-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYlGU58orZH4t54OOS3JlxB0ve3jykvNawh8NRra8pwPnPxn63Cfl8UqYociJYWf ZMmV3pS6/w1EXvrYfuVLqA== 0000912057-97-017927.txt : 19970520 0000912057-97-017927.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-017927 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN AIRLINES INC/HI CENTRAL INDEX KEY: 0000046205 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 990212598 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08836 FILM NUMBER: 97607373 BUSINESS ADDRESS: STREET 1: 3375 KOAPAKA ST STREET 2: STE G350 CITY: HONOLULU STATE: HI ZIP: 96819 BUSINESS PHONE: 8088353700 FORMER COMPANY: FORMER CONFORMED NAME: HAL INC /HI/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HAWAIIAN AIRLINES INC DATE OF NAME CHANGE: 19850314 FORMER COMPANY: FORMER CONFORMED NAME: INTER ISLAND AIRWAYS LTD DATE OF NAME CHANGE: 19670920 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8836 HAWAIIAN AIRLINES, INC. (Exact Name of Registrant as Specified in Its Charter) Hawaii 99-0042880 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3375 Koapaka Street, Suite G-350 Honolulu, Hawaii 96819 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (808) 835-3700 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (X) Yes ( ) No As of May 1, 1997, 39,856,364 shares of Common Stock shares were outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- Hawaiian Airlines, Inc. Condensed Balance Sheets (in Thousands) (Unaudited)
March 31, December 31, 1997 1996 - -------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents............................................... $ 45,072 $ 37,237 Accounts receivable, net................................................ 30,076 28,022 Inventories, net........................................................ 8,336 7,050 Assets held for sale.................................................... 1,344 1,344 Prepaid expenses........................................................ 4,541 4,845 ---------- --------- Total current assets................................................... 89,369 78,498 ---------- --------- Property and equipment, less accumulated depreciation and amortization of $11,816 and $10,161 in 1997 and 1996, respectively...... 53,239 45,794 Assets held for sale...................................................... 4,823 5,083 Other assets.............................................................. 5,226 4,362 Reorganization value in excess of amounts allocable to identifiable assets, net................................... 61,668 62,552 ---------- --------- Total Assets........................................................... $ 214,325 $ 196,289 ---------- --------- ---------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt...................................... 2,213 2,247 Current portion of capital lease obligations........................... 3,545 2,912 Accounts payable....................................................... 28,257 26,799 Air traffic liability.................................................. 41,038 25,524 Accrued liabilties..................................................... 10,443 12,623 ----------- --------- Total current liabilities............................................. 85,496 70,105 ----------- --------- Long-Term Debt........................................................... 5,832 6,353 Capital Lease Obligations................................................ 11,328 7,387 Other Liabilities and Deferred Credits................................... 29,846 29,571 Shareholders' Equity: Common and Special Preferred Stock..................................... 401 393 Captial in excess of par value......................................... 97,615 95,827 Warrants............................................................... 1,108 1,557 Notes receivable from Common Stock sales............................... (1,714) (1,714) Accumulated deficit.................................................... (15,587) (13,190) ----------- --------- Shareholders' equity.................................................. 81,823 82,873 ---------- --------- Total Liabilities and Shareholders' Equity............................ $ 214,325 $ 196,289 ----------- --------- ---------- ---------
Hawaiian Airlines, Inc. Condensed Statements of Operations (in thousands, except per share data) (Unaudited
Three Months Ended March 31, --------------------------- 1997 1996 - --------------------------------------------------------------------------------------------------- Operating Revenues: Passenger........................................... $ 81,015 $ 79,811 Charter............................................. 10,737 6,971 Cargo............................................... 5,076 4,813 Other............................................... 2,938 2,467 ----------- ------------ Total............................................ 99,766 94,062 ----------- ------------ Operating Expenses: Wages and benefits.................................. 29,531 29,077 Aircraft fuel, including taxes and oil.............. 21,805 17,018 Maintenance materials and repairs................... 18,607 15,479 Rentals and landing fees............................ 9,060 8,428 Sales commissions................................... 3,370 3,506 Depreciation and amortization....................... 2,602 2,026 Other............................................... 19,295 18,132 ----------- ------------ Total............................................ 104,270 93,666 ----------- ------------ Operating Income (Loss)................................ (4,504) 396 ----------- ------------ Nonoperating Income (Expense): Interest expense, net................................ (51) (956) Gain on disposition of equipment..................... - 8 Other, net........................................... (239) (30) ----------- ------------ Total............................................. (290) (978) ----------- ------------ Loss Before Income Taxes............................... (4,794) (582) Income Tax Benefit..................................... 2,398 - ----------- ------------ Net Loss............................................... $ (2,396) $ (582) ----------- ------------ ----------- ------------ Net Loss Per Common Stock Share........................ $ (0.06) $ (0.03) ----------- ------------ ----------- ------------ Weighted Average Number of Common Stock Shares Outstanding................................... 39,384 21,521 ----------- ------------ ----------- ------------
Condensed Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended March 31, ------------------- 1997 1996 - ----------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net loss....................................................... $ (2,396) $ (582) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization................................ 2,602 2,026 Net periodic postretirement benefit cost..................... 321 567 Stock option compensation.................................... - 964 Gain on disposition of equipment............................. - (8) Increase in accounts receivable.............................. (2,054) (3,847) Decrease (increase) in inventories........................... (1,286) 94 Decrease in prepaid expenses................................. 304 561 Increase (decrease) in accounts payable...................... 1,458 (1,407) Increase (decrease) air traffic liability.................... 15,514 (1,690) Decrease in accrued liabilities.............................. (2,180) (5,758) Other, net................................................... (543) 1,135 -------- -------- Net cash provided by (used in) operating activities...... 11,740 (7,945) -------- -------- Cash Flows From Investing Activities: Purchase of property and equipment............................. (3,771) (1,680) Net proceeds from disposition of equipment..................... 336 519 -------- -------- Net cash used in investing activities.................... (3,435) (1,161) -------- -------- Cash Flows From Financing Activities: Proceeds from issuance of common stock......................... 1,348 20,000 Issuance of long-term debt..................................... 171 124 Repayment of long-term debt.................................... (726) (2,311) Repayment of capital lease obligations......................... (1,263) (644) --------- -------- Net cash provided by (used in) financing activities...... (470) 17,169 --------- -------- Net increase in cash and cash equivalents............................................ 7,835 8,063 Cash and cash equivalents - Beginning of Period.................. 37,237 5,389 ---------- -------- Cash and cash equivalents - End of Period........................ $ 45,072 $ 13,452 ---------- -------- ---------- --------
4 Hawaiian Airlines, Inc. Statistical Data (in thousands, except as otherwise indicated) (Unaudited)
Three Months Ended March 31, -------------------------- 1997 1996 ---------- -------- SCHEDULED OPERATIONS: Revenue passengers flown ............................... 1,226 1,269 Revenue passenger miles ("RPM") ...................... 790,956 809,797 Available seat miles ("ASM") ......................... 1,166,013 1,112,525 Passenger load factor .................................. 67.8% 72.8% Revenue ton miles ...................................... 90,366 94,600 Revenue plane miles .................................... 4,689 4,681 Passenger revenue per passenger mile ("Yield")......... 10.2 CENTS 9.9 CENTS OVERSEAS CHARTER OPERATIONS: Revenue passengers flown ............................... 70 46 RPM .................................................... 188,118 125,660 ASM .................................................... 214,624 131,767
Hawaiian Airlines, Inc. Notes to Condensed Financial Statements (Unaudited) 1. Basis of Presentation In the opinion of management, the unaudited condensed financial statements included in this report contain all adjustments necessary for a fair presentation of the results of operations and statements of cash flows for the interim periods covered and the financial condition of Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") as of March 31, 1997 and December 31, 1996. The operating results for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto contained in Hawaiian Airlines' Annual Report on Form 10-K for the year ended December 31, 1996, which are incorporated herein by reference. Certain reclassifications have been made to conform prior year's data to current year's presentation. 2. Income Taxes The Company's reorganization and the associated implementation of fresh start reporting in September 1994 gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes. In large measure, it is these nondeductible expenses that result in an effective tax rate (for financial reporting purposes) significantly greater than the current United States corporate statutory rate of 35.0%. For the first quarter 1997, an estimated interperiod tax benefit of $2.4 million has been reflected in the accompanying condensed statements of operations. As the Company presently expects that its full year 1997 results will require a provision for income taxes, the estimated tax benefit recorded in first quarter 1997 reflects management's estimate of the annual effective tax rate. No benefit was recorded for first quarter 1996 as the amount was considered to be not material. 3. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. The Company will adopt SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128 requires the presentation of "Basic" earnings per share, representing income available to common shareholders divided by the weighted average number of Common Stock shares outstanding for the period, and "Diluted" earnings per share, which is similar to the current presentation of fully diluted earnings per share. SFAS No. 128 requires restatement of all prior period earnings per share data presented. Management does not expect adoption of SFAS No. 128 to have a material impact on the Company's reported earnings per share, financial position or results of operations. In February 1997, the FASB also issued SFAS No. 129, "Disclosure of Information about Capital Structure," which lists required disclosures about capital structure that had been included in a number of previously existing statements and opinions. SFAS No. 129 is effective for periods ending after December 15, 1997. The Company will adopt the provisions of SFAS No. 129 in its financial statements for 1997 and does not expect adoption to have a material effect on the Company's financial condition or results of operations. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this report that are not related to historical results, including, without limitation, statements regarding the Company's business strategy and objectives, future financial position and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and involve risks and uncertainties. Although the Company believes that the assumptions on which any forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under Part I, Item I, Business and heretofore, as well as those discussed elsewhere in this Form 10-Q. All forward-looking statements contained in this Form 10-Q are qualified in their entirety by this cautionary statement. Results of Operations During first quarter 1997, the Company incurred operating and net losses of $4.5 million and $2.4 million, respectively. This compares to $396,000 of operating income and $582,000 of net loss in first quarter 1996. Quarter over quarter, the Company's operating and net results were primarily impacted by (1) softness in travel demand and high fuel prices continuing into first quarter 1997 from fourth quarter 1996 and (2) higher maintenance operating costs. Preliminary statistics from the Hawaii Visitor and Convention Bureau show a decline of 4.4% in the total number of visitors to Hawaii in the first two months of 1997, as compared to the same period in 1996. Total visitors in March 1997 increased by 4.3% when compared to March 1996, resulting in a net overall decrease in total visitors of 1.4% quarter over quarter. Through the first two months of first quarter 1997, the Company carried approximately 28,000 less revenue passengers, a decrease of 3.3% period over period. Consistent with total visitor counts to Hawaii, the trend reversed in March 1997, as the Company carried approximately 9,000 or 2.0% more revenue passengers than it did in March 1996. Advance bookings for second quarter 1997 are currently ahead of 1996 levels. Fuel prices also appear to have stabilized and have started to decrease. Management is unable to predict whether advance bookings will hold at their present levels or that fuel prices will continue to stabilize and decrease, as the cost of fuel can fluctuate significantly in response to global market conditions. 7 The following table compares first quarter 1997 operating passenger revenues and statistics to those in first quarter 1996, in thousands, except as otherwise indicated: Three Months Ended March 31, ------------------------- Increase 1997 1996 (Decrease) % ------------------------- ----------- ------ Interisland: Passenger revenues....... $ 34,531 $ 34,275 $ 256 0.7 Revenue passengers flown. 951 992 (41) (4.1) RPM...................... 126,379 130,642 (4,263) (3.3) ASM...................... 217,258 221,453 (4,195) (1.9) Passenger load factor.... 58.2% 59.0% (0.8) (1.4) Yield.................... 27.3 CENTS 26.2 CENTS 1.1 CENTS 4.2 Transpacific ("Transpac"): Passenger revenues....... $ 42,315 $ 41,413 $ 902 2.2 Revenue passengers flown. 263 264 (1) (0.4) RPM...................... 631,723 644,896 (13,173) (2.0) ASM...................... 887,465 824,968 62,497 7.6 Passenger load factor.... 71.2% 78.2% (7.0) (9.0) Yield.................... 6.7 CENTS 6.4 CENTS 0.3 CENTS 4.7 SouthPacific ("Southpac"): Passenger revenues....... $ 4,169 $ 4,123 $ 46 1.1 Revenue passengers flown. 12 13 (1) (7.7) RPM...................... 32,854 34,259 (1,405) (4.1) ASM...................... 61,290 66,104 (4,814) (7.3) Passenger load factor.... 53.6% 51.8% 1.7 3.3 Yield.................... 12.7 CENTS 12.0 CENTS 0.7 CENTS 5.8 Overseas Charter: Charter revenues......... $ 10,737 $ 6,971 $ 3,766 54.0 Revenue passengers flown. 70 46 24 52.2 RPM...................... 188,118 125,660 62,458 49.7 ASM...................... 214,624 131,767 82,857 62.9 Passenger revenues totaled $81.0 million during first quarter 1997, an increase of $1.2 million or 1.5% over 1996 first quarter passenger revenues of $79.8 million. The majority of the increase was associated with Interisland and Transpac passenger revenues increasing period over period by $256,000 and $902,000, respectively. Slight decreases in both Interisland and Transpac revenue passengers flown and RPM were offset by incremental increases in yield. Overseas charter revenues totaled $10.7 million in first quarter 1997, representing an increase of $3.8 million or 54.0% from first quarter 1996. The increase was due to the Company operating in first quarter 8 1997, eight charters per week to Las Vegas, Nevada and effective February 1997, three charters per week to Anchorage, Alaska. The Company operated six charters per week solely to Las Vegas in first quarter 1996. The following table compares operating expenses per ASM for first quarter 1997 with first quarter 1996 by major category:
Three Months Ended March 31, --------------------------- Increase 1997 1996 (Decrease) % --------------------------- ------------------------- Wages and benefits ........................... 2.14 CENTS 2.34 CENTS (0.20) CENTS (8.5) Aircraft fuel, including taxes and oil ....... 1.58 1.37 0.21 15.3 Maintenance materials and repairs ............ 1.35 1.24 0.11 8.9 Rentals and landing fees ..................... 0.66 0.68 (0.02) (2.9) Sales commissions ............................ 0.24 0.28 (0.04) (14.3) Depreceiation and amortization ............... 0.19 0.16 0.03 18.8 Other ........................................ 1.40 1.46 (0.06) (4.1) ----- ----- ------ ------- Total ............................... 7.56 CENTS 7.53 CENTS 0.03 CENTS 0.4 ----- ----- ------ ------- ----- ----- ------ -------
Wages and benefits per ASM decreased by 0.20 CENTS or 8.5% quarter over quarter. The decrease was due to an overall increase in ASM in first quarter 1997 versus first quarter 1996 of 11.0%, primarily from the Transpac and Overseas Charter markets, offset by a 1.6% increase in wages and benefits. Aircraft fuel cost, including taxes and oil, per ASM increased in first quarter 1997 over first quarter 1996 by 0.21 CENTS or 15.3%. The average cost of aircraft fuel per gallon, excluding taxes, increased by 12.4 CENTS or 19.5% in first quarter 1997 versus first quarter 1996. The Company also consumed approximately 1.9 million or 8.1% more gallons of aircraft fuel due to increased long-haul flying in first quarter 1997 as compared to first quarter 1996. Maintenance materials and repairs per ASM also increased by 0.11 CENTS or 8.9% as period over period the Company incurred (1) $2.0 million more in DC-10 maintenance expense since the Company utilized ten DC-10 aircraft in first quarter 1997 versus seven in first quarter 1996 and (2) $1.1 million more in DC-9 engine repairs, while ASM increased 11.0%. Depreciation and amortization per ASM increased by .03 CENTS or 18.8%. The Company incurred approximately $507,000 more of depreciation and amortization in first quarter 1997 compared to first quarter 1996 primarily due to $400,000 of additional depreciation and amortization on capitalized portions of scheduled DC-9 checks and overhauls. All other decreases in operating expenses per ASM as compared to first quarter 1996 were principally due to an overall increase in ASM period over period of 11.0%. 9 Liquidity and Capital Resources As of March 31, 1997, the Company had working capital of $3.9 million, representing a $4.5 million decrease from $8.4 million of working capital at December 31, 1996. The decrease is primarily attributed to a $15.5 million increase in air traffic liability being offset by related increases in cash and cash equivalents and accounts receivable of $9.9 million. Effective March 7, 1997 through September 30, 1997, a 10.0% excise tax on each ticket sold (other than Transpac flights), a 6.25% cargo excise tax and a $6.00 international departure tax (including Transpac and Overseas Charter flights) were reinstated. The Company has and will adjust its fares accordingly based upon prevailing market conditions. There can be no assurance that the Company will be able to maintain its current fare levels or predict with any certainty the effects on its fares should the taxes lapse and/or be reinstated. Although not quantifiable, management believes a significant portion of the activity in air traffic liability, cash and cash equivalents and accounts receivable to be attributable to increased sales activity in advance of (1) the peak summer travel period and (2) the reinstatement of the aforementioned excise taxes. Operating activities for first quarter 1997 provided $11.7 million in cash and cash equivalents, primarily due to the increase in air traffic liability as discussed above. In first quarter 1997, the Company expended $3.8 million of its $20.1 million in planned capital expenditures for 1997. Capitalized portions of scheduled DC-9 checks and overhauls, consolidation of the Company's overseas passenger and baggage processing operations into the Honolulu Interisland Terminal and the first of a series of investments in improved software, related hardware and implementation costs represent a majority of these first quarter 1997 capital expenditures. Effective March 1, 1997, the Company has entered into petroleum hedging contracts to provide some short-term protection against the possible future increase in aircraft fuel costs. The petroleum hedging contracts cover approximately 25% of the Company's anticipated aircraft fuel needs for the next 11 months. At March 31, 1997, the Company had petroleum hedging contracts outstanding with an aggregate notional value of $11.7 million. The Company is exposed to credit loss in the event of nonperformance by the counterparties on the petroleum hedging contracts; however, management does not anticipate nonperformance by the counterparties. The Company believes that it has various options available to meet its capital, debt and operating commitments, including cash on hand at March 31, 1997 of $45.1 million, internally generated funds and a credit facility with total availability of $12.3 million as of March 31, 1997 with aggregate term loans and letters of credit outstanding in the amounts of $6.4 million and $100,000, respectively. The Company will continue to consider various borrowing or leasing options to supplement its cash requirements. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material developments in matters previously reported or reportable events arising in the three months ended March 31, 1997 were noted. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Code Share Agreement, dated January 6, 1997, between the Company and Wings West Airlines, Inc. Exhibit 10.2 Amendment No. 1 to Code Share Agreement, dated as of January 21, 1997, between the Company and Wings West Airlines, Inc. Exhibit 10.3 Information Technology Services Agreement, dated as of February 1, 1997, between the Company and Electronic Data Systems Corporation Exhibit 10.4 Aircraft Lease Agreement, dated as of January 3, 1997, between the Company and American Airlines, Inc. Exhibit 10.5 Separation Agreement and Complete Settlement and Release of All Claims, dated as of February 1997, between the Company and Bruce R. Nobles Exhibit 10.6 Employment Agreement, effective as of April 14, 1997, between the Company and Paul John Casey Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K (1) Current Report on Form 8-K dated January 7, 1997 (date of event-December 24, 1996) reporting Item 5 "Other Events" and Item 7 "Financial Statements, Proforma Financial Information and Exhibits;" (2) Current Report on Form 8-K dated March 4, 1997 (date of event-February 27, 1997) reporting Item 5 "Other Events" and Item 7 "Financial Statements, Pro forma Financial Information and Exhibits." 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HAWAIIAN AIRLINES, INC. May 15, 1997 By /s/ John L. Garibaldi ------------------------- John L. Garibaldi Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 12 EX-10.1 2 EXHIBIT 10.1 CODE-SHARE AGREEMENT This AGREEMENT, dated as of this 6th day of January, 1997 and effective as of March 15, 1997 (the "Effective Date"), is entered into by and between Hawaiian Airlines, Inc., a corporation organized under the laws of the Territory of Hawaii and existing under the laws of the State of Hawaii ("Hawaiian"), and Wings West Airlines, Inc., d/b/a American Eagle Airlines, a California corporation ("Wings West"). WHEREAS Hawaiian and Wings West wish to enter into a Code-Share Agreement whereby Wings West shall operate the scheduled services specified as Code-Share Flights to connect with Hawaiian flights at Los Angeles International Airport (LAX) and San Francisco International Airport (SFO). 1. AGREEMENT In consideration of the mutual covenants and undertakings contained herein, the parties hereto have agreed to operate Code-Share Flights on the following terms and conditions. 2. DEFINITIONS A Code-Share Flight is a flight operated by Wings West which also carries the flight designator of "HA". 3. THE CODE-SHARE FLIGHTS (a) The Code-Share Flights will be marketed and promoted by Hawaiian under the flight designator of "HA" for the city-pair markets listed in Annex A. (b) Reservations of seats on the Code-Share Flights will be effected and administered in accordance with the Code-Share Procedures, which will be jointly-developed by the parties hereto within a reasonable time following the execution of this Agreement. 4. GENERAL (a) Wings West shall have the sole responsibility and control over, and Hawaiian shall have no responsibility, control over or obligations or duties with respect to, each and every aspect of Wings West's operations, including, without limitation, scheduling, pricing, planning of flight itineraries and routings, reservations control/yield management, dispatch and fueling, weight and balance, flight release, maintenance, flight operations and compliance with applicable rules and regulations. Flights operated by Wings West shall be operated with its aircraft and crews. (b) Hawaiian will ticket Code-Share passengers using available computer reservation system ("CRS") inventory as specified in the Code-Share Procedures. (c) Wings West and Hawaiian will utilize their collective reasonable efforts to create appropriate signage and identification at the airports served by the Code-Share Flights and will agree on the text and delivery of public announcements in airports and onboard the Code-Share Flights. The costs of such marketing will be borne by the marketing carrier, Hawaiian. (d) Wings West is a duly certificated air carrier under 14 C.F.R. Part 121; and all services performed by Wings West pursuant to this Agreement shall be conducted and all of its personnel shall at all times meet and be in material compliance with any and all applicable federal, state and local laws, orders, rules and regulations of all governmental agencies having jurisdiction over its operations, including but not limited to the Department of Transportation (the "DOT") and the Federal Aviation Administration (the "FAA"). (e) In circumstances where an overbooking of a Code-Share Flight makes it necessary to deny boarding to some passengers, Wings West will deny boarding to such Hawaiian Code-Share passengers only after the Wings West passenger list has been exhausted, provided, that Hawaiian Code-Share passengers present themselves to the Wings West check-in desks no later than thirty minutes prior to the scheduled time of departure of the relevant Code-Share Flight and that Hawaiian is not the cause of the flight being overbooked. 5. VALUATION OF CODE-SHARE TICKETS Portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission. Such portions have been provided separately to the Commission. 6. PAYMENTS Wings West shall invoice Hawaiian through the Airlines Clearing House for the sums due in accordance with normal interline settlement processes. With respect to tickets issued by third parties, should Wings West not have an interline traffic agreement with the ticketing carrier, Wings West will bill such coupons to Hawaiian as exceptional items (i.e., via correspondence) and not include that coupon in the normal monthly interline invoice to Hawaiian. The value of coupons billed to Hawaiian as exceptional items under this Section shall be equal to the value such coupons would have had if issued by Hawaiian. 