Total provision for income taxes $14,692 $13,482 $12,397
====== ====== ======
A reconciliation of income taxes at the U.S. federal statutory tax rate to
the effective tax rate follows:
1997 1996 1995
Tax at statutory U.S. tax rates 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit . . . . . . . 3.8 3.8 4.2
Other, net . . . . . . . . . . (1.7) (0.5) 0.1
----- ----- -----
Provision for income taxes . . 37.1% 38.3% 39.3%
===== ===== =====
Temporary differences that gave rise to the deferred tax assets and
liabilities comprise the following (in thousands):
1997 1996
Current deferred income tax assets
attributable to:
Accrued liabilities . . . . . . $1,742 $1,115
Maintenance expense liability . 2,633 1,926
Other . . . . . . . . . . . . 280 293
------ ------
Net current deferred tax assets $4,655 $3,334
====== ======
Noncurrent deferred income tax assets
(liabilities) attributable to:
Excess of tax over book
depreciation . . . . . . . . . $(18,997) $(17,585)
Maintenance expense liability . 2,943 3,011
Pension liability . . . . . . . 1,831 2,186
Other . . . . . . . . . . . . 1,714 2,494
------- ------
Net noncurrent deferred tax liabilities $(12,509) $(9,894)
======= ======
In connection with the Offering, the Company, Midwest Express, Astral and
Kimberly-Clark entered into a Tax Allocation and Separation Agreement
( 'Tax Agreement''). Pursuant to the Tax Agreement, the Company is treated
for tax purposes as if it purchased all of Midwest Express' assets at the
time of the Offering, and as a result, the tax bases of Midwest Express'
assets were increased to the deemed purchase price of the assets. The tax
on the amount of the gain on the deemed asset purchase was paid by
Kimberly-Clark. This additional basis is expected to result in increased
income tax deductions and, accordingly, may reduce income taxes otherwise
payable by the Company. Pursuant to the Tax Agreement, the Company will
pay to Kimberly-Clark the amount of the tax benefit associated with this
additional basis (retaining 10% of the tax benefit), as realized on a
quarterly basis, calculated by comparing the Company's actual taxes to the
taxes that would have been owed had the increase in basis not occurred. In
the event of certain business combinations or other acquisitions involving
the Company, tax benefit amounts thereafter will not take into account,
under certain circumstances, income, losses, credits or carryovers of
businesses other than those historically conducted by Midwest Express or
the Company. Except for the 10% benefit, the effect of the Tax Agreement
is to put the Company in the same financial position it would have been in
had there been no increase in the tax bases of Midwest Express' assets.
The effect of the retained 10% benefit is reflected in the financial
statements as a reduction in the Company's provision for income taxes.
Note 10. Related Party Transactions
Prior to the Offering, Kimberly-Clark provided various administrative and
financial services to the Company, including management information
systems, employee benefits administration, legal, tax, treasury,
accounting and risk management services, and certain other corporate staff
and support services. Costs allocated to the Company for these services
were based on methods that management believes are reasonable, including
use of time estimates, headcount and transaction statistics, and similar
activity-based data.
The costs allocated and other intercompany transactions between Kimberly-
Clark and affiliated companies and the Company were as follows for the
year ended December 31, 1995 (in thousands):
1995
Operating revenues . . . . . . . . . . $ 4,106
Operating expenses . . . . . . . . . . (1,260)
Interest income . . . . . . . . . . 1,428
Prior to the Offering, the Company had participated in Kimberly-Clark's
cash management program, under which the Company's cash needs were funded
by Kimberly-Clark, and the Company's excess cash was advanced to Kimberly-
Clark.
Note 11. Commitments and Contingencies
At December 31, 1997, the Company had purchase commitments approximating
$12,219,000 for capital expenditures.
In February 1997, Midwest Express committed $9,250,000 over 15 years for
the naming rights to the Midwest Express Center, an 800,000-square-foot
convention center in Milwaukee scheduled to open in July 1998.
During 1997, the Company executed definitive purchase documents to acquire
eight McDonnell Douglas MD-80 series aircraft. The Company will take
delivery of four of the aircraft in 1998 and four of the aircraft in 1999.
The Company expects that this entire project, including aircraft
refurbishment, modification and support equipment, will cost approximately
$120,000,000 through the year 2000.