2 Portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission. Such portions have been provided separately to the Commission. To support interline billing of Hawaiian tickets to third parties by Wings West, Hawaiian agrees to waive endorsement requirements on all coupons issued on its ticket stock naming Hawaiian in the "carrier" box used and honored on Code-Share Flights. Hawaiian shall supply Wings West with written confirmation in a form reasonably satisfactory to Wings West confirming its blanket waiver of endorsement requirements for Code-Share passenger ticket coupons issued for use on Code-Share Flights. 7. INVENTORY The parties hereto will map inventory classes of the Code-Share Flights to inventory classes of Wings West, as set forth in the Code-Share Procedures. The parties will endeavor to map the average coupon value of Hawaiian's inventory classes to comparable classes of Wings West to provide nondiscriminatory access for bookings made by Hawaiian for passengers yielding comparable revenue values, provided however that Wings West will retain ultimate control over the management of seat inventory availability on Code-Share Flights. In consideration for Wings West agreeing to fare levels that are lower than standard straight rate prorate methodology, it is understood that Hawaiian will create a special inventory allocation just for Wings West code-share passengers. 8. BAGGAGE/FLIGHT INTERRUPTION MANIFESTS In respect of baggage of passengers traveling on Code-Share Flights and in respect of involuntary rerouting and denied boarding of passengers, the parties shall adhere to the procedures set forth in the Code-Share Procedures. If the provisions of the Code-Share Procedures do not resolve the issue, the handling and settlement of the claims shall be in accordance with the Trade Practices Manual of the ATA or the IATA Resolutions and Recommended Practices Manual, whichever applies. The use of the HA designator code for Code-Share Flights does not extend to mail contract rates between each carrier and the U.S. Postal Service. 9. PASSENGER FARES Subject to the limitations of Section 12 of this Agreement, Hawaiian will independently establish fares and rates for journeys that include the Code-Share Flights. Hawaiian shall not establish or publish local fares applicable to carriage on Code-Share Flights. 3 10. TICKETS All tickets, including tickets issued on Hawaiian ticket stock used and honored on the Code-Share Flights shall be uplifted and retained by Wings West, the Operating Carrier, which shall be responsible for normal processing and billing of such documents. Hawaiian tickets issued for the Code-Share Flights will be accepted by Wings West for carriage without the necessity for endorsement. 11. FREE AND REDUCED RATE REVENUE TRANSPORTATION All travel industry non-revenue (i.e., AD.., ID.., etc.) travel on Code-Share Flights shall be administered by Wings West according to the terms and conditions contained in any relevant agreements between Wings West (or its affiliates) and other parties, including Hawaiian. 12. FREQUENT FLYERS TICKETS The parties or their affiliates will execute a separate agreement, or an amendment to an existing applicable agreement, to provide that American AAdvantage-Registered Trademark- miles will be awarded for travel on Code-Share Flights and to provide, further, that Hawaiian will pay Wings West or one of its affiliates for miles awarded. 13. SALE OF CODE-SHARE FLIGHTS Hawaiian will not sell carriage on the Code-Share Flights independently of its own flights. 14. MARKETING THE CODE-SHARE FLIGHTS The costs of signage and other marketing materials will be paid by Hawaiian as the marketing carrier. 15. COMPUTER RESERVATIONS SYSTEM (CRS) CHARGES 4 Portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission. Such portions have been provided separately to the Commission. 16. PUBLICATION OF SCHEDULES Hawaiian shall be responsible for advising the Code-Share Flights to ABC World Airways Guide, Reed Travel Group (RTG) and to Computer Reservations Systems. 17. CONDITIONS OF CARRIAGE The Code-Share Procedures will address reconciliation of Hawaiian and Wings West Conditions of Carriage. 18. APPLICABLE OPERATING RULES In the event this Agreement is silent with respect to which party's rules or operating procedures are applicable to the execution of the Code-Share Flights and processing of passengers thereon, and absent any other agreement, law, rule or regulation, the rules and procedures of Wings West, as the operating airline, shall apply to the extent consistent with the terms of this Agreement. 19. COMPLIANCE WITH REGULATIONS Nothing in this Agreement will require either Wings West or Hawaiian to contravene any government law, rule or regulation. Wings West and Hawaiian hereby confirm that, in relation to this Agreement, all relevant transportation services and advertising or other forms of solicitation will comply in full with applicable laws, rules and regulations. 20. TRADEMARKS AND CORPORATE IDENTIFICATION (a) It is understood and agreed that the logos, trademarks, service marks and tradenames of Wings West shall be and remain at all times the exclusive property of Wings West, and that the logos, trademarks, service marks and tradenames of Hawaiian shall be and remain at all times the exclusive property of Hawaiian. Neither party shall use the logos, trademarks, service marks and tradenames of the other party without the other party's prior written consent. (b) Each party agrees that, should any right, title or interest in or to the other party's logos, trademarks, service marks or tradenames become vested in it (by operation of law or otherwise) by reason of this Agreement, it shall hold the same in trust for the other party and shall, at the request of such party, forthwith unconditionally assign any such right, title or interest to such party. (c) (i) From time to time each party may provide to the other certain art work, drawings, or technical information and advice for the purpose of assisting such other party in the advertising and promotion of the Code-Share Flights. All such 5 drawings, technical information and advice will be treated by the receiving party as confidential and proprietary information of the providing party and the receiving party will use it only for those purposes specifically authorized by the providing party in advance and in writing. (ii) Each party agrees that all advertising and promotional materials promoting the Code-Share Flights will meet first quality standards. (iii) Each party shall, in all cases, be the sole judge in determining the acceptability of both the quality and presentation of advertising and promotional materials using its tradenames or trademarks. (iv) Each party shall be responsible for providing agreed upon promotional material to its own authorized agents and airport locations. 21. NON-EXCLUSIVITY This Agreement is non-exclusive and does not preclude either party from entering into or maintaining marketing relationships, including code-sharing, with other airlines. 22. INDEMNIFICATION (a) Wings West, as Operating Carrier, shall indemnify, defend and hold harmless Hawaiian and its Affiliates and their respective directors, officers, employees and agents (individually a "Marketing Carrier Indemnified Party") from and against any and all claims, suits, penalties, liabilities, judgments, fines, losses and expenses of any nature or kind ("Damages") arising out of, caused by or occurring in connection with (or alleged to arise out of, be caused by or be occurring in connection with): (i) The death of or injury to persons, or delay or loss of or damage to property (including aircraft, baggage or cargo) occurring while such persons or property are under the control or in the custody of, or being transported by, Wings West, except to the extent caused by the willful misconduct of Hawaiian; and (ii) Negligent acts or omissions of Wings West that are in any way related to services contemplated by this Agreement; (b) Hawaiian, as Marketing Carrier, shall indemnify, defend and hold harmless Wings West and its Affiliates and their respective directors, officers, employees and agents (individually an "Operating Carrier Indemnified Party") from and against any and all Damages arising out of, caused by or occurring in connection with (or alleged to arise out of, be caused by or be occurring in connection with): 6 (i) The death of or injury to persons, or delay or loss of or damage to property (including aircraft, baggage or cargo) occurring while such persons or property are under the control or in the custody of, or being transported by, Wings West, to the extent caused by the willful misconduct of Hawaiian; (ii) Negligent acts or omissions of Hawaiian that are in any way related to services contemplated by this Agreement unless and to the extent the Damages arising therefrom are of the type, and occur under the circumstances, referred to in Section 21(a)(i) (in which event the Wings West shall indemnify Hawaiian and other Marketing Carrier Indemnified Parties notwithstanding such negligent (but not willful) acts or omissions of Hawaiian); and (iii) Passenger claims based on Hawaiian's failure to properly issue and complete transportation documentation in accordance with the provisions of the standard Airlines Clearing House or IATA ticketing procedures, including the failure to put a proper notice of the limits of liability on such documentation. The rights and obligations of the parties under this Section 21 shall survive the termination of this Agreement. 23. INSURANCE Wings West, as the Operating Carrier, shall procure and maintain aircraft hull all risks and hull war and allied perils insurances for the aircraft provided by Wings West, and shall cause its insurers to waive rights of subrogation against Hawaiian, its officers, directors, agents, servants and employees, except in respect of claims caused by the gross negligence or willful misconduct of Hawaiian, its officers, directors, agents, servants and employees. Wings West shall also procure and maintain comprehensive airline liability insurance including but not limited to third party, passenger, baggage, cargo and mail legal liability insurance for a minimum combined single limit of Five Hundred Million United States Dollars ($500,000,000 USD) each occurrence. Such legal liability insurance shall contain the following provisions: (i) To include Hawaiian, its officers, agents, servants and employees as additional insureds except in respect of claims caused by the gross negligence or willful misconduct of its officers, agents, servants and employees (the "additional insureds"); (ii) To provide that all provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy issued to each insured; (iii) To provide that this insurance shall be primary and without rights of contribution from any other insurance carried by Hawaiian; 7 (iv) To provide that the additional insureds shall have no responsibility for premium; (v) To provide that the cover afforded to each additional insured by the policy shall not be invalidated by any act or omission (including misrepresentation and non-disclosure) of any other person or party of the policy provided that the additional insured so protected has not caused, contributed to or knowingly condoned the said act or omission; (vi) To give Hawaiian at least thirty (30) days prior written notice of policy cancellation or material change except in the case of war and allied perils where such period of notice shall be seven (7) days or such lessor period as may be available in accordance with policy conditions; and (vii) To provide that insurers accept and insure the indemnification provision included in this Agreement. Wings West shall provide Hawaiian with certificates of insurance evidencing such coverage within five (5) business days of the date of this Agreement and thereafter within five (5) days of the date of any subsequent renewal of such coverage. 24. CLAIMS The indemnified party shall give the indemnifying party prompt notice of any claim made or suit instituted against the indemnified party which would result in indemnification by the indemnifying party and the indemnifying party shall have the right to compromise or participate in the defense of same to the extent of its own interest. 25. JURISDICTION CLAUSE The parties agree that this Agreement shall be governed by the laws of the State of Texas without regard to any conflict of laws rule. 26. INDEPENDENT CONTRACTORS The parties hereby confirm that they are independent contractors and nothing herein is intended or shall be construed to create or establish a partnership or joint venture. 27. FORCE MAJEURE Neither Wings West nor Hawaiian shall be liable for any delays or failure to operate caused by acts of God, Strikes, War, or acts of Government or other causes beyond their control. 8 28. WAIVER Any waiver or invalidation of any part of this Agreement will not affect the right of Wings West or Hawaiian to require strict compliance with any other part of this Agreement. 29. TERM AND TERMINATION This Agreement will become effective on the __ day of ______ 1997 and will continue thereafter for twelve months providing that it may be terminated by Wings West or Hawaiian with or without reason, upon not less than ninety (90) days written notice to the address shown under NOTICES below. At the expiration of the first twelve months, the Agreement shall continue for further periods of twelve months unless earlier terminated by HA as provided for in this Agreement. 30. TERMINATION FOR BREACH In the event of any material breach of any of terms and conditions of this Agreement, the non-breaching party may (at its option) serve a notice of default on the breaching party requiring the remedy of the breach (as specified in the notice) within thirty (30) days and in absence of such remedy the Agreement shall be terminated immediately on the expiration thereof. 31. OTHER TERMINATION Either party may terminate this Agreement at any time if the other party becomes insolvent, commits an act of bankruptcy or undergoes a major change of ownership causing a conflict of interests. 32. POST TERMINATION RIGHTS Termination of this Agreement by Wings West or Hawaiian will not absolve either airline from the obligations accrued prior to that termination. Obligations that are of a continuing nature will survive the termination of this Agreement. Notwithstanding the immediately preceding paragraph, (a) In the event that this Agreement is terminated as provided herein by Hawaiian pursuant to Section 29, or by Wings West pursuant to any other Section, Hawaiian shall endorse all tickets to Wings West. Wings West shall accept all confirmed reservations for passengers traveling on such tickets as if such reservations had been booked through Wings West using ordinary interline procedures but giving effect to the ticket pricing methodology provided for in this Agreement; and 9 (b) In the event that this Agreement is terminated as provided herein by Wings West pursuant to Section 29, or by Hawaiian pursuant to any other Section, Hawaiian, at its sole discretion, shall have the option to endorse tickets to Wings West or any other carrier. Hawaiian shall also have the option to transfer confirmed reservations for passengers traveling on such tickets from Wings West to any other carrier. 33. NOTICES All notices, reports, invoices and other communications required to be given to any party hereto pursuant to this Agreement will be in writing and either (a) delivered in person; (b) sent by an express courier delivery service which provides signed acknowledgments of receipt; or (c) transmitted by facsimile (upon receipt by sender thereof of evidence that a complete transmission of such copy was made to the recipient thereof) and, if sent by facsimile, confirmed by (i) telephone call contemporaneously made to the individual designated as the one to receive such notice, or (ii) dispatching a hard copy of such notice by air mail (postage prepaid) or either of the methods set forth in (a) or (b) above. Unless otherwise expressly set forth in this Agreement, all notices will be effective upon receipt. For the purposes of notice, the addresses of the parties shall be as set forth below; PROVIDED, HOWEVER, that either party will have the right to change its address for notice to any other location by giving at least thirty (30) days prior written notice to the other party in the manner set forth above. If to Hawaiian: Hawaiian Airlines, Inc. 3375 Koapaka Street, Suite G-350 Honolulu, HA 96819 Attention: Peter Jenkins Senior Vice President, Sales & Marketing Phone: (808) 838-6767 Facsimile: (808) 838-6746 With a copy to: Hawaiian Airlines, Inc. General Counsel 3375 Koapaka Street, Suite G-350 Honolulu, HA 96819 Phone: (808) 835-3690 Fax: (808) 835-3610 If to Wings West: Wings West Airlines, Inc. 720 Aerovista Place, Unit B San Luis Obispo, CA 93401 Attention: Michael Rader Phone: (805) 541-1010 x2134 Facsimile: (805) 541-2881 10 34. OTHER AGREEMENTS The Bilateral Traffic Agreement between Hawaiian and American Airlines, Inc., is hereby incorporated by reference. In the event of any conflict between the terms and conditions of this Agreement and those of the Bilateral Traffic Agreement, the terms and conditions of this Code-Share Agreement will control. 35. COUNTERPARTS This Agreement may be executed and delivered be the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date indicated above. HAWAIIAN AIR LINES, INC. WINGS WEST AIRLINES, INC. By: ________________________ By: __________________________ Its: ________________________ Its: __________________________ By: ________________________ Its: ________________________ 12 Annex A: List of city-pair markets: 1. LAX-BFL 2. LAX-CLD 3. LAX-FAT 4. LAX-LAS 5. LAX-MRY 6. LAX-PSP 7. LAX-SAN 8. LAX-SBA 9. LAX-SBP 10. LAX-SNA 11. SFO-MRY 13 EX-10.2 3 AM. 1 TO CODE SHARE AGREEMENT Exhibit 10.2 AMENDMENT NO. 1 TO CODE-SHARE AGREEMENT This AMENDMENT NO. 1 TO CODE-SHARE AGREEMENT (the "Amendment"), dated as of January 21, 1997, is made by Hawaiian Airlines, Inc., a corporation organized under the laws of the Territory of Hawaii and existing under the laws of the State of Hawaii ("Hawaiian") and Wings West Airlines, Inc., d/b/a/ American Eagle Airlines, a California corporation ("Wings West"). WHEREAS, Hawaiian and Wings West have heretofore entered into that certain Code-Share Agreement, dated as of January 6, 1997 (the "Agreement") (defined terms used herein as therein defined); and WHEREAS, Hawaiian and Wings West have agreed to amend the Agreement to change the Effective Date. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and pursuant to the Agreement, Hawaiian and Wings West hereby amend the Agreement as follows: Section 1 Change of Effective Date. The Effective Date of the Agreement is changed from March 15, 1997 to March 4, 1997. Section 2 Miscellaneous. (a) Except as set forth herein, all terms and provisions contained in the Agreement shall remain in full force and effect. (b) This Amendment may be executed in several counterparts, each fully-executed counterparts all of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. IN WITNESS WHEREOF, Hawaiian and Wings West have caused this Amendment to be duly executed and delivered as of the date and year first above written. WINGS WEST AIRLINES, INC. By: _____________________________ Its: _____________________________ HAWAIIAN AIRLINES, INC. By: ____________________________ Its: ____________________________ By: ____________________________ Its: ____________________________ EX-10.3 4 INFORMATION TECHNOLOGY SERVICES AGREEMENT Exhibit 10.3 INFORMATION TECHNOLOGY SERVICES AGREEMENT between HAWAIIAN AIRLINES, INC. and ELECTRONIC DATA SYSTEMS CORPORATION INFORMATION TECHNOLOGY SERVICES AGREEMENT THIS INFORMATION TECHNOLOGY SERVICES AGREEMENT, dated as of February 1, 1997 is between Hawaiian Airlines, Inc. ("Hawaiian"), and Electronic Data Systems Corporation ("EDS"). RECITALS: WHEREAS, the parties desire to enter into an agreement whereby Hawaiian will purchase from EDS, and EDS will provide to Hawaiian, certain hardware and systems software, installation and support services, all as described in this Agreement; and NOW, THEREFORE, in consideration of the premises and the terms and provisions set forth in this Agreement, the parties agree as follows: Article I Agreement, Term and Definitions 1.1 Agreement. During the term of this Agreement, EDS will provide to Hawaiian, and Hawaiian will purchase from EDS, a client/server-based passenger revenue accounting system consisting of licensed EDS-Developed Software, Third Party Hardware and Third Party Software (collectively, the "System") and related services, including the installation of the System, development of certain interfaces and the provision of documentation, training and maintenance for the EDS-Developed Software, all as more fully described in this Agreement and in Schedule A (collectively, the "PRAS Services"), and all upon and subject to the terms and conditions of this Agreement. 1.2 Term. The term of this Agreement will commence as of the date of this Agreement (the "Effective Date") and will continue until the earlier of (a) May 1, 2003 or (b) the date upon which this Agreement is terminated in accordance with Article XI. 1.3 Definitions. For purposes of this Agreement, the following terms will have the following meanings: (a) "Business Day" is any day other than a Saturday, Sunday, Federal holiday or Hawaiian holiday. 1 (b) "Change in Scope" is (i) the addition, deletion or material change of (1) the PRAS Services, or (2) any feature or functionality of the System or any Deliverable or portion thereof, (ii) a material change in any Milestone, (iii) a material variance from the requirements outlined in the Specifications, or (iv) a material departure from Hawaiian's core business practices. (c) "Deliverables" are any tangible and intangible products and results identified as such in Schedule B and specified as such in the Project Plan. (d) "Documentation" means the documentation described in Section 4.4. (e) "EDS Charges" means the charges described in Article IX and Schedule C. (f) "EDS-Developed Software" means (i) EDS*PRAS as described in Section 1 of the Specifications, and (ii) the interfaces and additional functionality to EDS*PRAS developed by EDS in accordance with Section 2 of the Specifications. (g) "EDS Development Tools" means any Software development tools, know-how, methodologies, processes, technologies or algorithms used by EDS in creating the EDS-Developed Software that are based upon the trade secrets or proprietary information of EDS or otherwise owned or licensed by EDS. (h) "EDS*PRAS" means EDS' proprietary passenger revenue accounting system containing the functions and features described in Section 1 of the Specifications. (i) "Final Acceptance" has the meaning set forth in Section 2.4(c). (j) "Hawaiian's Office" is the following Hawaiian office location: 3375 Koapaka Street, Suite G350, Honolulu, Hawaii 96819. (k) "Milestones" are the dates on which each Deliverable is scheduled to be delivered to Hawaiian for user acceptance testing and which are identified as such in Schedule B and/or the Project Plan. (l) "Phases" are, collectively, the Definition and Analysis, Business Design, Construction and Testing, and Implementation phases, each as more fully described in Section 3 of Schedule A. 2 (m) "Software" means the expression of an organized set of instructions in natural or coded language, contained on a physical base of any nature, that must be used on automatic data processing equipment devices, peripheral instruments or equipment, based on digital technology, to make them operate in a certain manner and for certain purposes. (n) "Specifications" are the specifications for the functionality of the EDS-Developed Software as described in the Specifications Document dated February 1, 1997, which may be modified or amended from time to time in accordance with Article VI of this Agreement or in connection with Section 3 of Schedule A. (o) "Third Party Hardware" is the hardware described in Section 1(C) of Schedule A, as may be modified in accordance with Section 4.1. (p) "Third Party Software" is the Software described in Section 1(B) of Schedule A, as may be modified in accordance with Section 4.1. Other capitalized terms used in this Agreement are defined in this Agreement in the context in which they are used. Article II System Installation 2.1 Project Plan. As soon as feasible but no later than ninety (90) days after the Effective Date, EDS will, with the cooperation and assistance of Hawaiian, develop and deliver to Hawaiian a written work plan (the "Project Plan") at a mutually agreed upon level of detail identifying the implementation schedule, activities, Deliverables and Milestones required to complete the System in accordance with this Agreement and the Specifications and to provide the PRAS Services in accordance with the terms of this Agreement. At a minimum, the Project Plan will more specifically describe and incorporate the Milestones and Deliverables generally described in Schedule B and will specify each party's tasks in connection with the implementation of the System. The tasks indicated in the Project Plan will include (a) the installation and testing of the System processing unit, disk drives, EDS-Developed Software, Third Party Hardware and Third Party Software, and (b) Hawaiian's provision of the local area network infrastructure, including central printers and communications equipment. The Project Plan may be updated from time to time as necessary to reflect and document any changes in functionality, implementation schedule, scope and charges mutually agreed upon by EDS and Hawaiian in accordance with Article 3 VI of this Agreement. EDS and Hawaiian agree to work together to minimize disruption to Hawaiian's work environment and to provide a smooth implementation. EDS and Hawaiian acknowledge, however, that some disruption may occur. 2.2 System Installation. (a) Upon delivery of the Project Plan to Hawaiian in accordance with Section 2.1, and Hawaiian's written acceptance of the Project Plan, which acceptance (i) shall be given within seven (7) calendar days after Hawaiian's receipt of the Project Plan from EDS, unless Hawaiian reasonably withholds acceptance and indicates the reasons therefor, and (ii) shall not be unreasonably withheld or delayed, each party will perform its respective tasks outlined in the Project Plan in order for EDS to deliver to Hawaiian the System and related Deliverables in accordance with the Project Plan. (b) Subject to the limitations set forth in this Section, EDS will provide, and is committed to the delivery of, the System in accordance with the schedule set forth in Schedule B, which schedule may be modified from time to time by mutual written agreement of the parties to accommodate any Changes in Scope requested by Hawaiian and agreed to by EDS. Hawaiian and EDS understand and agree that EDS will not be liable (financially and otherwise) for any delays in the schedule caused by events and circumstances beyond the reasonable control of EDS, including without limitation, (i) the nonperformance of Hawaiian's obligations under this Agreement, (ii) the nonperformance of any third party, including delays in the delivery of the Third Party Hardware or Third Party Software by third party vendors, (iii) those force majeure events and circumstances described in Section 13.4, (iv) delays resulting from any Change Order, but only to the extent set forth in such Change Order, or (v) any changes to the System that EDS may be required to make pursuant to airline industry or government mandates. 2.3 Reliance on Hawaiian's Information. Hawaiian understands and agrees that EDS may rely on the accuracy and completeness of information provided by Hawaiian to EDS relating to, among other things, (a) interface requirements, specifications and data concerning Hawaiian's applications and systems, as more fully described in Section 7.6, and (b) information provided by Hawaiian for inclusion in the Project Plan and the Specifications, including without limitation, Hawaiian's process descriptions, data stores/flows, and data models for tables, reports and screens. During installation of the System, EDS and Hawaiian will cooperate with each other in good faith to identify and resolve issues that are based upon 4 identification of new information that affects the obligations of the parties under this Agreement. If the information provided by Hawaiian is not accurate, such inaccuracy will be deemed to constitute a Change Order Request pursuant to Article VI, and EDS will be permitted to recover any and all costs incurred and adjust all applicable schedules set forth in this Agreement and the Project Plan resulting from such inaccuracy. 