The Company is a party to routine litigation incidental to its business.
In the opinion of management, the final disposition of these matters will
have no material adverse effect on the consolidated financial statements.
<PAGE>
[page 36]
MIDWEST EXPRESS HOLDINGS, INC.
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
(In Thousands, Except Per Share Data)
Three Months Ended
1997 March 31 June 30 September 30 December 31
Operating revenues $79,920 $83,344 $89,399 $91,894
Operating expenses 73,447 74,837 77,611 80,192
Operating income 6,473 8,507 11,788 11,702
Income before income
taxes 6,769 8,830 12,003 12,029
Income taxes 2,538 3,232 4,445 4,476
Net income 4,231 5,598 7,558 7,553
Net income per share -
basic 0.45 0.59 0.80 0.80
Net income per share -
diluted 0.44 0.58 0.79 0.79
Three Months Ended
1997 March 31 June 30 September 30 December 31
Operating revenues $66,608 $76,845 $83,123 $78,170
Operating expenses 62,192 66,250 69,792 72,153
Operating income 4,416 10,595 13,331 6,017
Income before income
taxes 4,672 10,697 13,568 6,295
Income taxes 1,836 4,107 5,211 2,328
Net income 2,836 6,590 8,357 3,967
Net income per share -
basic 0.29 0.69 0.88 0.42
Net income per share -
diluted 0.29 0.68 0.87 0.42
SHAREHOLDER INFORMATION
Headquarters
Midwest Express Holdings, Inc.
6744 South Howell Avenue
Oak Creek, Wisconsin 53154-1402
(414) 570-4000
Transfer Agent and Registrar
Firstar Trust Company
Milwaukee, Wisconsin
Independent Auditors
Deloitte & Touche LLP
Milwaukee, Wisconsin
Annual Meeting
The Annual Meeting of Midwest Express Holdings, Inc. will be held at 10
a.m. on Wednesday, April 22, 1998, at The Wyndham Milwaukee Center Hotel,
139 East Kilbourn Avenue, Milwaukee. Shareholders of record on March 3,
1998, will be mailed an official notice of the meeting.
Financial Reports
Form 10-K (without exhibits) and other reports filed with the Securities
and Exchange Commission are available without charge upon written request
from the company's Investor Relations department at the headquarters
address.
Common Stock
Midwest Express Holdings, Inc. (symbol: MEH) common stock trades on the
New York Stock Exchange. As of December 31, 1997, there were 9,642,807
shares of common stock issued and 612 registered shareholders.
Following are low and high prices per share for the past two years,
adjusted to reflect a 3-for-2 stock split on May 28, 1997.
1997 1996
First Quarter $22 1/2 25 15/16 $17 25
Second Quarter $24 9/16 33 $19 7/16 25 13/16
Third Quarter $22 1/2 32 3/8 $16 5/16 21 5/16
Fourth Quarter $30 39 5/8 $19 9/16 24 1/2
The company has not paid a cash dividend since its initial public
offering.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 333-1554, 333-1552, 333-18127 and 333-44253 of Midwest Express
Holdings, Inc. on Forms S-8 of our reports dated January 30, 1998
appearing in and incorporated by reference in the Annual Report on Form
10-K of Midwest Express Holdings, Inc. for the year ended December 31,
1997.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MIDWEST EXPRESS HOLDINGS, INC. AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,066
<SECURITIES> 0
<RECEIVABLES> 5,781
<ALLOWANCES> 231
<INVENTORY> 3,942
<CURRENT-ASSETS> 55,627
<PP&E> 160,047
<DEPRECIATION> 70,892
<TOTAL-ASSETS> 166,748
<CURRENT-LIABILITIES> 68,483
<BONDS> 3,333
0
0
<COMMON> 96
<OTHER-SE> 63,302
<TOTAL-LIABILITY-AND-EQUITY> 166,748
<SALES> 0
<TOTAL-REVENUES> 344,557
<CGS> 0
<TOTAL-COSTS> 306,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 39,632
<INCOME-TAX> 14,692
<INCOME-CONTINUING> 24,940
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<EXTRAORDINARY> 0
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<NET-INCOME> 24,940
<EPS-PRIMARY> 2.64
<EPS-DILUTED> 2.64
</TABLE>