2.4 User Acceptance Testing. Hawaiian will have the opportunity to review each Deliverable in Phases in accordance with the time periods and procedures described in this Section 2.4. (a) The review period for the Definition and Analysis Phase (as described in Section 3 of Schedule A) will be seven (7) calendar days; however, Hawaiian will use reasonable efforts to complete its review in less than seven (7) calendar days. Unless, during such review period (and any subsequent review period as described in this subsection), Hawaiian identifies to EDS in writing a failure of the Definition and Analysis documentation to substantially conform to the provisions set forth in Section 2 of the Specifications, the Definitions and Analysis Phase will be deemed automatically accepted by Hawaiian. If Hawaiian provides EDS with written notice of a valid nonconformance in accordance with this Section 2.4(a), a new review period of no more than seven (7) calendar days will commence after EDS has corrected and redelivered the Phase to Hawaiian. (b) The review period for the Business Design Phase (as described in Section 3 of Schedule A) will be seven (7) calendar days; however, Hawaiian will use reasonable efforts to complete its review in less than seven (7) calendar days. Unless, during such review period (and any subsequent review period as described in this subsection), Hawaiian identifies to EDS in writing a failure of the Business Design to substantially conform to the Definitions and Analysis documentation, the Business Design Phase will be deemed automatically accepted by Hawaiian. If Hawaiian provides EDS with written notice of a valid nonconformance in accordance with this Section 2.4(b), a new review period of no more than seven (7) calendar days will commence after EDS has corrected and redelivered the Phase to Hawaiian. (c) The review period for the Construction and Testing Phase (as described in Section 3 of Schedule A) will be fourteen (14) calendar days; however, Hawaiian will use reasonable efforts to complete its review in less than fourteen (14) calendar days. Unless, during such review period (and any subsequent review period as described in 5 this subsection), Hawaiian identifies to EDS in writing a failure of the EDS-Developed Software to substantially conform to the Business Design, the Construction and Testing Phase will be deemed automatically accepted by Hawaiian. If Hawaiian provides EDS with written notice of a valid nonconformance in accordance with this Section 2.4(c), a new review period of no more than fourteen (14) calendar days will commence after EDS has corrected and redelivered the Phase to Hawaiian. The review period(s) for the Construction and Testing Phase will constitute formal user acceptance testing. Hawaiian's actual acceptance of the Implementation Phase of the Phase 2 Implementation Deliverable shall constitute "Final Acceptance" of the System. (d) If the Hawaiian Project Manager and the EDS Project Manager disagree in good faith with respect to whether a Deliverable substantially conforms in all material respects to the applicable documentation, the dispute will be resolved in accordance with Article X of this Agreement. (e) Corrections to a Deliverable that are related to an EDS error or omission shall be made at EDS' cost. Corrections to a Deliverable that are related to a Hawaiian error or omission shall be made at Hawaiian's cost and costs incurred by EDS as a result of delays caused by Hawaiian shall be borne by Hawaiian. Article III Warranty and Maintenance Support 3.1 Correction of Nonconformance to Specifications During Implementation. For the period commencing with the first day after the first Deliverable begins operation in Hawaiian's production environment until the day the last Deliverable begins operation in Hawaiian's production environment (the "Warranty Period"), EDS warrants that each Deliverable will operate in all material respects in accordance with the Specifications for that Deliverable. The parties expressly acknowledge and agree that Hawaiian's sole and exclusive remedy for any breach of this warranty is as set forth in this Section 3.1. (a) Remedy. As soon as practicable after discovery of a failure of a Deliverable to conform to the Specifications during the Warranty Period, Hawaiian shall deliver to EDS a written, detailed description of the alleged nonconformance. EDS shall have the right to use reasonable efforts in good faith to identify the cause of the alleged nonconformance and to deliver to Hawaiian, without additional charge to Hawaiian, the necessary correction, if any. Upon offer by EDS, and 6 written acceptance by Hawaiian exercisable in Hawaiian's reasonable discretion, EDS may refund the portion of the EDS Charges paid by Hawaiian to EDS for the portion of the Deliverable related to the nonconformance. The amount of any such refund will be mutually determined by the parties. If Hawaiian elects not to accept such refund, EDS will remain obligated to deliver a conforming Deliverable in accordance with this Agreement. The methods and techniques for correcting nonconformances and implementing corrections will be at EDS' sole reasonable discretion. (b) Hawaiian-Caused Nonconformances. To the extent any alleged nonconformance is caused by (i) any maintenance, modifications, enhancements, updates or improvements to any Deliverable made by Hawaiian, or a third party acting on behalf of Hawaiian, (ii) improper or unauthorized use of the EDS-Developed Software, (iii) any hardware or Software changes not provided or approved by EDS (iv) hardware or Software that, although approved by EDS, is defective or malfunctioning, (v) improper or defective installation or implementation of EDS-approved hardware or Software changes performed by a party other than EDS, (vi) the use of any Deliverable in combination or connection with hardware or Software not listed in Sections 1(B) or 1(C) of Schedule A or approved by EDS, or (vii) changes to data/file layouts received from Hawaiian or external sources, then Hawaiian shall pay EDS, at [Confidential Treatment Requested] for identifying and correcting the alleged nonconformance during the Warranty Period. (c) Exceptions. Except as stated in the Specifications, EDS does not warrant that the functions of the System will meet Hawaiian's business requirements. The parties acknowledge that operation of the System will not be uninterrupted or error-free. Subject to Section 8.6, EDS will have no responsibility with respect to Hawaiian's data or data files. 3.2 On-going Product Maintenance and Support. During the period commencing with the day after the last Deliverable begins operation in Hawaiian's production environment until termination of this Agreement for any reason (the "Maintenance Period"), EDS will provide the following product maintenance and support services (the "Maintenance Support Services"): (a) Standard Support Services. EDS will provide Hawaiian with user support accessible via pager 24-hours a day, seven (7) days a week. EDS will use reasonable efforts to return each such page for services within two (2) hours 7 after EDS actually receives such page from Hawaiian, subject to those events and circumstances described in Section 13.4 and EDS personnel having immediate access to telecommunication services. In addition, Hawaiian will be provided with a back-up telephone number for use in case Hawaiian is unable to reach EDS personnel via the standard support pager number. The standard support services will be provided either by telephone or in written format and will consist of providing consultation and advice on problem diagnosis, troubleshooting and identification of Bugs (as defined in Section 3.2(c)(i)) in the EDS-Developed Software. The parties agree to classify and prioritize requests for this standard support service, as follows: (i) "Critical" means a situation where a major problem impacts the functionality of the EDS-Developed Software and is significant in terms of the operation of the EDS-Developed Software, such as the inability to audit sales or calculate revenue. EDS will commence efforts to correct Critical problems within one (1) Business Day after receipt of a request for support from Hawaiian, and will diligently pursue a remedy to the problem. (ii) "Non-urgent" means a situation where a minor problem causes a minor inconvenience to Hawaiian, including without limitation, improper printout or display, misspelled error messages and documentation errors. EDS will commence efforts to correct Non-urgent items within a reasonable period of time after any Critical problem is corrected. After all Critical problems are corrected, EDS will then diligently pursue a remedy to Non-urgent problems. EDS will notify Hawaiian of the status of any Non-urgent problem within three (3) Business Days after receipt of a request for support from Hawaiian. (b) Bug Fixes and Problem Coordination. Hawaiian shall notify EDS of any Bugs in the EDS-Developed Software and specify in writing the reason the EDS-Developed Software does not perform in conformance with the then-current Documentation. EDS' sole responsibility relating to any Bugs will be to use reasonable efforts to correct the Bug and promptly initiate work toward developing a Bug Fix (as defined in Section 3.2(c)(ii)) consistent with the classification and prioritization schedule set forth in Section 3.2(a). After EDS develops the Bug Fix, EDS will provide the Bug Fix to Hawaiian by transmitting or shipping sufficient programming and operating instructions to remedy the Bug. EDS will include a correction to the Bug in subsequent releases of the EDS-Developed Software. 8 (c) Definitions. For purposes of this Section 3.2, the following terms will have the following meanings: (i) "Bug" means a failure of the EDS-Developed Software to conform in all material respects with the then-current Documentation. Any nonconformity resulting from (1) any maintenance, modifications, enhancements, updates or improvements to the EDS-Developed Software made by Hawaiian, or a third party acting on behalf of Hawaiian, (2) improper or unauthorized use of the EDS-Developed Software, (3) any hardware or Software changes not provided or approved by EDS, (4) hardware or Software that, although approved by EDS, is defective or malfunctioning, (5) the improper or defective installation or implementation of EDS-approved hardware or Software changes performed by a party other than EDS, (6) the use of the EDS-Developed Software in combination or connection with hardware or Software not listed in Sections 1(B) or 1(C) of Schedule A or approved by EDS, or (7) changes to data/file layouts received from Hawaiian or external sources, shall not be considered a Bug. (ii) "Bug Fix" means either a Software modification or addition that, when made or added to the EDS-Developed Software, establishes material conformity of the EDS-Developed Software to the then-current Documentation. (d) Releases. From time to time, EDS may, at its option, issue, at no additional charge to its then-current EDS*PRAS maintenance customers, industry standard changes or general releases designed to enhance the operating performance of EDS*PRAS without changing the functions of EDS*PRAS, as described in Section 1 of the Specifications (a "New Version"). Each New Version will fully support and be operable with all functions and features set forth in the Specifications. In such event, during the Maintenance Period, EDS will provide to Hawaiian one (1) copy of any New Version, at no additional charge, together with a copy of any related Documentation (including installation instructions). If Hawaiian desires EDS' assistance in the installation and integration of such New Version into Hawaiian's then-existing System, EDS will do so at [Confidential Treatment Requested] for such services and as an additional service subject to the provisions of Section 4.8. For purposes of this Agreement, the term "New Version" shall not include (i) improvements, modifications or enhancements to EDS*PRAS that provide new or expanded functionality or performance features, or (ii) new or enhanced functionality or performance features to EDS*PRAS that EDS develops for another 9 customer. If EDS develops new or enhanced functionality or performance features to EDS*PRAS for another customer and such functions and features are not confidential or subject to other contractual restrictions, EDS will (i) permit Hawaiian to review such functionality or features, and (ii) make such functions and features available to Hawaiian as an additional service subject to the provisions of Section 4.8. (e) Hawaiian Misuse or Error. EDS reserves the right to charge Hawaiian at [Confidential Treatment Requested] for any requested services related to investigation and/or correction of problems or malfunctions relating to the EDS-Developed Software that were caused by or contributed to by (i) any maintenance, modifications, enhancements, updates or improvements to any Deliverable made by Hawaiian, or a third party acting on behalf of Hawaiian, (ii) improper or unauthorized use of the EDS-Developed Software, (iii) any hardware or Software changes not provided or approved by EDS, (iv) hardware or Software that, although approved by EDS, is defective or malfunctioning (v) the improper or defective installation or implementation of EDS-approved hardware or Software changes performed by a party other than EDS, (vi) the use of the EDS-Developed Software in combination or connection with hardware or Software not listed in Sections 1(B) or 1(C) of Schedule A or approved by EDS, or (vii) any changes to data/file layouts received from Hawaiian or external sources. (f) Remedy. EDS will use reasonable efforts in good faith to repair or replace the EDS-Developed Software or any New Version it distributes to the extent that they do not conform in all material respects with the then-current Documentation. The methods and techniques for correcting nonconformances and implementing corrections will be at EDS' sole reasonable discretion. Hawaiian's sole and exclusive remedy for any damage or loss relating to the Maintenance Support Services or the EDS-Developed Software shall be either (1) replacement of the affected portion of the EDS-Developed Software, or (2) successful re-performance of the Maintenance Support Services, and, if neither option is reasonably available, EDS shall refund to Hawaiian that portion of any EDS Charges paid by Hawaiian to EDS relating to the applicable Maintenance Support Services, which refund will be determined by mutual agreement of the parties. EDS does not warrant that the Maintenance Support Services will render operation of the EDS-Developed Software uninterrupted or error free. 10 3.3 Proration Software Maintenance. For purposes of this Agreement, the term "Proration Software" will mean the Software that will (a) utilize industry information and user data to identify the proration method to be applied to the itinerary and (b) apply the identified method to determine the appropriate coupon values. The Proration Software is a sub-contracted portion of the System. During the term of this Agreement, EDS will obtain from the Proration Software vendor, and provide to Hawaiian at no additional charge, maintenance support for the Proration Software. Hawaiian will be responsible for the maintenance of all data as it pertains to negotiated agreements with other airlines. 3.4 Third Party Hardware and Third Party Software. (a) With respect to the Third Party Hardware and Third Party Software components of the System, EDS will assign to Hawaiian, where permitted, or enforce for Hawaiian's benefit (without resort to litigation or other dispute resolution process) any warranties or indemnities extended to EDS by the applicable vendors. (b) EDS represents and warrants that (i) the Third Party Hardware will not be used or refurbished hardware, and (ii) on the date title is transferred to Hawaiian, Hawaiian will receive good and marketable title to the Third Party Hardware, free and clear of any lien or encumbrance by or through EDS. (c) EDS represents and warrants that EDS has the right to grant Hawaiian the license to the EDS-Developed Software, as described in Article VIII, without, to EDS' actual knowledge, infringement on intellectual property rights of third parties. (d) EDS will acquire first year maintenance support for the Third Party Software and the Third Party Hardware (excluding the User Equipment described in Schedule A) from the applicable third party vendor. EDS will administer such first year maintenance services in a manner consistent with the terms and conditions of the applicable vendor agreement. Resolution of any maintenance issues will be handled in accordance with the applicable vendor agreement, and any remedies relating to any service problems will be the remedies set forth in the applicable vendor agreement. Although EDS will make recommendations to Hawaiian as to future levels of maintenance services, Hawaiian will be responsible (financially and otherwise) for ongoing maintenance and support of the Third Party Software and Third Party Hardware after expiration of the first year maintenance support described in this Section. 11 3.5 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN THE SPECIFICATIONS, EDS MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING THE MERCHANTABILITY, SUITABILITY, ORIGINALITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OF THE EDS DEVELOPED SOFTWARE, THE SYSTEM OR THE SERVICES PROVIDED BY EDS UNDER THIS AGREEMENT. Article IV Other PRAS Services 4.1 Hardware and Software Procurement. (a) EDS will procure and deliver, or cause to be delivered, to Hawaiian's Office the Third Party Hardware and Third Party Software, in consideration of the EDS Charges set forth on Schedule C. Prior to purchasing any such hardware and Software, EDS will review with Hawaiian the detailed descriptions of the actual Third Party Software and Third Party Hardware to be procured by EDS. If Hawaiian desires that EDS purchase additional hardware or Software (in terms of quantity, upgrades, functions, features or capacity), then EDS will do so subject to the parties reaching a mutual agreement in accordance with the provisions of Article VI. (b) The Third Party Software includes a database management system by the vendor "Sybase". If product support for the Sybase SQL Server is actually discontinued (as opposed to an announcement of such discontinuation) during the term of this Agreement, then EDS will develop and issue a new release of the EDS-Developed Software that will utilize another industry standard database management system. EDS will provide such new release to Hawaiian prior to the actual discontinuation of product support for the Sybase SQL Server. EDS will consult with Hawaiian regarding the selection of the new database management system; however, EDS will have the right to decide which new database management system will be utilized. If Hawaiian has not made significant modifications or enhancements to the System (other than those described in the Specifications or effected through the provisions of Article VI), EDS will pay for all costs associated with the development and shipment of such new release to Hawaiian. If Hawaiian has made significant modifications or enhancements to the System (other than those described in the Specifications or effected through the provisions of Article VI), EDS will (i) perform the development services necessary to convert the EDS-Developed Software so that it may utilize an alternative database management system as an additional 12 service to Hawaiian subject to the provisions of Section 4.8, and (ii) charge for such services only the incremental, additional development and conversion costs attributable to such modifications or enhancements at [Confidential Treatment Requested] for such services. (c) If, during the term of this Agreement, support for the version of a particular Third Party Software product is discontinued by the applicable vendor, then, prior to discontinuation of such support, EDS will develop and issue a new release of the EDS-Developed Software to Hawaiian that will utilize the new version of the applicable Third Party Software, and EDS will pay for the costs associated with the development of such new release. If Hawaiian has made significant modifications or enhancements to the System (other than those described in the Specifications or effected through the provisions of Article VI), EDS will (i) perform the development services necessary to convert the EDS-Developed Software so that it may utilize the new version of the applicable Third Party Software as an additional service to Hawaiian subject to the provisions of Section 4.8, and (ii) charge for such services only the incremental, additional development and conversion costs attributable to such modifications or enhancements at [Confidential Treatment Requested] for such services. 4.2 Conversion Specifications. EDS will provide to Hawaiian the file layout information required for preparing conversion files and converting Hawaiian's existing data into the System. Hawaiian is responsible for completing the physical data file conversions and providing EDS with the conversion files pursuant to Section 7.12. 4.3 Training. In accordance with a mutually agreed upon schedule, EDS will provide a "train the trainer" session per Deliverable for up to twenty (20) Hawaiian employees (the "Hawaiian Trainees"). Such "train the trainer" sessions will not exceed two (2) Business Days per Deliverable. During user acceptance testing, EDS will provide further informal training support to the Hawaiian Trainees, on an as-needed basis. The Hawaiian Trainees shall possess experience and training in PCs and Windows Software, and shall possess a basic background and knowledge of passenger revenue accounting processes or systems. Although EDS will demonstrate for members of Hawaiian's MIS department how to operate EDS*PRAS, Hawaiian shall be responsible for obtaining adequate training with respect to the Third Party Hardware and Third Party Software. The "train the trainer" training sessions will be held on Hawaiian's premises and Hawaiian will provide adequate facilities for such training at no cost to EDS. Hawaiian will be responsible for any travel-related expenses incurred by Hawaiian in connection with its employee's attending such training sessions. 13 4.4 Documentation. The Documentation will consist of a User Guide and a Technical Guide for the EDS-Developed Software. The Documentation will be available in hard copy and in electronic format. EDS will provide updates to the Documentation for, and concurrently with, any subsequent modifications and/or enhancements made available to Hawaiian. At Final Acceptance, all Documentation will conform to the Specifications. EDS will deliver to Hawaiian documentation relating to the Third Party Hardware and Third Party Software as received from the applicable third party vendors. 4.5 Consulting Services. If requested by Hawaiian, EDS will provide consulting services related to any process reengineering efforts or other initiatives of Hawaiian in connection with the implementation of the System. Any such consulting services will be provided as an additional service at rates to be mutually agreed upon by the parties and subject to the provisions of Section 4.8. 4.6 Airline Tariff Publishing Company (ATPCO) Data. During the term of this Agreement, EDS will obtain and provide to Hawaiian the ATPCO data required for operation of the System. EDS will obtain and provide such ATPCO data only with respect to (a) domestic flights originating and ending within the United States and Canada, and (b) international flights originating or ending in North America. Such ATPCO data will consist of (a) domestic local fares, (b) domestic joint fares, (c) domestic full map routings, (d) domestic market routings, (e) domestic automated rules/footnotes for North American fares, (f) domestic footnotes for North American fares, (g) international fares to/from North America--published and constructed (unpublished) fares, (h) international automated rules/footnotes for fares to/from North America (i) international arbitraries to/from North America, and (j) international full map routings for fares to/from North America. EDS will transmit such data to Hawaiian over such telecommunication lines deemed appropriate by EDS. The parties acknowledge and agree that EDS shall not be responsible for the content of the ATPCO data. The EDS Charges for the provision of such data are described on Schedule C. 4.7 Year 2000 Issues. The EDS-Developed Software will be written to address year 2000 issues. EDS' services as described in this Agreement do not include any changes, modifications, updates or enhancements to any existing Hawaiian Software or to the Third Party Software that may be necessary to cause such Software to (a) operate and produce data on and after January 1, 2000 accurately and without delay, interruption or error relating to the fact that such Software is operating on or after 12:00 a.m. on January 1, 2000, or (b) accept, calculate, process, maintain, store and output accurately and without delay, interruption or error, all times and/or dates, whether before, on or after 12:00 a.m. January 1, 2000, and any time periods determined on the basis of any such times and/or dates. 14 4.8 Additional Services. In addition to the services EDS is otherwise obligated to provide under this Agreement, EDS will provide such additional services or resources as Hawaiian may reasonably request from time to time, on such terms and conditions, including price and scope, as the parties may mutually agree upon in writing. The charge for performing enhancements to the System as an additional service is set forth on Schedule C. Article V Project Management 5.1 Project Personnel and Project Management. EDS will lead the installation of the System, working in conjunction with the designated representatives or personnel of Hawaiian. Hawaiian and EDS will each provide appropriate personnel resources with the specific knowledge required to complete the System and the PRAS Services. EDS will have a core project team assigned to the project, with other EDS personnel who will supplement the core project team from time to time as their particular skills are needed, including System consultants, systems engineers and database engineers. EDS will track the progress of the System installation and the PRAS Services against the Project Plan, Milestones, Change Orders and other issues. EDS will have oversight and management responsibility for any third party vendors required by EDS to perform its obligations under this Agreement or the Project Plan. Hawaiian will be responsible for the performance of any services provided by Hawaiian's third party vendors to EDS in connection with the System or the PRAS Services. If any third party vendors provided by Hawaiian do not perform in accordance with the reasonable standards of EDS, and after any such vendor has been given a reasonable opportunity to cure such nonperformance, EDS shall be relieved of any obligations under this Agreement to the extent such third party vendor's failure to so perform adversely affects EDS' ability to properly perform those obligations. Upon Hawaiian's reasonable request, EDS will furnish Hawaiian with certain information resulting from security checks performed by EDS, including drug tests, relating to all EDS personnel and contractors that EDS assigns to this project and who will be physically onsite at Hawaiian's Office (the "Onsite EDS Personnel"). Hawaiian reserves the right, exercisable in its reasonable discretion, to reject any Onsite EDS Personnel that Hawaiian deems an unacceptable risk based on the security-related information provided by EDS to Hawaiian. 5.2 EDS Project Manager. EDS will designate and maintain a representative of EDS (the "EDS Project Manager") who will be an employee of EDS and who will (a) serve as the primary point of contact for Hawaiian in addressing issues relating to the performance of EDS' obligations under this Agreement and the Project Plan, (b) be authorized to act generally 15 as the primary point of contact for Hawaiian in dealing with EDS and to coordinate EDS' provision of the PRAS Services pursuant to this Agreement and (c) have the necessary authority to act on behalf of EDS with respect to any matters arising under this Agreement or under the Project Plan. Hawaiian may reasonably rely on the decisions, actions, instructions and/or information provided by the EDS Project Manager. 5.3 Hawaiian Project Manager. Hawaiian will designate and maintain a representative of Hawaiian (the "Hawaiian Project Manager") who will be an employee of Hawaiian and who will (a) have oversight responsibility for directing Hawaiian's resources in support of this Agreement, (b) serve as the primary point of contact for EDS in addressing issues relating to the performance of Hawaiian's obligations under this Agreement and the Project Plan, and (c) have the necessary authority to act on behalf of Hawaiian with respect to any matters arising under this Agreement or under the Project Plan. EDS may reasonably rely on the decisions, actions, instructions and/or information provided by the Hawaiian Project Manager. 5.4 Project Status Reporting. Until Final Acceptance, EDS will provide project status reports, upon a mutually agreed schedule and level of detail, to the Hawaiian Project Manager. Article VI Change Control 6.1 Change Request Procedure. Unless EDS and Hawaiian otherwise agree, each Deliverable will be completed in accordance with the Project Plan. If, prior to the day the last Deliverable begins operation in Hawaiian's production environment, Hawaiian should desire a Change in Scope, the following procedures will apply: (a) The Hawaiian Project Manager will deliver a written notice (a "Change Order Request") to the EDS Project Manager specifying the proposed Change in Scope and the purpose or objective sought with the proposed Change in Scope. Within a reasonable period of time, but no later than fifteen (15) Business Days after EDS' receipt of the Change Order Request, EDS will deliver to the Hawaiian Project Manager a written response to the Change Order Request (such response, a "Change Order Response") specifying whether the proposed Change in Scope is feasible. (b) If the proposed Change in Scope is feasible, the Change Order Response will specify (i) the statement of work of the requested Change in Scope, (ii) any necessary 16 revisions to the Project Plan or the Milestones, and (iii) the additional charges payable to EDS for the performance of the Change in Scope. (c) If the Change Order Response provides for an additional charge to Hawaiian with respect to the implementation of the proposed Change in Scope, such additional charge will be reflected in the Change Order Response on a time and materials basis, based on an hourly rate of $[Confidential Treatment Requested], plus out-of-pocket expenses, for enhancements (including custom modifications, updates, and improvements) to the System. Hawaiian and EDS will work together in good faith to limit the aggregate Changes in Scope and the charges therefor to $[Confidential Treatment Requested] or less. (d) Within fifteen (15) Business Days after receipt of a Change Order Response, the Hawaiian Project Manager and the EDS Project Manager will meet to determine whether the parties mutually desire to proceed with the Change in Scope. (e) If the Change Order Response indicates that the Change in Scope will not affect the Project Plan or result in an additional charge to Hawaiian, EDS will implement the Change in Scope in accordance with the Change Order Request. If, however, the Change Order Response indicates that the Change in Scope will affect the Project Plan or EDS' charges for completion of the Project Plan, then the EDS Project Manager and the Hawaiian Project Manager must each provide written approval (a "Change Order") to the Change Order Response to authorize the implementation of the Change in Scope. (f) Upon execution by the Hawaiian Project Manager and the EDS Project Manager, Change Orders will be deemed to be part of this Agreement, and the parties will immediately modify, as applicable, the Project Plan, the Specifications, the Deliverables, the Milestones and the EDS Charges. (g) If any Change Order provides for an increase in the EDS Charges, Hawaiian will pay EDS such charges in accordance with a mutually agreed upon schedule. In the absence of such schedule, Hawaiian will pay EDS such charges in accordance with the provisions of Article IX of this Agreement upon the approval of the applicable Change Order. 17 Article VII Hawaiian Responsibilities During the term of this Agreement, to enable EDS to perform the PRAS Services, Hawaiian will, on a timely basis and at no charge to EDS, perform its obligations described in the Project Plan, this Section and elsewhere in this Agreement. 7.1 Support of EDS Methodology. Hawaiian will support and participate in the use of EDS' systems and methodologies for the project management, design, development, implementation, operation and maintenance of the System, provided that EDS has previously identified and reviewed these systems and methodologies with Hawaiian. 7.2 General Cooperation. Hawaiian will make available, as reasonably requested by the EDS Project Manager, key decision makers, personnel (whether management, technical or user), information, approvals and acceptances as necessary for EDS to perform its obligations under this Agreement and the Project Plan on a timely basis. At a minimum, Hawaiian will make available to EDS the Hawaiian Project Manager and one additional resource that has this project as its primary responsibility and that possesses sufficient knowledge of Hawaiian's passenger revenue accounting policies, procedures and operations. 7.3 Hawaiian Facilities. Commencing on the Effective Date, Hawaiian will provide to EDS such space, office furnishings, janitorial service, telephone service (including equipment and voice mail), utilities (including air conditioning) and office-related equipment, supplies and duplicating services at Hawaiian's Office as EDS may reasonably require to provide the services described in this Agreement (collectively, the "Hawaiian Facilities"). EDS will have access to the Hawaiian Facilities twenty-four (24) hours a day, seven (7) days a week and will comply with Hawaiian's reasonable security procedures while on the premises of the Hawaiian Facilities. Such Hawaiian Facilities will be equivalent to the space provided to similar Hawaiian employees. At a minimum, Hawaiian will provide the work space necessary for the EDS project team to effectively perform the PRAS Services, an office/conference room for the EDS Project Manager and project team and a reasonable amount of space to accommodate the installation efforts, including testing and training. With respect to the telephone services, Hawaiian will only be responsible for long distance charges made by EDS or its subcontractors that originate from Hawaiian's Facilities. 7.4 Site Preparation. EDS will advise Hawaiian as to the requisite environment for the System. In accordance with the schedule set forth in the Project Plan, Hawaiian, with the 18 advice of EDS, will (a) prepare and maintain the space at Hawaiian's Office in accordance with vendor specifications and all applicable codes, statutes, regulations and standards, and (b) provide all necessary power, power stabilization measures, air conditioning, physical security measures and environmental modifications required for the installation or utilization of the System. 7.5 Access and Use Rights. Hawaiian will provide EDS with the right to legally and physically access, use and operate any Hawaiian-owned or licensed Software, data (such as tariff information from the Airline Tariff Publishing Company and sales information from the Airline Reporting Corporation), hardware or equipment in connection with the System and any services to be provided to Hawaiian by EDS under this Agreement. Prior to the Effective Date, Hawaiian will take, at Hawaiian's expense, all necessary actions to obtain from third parties any consents, approvals or authorizations necessary for EDS to legally and physically access, use and operate any Software licensed by Hawaiian, data, hardware or equipment used in connection with the System and the services to be provided to Hawaiian by EDS under this Agreement. Hawaiian shall acquire, at its expense, and provide to EDS any third party data and information required for operation of the System, such as PNRs (passenger name records), Weekly OAG Flight Schedule data, data and sales information from the Airline Reporting Corporation, the Bank Settlement Plans identified in the Specifications and the following International Air Transport Association (IATA) data, in electronic format, (a) Quarterly Prorate Factors, (b) Daily Bankers Buying Rate, (c) Monthly 5-DAY Rates, (d) Annual Maximum Permitted Mileage (MPM)/Ticketed Point Mileage (TPM), and (e) Semi-annual Agency Master. 7.6 Software Interfaces. Hawaiian shall provide the information necessary for EDS to identify interface requirements and define interface specifications to the Hawaiian-operated and third party-operated applications and systems identified in Section 2 of the Specifications. Hawaiian shall provide the test data necessary to ensure that such interfaces meet the provisions of Section 2 of the Specifications. Hawaiian shall develop and implement all changes to the Hawaiian-operated and third party-operated applications and systems required to interface with the System, other than those changes and interfaces related to the Third Party Software, those described in the Specifications and those effected through the provisions of Article VI. 7.7 Network; Telecommunication Equipment and Services. Hawaiian will provide and maintain on an ongoing basis the local area network, network operating environment, telecommunication equipment, facilities and services required for the System, including without limitation, the current NOVELL or Windows NT local area network environment, print facilities and services, and any other necessary infrastructure/network components. 19 7.8 Supplies. Hawaiian will provide all tapes and electronic, optical and paper media required for operation of the System. 7.9 Flight and Hospitality Privileges. Hawaiian will provide EDS personnel who are traveling in connection with EDS' responsibilities related to the installation of the System or the PRAS Services with round-trip, positive space passes for Hawaiian flights. EDS agrees that the EDS personnel and subcontractors will not displace any revenue passengers on any Hawaiian flight. If EDS personnel are required to travel in order to perform the PRAS Services, and cannot obtain a seat on a Hawaiian flight on a timely basis, then Hawaiian shall reimburse EDS for all reasonable airfare incurred by EDS under such circumstances, provided that EDS has used reasonable efforts to notify Hawaiian. In addition, Hawaiian will use its reasonable efforts to make available to EDS personnel who travel in connection with the PRAS Services any hotel and/or corporate apartment discounts available to Hawaiian. 7.10 Application Systems Maintenance Support. At least three (3) months prior to delivery of the first Deliverable, Hawaiian will assign personnel to (a) assist EDS in user acceptance testing, including the development of user test cases and scripts and (b) begin training in maintenance procedures for the System. Commencing with the day the first Deliverable begins operation in Hawaiian's production environment, Hawaiian will provide application systems maintenance and all operations support for the System, which will include executing and monitoring production job cycles. 7.11 Training. EDS will make available to Hawaiian the training materials used by EDS to train Hawaiian's trainers. Following the training sessions described in Section 4.3, Hawaiian will be responsible for training Hawaiian users and other Hawaiian personnel to properly use the System and for providing training materials to its personnel. EDS will assist Hawaiian in the original preparation and development of such training materials. 7.12 Conversion Files. Hawaiian will provide EDS with the necessary conversion files, based upon EDS' specifications, to be used during installation of the System, as more fully described in the Project Plan. 7.13 Business Recovery. Hawaiian understands and agrees that EDS has not undertaken by this Agreement to perform business recovery services or functions (such as disaster recovery services) with respect to the System or with respect to Hawaiian's data used in connection with the System. Prior to implementation of the System, EDS will make general business recovery recommendations to Hawaiian. If requested by Hawaiian, EDS will assist Hawaiian in developing, testing and implementing a business recovery plan and capabilities at 20 [Confidential Treatment Requested] for such services and as an additional service subject to the provisions of Section 4.8. Article VIII License, Proprietary Rights, Data Confidentiality 8.1 License of EDS-Developed Software. Subject to the provisions of this Article VIII and provided that this Agreement is not terminated in accordance with Article XI, EDS grants to Hawaiian, and Hawaiian accepts from EDS, a world-wide, nontransferable and nonassignable (except as otherwise provided herein), nonexclusive and perpetual license to operate, in object code form only, the EDS-Developed Software and any New Versions accepted by Hawaiian. For purposes of this Section, the term EDS-Developed Software includes the related Documentation. (a) Hawaiian will use the EDS-Developed Software only in connection with its own internal accounting operations (including code-share partnering arrangements with other airlines, but only to the extent such arrangements are part of Hawaiian's internal accounting operations) and not to process the data of any other person or entity. In addition, Hawaiian and each Participating Approved Affiliate (as defined below) may use the EDS-Developed Software to process the internal accounting operations of a Participating Approved Affiliate (including code-share partnering arrangements with other airlines, but only to the extent such arrangements are part of Hawaiian's or the Participating Approved Affiliate's internal accounting operations), but not to process the data of any other person or entity; provided, however, that, if the aggregate annual gross passenger revenue of all Participating Approved Affiliates (measured as provided below) exceeds $[Confidential Treatment Requested] EDS shall receive an incremental license fee from Hawaiian for the increased use of the EDS-Developed Software. The amount of such incremental license fee will be (i) $[Confidential Treatment Requested] in the event the aggregate annual gross passenger revenue of all Participating Approved Affiliates (in each case measured by the twelve-month period immediately preceding the date such entity first became a Participating Approved Affiliate (the "Measurement Criteria")) is $[Confidential Treatment Requested] or greater but less than $[Confidential Treatment Requested], or (ii) $[Confidential Treatment Requested] in the event the aggregate annual gross passenger revenue of all Participating Approved Affiliates (in each case measured pursuant to the Measurement Criteria) is $[Confidential Treatment Requested] or greater. Any $[Confidential Treatment Requested] license fee made by Hawaiian to EDS pursuant to clause (i) of this Section 21 shall not be credited against any subsequent obligation of Hawaiian to make a payment under clause (ii) of this Section. Under no circumstances, whether as a result of multiple transactions or otherwise, will Hawaiian be obligated to pay EDS an incremental license fee of (1) more than $[Confidential Treatment Requested] in the event the aggregate gross passenger revenue from all Participating Approved Affiliates does not exceed $[Confidential Treatment Requested], or (2) more than $[Confidential Treatment Requested]. (b) Except as otherwise provided in this Section, Hawaiian may not install or permit any use of the EDS-Developed Software on any equipment that is not operated for the sole benefit of, or owned or leased by, Hawaiian. Hawaiian may provide third party contractors with access to the EDS-Developed Software and/or permit the use of the EDS-Developed Software on equipment that is owned or leased by a third party contractor so long as: (i) Neither the third party contractor nor any of its affiliates directly competes with EDS in the development, integration, implementation or maintenance of passenger revenue accounting systems for airlines, and such contractor is not an entity for which EDS can demonstrate a reasonable concern over its financial condition or business practices. (ii) The third party contractor is an entity located within the United States. (iii) The third party contractor uses the EDS-Developed Software solely for the benefit of Hawaiian and/or one or more Participating Approved Affiliates and will not sell, license, allow access to or otherwise disclose the EDS-Developed Software to any other party. (iv) The third party contractor executes a reasonable confidentiality agreement with EDS containing use (including, if applicable, intellectual property infringement indemnities) and confidentiality provisions consistent with the use, confidentiality and, if applicable, intellectual property infringement indemnity provisions of this Agreement, including the provisions of this Section 8.1. The execution of such an agreement with the third party contractor will not relieve Hawaiian of its obligations with respect to the EDS-Developed Software. 22 (c) Hawaiian may make and operate unlimited copies of the EDS-Developed Software in object code form (or as to Documentation, in hard copy form), provided that each of the copies is operated only at Hawaiian's then-principal United States office, the principal office of each Participating Approved Affiliate, or at such other Hawaiian location as EDS consents to in writing in advance, except as contemplated by the provisions of Section 8.1(b). (d) Neither Hawaiian nor any Participating Approved Affiliate will remove from the object code of the EDS-Developed Software, or use a copy or reproduction technique that has the effect of removing, any EDS copyright or proprietary notices or any other designations as EDS may reasonably require to indicate that the EDS-Developed Software is proprietary to and the trade secret of EDS. (e) Hawaiian will not, and will not permit its or its Participating Approved Affiliates' employees, agents or representatives to, sell, assign, lease, license, sublicense, transfer or disclose to any third party (except as required to be disclosed pursuant to a requirement of any governmental authority or any statute, rule or regulation, provided that Hawaiian gives EDS notice of such requirement prior to any such disclosure) the EDS-Developed Software, or copy or reproduce the EDS-Developed Software, except as provided in this Section. Hawaiian will not allow any third party to access the EDS-Developed Software without the prior written consent of EDS, except as provided in this Section. If Hawaiian or a Participating Approved Affiliate merges with or into another entity, or if Hawaiian decides to sell all or substantially all of its assets, then the surviving entity of such merger or the assignee of such asset sale will be entitled to assume this license, provided that: (i) EDS is given prior written notice of such merger or asset sale, and such notice states whether (1) the entity merging with or into Hawaiian or any of its Participating Approved Affiliates, or (2) the assignee and any of its respective affiliates (as approved in accordance with this Section) will use the EDS-Developed Software. Hawaiian (or the surviving entity (if not Hawaiian) or assignee, as applicable) shall permit EDS, or its designated representative, to perform periodic audits of Hawaiian's (or the surviving entity's or assignee's or their respective affiliates') records to the extent necessary to verify whether (1) the entity that merged with or into Hawaiian or any of its Participating Approved Affiliates, or (2) the assignee and any of its respective affiliates (as approved in accordance with this Section) is using the EDS-Developed Software. 23 (ii) Neither the entity that Hawaiian is assigning the license to or merging with or into, nor any of such entity's affiliates, directly competes with EDS in the development, integration, implementation or maintenance of passenger revenue accounting systems for airlines, unless EDS consents in writing in advance to such merger or asset sale, which consent will not be unreasonably withheld or delayed. (iii) EDS can not demonstrate a reasonable concern over such entity's financial condition or business practices. (iv) EDS is entitled to charge, and the surviving entity or assignee will pay EDS, an incremental license fee (in the amount set forth below) for the EDS-Developed Software, if (1) the surviving entity or assignee and/or any of their respective affiliates (which meet the criteria set forth in Section 8.1(i) below as it relates to the surviving entity or assignee), other than Hawaiian or a Participating Approved Affiliate, begin to use the EDS-Developed Software after such merger or sale for its or their own internal accounting operations and do not have a separate license agreement with EDS (collectively, the "Acquirer and the Acquirer's Participating Approved Affiliates"), and (2) the aggregate annual gross passenger revenue of the Acquirer and the Acquirer's Participating Approved Affiliates (as measured by the Measurement Criteria applicable to the Acquirer and the Acquirer's Participating Approved Affiliates), plus, the aggregate annual gross passenger revenue of the Participating Approved Affiliates (as measured by the Measurement Criteria) [Confidential Treatment Requested]. In the case of a merger in which Hawaiian or a Participating Approved Affiliate is the surviving entity, the annual gross passenger revenue of the non-surviving entity and/or the non-surviving entity's affiliates (which meet the criteria set forth in Section 8.1(i) below as it relates to the non-surviving entity and which begin to use the EDS-Developed Software after such merger for its/their own internal accounting operations and do not have a separate license agreement with EDS) (such non-surviving entity and its approved affiliates are collectively referred to herein as the "Merged Entity and the Merged Entity's Participating Approved Affiliates") shall be added to the sum specified in subsection (2) of this Section 8.1(e)(iv) for purposes of this Section. The amount of such incremental license fee will be (A) $[Confidential Treatment Requested] in the event the aggregate annual gross passenger revenue of (I) either 24 the Acquirer and the Acquirer's Participating Approved Affiliates or the Merged Entity and the Merged Entity's Participating Approved Affiliates, as applicable, and (II) all Participating Approved Affiliates (in each case measured by the Measurement Criteria) is $[Confidential Treatment Requested] or greater but less than $[Confidential Treatment Requested], or (B) $[Confidential Treatment Requested] in the event the aggregate annual gross passenger revenue of (I) either the Acquirer and the Acquirer's Participating Approved Affiliates or the Merged Entity or Merged Entity's Participating Approved Affiliates, as applicable, and (II) all Participating Approved Affiliates (in each case measured by the Measurement Criteria) is $[Confidential Treatment Requested] or greater. Any $[Confidential Treatment Requested] license fee made by the surviving entity or the assignee pursuant to clause (A) of this Section shall not be credited against any subsequent obligation of the surviving entity or assignee to pay under clause (B) of this Section. Any payment made by Hawaiian pursuant to clause (i) of Section 8.1(a) above shall be fully credited against any subsequent obligation of the surviving entity or assignee to pay under clause (A) of this Section, and any payment made by Hawaiian pursuant to clause (ii) of Section 8.1(a) above shall be fully credited against any subsequent obligation of the surviving entity or assignee to pay under clause (B) of this Section. Under no circumstances, whether as a result of multiple transactions or otherwise, will the surviving entity or assignee be obligated to pay EDS an incremental license fee of (1) more than $[Confidential Treatment Requested] in the event the aggregate gross passenger revenue from (I) either the Acquirer and the Acquirer's Participating Approved Affiliates or the Merged Entity and the Merged Entity's Participating Approved Affiliates, as applicable, and (II) all Participating Approved Affiliates does not exceed $[Confidential Treatment Requested], or (2) more than $[Confidential Treatment Requested]. (v) The assignee in an asset sale agrees in writing to be bound by all the terms and conditions of this Agreement to the same extent as Hawaiian. (f) Hawaiian will not, and will not permit its or its Participating Approved Affiliates' employees, agents or representatives to reverse engineer, reverse compile, decompile or otherwise recreate the EDS-Developed Software. 25 (g) If any portion of the EDS-Developed Software should come into the possession of an unauthorized third party for which Hawaiian is responsible, Hawaiian will, at its expense, use reasonable efforts to retrieve such material and, if unsuccessful in such efforts, will reimburse EDS for all reasonable expenses incurred by EDS in attempting to retrieve the materials. (h) Hawaiian acknowledges that EDS has informed it that the EDS-Developed Software is the valuable property and trade secret of EDS, that any violation by Hawaiian of the provisions of this Section would cause EDS irreparable injury for which EDS would have no adequate remedy at law, and that, in addition to any other remedies which EDS may have, EDS will be entitled to preliminary and other injunctive relief against any such violation. (i) For purposes of this Section, the term "Participating Approved Affiliate" shall mean: (i) At any time during the term of this license, (1) an entity that owns directly or indirectly 51% or more of the issued and outstanding voting equity of Hawaiian ("Hawaiian's Parent"), (2) an entity that Hawaiian's Parent directly or indirectly owns 51% or more of the issued and outstanding voting equity, and (3) an entity that Hawaiian owns directly or indirectly 51% or more of the issued and outstanding voting equity; and (ii) An entity that uses the EDS-Developed Software for its own internal accounting operations and, together with its affiliates, does not directly compete with EDS in the development, integration, implementation or maintenance of passenger revenue accounting systems for airlines; and (iii) An entity that has executed a ratification agreement agreeing to be bound by the terms and conditions of this Agreement. 8.2 Software Ownership. EDS and Hawaiian acknowledge and agree that EDS retains all right, title and interest (including without limitation copyrights and patent rights, if any) in the System, the EDS-Developed Software and any New Version, except for those rights specifically granted to Hawaiian in Section 8.1 hereof. The license of the EDS-Developed Software granted to Hawaiian excludes any and all EDS Development Tools used by EDS in creating the EDS-Developed Software, unless the EDS Development Tool is embedded in the EDS-Developed Software. EDS retains all right, title and interest in and to any EDS Development Tools, and all output generated therefrom, and Hawaiian will have no interest or claim therein. 26 8.3 Risk of Loss and Assignment of Hardware and Third Party Software. Risk of loss with respect to the Third Party Hardware and the Third Party Software described in Schedule A will pass to Hawaiian upon delivery to Hawaiian. The title or license, as applicable, for each item of Third Party Hardware and Third Party Software will pass to, or be assigned to, Hawaiian upon full payment of such items to EDS. With respect to the Third Party Software, EDS will, in a timely manner, either arrange for a direct license between Hawaiian and the applicable vendor, or a sublicense with EDS, to use such Software. Hawaiian agrees to execute any such license or sublicense required by the applicable vendor. 8.4 Other Customers, Residual Knowledge and Independent Development. EDS will have the sole right to market and license to third parties the System, the EDS-Developed Software (including any New Version) or any system similar in scope and function to the System, and nothing in this Agreement will limit or restrict EDS from doing so. Subject to EDS' obligations under Section 8.6 (which Section does not in any way limit EDS' ability to market the features and functions described in the Specifications), EDS will be free to use the ideas, concepts or know-how developed during the course of the development of the System and the performance of the PRAS Services that are in non-tangible form and may be retained by EDS employees. 8.5 Hawaiian Data. Hawaiian data shall remain Hawaiian's property. Hawaiian hereby authorizes EDS to have access to and to make use of Hawaiian's data as is appropriate solely for the performance by EDS of its obligations under this Agreement. 8.6 Confidentiality. Except as otherwise provided in this Agreement, each of the parties agrees that all confidential documents, the EDS-Developed Software, the Specifications, the Documentation and any information (including all computer code and related materials) received or otherwise obtained from the other party pursuant to this Agreement, whether before or after the Effective Date, shall be, and shall be deemed to have been, received in strict confidence and shall be used only for the purposes of carrying out the obligations of, or as otherwise contemplated by, this Agreement. Without obtaining the prior written consent of the other party, neither party shall disclose any such information to any third party, and each party will disclose such information only to such of its officers, employees and agents that have a need to know such information for the purposes contemplated by this Agreement; provided, however, that this Section shall not prevent a party from disclosing any such information that (a) is or becomes generally available to the public other than as a result, 27 directly or indirectly, of a disclosure by such party or by other persons to whom such party disclosed such information, (b) is already in the possession of such party without being subject to another confidentiality agreement, (c) is or becomes available to such party on a non-confidential basis from a source other than the other party or its representatives, provided that such source is not bound by a confidentiality agreement with the other party, (d) is independently developed by such party without the use of the other party's confidential information, or (e) is required to be disclosed pursuant to a requirement of any governmental authority or any statute, rule or regulation, provided that such party gives the other party notice of such requirement prior to any such disclosure. The parties acknowledge that Hawaiian may determine to file this Agreement with the Securities and Exchange Commission (the "SEC") and relevant stock exchanges (the "Exchanges") pursuant to the regulations and rules of the SEC and the Exchanges. In connection with any such filing, Hawaiian will seek confidential treatment of certain portions of this Agreement (which confidential treatment cannot be assured). EDS will assist Hawaiian in the preparation of the request and will reimburse Hawaiian for all reasonable fees, costs and expenses (excluding attorney's fees), up to $1,000, related to the electronic filing of such request via EDGAR (as such term is defined by the SEC). The parties agree to work together in good faith to minimize the fees, costs and expenses related to such filing. 8.7 Source Code Escrow. Hawaiian may, at any time after Final Acceptance and at its option, require the establishment of a source code escrow with an independent third party experienced in these transactions (such as Data Securities International, Inc.). All costs associated with the creation and administration of the source code escrow that are charged by the escrow agent shall be borne by Hawaiian. Upon receipt of Hawaiian's written notification of its election to establish a source code escrow, EDS shall, at Hawaiian's expense in accordance with the terms of Article VI, promptly cooperate in all reasonable respects, including without limitation, (a) executing escrow documentation with reasonable and customary terms and conditions, (b) delivering full and accurate source code for the then-current version of the EDS-Developed Software, and (c) delivering source code to the escrow agent for each subsequent New Version of the EDS-Developed Software concurrent with its issuance and release. The escrow instructions will include a provision instructing the escrow agent to deliver the source code to Hawaiian in the event of EDS' bankruptcy, cessation of business or EDS' discontinuation of maintenance and support for EDS*PRAS. The parties agree that, if such source code is delivered to Hawaiian, it will be subject to the same licensing terms set forth in Section 8.1 of this Agreement. Hawaiian further agrees to use the source code for the sole purpose of maintaining and supporting the EDS-Developed Software for the benefit of Hawaiian and/or any Participating Approved Affiliates. 28 Article IX EDS Charges 9.1 Compensation to EDS. In consideration for the System and the PRAS Services, Hawaiian shall pay to EDS the charges set forth on Schedule C (the "EDS Charges"). The EDS Charges shall be subject to adjustment (a) in the event of a Change Order, as provided in Article VI and (b) for cost of living increases, as provided in Section 9.5. Charges for any partial month will be prorated on a per diem basis. 9.2 Travel/Out-of-Pocket Expenses. Except as provided in Section 7.9, EDS will be responsible for the EDS travel-related expenses incurred in performing the PRAS Services. However, Hawaiian will pay, or reimburse EDS for, the reasonable out-of-pocket expenses, incurred by EDS in connection with a request by Hawaiian that EDS travel in connection with any additional services or with the prior approval of Hawaiian. EDS will furnish to Hawaiian receipts related to travel or out-of-pocket expenses over $75.00. 9.3 Time and Methodology of Payment. Hawaiian will pay EDS all amounts due under this Agreement by wire transfer to a bank account designated by EDS. Any amount due EDS pursuant to this Agreement will be due and payable 15 (fifteen) calendar days after Hawaiian's receipt of an invoice from EDS. Any amount due EDS pursuant to this Agreement that is not paid when due and payable shall thereafter bear interest until paid at a rate of interest equal to the lesser of (a) 2% per annum more than the prime or base rate established from time to time by Citibank, N.A. in New York, New York, or (b) the maximum rate of interest allowed by applicable law. If Hawaiian disputes in good faith whether an invoice is accurate or proper, then Hawaiian will pay EDS the charges described in Sections 1, 2 and 5 of Schedule C, and pay any other charges listed on such invoice that Hawaiian disputes in good faith into an interest bearing escrow account (the "Escrow Account") established as follows: (a) The Escrow Account will be opened by the parties in the name of the parties at a major national bank selected by the parties. (b) The Escrow Account will be established pursuant to an escrow agreement that provides that the funds therein, including accrued interest, will be disbursed to EDS and/or Hawaiian, as applicable, in accordance with the mutual agreement of EDS and Hawaiian or an arbitration or judicial decision binding on EDS and Hawaiian. 29 (c) After resolution of any dispute with respect to which funds were placed in the Escrow Account, and after payment from the Escrow Account of all amounts, if any, due to EDS with respect to that dispute, any remaining portion of the funds which were placed in the Escrow Account with respect to that dispute, including undisbursed accrued interest thereon, will be promptly paid to Hawaiian. (d) Subject to Section 9.3(c) above, to the extent funds which were placed in the Escrow Account with respect to any dispute are not sufficient to satisfy any award or mutually agreed amount due to EDS with respect to that dispute, Hawaiian will promptly pay to EDS the balance due, including any interest computed in accordance with this Section. (e) The prevailing party shall be entitled to reimbursement from the non-prevailing party for fees and costs incurred by the prevailing party in connection with the Escrow Account. 9.4 Taxes. There will be added to any amounts due under this Agreement, and Hawaiian shall pay to EDS at the times Hawaiian pays such amounts due under this Agreement, amounts equal to any taxes, however designated or levied, based upon such amounts due, or upon this Agreement or the System or other services and items provided by EDS pursuant to this Agreement, or their use, including state and local privilege or excise taxes based on gross revenue, sales and use taxes and any taxes or amounts in lieu thereof paid or payable by EDS in respect of the foregoing, exclusive, however, of EDS' franchise taxes and taxes based on net worth or net income of EDS. 9.5 Cost of Living Adjustments. The portion of the EDS Charges relating to the Maintenance Support Services shall be indexed to the Consumer Price Index for All Urban Consumers, U.S. City Average, for All Items (1982-84 = 100), as published by the Bureau of Labor Statistics of the U.S. Department of Labor (the "CPI"). If, on each anniversary of the first day of month sixteen of this Agreement (measuring from the Effective Date), the CPI for the calendar month immediately preceding such day (the "Dollars Current Index") is higher or lower than the CPI twelve months prior thereto (the "Dollars Base Index"), then, effective as of such anniversary, the EDS Charges (excluding the value-based payments described on Schedule C) shall be increased or decreased by the percentage that the Dollars Current Index increased or decreased from the Dollars Base Index subject to a maximum increase or decrease in any one year of [Confidential Treatment Requested]%. If the CPI is no longer published or is substantially changed, then Hawaiian and EDS will substitute another similar mutually agreeable measure for the CPI. 30 9.6 Bonus Payments. If EDS delivers either the Phase I Implementation Deliverable or the Phase II Implementation Deliverable to Hawaiian more than thirty (30) calendar days prior to the date of the applicable Milestone (as identified in Schedule B and as may be adjusted in accordance with the terms of this Agreement), EDS will be entitled to a bonus (per Deliverable) from Hawaiian, payable as provided below, in an amount equal to the product of (a) the number of full months between the date of the applicable Milestone (as adjusted, if applicable) and the date the applicable Deliverable was first delivered by EDS to Hawaiian for user acceptance testing (the "Bonus Delivery Date"), as may be adjusted in accordance with the following sentence, and (b) $[Confidential Treatment Requested] per Deliverable. For purposes of this bonus calculation only, if during user acceptance testing, Hawaiian delivers to EDS written notice of a valid nonconformance (as determined in accordance with Section 2.4), then EDS will have fourteen (14) calendar days from the date the parties mutually determine that such nonconformance was valid to correct and redeliver the Phase to Hawaiian. Hawaiian and EDS shall each act in good faith to determine as promptly as practicable whether a reported nonconformance is valid. If EDS corrects (as mutually determined by the parties in accordance with Section 2.4) and redelivers the Phase within such time period, then such fourteen day period will not be added to the Bonus Delivery Date for purposes of the bonus calculation above, and accordingly, the original Bonus Delivery Date will remain in effect. If EDS does not correct and redeliver within such time period, then the period of time (measured from the determination date of a valid nonconformance) it takes EDS to actually correct and redeliver the Phase (in accordance with Section 2.4) will be added to the Bonus Delivery Date for purposes of the bonus calculation above. Hawaiian agrees to pay EDS any such bonus immediately after Hawaiian's actual or deemed acceptance of the Construction and Testing Phase of the Deliverable to which the bonus relates. Article X Dispute Resolution 10.1 Dispute Resolution. The parties agree to resolve any dispute relating to this Agreement as set forth below: (a) Negotiation. If any dispute between the parties of any kind or nature occurs, then, upon the written request of either party, each party will appoint a senior representative whose task will be to meet to resolve such dispute. Such representatives will discuss the dispute or controversy and negotiate in good faith towards resolution of the dispute or renegotiate the applicable section or provision of this Agreement without the necessity of formal proceedings. 31 (b) Arbitration. If the designated representatives conclude in good faith that amicable resolution through such continued negotiation of the matter is not likely to occur, then, upon the request of either party, the dispute will be settled by final and binding arbitration conducted by one or more arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect (the "Rules"). Unless otherwise mutually agreed upon by the parties, the arbitration hearings shall be held in the City of Los Angeles, California. The arbitrators shall allow such discovery as is appropriate, consistent with the purposes of arbitration in accomplishing fair, speedy and cost effective resolution of disputes. The arbitrators shall reference the rules of evidence of the Federal Rules of Civil Procedure then in effect in setting the scope of discovery. Judgment upon the award rendered in any such arbitration may be entered in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award and an enforcement, as the law of such jurisdiction may require or allow; provided however, any such award rendered by the arbitrators shall be strictly in conformance to, and in accordance with, the terms and conditions of this Agreement. 10.2 Exclusive Remedy. Other than any action necessary to enforce the award of the arbitrators, the parties agree that the provisions of this Article X are a complete defense to any suit, action or other proceeding instituted in any court or before any administrative tribunal with respect to any dispute, controversy or claim arising under or in connection with this Agreement. Nothing in this Article X prevents the parties from exercising their rights to terminate this Agreement in accordance with this Agreement. 10.3 Continued Performance. If the parties are in arbitration for any reason (except if the Agreement has been terminated), EDS will continue to perform its obligations under this Agreement during the arbitration proceedings, but only to the extent that Hawaiian continues to pay EDS in accordance with this Agreement during the arbitration proceedings. Article XI Termination 11.1 Termination for Cause. (a) The parties acknowledge and agree that delivery of each Deliverable in accordance with the Milestone dates set forth in Schedule B is important to both parties. In that regard, EDS agrees to use reasonable efforts to keep appropriate resources on this project, unless this 32 Agreement is terminated for any reason. If, and to the extent caused solely by EDS, either the Phase I Implementation Deliverable or the Phase II Implementation Deliverable is (1) actually delayed by more than [Confidential Treatment Requested] after the date of the applicable Milestone (as identified on Schedule B and as may be adjusted in accordance with the terms of this Agreement) (an "Actual [Confidential Treatment Requested] Delay"), or (2) first delivered to Hawaiian prior to an Actual [Confidential Treatment Requested] Delay (the "Original Delivery Date") and, after adding all Adjustments (as defined in the following paragraph), such adjusted delivery date results in a delay of more than [Confidential Treatment Requested] after the date of the applicable Milestone (as identified on Schedule B and as may be adjusted in accordance with the terms of this Agreement) (a "Deemed [Confidential Treatment Requested] Delay), then, Hawaiian may elect to terminate this Agreement by giving EDS written notice of such termination, provided that Hawaiian makes such election within thirty (30) calendar days after the Actual [Confidential Treatment Requested] Delay or the Deemed [Confidential Treatment Requested] Delay, as applicable, unless the parties otherwise mutually agree. For purposes of this termination provision only, if EDS delivers a Deliverable to Hawaiian prior to an Actual [Confidential Treatment Requested] Delay, and if during user acceptance testing, Hawaiian delivers to EDS written notice of a valid nonconformance (as determined in accordance with Section 2.4), then EDS will have twenty-eight (28) calendar days from the date the parties mutually determine that such nonconformance was valid to correct and redeliver the Phase to Hawaiian. Hawaiian and EDS shall each act in good faith to determine as promptly as practicable whether a reported nonconformance is valid. If EDS corrects (as mutually determined by the parties in accordance with Section 2.4) and redelivers the Phase within such time period, then the Original Delivery Date will remain in effect. If EDS does not correct and redeliver within such time period, then the period of time (measured from the determination date of a valid nonconformance) it takes EDS to actually correct and redeliver the Phase (in accordance with Section 2.4) will be added to the Original Delivery Date (an "Adjustment") for purposes of determining a Deemed [Confidential Treatment Requested] Delay. (i) Remedy Due to Lateness of Phase I Implementation Deliverable. If Hawaiian terminates this Agreement in accordance with Section 11.1(a) due to the lateness of the Phase I Implementation Deliverable, then EDS shall promptly [Confidential Treatment Requested]. 33 (ii) Remedy Due to Lateness of Phase II Implementation Deliverable. If Hawaiian terminates this Agreement in accordance with Section 11.1(a) due to the lateness of the Phase II Implementation Deliverable, then (1) EDS shall [Confidential Treatment Requested]. (iii) Sole and Exclusive Remedy. Hawaiian and EDS expressly acknowledge that the remedies and damages set forth in this Section 11.1(a) represent the parties' negotiated agreement as to any losses or damages to Hawaiian resulting from EDS' late delivery of either Deliverable as described in Section 11.1(a). Accordingly, Hawaiian agrees that the remedies and damages described in this Section 11.1(a) constitute Hawaiian's sole and exclusive remedies and damages relating to late delivery of a Deliverable and Hawaiian will not seek any other remedies or damages, in contract or otherwise, related to such late delivery. (b) If, during the Maintenance Period, the EDS-Developed Software fails to conform in all material respects to the then-current Documentation, and EDS can not substantially cure such failure within a reasonable period of time after being given written notice specifying the default, then Hawaiian, by giving written notice to EDS, may terminate this Agreement as of a date specified in the notice of termination. (c) If either party materially defaults in the performance of any of its duties or obligations under this Agreement (except for a default in payments to EDS and the default specified in Section 11.1(a) or (b)), and does not substantially cure such default within sixty (60) calendar days after being given written notice specifying the default, or, with respect to any default which cannot reasonably be cured within sixty (60) calendar days, if the defaulting party fails to proceed within sixty (60) calendar days after being given such notice to commence curing said default and thereafter to proceed with all due diligence to substantially cure such default, then the party not in default, by giving written notice to the defaulting party, may terminate this Agreement as of a date specified in the notice of termination. 11.2 Termination for Nonpayment. If Hawaiian defaults in the payment when due of any amount due to EDS pursuant to this Agreement and does not cure such default within ten (10) calendar days after being given written notice of such default, then EDS, by giving written notice of such default to Hawaiian, may terminate this Agreement as of a date specified in the notice of termination. 34 11.3 Termination for Insolvency. If either party to this Agreement becomes or is declared insolvent, is the subject of any proceedings relating to suspension of payments or its liquidation, insolvency or for the appointment of a receiver or similar officer for it, makes an assignment for the benefit of all or substantially all of its creditors, or enters into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, then the other party hereto, by giving written notice thereof to such party, may terminate this Agreement as of a date specified in the notice of termination. 11.4 Rights Upon Termination. If Hawaiian terminates this Agreement (a) in accordance with Section 11.1(c) for breach of the warranty provision set forth in Section 3.1, or (b) in accordance with Section 12.1(a)(ii) for intellectual property infringement, then, in accordance with such Sections, Hawaiian will return the EDS-Developed Software to EDS and EDS will refund to Hawaiian the portion of the EDS Charges paid by Hawaiian to EDS for the EDS-Developed Software. Upon termination of this Agreement for any reason (except as described in Section 11.1(a)), then, in addition to any other rights that either party may have, (a) Hawaiian shall promptly (i) return to EDS all copies of the Deliverables and the EDS-Developed Software for which Hawaiian has not fully paid (full payment shall include payment of the value-based payments described on Schedule C), and (ii) return to EDS all Third Party Hardware and Third Party Software for which Hawaiian has not fully paid, and (b) EDS will promptly return to Hawaiian all copies of Hawaiian's confidential information and any Hawaiian data. Further, EDS will be under no further obligation to provide the System or the EDS-Developed Software. Article XII Indemnities and Liability 12.1 Intellectual Property Indemnity. (a) EDS Developed Software. (i) EDS will defend any action brought against Hawaiian and/or any Participating Approved Affiliate to the extent that such action is based on a claim by a third party that the EDS-Developed Software (which, for purposes of this indemnity, includes any third party Software code embedded within the EDS-Developed Software), or any part thereof, (1) infringes a copyright perfected under a United States statute, (2) infringes a patent granted under United States law, or (3) constitutes an unlawful disclosure, use or misappropriation of another 35 party's trade secret or other intellectual property rights. EDS will bear the expense of such defense and pay any and all costs, expenses, losses, judgments, fines, damages and attorneys' fees that are finally awarded by a court of competent jurisdiction and attributable to such claim or result from a settlement thereof, provided that Hawaiian and any Participating Approved Affiliates notify EDS promptly in writing of the claim and that Hawaiian and any Participating Approved Affiliate allow EDS to fully direct the defense or settlement of such claim. Failure to provide such notice shall only relieve EDS of its obligations under this Section if and to the extent that EDS is prejudiced thereby. EDS shall not be responsible for any settlement or compromise made without its consent. (ii) Should the EDS-Developed Software, or any part thereof, become, or in EDS' opinion be likely to become, the subject of a claim by a third party of infringement of a copyright or patent or other intellectual property right, EDS will use reasonable efforts to procure for Hawaiian and any Participating Approved Affiliates the right to continue using the EDS-Developed Software, or replace or modify the EDS-Developed Software to make its use under this Agreement non-infringing. If neither option is reasonably available in EDS' judgment, (1) Hawaiian and any Participating Approved Affiliates shall return the EDS-Developed Software to EDS, (2) EDS shall reimburse Hawaiian for all amounts paid to EDS for the EDS-Developed Software, and (3) the rights granted under this Agreement shall terminate, subject to Section 13.13. (iii) EDS shall have no liability to Hawaiian and/or any Participating Approved Affiliates under this Agreement (1) to the extent that any claim of infringement is based upon the use of the EDS-Developed Software in connection or in combination with hardware, equipment, devices or Software not listed in Sections 1(A) or 1(B) of Schedule A or approved by EDS or used in a manner for which the EDS-Developed Software was not designed, and (2) for maintenance, modifications, updates, enhancements and improvements to the EDS-Developed Software made by any party other than EDS. This Section states EDS' entire obligation to Hawaiian and/or any Participating Approved Affiliates regarding infringement. (iv) Hawaiian will indemnify EDS in like manner, and to the same extent and subject to the same exceptions as above, for claims against EDS that arise from modifications, updates, enhancements and improvements 36 to the EDS-Developed Software made by Hawaiian or third parties acting on behalf of Hawaiian. (b) Software Provided By Hawaiian. Hawaiian agrees to defend EDS against any action to the extent that such action is based on a claim that Software, or any part thereof, provided and owned by Hawaiian, (i) infringes a copyright perfected under a United States statute, (ii) infringes a patent granted under United States law or (iii) constitutes an unlawful disclosure, use or misappropriation of another party's trade secret or other intellectual property right. Hawaiian will bear the expense of such defense and pay any and all costs, expenses, losses, judgments, fines, damages and attorneys' fees that are attributable to such claim and finally awarded by a court of competent jurisdiction. With respect to any third party licensed Software provided by Hawaiian, Hawaiian will assign to EDS, where permitted, or enforce for EDS' benefit (without resort to litigation or other dispute resolution process) any warranties or indemnities extended to Hawaiian by the applicable vendors. 12.2 Cross Indemnities. (a) Hawaiian and EDS each will be responsible for damages to their respective tangible personal and real property (whether owned or leased), and each party agrees to look to their own insuring arrangements with respect to such damages. Hawaiian and EDS each waive all rights to recover against each other for any loss or damage to their respective tangible personal property (whether owned or leased) from any cause covered by insurance maintained by each of them, including their respective deductibles or self-insured retentions. Hawaiian and EDS will each cause their respective insurers to issue appropriate waivers of subrogation rights endorsements to all property insurance policies maintained by each party. Each party will give the other party written notice if a waiver of subrogation is unobtainable, or obtainable only at additional expense. If the party receiving such notice agrees to reimburse the other party for such additional expense, the other party shall obtain such waiver of subrogation. If a waiver is unobtainable or if a party elects not to pay the additional expense of a waiver, then neither party shall waive their insurers subrogation rights. (b) Hawaiian and EDS each will be responsible for claims for the death of or personal injury to any person (including any employee of either party), and claims for damages to any third party's tangible personal or real property (whether owned or leased), in accordance with the common law of the jurisdiction in which such claim is alleged to 37 have occurred. Each party will indemnify, defend and hold harmless the other party from any and all claims, actions, damages, liabilities, costs and expenses, including without limitation, reasonable attorneys' fees and expenses, arising out of claims for which the indemnitor is responsible under the preceding sentence. 12.3 Indemnity Procedures. Notwithstanding anything herein to the contrary, no indemnity obligation set forth in this Article XII shall apply unless the party claiming indemnification notifies the other promptly of any matters in respect of which the indemnity may apply and of which the notifying party has knowledge and gives the other party full opportunity to control the response thereto and the defense thereof, including, without limitation, any agreement relating to the settlement thereof. Failure to so provide such notice shall only relieve the indemnitor of its indemnity obligations if and to the extent that the indemnitor is prejudiced thereby. 12.4 Limitation of Liability. (a) If EDS shall be liable to Hawaiian for any matter relating to or arising in connection with this Agreement, whether based on an action or claim in contract, equity, negligence, intended conduct, tort or otherwise, the amount of damages recoverable against EDS for all events, acts or omissions shall not exceed in the aggregate $[Confidential Treatment Requested]. Such dollar limitation of liability, however, shall not apply to [Confidential Treatment Requested]. In those instances only, the dollar limitation of liability shall be the amount of the refund. In no event will the measure of damages include, nor will EDS be liable for, any amounts for loss of income, profit or savings or indirect, incidental, consequential, or punitive damages of any party, including third parties. (b) The limitations set forth in Section 12.4(a) shall not apply to claims covered by the indemnification obligation set forth in Section 12.1(a)(i). (c) The provisions of this Section shall survive termination of this Agreement for any reason. 12.5 Contractual Limitation Period. No claim or cause of action that accrued more than two years prior to the filing of a suit or claim in arbitration may be asserted against EDS. 38 12.6 Acknowledgment. Hawaiian and EDS expressly acknowledge that the limitations contained in Section 12.4 represent the parties' agreement with respect to the allocation of risks between the parties, including the level of risk to be associated with the provision of EDS' services pursuant to this Agreement as related to the payments to be made to EDS for such services, and each party fully understands and accepts such limitations. Article XIII Miscellaneous 13.1 Approvals and Similar Actions. Where agreement, approval, acceptance, consent or similar action by either party is required by any provision of this Agreement, such action shall not be unreasonably delayed or withheld. 13.2 Relationship of Parties. EDS, in furnishing the services described in this Agreement to Hawaiian, is acting only as an independent contractor. EDS does not undertake by this Agreement or otherwise to perform any obligation of Hawaiian, whether regulatory or contractual, or to assume any responsibility for Hawaiian's business or operations. EDS shall not be considered or be deemed to be an agent, employee, joint venturer or partner of Hawaiian, and no other relationship is intended or created by and between EDS and Hawaiian. 13.3 Restriction on Hiring. Each party agrees that, during the term of this Agreement and for a period of two years thereafter, it will not, except with the other party's prior written consent, solicit for its employment, employ, engage as an independent contractor, or otherwise obtain the services of any person employed then or within the preceding twelve months by the other party if that person was involved in the performance of this Agreement. 13.4 Force Majeure. Each party shall be excused from its nonmonetary performance obligations under this Agreement for any period, and the time of any performance shall be extended as reasonably necessary under the circumstances, to the extent that such party is prevented from performing, in whole or in part, its obligations under this Agreement, as a result of acts or omissions by the other party or an act of God, natural disaster, hurricane, governmental authority, war, civil disturbance, court order, labor dispute, third party nonperformance or any other cause beyond its reasonable control, including without limitation failures or fluctuations in electrical power, heat, light, air conditioning or telecommunications equipment or lines or other equipment. Such nonperformance shall not be a default under this Agreement or a ground for termination of this Agreement. 39 13.5 Compliance with Laws. In performing its obligations under this Agreement, neither party shall be required to undertake any activity that would conflict with the requirements of any applicable statute, rule, regulation, interpretation, judgment, order or injunction of any governmental authority. 13.6 Attorneys' Fees. If any legal action or other proceeding is brought for the enforcement of this Agreement or any arbitration award, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the prevailing party will be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 13.7 Media Releases. Each party will coordinate with the other party regarding any media release, public announcement or similar disclosure relating to this Agreement or its subject matter and will give the other party a reasonable opportunity to review and comment on the content of such release, announcement or disclosure prior to its release. EDS may reference Hawaiian as a customer, however, EDS will not otherwise use this Agreement as an advertising tool without the prior consent of Hawaiian, which consent will not be unreasonably withheld or delayed. This Section does not alter the restrictions on the disclosure of confidential information set out in Section 8.6 of this Agreement and will not be construed so as to delay or restrict either party from disclosing any information required to be disclosed in order to comply with any applicable law, rule or regulation. 13.8 Notices. Wherever under this Agreement one party is required or permitted to give written notice to the other, such notice, (a) if delivered personally, shall be deemed given when delivered in hand to an appropriate representative of the other party, (b) if delivered by mail, shall be deemed given three (3) days after being mailed by United States mail, registered or certified mail, return receipt requested, postage prepaid, and addressed as described below, or (c) if delivered by telecopy, shall be deemed given when sent to the fax number set forth below and confirmed (with the notice concurrently mailed as provided above): 40 In the case of EDS: Electronic Data Systems Corporation 5400 Legacy Drive Mail Stop H3-6C-46 Plano, Texas 75024 Fax Number: 972-605-5270 Phone Number: 972-605-5252 Attention: President, Air Transport Services SBU With a copy to: Electronic Data Systems Corporation 5400 Legacy Drive Mail Stop H3 3A-05 Plano, Texas 75024 Fax Number: 972-605-5610 Phone Number: 972-605-5500 Attention: General Counsel In the case of Hawaiian: Hawaiian Airlines, Inc. 3375 Koapaka Street Suite G350 Fax Number: 808-835-3015 Phone Number: 808-835-3700 Attention: Executive Vice President/CFO With a copy to: Hawaiian Airlines, Inc. 3375 Koapaka Street Suite G350 Fax Number: 808-835-3015 Phone Number: 808-835-3610 Attention: General Counsel and Corporate Secretary 41 Either party may from time to time change its address, fax or phone number for notification purposes by giving the other party prior written notice of the new address and the date upon which it will become effective. 13.9 Severability. If any provision of this Agreement is held illegal, unenforceable or void, then both parties will be relieved of all obligations arising under that provision, but only to the extent the provision is illegal, unenforceable or void, it being the intent and agreement of the parties that this Agreement will be deemed amended by modifying such provision to the extent necessary to make it valid and enforceable while preserving its intent or, if that is not possible, by substituting therefor another provision which is valid and enforceable and achieves the same objectives. 13.10 Amendment. This Agreement may not be modified, changed or amended except by a written instrument executed by each of the parties to this Agreement. 13.11 Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in writing and signed by the party against which such waiver is to be asserted. Unless otherwise expressly provided in this Agreement, no delay or omission on the part of any party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement. 13.12 Entire Agreement. All Schedules attached to this Agreement, the Change Orders and the Project Plan are incorporated into, and expressly made a part of, this Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous agreements and understandings, whether written or oral, between the parties with respect to the subject matter of this Agreement, and there are no representations, understandings or agreements relating to this Agreement that are not fully expressed in this Agreement. 13.13 Survival. Each party's obligations under Sections 8.1, 8.6, 12.1 and 13.3 and any other provisions of this Agreement that should survive in order to effectuate the intent of the parties will survive and continue after termination of this Agreement. 42 13.14 Export Compliance. The System and the PRAS Services are subject to any United States laws, rules, regulations, orders, treaties and other restrictions that may be imposed from time to time on the exportation or re-exportation of technical data, or of information about technical data. Hawaiian will not export or permit the re-export of the System or the PRAS Services (a) in violation of any such restriction; and (b) without obtaining the appropriate export license from the Government of the United States. EDS may restrict Hawaiian's export or re-export of the System or the PRAS Services if Hawaiian will not agree to additional license provisions necessary in the sole discretion of EDS to adequately protect EDS' intellectual property rights; if the destination country does not adequately protect intellectual property rights; or if Hawaiian will not agree to fully comply with the applicable laws of the destination country. 13.15 Binding Nature and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Neither party may assign this Agreement without obtaining the prior written consent of the other party, which consent will not be unreasonably withheld or delayed. 13.16 Third Party Beneficiaries. Except as otherwise provided herein, this Agreement is for the benefit of the parties hereto and is not intended to confer any rights or benefits on any third party, including any employee, creditor or affiliate of either party. 13.17 Governing Law. This Agreement shall be construed in accordance with, and the rights of the parties shall be governed by, the laws of the State of Hawaii without regard to the principles of conflicts of laws. 13.18 Certain Construction Rules. The Article and Section headings and the table of contents used in this Agreement are for reference only and in no way define, limit, extend or describe the scope or intent of any provisions of this Agreement. In addition, as used in this Agreement any reference to a "Section," "Article," or "Schedule" is a reference to a Section or Article of this Agreement or a Schedule attached to this Agreement. 13.19 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument. 43 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first set forth above. HAWAIIAN AIRLINES, INC. ELECTRONIC DATA SYSTEMS CORPORATION By:__________________________ By:___________________________ Name:________________________ Name:_________________________ Title:_______________________ Title:_________________________ By:__________________________ Name:________________________ Title:_________________________ 44 SCHEDULE A SCOPE OF SERVICES EDS will provide the following System and PRAS Services: 1. The System. EDS will provide the System as described in this Agreement in accordance with its System Life Cycle Phases, as described in Section 3 to this Schedule A. A. EDS-Developed Software. The Software developed by EDS to meet the Specifications, as such may be modified in accordance with Article VI of this Agreement or in connection with Section 3 of this Schedule. B. Third Party Software. 1 Sybase SQL Server (with user license for up to 60 users) 1 Sybase SQL Manager 1 Sybase SQL Monitor 1 Oracle database management system license for 10 concurrent users, if necessary for the Proration Software 1 Maestro for UNIX (job scheduler) C. Third Party Hardware. Server 1 9000/800 HP UNIX K class Server with uninterrupted power supply and CD ROM User Equipment 60 Pentium PCs, with 16MB of RAM and 100 Mhz or faster processors, Windows 95 operating environment, and 15" color monitors 60 Network Cards D. Interfaces. EDS will develop the required automated interfaces between the EDS-Developed Software and the Software applications identified in Section 2 of the Specifications. The parties acknowledge and agree that EDS may substitute any item of Third Party Software or Third Party Hardware for a similar or better product after consultation with Hawaiian. A-1 EDS and Hawaiian will diligently work together in good faith to select and implement appropriate Third Party Software and Third Party Hardware that will enable an average on-line response time of [Confidential Treatment Requested] for the System utilizing the PCs (as described in Section 1(C) of Schedule A, or as modified by mutual agreement of the parties in accordance with Section 4.1) connected directly to the server (as described in Section 1(C) of Schedule A, or as modified by mutual agreement of the parties in accordance with Section 4.1) bypassing Hawaiian's local area network/wide area network capabilities. The average response time calculation will (a) include all responses executed at the PC workstation and those that require the System to communicate with the server described above, (b) exclude reports and large database queries, and (c) exclude delays caused by (i) scheduled downtime, (ii) circumstances that constitute a force majeure event under Section 13.4, and (iii) a Hawaiian act, omission or failure to perform under this Agreement. Hawaiian will be responsible for the local area network requirements and activities related to the System and for the overall operation and performance of the System after final implementation. 2. PRAS Services. The PRAS Services are the services described in Article IV and Section 3.2. 3. Description of System Life Cycle Phases. A. Definition and Analysis Phase EDS will analyze Hawaiian's current environment in order to determine the requirements for implementing the System for Hawaiian. This Phase will include further defining the functionality described in the Specifications, and reaffirming or modifying, as necessary, the Project Plan. B. Business Design Phase During the Business Design Phase, EDS will address those functions of the System that will be newly developed or customized for Hawaiian. EDS will develop detailed business requirements for new functions to be developed for Hawaiian (the "Business Design"). C. Construction and Testing Phase During this Phase, EDS will translate the designs and specifications of the newly developed functions of the EDS-Developed Software, as described in Section 2 of the Specifications, into the System. EDS will develop and then unit and system test such Software; develop technical operation/installation documentation; develop user guides for operations; and develop training materials. Hawaiian will conduct user acceptance testing of the System with assistance from EDS in accordance with mutually agreed upon test scripts and the provisions of Section 2.4 of this Agreement. A-2 D. Implementation Phase. This Phase, which will begin after Hawaiian has approved user acceptance testing, includes the installation of the Deliverable into the production environment, moving programs and conducting any agreed upon conversions. A-3 SCHEDULE B MILESTONES AND DELIVERABLES As of the Effective Date, and unless otherwise mutually agreed to by Hawaiian and EDS, the Project Plan will include the following Milestones and Deliverables: Deliverable Milestone Phase 1 Implementation [Confidential Treatment Requested] Phase 1 Implementation is the sales audit function of the System completed and available for Hawaiian's user acceptance testing by the Milestone date. The sales audit function includes the following: [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] Deliverable Milestone Phase 2 Implementation [Confidential Treatment Requested] Phase 2 Implementation is the full System completed and available for Hawaiian's user acceptance testing by the Milestone date. The remaining functions include the following: [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] [Confidential Treatment Requested] B-1 SCHEDULE C EDS CHARGES 1. Monthly Charges. During the term of this Agreement, EDS will charge, and Hawaiian will pay EDS, the following monthly charges in accordance with Article IX: Calendar Month of the Agreement Monthly Charge February 1997 $[Confidential Treatment Requested] March 1997 through January 1998 $[Confidential Treatment Requested] February 1998 through April 1998 $[Confidential Treatment Requested] May 1998 through May 2003 $[Confidential Treatment Requested] Each monthly charge will be invoiced on the first day of the month. 2. Third Party Hardware and Third Party Software Charge. EDS will charge, and Hawaiian will pay EDS, a charge of $[Confidential Treatment Requested] for the Third Party Hardware, Third Party Software, and maintenance support as described in Section 3.4(d), which charge will be invoiced to Hawaiian at the time the order for such hardware and Software is placed. 3. Value-based Payments. (a) EDS will charge, and Hawaiian will pay EDS, the value-based payments described below, which payments reflect the value that the System brings to Hawaiian. The value-based payments will be calculated as follows: The System will track the total monetary amount of all Exceptions (as defined below) identified by the System during each month. From February 1998 through April 1998, Hawaiian will pay EDS a monthly value-based payment equal to [Confidential Treatment Requested] during the prior month. From May 1998 until expiration of this Agreement by its terms, Hawaiian will pay EDS a monthly value-based payment equal to [Confidential Treatment Requested] during the prior month. C-1 The value-based payments will be capped at an aggregate amount of $[Confidential Treatment Requested] paid to EDS and, after such aggregate amount of value-based payments has been paid to EDS, Hawaiian will have no further obligation to make value-based payments to EDS. (b) For purposes of this Section, the term "Exceptions" shall mean any apparent deviation from, or failure to conform to, Hawaiian's rules, procedures, policies and tariffs for selling and/or issuing Hawaiian airline tickets, which deviations or nonconformances were identified by the System and made by a travel agent, wholesaler or such other non-Hawaiian person or entity selling and/or issuing airline tickets on behalf of Hawaiian. Such Exceptions shall include without limitation the following activities: A reported ticket sale for less than the applicable fare A reported commission greater than the applicable commission A reported fare class that is different from the booked fare class An invalid form of payment was used Where a fare basis requires the ticket to be issued within a given time period from when the reservation is made and such ticket is not issued within that time period A reported ticket exchange or ticket refund was greater than the corresponding ticket sale amount A ticket refund has been improperly issued A ticket sale has not been reported Receipt of a flight coupon that had been previously used The appropriate penalty amount was not collected (c) In order to facilitate the computation of these value-based payments, Hawaiian shall provide EDS, on an ongoing basis and in a manner reasonably acceptable to EDS, (i) the monthly Sales Audit Results report generated by the System, which report summarizes the total Exceptions and the total monetary amount of such Exceptions identified for that particular month, and (ii) access to and use of the System. Hawaiian shall permit EDS, or its designated representative, to perform periodic audits of Hawaiian's records to the extent necessary to verify the results and/or processes of the System. C-2 4. Change Orders. Immediately after execution of a Change Order, EDS will invoice Hawaiian for the services and/or products that are the subject of that particular Change Order, and Hawaiian will pay EDS the amounts stated in such invoice in accordance with the provisions of Section 9.3. 5. Airline Tariff Publishing Company (ATPCO) Charges. During the term of this Agreement commencing with the seventh month after the Effective Date, EDS will charge, and Hawaiian will pay EDS, $[Confidential Treatment Requested] per month for the provision of the ATPCO data and information to Hawaiian, as described in Section 4.6 of the Agreement. C-3 EX-10.4 5 AIRCRAFT LEASE AGREEMENT AIRCRAFT LEASE AGREEMENT Dated as of January 3, 1997 Between AMERICAN AIRLINES, INC., as Lessor and HAWAIIAN AIRLINES, INC., as Lessee One (1) DC10-10 Aircraft Registration No. N160AA Serial Number 46710 with Three GE CF6-6K Engines This Lease Agreement has been executed in several counterparts. To the extent, if any, that this Lease Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in this Lease Agreement may be created through the transfer or possession of any counterpart other than the original. The counterpart to be deemed the original shall be the counterpart that is designated on the signature pages thereof as the original counterpart and no security interest in this Lease Agreement may be created through the transfer of any counterpart other than such original counterpart. This is not the original counterpart. TABLE OF CONTENTS Page No. Section 1. Definitions...............................................1 Section 2. Delivery and Acceptance..................................14 (a) Time and Place...........................................14 (b) Delivery Date............................................14 Section 3. Term and Rent............................................15 (a) Term.....................................................15 (b) Basic Rent...............................................15 (c) Supplemental Rent........................................15 (d) Prohibition Against Setoff,Etc...........................15 (e) Payment to Lessor........................................16 Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain Agreements of Lessee, Representations of Lessee...................................................16 (a) Disclaimer...............................................16 (b) Quiet Enjoyment..........................................17 (c) Waiver of Warranties.....................................17 (d) Lessee's Representations and Warranties..................18 (e) Lessor's Representations and Warranties..................20 Section 5. Return of Airframe and Engines...........................21 (a) Return of Airframe and Serviced Engines..................21 (b) Return of Other Engines..................................22 Section 6. Liens....................................................22 Section 7. Registration, Maintenance and Operation; Possession; Insignia.....................................23 (a) Registration, Maintenance and Operation..................23 (b) Additional Maintenance Provisions........................24 (c) Territorial Restrictions on Use of Aircraft..............24 (d) Obligations Absolute.....................................24 (e) Possession...............................................25 (f) Registration and Insignia................................25 (g) Replacement of Parts.....................................25 (h) Alterations, Modifications and Additions.................26 (i) Manuals and Technical Records............................27 (j) Maintenance and Usage....................................27 Section 8. Loss, Destruction, Requisition,Etc.......................27 (a) Event of Loss to the Aircraft............................27 (b) Event of Loss to a Serviced Engine.......................28 (c) Application of Payments for Requisition of Title.........31 (d) Requisition of Use of the Airframe.......................31 i (e) Investment of Proceeds Pending Replacement...............32 (f) Application of Payments During Default...................32 Section 9. Insurance................................................32 (a) Liability Insurance......................................32 (b) All Risk Hull Insurance..................................33 (c) War-Risk Insurance.......................................35 (d) Application of Proceeds..................................35 (e) Reports, Etc.............................................35 (f) Additional Insurance.....................................36 (g) Notice from Lessee; No Modification......................36 (h) Reinsurance..............................................36 (i) Insurance of Lessor......................................36 (j) Insurance Relating to Allocated Parts....................37 Section 10. Inspection; Financial Information........................37 (a) Inspection...............................................38 (b) Financial Information....................................39 Section 11. Lessee's Covenants.......................................39 (a) Merger...................................................39 (b) Certificated Air Carrier.................................39 Section 12. FAA Recordation and Further Assurances...................39 (a) FAA Recordation..........................................40 (b) Further Assurances.......................................40 Section 13A. Lessee Events of Default.................................40 Section 13B. Lessor Events of Default.................................42 Section 14A. Lessor Remedies..........................................43 Section 14B. Lessee Remedies..........................................45 (a) Remedies................................................45 (b) Limitation on Damages...................................45 (c) No Implied Waiver.......................................46 Section 15. Indemnification.........................................46 (a) General.................................................46 (b) Indemnification for Negligent Acts......................48 (c) Defense of Claims; Settlement...........................48 (d) Indemnification by Lessor...............................49 (e) Survival................................................49 Section 16. General Tax Indemnity...................................49 (a) Tax Indemnity...........................................49 (b) Exclusions from General Tax Indemnity...................50 (c) Calculation of General Tax Indemnity Payments...........52 (d) Payment of General Tax Indemnity........................53 (e) Verification of Calculations............................53 (f) Reports.................................................54 (g) General Tax Indemnity Contest Provisions................54 ii (h) Compromise or Settlement................................56 (i) Refunds.................................................56 (j) Failure to Contest......................................57 (k) Interest................................................57 (l) Effect of Other Indemnities.............................57 Section 17. Miscellaneous...........................................57 (a) Construction; Governing Law.............................57 (b) Notices.................................................58 (c) Lessor's Right to Perform...............................60 (d) Confidentiality.........................................60 (e) Counterparts............................................62 (f) Grant of Security Interest by Lessor....................62 (g) Survival................................................62 (h) Assignment..............................................62 (i) Transaction Expenses....................................63 (j) Entirety................................................63 (k) Force Majeure...........................................63 (l) Independent Contractor; No Agency.......................64 (m) Certain Consents and Waivers of Lessee..................64 (n) Offset..................................................66 Section 18. True Lease..............................................66 (a) Intent of the Parties...................................66 Section 19. Enforceability in Jurisdictions........................66 Section 20. No Third-Party Beneficiaries...........................67 Section 21. Maintenance Obligations................................67 Section 22. Amendment of Long-Term Lease Agreement.................67 iii Exhibits Exhibit A Lease Supplement No. 1 Exhibit B Stipulated Loss Value Schedule Exhibit C Conditions Precedent to Delivery Exhibit D Delivery and Return Conditions Exhibit E Supplemental Rent for Maintenance Schedules Schedule I Basic Rent Schedule 4(d)(i) Schedule 4(d)(iv) Schedule 4(d)(v) Schedule 4(d)(vi) Schedule 4(d)(vii) iv AIRCRAFT LEASE AGREEMENT This AIRCRAFT LEASE AGREEMENT, dated as of January 3, 1997, between AMERICAN AIRLINES, INC., a Delaware corporation, with its principal place of business at Dallas/Fort Worth International Airport, Texas 75261-9616, and its successors and assigns ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii corporation with its principal place of business at 3375 Koapaka Street, Suite G350, Honolulu, Hawaii 96819 ("Lessee"). WHEREAS, Lessee desires to lease from Lessor, and Lessor is willing to lease to Lessee, the Aircraft (as defined below) upon the terms and conditions set forth herein; and WHEREAS, Lessor is certificated under FAA Regulations Part 121 to inspect, maintain, repair and overhaul the Aircraft with GE CF6-6K Engines; and WHEREAS, Lessee has requested that Lessor perform certain repair, maintenance and overhaul services with respect to the Aircraft, other than the Lessee Assumed Services (as defined below), at a fixed cost per flight hour; and WHEREAS, Lessee has further requested that Lessor perform certain additional repair, modification, maintenance and overhaul services on a time-and-materials basis; and WHEREAS, Lessor desires to perform such maintenance services for Lessee; NOW, THEREFORE, in consideration of the mutual covenants herein set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows: Section 1. Definitions. Unless the context otherwise requires, the following terms shall have the following meanings for all purposes of this Lease Agreement and shall be equally applicable to both the singular and the plural forms of the terms herein defined: "AAdvantage Agreement" means the AAdvantage-Registered Trademark- Participating Agreement, dated as of September 12, 1994 between Lessee and Lessor, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as from time to time amended, supplemented or modified. "AA Station" means HNL, LAS, LAX, SEA, SFO or TUL. "ACARS" means the Aircraft Communications and Reporting System currently installed on the Aircraft. "ADs" means Airworthiness Directives issued by the FAA. -1- "AD Effective Date" shall have the meaning assigned to such term in Section 4(s) of Exhibit E. "Additional Insured" shall have the meaning specified in Section 9 hereof. "Additional Services" means the engineering, inspection, maintenance, repair and overhaul services that are necessary or appropriate (i) to correct damage (including replacement at Lessee's expense if Lessor reasonably determines that the damage (other than ordinary wear and tear) is beyond economic repair) to the Serviced Aircraft, any Serviced Engines and/or any Rotable Parts (including Serviced Parts removed during the delivery of Maintenance Services other than Additional Services) that resulted from (a) improper use, improper repairs by Persons other than Lessor or its subcontractors, neglect (other than by Lessor or its subcontractors), or any cause other than ordinary wear and tear or (b) Foreign Object Damage, (ii) to complete modifications to the Serviced Aircraft and any Serviced Engines requested by Lessee to customize the Serviced Aircraft in any manner that deviates from Lessor's standard configuration (subject to the provisions of Section 4(q) of Exhibit E which require Lessee to procure and provide certain Serviced Parts prior to their installation on the Serviced Aircraft), (iii) to complete modifications (including those modifications mandated by the FAA) to the Serviced Aircraft the costs of which exceed $1,000 per Serviced Aircraft, or (iv) to complete any inspections mandated by the FAA that are not included in Lessor's existing maintenance program and are not related to aging aircraft and corrosion prevention issues, but excluding Field Trip Maintenance Services, and On-Call Maintenance Services. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aircraft" means the Airframe delivered and leased hereunder, together with the three Engines initially leased hereunder with the Airframe (or any Engine substituted for any such Engine hereunder), whether or not any of such initial or substituted Engines may from time to time be installed on the Airframe or may be installed on any other airframe or on any other aircraft. "Airframe" means (i) the McDonnell Douglas DC10-10 aircraft (except engines or Serviced Engines from time to time installed thereon) bearing the U.S. Registration Number N160AA and Manufacturer's Serial Number 46710 and (ii) any and all Parts so long as the same shall be incorporated or installed in or attached to the Airframe or so long as title thereto shall remain vested in Lessor. -2- "Allocated Parts" shall have the meaning assigned to such term in the Long-Term Lease Agreement. "Allocated Spare Engine" shall have the meaning assigned to such term in Section 4(n) of Exhibit F of the Long-Term Lease Agreement. "American Agreements" mean the Lease Agreement, the Long Term Agreements, the Ancillary Agreements, 151 Lease, 161 Lease, 162 Lease and the 171 Lease. "AMRCG" means AMR Training & Consulting Group, Inc., a Delaware corporation, and its successors and assigns. "AMR Leasing" means AMR Aircraft Sales & Leasing Company, a Delaware corporation, and its successors and assigns. "Ancillary Agreements" means that certain Manuals Supplement, Amended and Restated Training Document and FOS Implementation Document, each dated as of March 31, 1994, and entered into by and between Lessor and Lessee. "A.O.G." means aircraft on the ground. "Applicable Law" means all applicable laws of any Governmental Authority, including securities laws, tax laws, tariff and trade laws, ordinances, judgments, decrees, injunctions, writs and orders or like actions of any court, arbitrator, judicial or quasi-judicial tribunal, governmental agency or authority in any country and rules, regulations, orders, interpretations, licenses and permits of any federal, state, county, municipal, regional or other United States or foreign governmental body, instrumentality, agency or authority. "APU" means auxiliary power unit. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time and any successor statute. "Base Maintenance Services" means the inspection, engineering, maintenance, repair and overhaul services of the Serviced Aircraft, any Serviced Engines and any Serviced Parts that are ordinarily performed at a Maintenance Base as part of the scheduled maintenance of the Serviced Aircraft, any Serviced Engines or any Serviced Parts to repair ordinary wear and tear including, without limitation, all aircraft heavy maintenance checks and phase checks, but excluding (i) the inspection, maintenance, repair and overhaul of Parts described in Section 4(q) of Exhibit E and (ii) Additional Services, Field Trip Maintenance Services, Line Maintenance Services and On-Call Maintenance Services. -3- "Basic Rent" means the rent payable for the Aircraft pursuant to Section 3(b), as the same may be adjusted pursuant to Section 16. "Basic Rent Payment Date" means the dates for payment of Basic Rent described in Schedule I attached hereto. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banking institutions in New York City, New York, Fort Worth, Texas or Honolulu, Hawaii are authorized or required by law, regulation or executive order to be closed. "Change in Control" means the acquisition by any Person or 13D Group (other than Airline Investors Partnership, L.P. or its Affiliates) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of Voting Securities after which such Person or Group owns Voting Securities representing 30% or more of the outstanding Voting Securities. "Claims" means actual or threatened claims, demands and suits. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and analogous provisions of any successor statute. "Confidential Information" shall have the meaning assigned to such term in Section 17(d). "Confidentiality Agreement" means that certain Confidentiality Agreement dated November 8, 1993, between AMRCG and Lessee. "Cycle" means, with respect to the Serviced Aircraft, one takeoff of such Serviced Aircraft and the next subsequent landing of such Serviced Aircraft. "Default" means any event which with the passage of time or the giving of notice or both would become a Lessee Event of Default. "Defect" shall have the meaning assigned to such term in Section 5(a) of Exhibit E. "Deferred Purchase Certificate" has the meaning set forth in the Indenture. "Delivery Date" means the date on which the Aircraft is delivered by Lessor to, and accepted by, Lessee. "Discount Rate" means the Prime Rate. "DOT" means the United States Department of Transportation, or any Person, governmental department, bureau, commission, or agency succeeding to the functions of such department. -4- "Engine" means (i) each of the three General Electric Model CF6-6K engines listed by manufacturer's serial numbers in Lease Supplement No. 1, whether or not from time to time installed on the Airframe or installed on any other airframe or on any other aircraft and (ii) any Replacement Engine which may from time to time be substituted pursuant to Section 8 for an Engine leased hereunder; together in each case with any and all Parts incorporated or installed in or attached thereto or any and all Parts removed therefrom so long as title thereto shall remain vested in Lessor in accordance with the terms of Section 8 after removal from such Engine. Except as otherwise set forth herein, at such time as a Replacement Engine shall be so substituted, such replaced Engine shall cease to be an Engine hereunder. The term "Engines" means, as of any date of determination, all Engines then leased hereunder. "Event of Loss" with respect to any Item of Equipment means any of the following events with respect to such Item of Equipment: (i) loss of such Item of Equipment or the use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of such Item of Equipment permanently unfit for normal use for any reason whatsoever; (ii) any damage to such Item of Equipment which results in an insurance settlement with respect to such Item of Equipment on the basis of a total loss whether actual, constructive or arranged; (iii) the condemnation, confiscation or seizure of, or requisition of title to such Item of Equipment; (iv) the requisition of use of such Item of Equipment (other than requisition for use by the Government); (v) the requisition of use of such Item of Equipment by the Government for any period ending after the expiration of the Term unless Lessor elects, upon 30 days' prior notice, not to treat such requisition as an Event of Loss at the end of the Term; (vi) as a result of any rule, regulation, order or other action by the FAA, DOT or other governmental body of the United States having jurisdiction, the use of such Item of Equipment in the normal course of air transportation of persons shall have been prohibited for a period of six consecutive months, unless Lessee, prior to the expiration of such six-month period, shall have undertaken and shall be diligently carrying forward all steps which are necessary or desirable to permit the normal use of such property by Lessee or, in any event, if such use shall have been prohibited for a period of twelve consecutive months or if such use is prohibited at the end of the Term, unless at the end of the Term such use has then been prohibited for less than six consecutive months, then an Event of Loss shall not be deemed to have occurred hereunder until the expiration of six consecutive months during which the use of the Item of Equipment has been so prohibited, but only so long as Lessee continues to pay Basic Rent to the Lessor on the first day of each month, at the rate set forth in Schedule I attached hereto and Supplemental Rent pursuant to Exhibit E hereto, and agrees to and does comply with all other provisions hereof; or (vii) the operation or location of the Item of Equipment, while under requisition for use by the Government, in any area excluded from coverage by any insurance policy in effect with respect to the Item of Equipment required by the terms of Section 9, if Lessee shall not have obtained indemnity in lieu thereof from the Government, acceptable to Lessor; provided that if such property shall be returned to Lessee in such a condition that Lessee can within 30 days following the return thereof cause the Item of Equipment to comply with the maintenance conditions set forth in Section 7 hereof, then such event shall, at the option of Lessee, not constitute an Event of Loss. An Event of Loss with respect to the Aircraft shall be deemed to have occurred if an -5- Event of Loss occurs with respect to the Airframe. In the case of clauses (i), (ii), (iii) and (iv), the date of an Event of Loss shall be the date of destruction, damage, requisition, loss, etc. to any Item of Equipment. In the cases of clauses (v), (vi) and (vii), the date of an Event of Loss shall be respectively (A) such 180th day or last day of the applicable Term as the case may be, and (B) the last day of such six month period or twelve month period, as the case may be and (C) the first day of such operation or location. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expendable Parts" means (i) Serviced Parts used in the repair and overhaul of the Serviced Airframe, any Serviced Engines and other Rotable Parts that are assumed to have no potential for reuse and miscellaneous materials and supplies consumed during the repair and overhaul process, and (ii) Serviced Parts that have some potential for repair but that are customarily assumed to be expended. "Expenses" means liabilities, obligations, losses, damages, penalties, claims (including claims involving liability in tort, strict liability or otherwise), actions, suits, judgments, costs, expenses and disbursements (including legal fees and expenses and costs of investigation) of any kind and nature whatsoever without any limitation as to amount, together with interest thereon at the Stipulated Interest Rate from the date incurred until reimbursed hereunder. "FAA" means the United States Federal Aviation Administration, or any person, governmental department, bureau, commission or agency succeeding to the functions of such Administration. "Federal Aviation Act" or "Act" means the Federal Aviation Act of 1958, as amended. "Field Trip Maintenance Services" means, with respect to the Serviced Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical malfunction, the inspection, maintenance and repair of such malfunction at any location where Lessor does not have on-site the necessary number of mechanics trained to work on the particular malfunction experienced by the Serviced Aircraft, any Serviced Engine or any Serviced Part. "Flight Hour" means the amount of time (expressed in hours and rounded upward to the nearest one-tenth (1/10th) of an hour) during the flight of a Serviced Aircraft between "wheels off" on takeoff and "wheels on" on landing. "Foreign Object Damage" means damage to a Serviced Engine or any component thereof caused by any object or material ingested into the Serviced Engine that results in the breakage or destruction of a Serviced Engine component or a notch, non-stress related crack, cut, indentation or other depression to the surface of a Serviced Engine component in each case beyond specification limits of the Lessor's maintenance program, but excluding the gradual -6- erosion or smoothing of any Serviced Engine component caused by numerous Flight Hours of operation. "Government" means the government of the United States of America, and any instrumentality or agency thereof. "Governmental Authority" means any governmental department, court, bureau, commission, agency or any other entity, whether of the United States (including any state or subdivision thereof) or any other country (including any political subdivision thereof), having jurisdiction over this Lease, the transactions contemplated hereby, or any document related hereto or thereto or delivered in connection herewith or therewith, the Serviced Aircraft or the parties hereto. "HNL" means Honolulu International Airport in Honolulu, Hawaii. "IATA" means International Air Transport Association. "Indemnified Party" shall have the meaning assigned to such term in Section 15. "Interim Aircraft Lease Agreements" means the Interim Aircraft Lease Agreements each dated as of December 30, 1993, May 20, 1994, August 10, 1994 or August 31, 1994 between AMR Leasing and Lessee, as the same may be amended, modified or supplemented from time to time. "Interim Aircraft Maintenance Agreement" means the Interim Aircraft Maintenance Agreement dated as of December 30, 1993 between Lessor and Lessee, as the same may be amended, modified or supplemented from time to time. "Interim Definitive Agreements" means the Interim Aircraft Lease Agreements, the Interim AAdvantage Participating Carrier Agreement dated as of December 30, 1993 between Lessee and Lessor, the Interim Aircraft Maintenance Agreement, the Interim Multihost Agreement dated as of December 30, 1993 between Lessee and SABRE, the Interim Flight Operating System Agreement dated as of December 30, 1993 between Lessee and SABRE, the Interim Equipment Master Equipment Lease Agreement dated as of December 30, 1993 between Lessee and SABRE, the Guaranty Agreement dated as of December 10, 1993 executed by HAL, Inc. and West Maui Airport, Inc. in favor of Lessor, AMRCG, AMR Leasing and SABRE and the Security Agreement dated as of December 10, 1993 between Lessee, HAL, Inc. and West Maui Airport, Inc. as debtors and Lessor, AMRCG, AMR Leasing and SABRE as secured parties, and all other agreements, instruments, certificates or documents related thereto or executed or delivered in connection therewith, as amended or modified from time to time. "In-Use Aircraft" means the Airframe delivered and leased hereunder, together with the three Serviced Engines or engines installed from time to time thereon. -7- "Issuer Insolvency" shall have the meaning assigned thereto in Section 13A hereof. "Item of Equipment" or "Item" means the Airframe or each of the Serviced Engines, and for purposes of the definition of "Event of Loss" as used in Section 8(b)(3) hereof, shall mean each Engine. "LAS" means McCarren International Airport in Las Vegas, Nevada. "LAX" means Los Angeles International Airport in Los Angeles, California. "Lease Agreement", "this Lease Agreement", "this Lease", "this Agreement", "herein", "hereunder", "hereby" or other like words mean this Lease Agreement as originally executed or as modified, amended or supplemented pursuant to the applicable provisions hereof, including, without limitation, supplementation hereof by one or more Lease Supplements entered into pursuant to the applicable provisions hereof. "Lease Supplement" means Lease Supplement No. 1, substantially in the form of Exhibit A hereto to be entered into between Lessor and Lessee for the purpose of leasing the Aircraft under and pursuant to the terms of this Lease, or any amendment hereto or to any other Lease Supplement entered into subsequent to the Delivery Date. "Lease Term" means the period from the Delivery Date of the Aircraft until September 11, 2001, unless earlier terminated in accordance with the provisions of this Lease. "Lessee Assumed Services" means those maintenance services set forth on Attachment C to Exhibit E to be performed by Lessee at HNL during the Lease Term and any other maintenance services that the parties mutually agree pursuant to Section 1 of Exhibit E that Lessee will assume and perform. "Lessee Event of Default" shall have the meaning specified in Section 13A hereof. "Lessor Event of Default" shall have the meaning specified in Section 13B hereof. "Lessor Warranty" shall have the meaning assigned to such term in Section 5(a) of Exhibit E. "Lessor's Liens" means any Lien arising as a result of (i) Claims against or affecting Lessor, not related to the transactions contemplated by this Lease; (ii) acts or omissions of Lessor, not related to the transactions contemplated by this Lease, or not permitted under this Lease; (iii) Taxes or Claims imposed against Lessor which are not indemnified against by Lessee pursuant hereto; or (iv) Claims against Lessor arising out of the voluntary or involuntary transfer by Lessor (without the consent of Lessee) of any of its interests in the Airframe, any Serviced -8- Engine or any Engine, including, without limitation, by means of granting a security interest therein, other than a transfer of the Aircraft pursuant to Section 8 or 14A hereof. "Liabilities" means Claims, liabilities, losses, judgments, damages, fines, penalties and costs, fees and expenses of any nature incident thereto (including, without limitation, reasonable attorneys' fees and expenses and costs of investigation and litigation), whether arising in tort, contract or otherwise. "Lien" means any mortgage, pledge, lien, charge, encumbrance, lease, exercise of rights, security interest or Claim. "Line Maintenance Services" means all customary line maintenance services to the Serviced Aircraft, any Serviced Engine or any Serviced Part, including scheduled inspections and servicing of the Serviced Aircraft and related repairs, but excluding (i) Additional Services, Base Maintenance Services, Field Trip Maintenance Services and On-Call Maintenance Services and (ii) Lessee Assumed Services. "Long-Term Agreements" means the Long-Term Lease Agreement, the 151 Lease Agreement, the 161Lease Agreement, the 162 Lease Agreement, the 171Lease Agreement, the AAdvantage Participating Carrier Agreement dated as of September 12, 1994 between Lessee and Lessor, the Multihost Agreement dated as of September 12, 1994 between Lessee and SABRE, the Flight Operating System Agreement dated as of September 12, 1994 between Lessee and SABRE, the Equipment Master Lease Agreement dated as of September 12, 1994 between Lessee and SABRE, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as amended or modified from time to time. "Long-Term Lease Agreement" means the Aircraft Lease Agreement dated as of September 12, 1994 between Lessor and Lessee, as amended, supplemented, modified and renewed from time to time. "Loss Payment Date" shall have the meaning set forth in Section 8(a) hereof. "MAGSA Rates" means the hourly rates applicable to participants in the Mutual Assistance Ground Service Agreement among Lessor and other participating IATA carriers as amended from time to time, or any comparable replacement agreement. "Maintenance Base" shall have the meaning assigned to such term in Section 2(a)(i) of Exhibit E. "Maintenance Services" means Additional Services, Base Maintenance Services, Field Trip Maintenance Services, Line Maintenance Services and On-Call Maintenance Services but excluding Lessee Assumed Services. -9- "Maintenance Services Termination Date" shall have the meaning set forth in Section 1 to Exhibit E hereto. "Manual" means the Standard Practice Manual mutually prepared by Lessor and Lessee for administration of this Agreement, a true and correct copy of which has been provided to Lessor and Lessee, together with any amendments made thereto from time to time by a party hereto with the consent of the other party hereto (which consent shall not be unreasonably withheld). "Manufacturer" means, collectively, the respective manufacturers of the Airframe, each Engine and each Serviced Engine. "Monthly Minimum Maintenance Amount" shall have the meaning set forth in Section 3(f)(i) of Exhibit E hereto. "NTF" means, with respect to the Serviced Aircraft, any Serviced Engine or any Serviced Part upon which an inspection has been performed to determine the existence of a suspected malfunction, that the results of such inspection indicated there was "no trouble found." "On-Call Field Stations" means (i) LAS, LAX, SEA and SFO and any other station requested by Lessee and agreed to in writing by Lessor, and in each case, at which, pursuant to Section 1 of Exhibit E, Lessee has elected to perform, and is performing, Line Maintenance Services at such location and (ii) HNL. "On-Call Maintenance Services" means, with respect to the Serviced Aircraft, any Serviced Engine or any Serviced Part that experiences a mechanical malfunction, the inspection, maintenance and repair of such malfunction at the request of Lessee at any of the On-Call Field Stations but excluding Field Trip Maintenance Services. "151 Lease" or "151 Lease Agreement" means the Aircraft Lease Agreement, dated as of December 15, 1995 between Lessee and Lessor, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as from time to time amended, supplemented or modified. "161 Lease" or "161 Lease Agreement" means the Aircraft Lease Agreement, dated as of December 30, 1995 between Lessee and Lessor, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as from time to time amended, supplemented or modified. "162 Lease" or "162 Lease Agreement" means the Aircraft Lease Agreement, dated as of November 6, 1996 between Lessee and Lessor, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as from time to time amended, supplemented or modified. -10- "171 Lease" or "171 Lease Agreement" means the Aircraft Lease Agreement, dated as of May 15, 1996 between Lessee and Lessor, and all other agreements, instruments, certificates and documents related thereto or executed or delivered in connection therewith, all as from time to time amended, supplemented or modified. "Outside Services" shall have the meaning assigned to such term in Section 4(f) of Exhibit E. "Parts" means (i) any and all appliances, parts, instruments, appurtenances, accessories, furnishings, seats and other equipment of whatever nature (other than complete engines or Serviced Engines), which may from time to time be incorporated or installed in or attached to the Airframe or any Serviced Engine, or having been so installed in or attached, are later removed therefrom, so long as title thereto remains vested in Lessor, and (ii) all Allocated Parts (other than the Allocated Spare Engine). "Permitted Liens" means Liens referred to in clauses (i) through (vii) of Section 6. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other form of entity or any government or any agency or political subdivision thereof. "Phased-Out Parts" means Serviced Parts of a type formerly utilized during the Lease Term by Lessor but discontinued with respect to Lessor's fleet of DC10-10 Aircraft that Lessee has properly elected without contravening Section 4 of Exhibit E to continue to utilize on the Serviced Aircraft. "Pooling Agreement" means the Pooling Agreement dated the date hereof between Lessor and Lessee, as amended, supplemented and modified from time to time. "Prime Rate" means the per annum rate announced by The Chase Manhattan Bank, N.A. from time to time as its prime rate in New York, New York. "Rent" means Basic Rent and Supplemental Rent, collectively. "Replacement Engine" means a GE CF6-6K engine (or an engine of the same or another manufacturer of a comparable or an improved model and suitable for installation and use on the Airframe) which shall have been leased hereunder pursuant to Section 8, together with all Parts relating to such engine. "Return Aircraft" means upon the return of the Aircraft to Lessor hereunder pursuant to Section 5, 8, or 14A hereof, the Airframe constituting part of the Aircraft and the engines or Serviced Engines attached thereto. -11- "Rotable Parts" means Serviced Parts that customarily have a potential for reuse through inspection, repair, overhaul or calibration. "SABRE" means SABRE Decision Technologies, a division of The SABRE Group, Inc. (formerly known as AMR Information Services, Inc.). "SEA" means the Seattle/Tacoma International Airport in Seattle, Washington. "Serviced Aircraft" means the Aircraft. "Serviced Airframe" means (i) the Serviced Aircraft (except Serviced Engines) and (ii) any and all Serviced Parts (except Serviced Parts that comprise a Serviced Engine) so long as the same shall be incorporated or installed in, or attached to, such Serviced Aircraft. "Serviced Engines" means (i) each Engine, so long as Lessee has not delivered possession of any such Engine to Lessor pursuant to the Pooling Agreement; (ii) each of the GE CF6-6K engines delivered to Lessee by Lessor pursuant to the Pooling Agreement so long as such engines have not been redelivered by Lessee to Lessor under the Pooling Agreement, provided that, for the purposes of Exhibit E attached hereto, an engine delivered by Lessee to Lessor thereunder shall remain a Serviced Engine until all Maintenance Services have been completed thereon; and (iii) the Allocated Spare Engine; and (iv) for purposes of Exhibit E only, GE CF6-6K engines in transit between Lessor and Lessee pursuant to Sections 3(d), 3(i) and 4(d)(iii) of Exhibit E. "Serviced Part" means any Serviced Aircraft component, including any APU, landing gear, part, equipment, accessory, instrument, avionics or system and miscellaneous materials and supplies consumed during operation or inspection, maintenance, repair and overhaul services. "SFO" means the San Francisco International Airport in San Francisco, California. "Stipulated Interest Rate" means the rate of ten percent (10%) per annum. "Stipulated Loss Value" payable with respect to an Event of Loss for the Airframe and its Serviced Engines shall mean, as of any date of determination, the amounts set forth in Exhibit B hereto. "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which Lessee assumes or agrees to pay hereunder to Lessor or others, including, without limitation, all Monthly Supplemental Rent Payments and all other amounts, liabilities and obligations of Lessee to Lessor set forth in Exhibit E attached hereto. -12- "Taxes" means any and all fees (including license, documentation and registration fees), taxes (including income, gross receipts, preferences, sales, use, turnover, value added, property (tangible and intangible), excise and stamp taxes), licenses, levies, imposts, duties, charges, surcharges, assessments or withholdings of any nature whatsoever, together with any and all penalties, fines, additions to tax and interest thereon in each case imposed by a Taxing Authority. "Taxing Authority" means any Federal, state or local government or other taxing authority in the United States or any political subdivision or territory or possession thereof, any international authority and any taxing authority of any other government or political subdivision or territory or possession thereof. "Term" means the period for which the Aircraft is leased pursuant to Section 3(a) hereof and Section 3 of the Lease Supplement. "13D Group" means any partnership, limited partnership, syndicate or other "group" (as such term is used in Section 13(d)(3) of the Exchange Act). "TUL" means Tulsa International Airport in Tulsa, Oklahoma. "Turn Time" means, with respect to any particular Maintenance Services, the period of time ordinarily required by Lessor, exerting its reasonable efforts, to complete such Maintenance Services in accordance with its customary practices and procedures or such specified period of time agreed to in writing by Lessor and Lessee for the performance of any particular Maintenance Services. "Voting Securities" means any securities of Lessee entitled to vote generally in the election of directors, or securities convertible into or exercisable or exchangeable for such securities. "Warranty Claim" means a written notice delivered to Lessor by Lessee of a Defect in Maintenance Services performed by Lessor, which Defect is claimed to be within the scope of the warranty provided by Lessor in Section 5(a) of Exhibit E, such notice specifying in detail the nature of the Defect. "Warranty Period" means, with respect to the Serviced Aircraft, any Serviced Engine or any Serviced Part upon which Maintenance Services were performed, that period of time commencing upon redelivery to Lessee of such Serviced Aircraft, Serviced Engine or Serviced Part after performance of Maintenance Services thereon and expiring on the first to occur of the following: (i) the expiration of one hundred twenty (120) days after redelivery of such Serviced Aircraft, Serviced Engine or Serviced Part to Lessee, or (ii) the completion of four hundred (400) Flight Hours of operation of such Serviced Aircraft, Serviced Engine or Serviced Part after redelivery to Lessee. -13- "Weekly Supplemental Rent Payment" shall have the meaning assigned to such term in Section 3(f) of Exhibit E. "Weekly Supplemental Rent Payment Date" shall have the meaning assigned to such term in Section 3(f) of Exhibit E. Rules of Interpretation. The following rules of interpretation apply to this Lease Agreement: (1) "or" is not exclusive and "include" and "including" are not limiting; (2) "hereby", "herein", "hereof", "hereunder", "this Lease", "this Agreement", "Lease Agreement", or other like words refer to this Aircraft Lease Agreement; (3) a reference to any agreement or other contract includes permitted supplements and amendments; (4) a reference to a law includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement therefore; (5) a reference to a Person includes its permitted successors and assigns; (6) a reference herein to an Article, Section, Exhibit or Schedule is to the relevant Article, Section, Exhibit or Schedule of this Lease Agreement; (7) any right may be exercised at any time and from time to time; (8) all obligations are continuing obligations; (9) time shall be of the essence in the performance of all payment obligations; (10) the heading of the Articles, Sections, Exhibits, Schedules and subsections are for the convenience of reference only and shall not affect the meaning of this Lease Agreement; and (11) no term or provision herein may be changed, waived, discharged or terminated orally, but only by written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. Section 2. Delivery and Acceptance. (a) Time and Place. Lessor hereby agrees (subject to satisfaction of the conditions set forth in Exhibit C attached hereto) to lease to Lessee hereunder and Lessee hereby agrees to lease from Lessor hereunder, on the Delivery Date, the Aircraft, as evidenced by the execution by Lessor and Lessee of Lease Supplement No. 1 hereunder. Delivery of the Aircraft by Lessor and acceptance thereof by Lessee shall occur at LAX, or such other location agreed on by Lessor and Lessee. (b) Delivery Date. The Delivery Date for the Aircraft shall occur on or about January 3, 1997. Lessor shall deliver the In-Use Aircraft in the condition set forth in Exhibit D attached hereto, provided that such delivery and fulfillment of delivery conditions shall, subject to the execution and delivery of Lease Supplement No. 1 (and satisfaction of the conditions set forth in Exhibit C attached hereto), be deemed to have been met. Lessor shall use its reasonable efforts to deliver the -14- In-Use Aircraft on the Delivery Date, but if Lessor is unable to deliver the In-Use Aircraft on the Delivery Date, it shall deliver the In-Use Aircraft to Lessee as soon thereafter as possible without any penalty, charge or damages for late delivery. Section 3. Term and Rent. (a) Term. Except as otherwise provided herein (including, without limitation, pursuant to the definition of Event of Loss), the Term for the Aircraft shall commence on the Delivery Date and end on September 11, 2001. Notwithstanding the foregoing, Lessor shall have the right to terminate this Lease by written notice to Lessee upon the occurrence of a Change in Control and the relevant Term for each Aircraft shall end on the date specified in such notice . (b) Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for the Aircraft throughout the Term, in advance in the amounts set forth in Schedule I, on each Basic Rent Payment Date, commencing on the Delivery Date. (c) Supplemental Rent. Lessee also agrees to pay to Lessor, or to whosoever shall be entitled thereto, any and all Supplemental Rent promptly as the same shall become due and owing, including on each Monthly Supplemental Rent Payment Date (as defined in Exhibit E attached hereto) (or on demand if no due date is specified), and in the event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein or by law or in equity or otherwise in the case of nonpayment of Basic Rent. In addition, Lessee shall pay, on demand, as Supplemental Rent, to the extent permitted by applicable law, an amount equal to interest at the Stipulated Interest Rate on any part of any installment of Basic Rent not paid when due for any period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded, as the case may be, for the period until the same shall be paid. The expiration or other termination of Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of Lessee with respect to Supplemental Rent. All Supplemental Rent to be paid pursuant to this Section 3(c) shall be payable in the type of funds and in the manner set forth in Section 3(e). (d) Prohibition Against Setoff, Etc. Except as set forth in Section 4(c)(i)(D) of Exhibit E attached hereto, this Lease is a net lease and Lessee's obligation to pay Rent hereunder shall be absolute and unconditional and shall not be affected by any circumstance including (i) any claim which Lessee may have against Lessor or anyone else for any reason whatsoever (whether in connection with the transactions contemplated hereby or any other transactions), including any breach by Lessor or any of its Affiliates, of any of its warranties, agreements or covenants contained herein or in any of the Long-Term Agreements or any of the documents related hereto or thereto or performance, or nonperformance by Lessor of any of its duties or obligations to Lessee set forth in Exhibit E attached hereto, (ii) any defect in the title, registration, airworthiness, condition, design, operation, or fitness for use of, or any damage to or loss or destruction of, the Airframe, any Serviced Engine or any Engine, or any interruption or cessation in or including any such interruption, cessation or prohibition of the use or -15- possession thereof by Lessee for any reason whatsoever, resulting from the act of any Governmental Authority; and (iii) any other circumstance, happening or event whatsoever, whether or not foreseen or similar to the foregoing; provided that Lessee's obligations to pay Basic Rent and Supplemental Rent shall cease with respect to the Aircraft, except with respect to Rent accrued at such time upon (i) redelivery of the Aircraft by Lessee to Lessor in accordance with the provisions of Sections 5 hereof; and/or (ii) repossession of the Aircraft by Lessor pursuant to Section 14A hereof, but subject to Lessee's payments of sums specified under said Section 14A; and/or (iii) with respect to any Item of Equipment, payment by or on behalf of Lessee to Lessor in full of the Stipulated Loss Value and other sums specified in Section 8 hereof to be paid by Lessee pursuant to an Event of Loss with respect to such Item of Equipment. Lessee hereby waives, and hereby agrees to waive at any future time at the request of Lessor, to the extent now or then permitted by Applicable Law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease except in accordance with the express terms hereof. Each payment of Rent made by Lessee to Lessor shall be final as to Lessor and Lessee. Lessee shall not seek to recover all or any part of any such payment of Rent from Lessor for any reason whatsoever except manifest error. The parties agree that nothing contained in this Section 3(d) shall affect or limit any right of Lessee to collect damages for the breach of any covenant or representation by Lessor hereunder, including Section 4 hereto or Exhibit E hereto or by any Affiliate of Lessor under any Long-Term Agreement. Lessee shall pay all costs and expenses of every character, whether seen or unforeseen, ordinary or extraordinary or structural or nonstructural, in connection with the delivery, use, operation, maintenance, return, and repair and reconstruction of the Airframe and each Serviced Engine by Lessee, including the costs and expenses particularly set forth in this Lease, except as may be otherwise expressly set forth in the other documents related hereto. (e) Payment to Lessor. All Rent shall be paid by Lessee to Lessor by wire transfer of immediately available funds in U. S. Dollars, to such account as Lessor shall designate to Lessee in writing. Such funds shall be available to Lessor not later than 3:00 p.m., New York City time on the date of payment. Whenever any payment of Rent is due on a day other than a Business Day, such payment shall be made on the next preceding Business Day. All Rent to be paid by Lessee hereunder shall be paid in full without any deduction or withholding with respect to Taxes of any nature imposed by any Taxing Authority unless Lessee is prohibited by Applicable Law from doing so, in which event Lessee shall comply with Section 16 below. Section 4. Disclaimer; Warranties Relating to the Aircraft; Certain Agreements of Lessee, Representations of Lessee. (a) Disclaimer. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-IS", AND LESSOR DOES NOT MAKE NOR SHALL BE DEEMED TO HAVE MADE, AND EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY -16- PARTICULAR PURPOSE OF ANY ITEM OF EQUIPMENT OR ENGINE OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN ANY ITEM OF EQUIPMENT OR ENGINE OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT THERETO, except for the representations of Lessor set forth in Section 4(e) below, and that Lessor represents that (i) it has good title to the Aircraft free of Lessor's Liens and the lawful right to lease the Aircraft to Lessee in accordance with the terms hereof, (ii) Lessor has the lawful right to lease the Airframe to Lessee in accordance with the terms hereof, and (iii) that Lessor is a citizen of the United States of America as defined in Section 40102(a)(15) (former 101(16)) of the Act. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO LESSEE OR ANY OTHER PERSON WITH RESPECT TO (I) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF EQUIPMENT OR ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION THEREWITH; (II) THE USE, OPERATION OR PERFORMANCE OF ANY ITEM OF EQUIPMENT OR ENGINE OR ANY RISKS RELATING THERETO; (III) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES; OR (IV) THE DELIVERY HEREUNDER, OPERATION, SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY ITEM OF EQUIPMENT EXCEPT AS EXPRESSLY PROVIDED IN THE PROVISIONS OF EXHIBIT E HERETO RELATING TO THE SERVICING, MAINTENANCE, REPAIR OR IMPROVEMENT OF ANY SERVICED ENGINE OR SERVICED AIRCRAFT; PROVIDED THAT NOTHING CONTAINED IN THIS SECTION 4(a) SHALL IN ANY WAY LIMIT THE RIGHTS OF LESSEE AGAINST ANY AFFILIATE OF LESSOR UNDER ANY LONG-TERM AGREEMENT. (b) Quiet Enjoyment. Notwithstanding any other term or provision of this Agreement, Lessor covenants that, so long as no Lessee Event of Default shall have occurred and be continuing, it shall not take any action contrary to Lessee's rights under this Lease, or otherwise through its own actions or inactions in any way interfere with the quiet enjoyment of the use and possession of the Aircraft, the Airframe or any Serviced Engines by Lessee; provided that no performance or failure by Lessor to perform its obligations under Exhibit E hereto shall be deemed a breach of this Section 4(b). (c) Waiver of Warranties. LESSEE HEREBY WAIVES, RELEASES AND RENOUNCES THE BENEFIT OF ANY AND ALL CONDITIONS, WARRANTIES OR REPRESENTATIONS ON THE PART OF LESSOR WHICH ARE EXPRESSED OR WOULD OR MIGHT BE IMPLIED IN THIS AGREEMENT WHETHER BY LAW OR OTHERWISE AND RELATING IN ANY WAY TO THE STATE, CONDITION OR AIRWORTHINESS OF AN ITEM OF EQUIPMENT OR ENGINE. LESSEE ACKNOWLEDGES THAT THE -17- PROVISIONS OF SECTIONS 4(a) AND 4(b) HAVE BEEN THE SUBJECT OF FULL DISCUSSION AND NEGOTIATION BETWEEN LESSEE AND LESSOR AND THAT THE BASIC RENT AND ALL OTHER AGREEMENTS OF LESSEE AND LESSOR CONTAINED IN THIS AGREEMENT WERE ARRIVED AT IN CONSIDERATION OF THE PROVISIONS OF SECTIONS 4(a) AND 4(b) SPECIFICALLY INCLUDING THE DISCLAIMER BY LESSOR SET FORTH IN SECTION 4(a) AND THE WAIVER, RELEASE AND RENUNCIATION BY LESSEE SET FORTH IN THIS SECTION 4(c). (d) Lessee's Representations and Warranties. To induce Lessor to enter into this Lease Agreement, and any documents contemplated hereby, Lessee makes the following representations and warranties, each of which shall survive the execution and delivery of this Lease Agreement and the Delivery Date: (i) Lessee is a corporation duly incorporated under the laws of the Territory of Hawaii and is validly existing in good standing under the laws of the State of Hawaii and has its chief executive office in Honolulu, Hawaii. Except as set forth on Schedule 4(d)(i) hereto Lessee has all requisite corporate power and authority to carry on its business as now conducted, and to execute, deliver and perform its obligations under this Lease and each Lease Supplement. Lessee is a duly certificated "air carrier" under Section 41102 (former Section 401) and Section 44705 (former Section 604) of the Federal Aviation Act and possesses all necessary licenses or permits required by any Governmental Authority having jurisdiction over Lessee or the Aircraft to permit Lessee to engage in air transportation and to perform and comply with its obligations under this Lease, and is duly qualified to do business as a foreign corporation, and is in good standing, in each jurisdiction in which its failure to so qualify would adversely and materially affect it or its ability to carry out its obligations under this Lease; (ii) this Lease has been duly authorized by all necessary corporate action on the part of Lessee, does not require any approval of stockholders of Lessee (or if such approval is required, such approval has been obtained), and the execution and delivery hereof, and/or the consummation of the transactions contemplated hereby, and/or compliance by Lessee with any of the terms and provisions hereof, do not contravene any provisions of the Articles of Incorporation or By-laws of Lessee, or result in any breach of, or constitute any default under, or result in the creation of any Lien upon any assets or property of Lessee under, any (A) indenture, mortgage, lease, chattel mortgage, deed of trust, conditional sales contract, bank loan, credit agreement or other material agreement or instrument to which Lessee is a party or by which Lessee or its properties may be bound or affected other than the Lien under this Lease and Permitted Liens, or (B) Applicable Law; (iii) the execution and delivery by Lessee of this Lease, and the performance by Lessee of any of the transactions contemplated hereby do not require the consent or approval of, or registration with, or the giving or prior notice to any Person, including any federal, state or foreign governmental authority or entity having appropriate jurisdiction, except (A) any such consent, approval, notice registration, notice or action that has been obtained or as would not -18- affect the validity, enforceability or binding nature of this Lease, and (B) routine reporting requirements of the Securities and Exchange Commission, the FAA, the DOT or other Governmental Authorities after the Delivery Date; (iv) this Lease has been duly executed and delivered by Lessee, and this Lease, together with Lease Supplement No. 1 when executed and delivered by Lessee, will constitute legal, valid and binding obligations of Lessee, fully enforceable, except as set forth on Schedule 4(d)(iv), in accordance with their respective terms; (v) except as set forth on Schedule 4(d)(v), there are no pending or, to the knowledge of Lessee, threatened investigations, suits or proceedings against it or affecting it or its properties or operations, that, if determined adversely, would materially adversely affect it, the consummation of the transactions described in, or the performance of its obligations under, this Lease Agreement or affect the right, title or interest of Lessor in the Aircraft; (vi) except as set forth on Schedule 4(d)(vi), Lessee is not in violation of, or in default under, any law, ordinance, order, regulation or authorization of any Governmental Authority or any permit or certificate issued or granted by any Governmental Authority, that could have a material adverse effect on the business or condition (financial or otherwise) of Lessee; (vii) except as set forth in Schedule 4(d)(vii), Lessee is not in default, and no condition exists that with notice or lapse of time or both would constitute a default, under any mortgage, deed of trust, indenture, or other instrument or agreement to which it is a party, or by which it or any of its properties or assets may be bound, that would have a material adverse effect on any of the actions described in, or on its ability to perform its obligations under, this Lease, and it is not in breach of any Applicable Law that would have a material adverse effect on it, or any of the actions described in, or on its ability to perform its obligations under, this Lease; (viii) except for the filing for recordation of this Lease, and Lease Supplement No. 1, and the placing on the Aircraft and on each Engine of the plates containing the legends referred to in Section 7(f) hereof, no further filing or recording of this Lease or of any other document (including any financing statement under Article 9 of the Uniform Commercial Code) and no further action is necessary or advisable, under the laws of the United States of America or the State of Hawaii, in order to fully protect and establish Lessor's title to, and interest in, the Aircraft and the Engines as against Lessee or any third parties; (ix) the financial and written information furnished by Lessee in connection with this Agreement, and the transactions contemplated hereby does not contain any untrue statement of a material fact or omit to state a material fact; (x) No Default or Lessee Event of Default has occurred and is continuing hereunder; (xi) Lessee has assets in excess of $5,000,000.00 according to its most recent financial statement prepared in accordance with generally accepted accounting principles and is not a -19- "consumer" as that term is defined in Section 17.45 of the Texas Deceptive Trade Practices-Consumer Protection Act; (xii) Lessee is not a consumer as defined by Hawaii Revised Statutes Section 480-1 (1992 Supp.), and therefore has no right to bring an action or pursue damages based upon unfair or deceptive acts or practices under that Section; (xiii) Lessee is an air carrier under 14 C.F.R. Part 121; and (xiv) Lessor shall be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to its rights of repossession of the Aircraft, any Engines, any appliances or spare parts, each as defined in such Section 1110 of the Bankruptcy Code, pursuant to Section 14A hereof. (e) Lessor's Representations and Warranties. To induce Lessee to enter into this Lease Agreement, Lessor makes the following representations and warranties each of which shall survive the execution and delivery of this Lease Agreement and the Delivery Date: (i) the execution and delivery by Lessor of this Agreement have been duly authorized by all necessary corporate action on the part of Lessor, do not require any approval of stockholders of Lessor (or if such approval is required, such approval has been obtained), and the execution and delivery hereof, and/or the consummation by Lessor of the transactions contemplated hereby, and/or compliance by Lessor with any of the terms and provisions hereof, do not contravene any provisions of the Certificate of Incorporation or By-laws of Lessor, or result in any breach of, or constitute any default under, or result in the creation of any Lien upon any assets or property of Lessor under, any (A) indenture, mortgage, lease, chattel mortgage, deed of trust, conditional sales contract, bank loan, credit agreement or other material agreement or instrument to which Lessor is a party or by which Lessor or its properties may be bound or materially affected, which breach or default would have a material adverse effect on its ability to perform the transactions contemplated by this Agreement, or (B) any Applicable Law binding on Lessor, which breach or default would have a material adverse effect on its ability to perform the transactions contemplated by this Agreement; (ii) the execution and delivery by Lessor of this Agreement and the performance by Lessor of its obligations under this Agreement do not require the consent or approval of, or registration with, or the giving of prior notice to, any Person including any federal, state or foreign Governmental Authority or entity having appropriate jurisdiction, except (A) any such consent, approval, notice registration, notice or action that has been obtained or as would not affect the validity, enforceability or binding nature of this Agreement, and (B) routine reporting requirements of the Securities and Exchange Commission, the FAA, the DOT or other Governmental Authorities after the Effective Date; -20- (iii) this Agreement has been duly executed and delivered by Lessor and, assuming due authorization, execution and delivery by Lessee, constitutes the legal, valid and binding obligation of Lessor, fully enforceable against Lessor in accordance with its terms; (iv) Lessor is not in default, and no condition exists that with notice or lapse of time or both would constitute a default, under any material mortgage, deed of trust, indenture, or other instrument or agreement to which it is a party, or by which it or any of its properties or assets may be bound, that would have a material adverse effect on its ability to perform its obligations under this Agreement; (v) there are no pending or, to the knowledge of Lessor, threatened investigations, suits or proceedings against it or affecting it or its properties or operations, that, if determined adversely, would materially adversely affect the consummation by Lessor of the transactions described in, or the performance of its obligations under, this Agreement; (vi) Lessor is not in violation of, or in default under, any Applicable Law, of any Governmental Authority or any permit or certificate issued or granted by any Governmental Authority, that would have a material adverse effect on its ability to perform its obligations under this Agreement; (vii) Lessor is certificated under 14 C.F.R. Part 121 to perform Maintenance Services; and(viii)Lessor has the right to transfer possession and use of the Serviced Engines to Lessee. Section 5. Return of Airframe and Engines. (a) Return of Airframe and Serviced Engines. Upon the termination of this Lease at the end of the Term or pursuant to Sections 8 or 14A hereof, Lessee shall return the Return Aircraft by delivering the same, at its own expense, to Tulsa, Oklahoma (TUL), Marana, Arizona (MZJ), Amarillo, Texas (AMA), Dallas/Fort Worth International Airport (DFW), or Los Angeles International Airport (LAX) at Lessor's sole option. Upon the expiration of the Term or pursuant to Sections 8 or 14A, as the case may be, Lessee shall make the redelivered Return Aircraft available for inspection by Lessor and its representatives and designees. At the time of the return of the Return Aircraft: (i) the Return Aircraft shall be in compliance with the Return Conditions as set forth in Exhibit D; (ii) the Return Aircraft shall be in compliance with Lessee's FAA-approved maintenance program; (iii) each Item of Equipment and Engine shall be free and clear of all Liens (except Lessor's Liens); -21- (iv) the Return Aircraft shall be in the same passenger configuration as when delivered to Lessee, and each Item of Equipment shall be in as good an operating condition as when delivered to the Lessee on the Delivery Date, ordinary wear and tear excepted; (v) Upon the return of the Airframe, either at the end of the Term, pursuant to Section 8 hereof or pursuant to Section 14A, (i) Lessee shall have no obligation with respect to the amount of fuel or oil contained in the Airframe and all fuel or oil remaining on board the Airframe shall be the property of Lessor without charge and (ii) Lessee shall deliver or cause to be delivered to Lessor all logs, manuals and data, and inspection, modification and overhaul records required to be maintained with respect thereto under applicable rules and regulations of the FAA; (vi)Subject to the availability of storage space, upon the termination of the Lease as to the Aircraft, upon request of Lessor, Lessee shall provide Lessor with storage facilities for such Return Aircraft for a period not exceeding ninety (90) days in accordance with the applicable manufacturer's recommendations for storage and FAA regulations and shall arrange for insurance and maintenance (performance of such maintenance subject to the availability of Lessee's employees) for such Return Aircraft during such storage period. The Lessor shall pay Lessee's direct costs for such storage, maintenance and insurance without mark-up; and(vii)Any Serviced Engines returned by Lessee on any Return Aircraft are deemed to be Engines for the purpose of compliance with Return Conditions. So long as Lessor is maintaining the Aircraft pursuant to Exhibit E attached hereto, the Return Conditions set forth in Exhibit D (other than Sections 2F(a) and (b), 2k, 2M(2), (4) and (5) and 2P thereof and the obligation to return all documents required for return set forth in Exhibit D and the obligation to return the Aircraft clean) shall be deemed to be satisfied with respect to the Aircraft. (b) Return of Other Engines. In the event that any engine that is not a Serviced Engine shall be installed on the Airframe returned, such engine shall be an engine suitable to be a Replacement Engine hereunder. Upon return of the Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor with a full warranty bill of sale, in form and substance reasonably satisfactory to it, with respect to such engine and take such other action as may be reasonably requested in order that title to such engine may be duly and properly vested in Lessor to the same extent as the Engine replaced thereby. Upon conveyance of good title to such engine to Lessor, and upon full compliance by Lessee with its obligations hereunder, at Lessee's expenses, Lessor will transfer to Lessee all rights, title and interest originally conveyed to Lessor in an Engine constituting part of the Aircraft but not installed on the Airframe at the time of the return of the Airframe "as-is, where-is", free and clear of any Lessor's Liens but otherwise without recourse or warranty, express or implied to Lessee. Section 6. Liens. Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Airframe or any Engine or any Serviced Engine or any Parts, title thereto or any interest therein or in this Lease except (i) the respective rights of -22- Lessor and Lessee as herein provided, (ii) the rights of others under agreements or arrangements to the extent expressly permitted by the terms of Sections 7(e) and 7(h), (iii) Lessor's Liens, (iv) Liens for Taxes either not yet due or being contested in good faith (and the payment of which has been bonded to the satisfaction of Lessor) by appropriate proceedings so long as such proceedings do not involve any danger of the sale, forfeiture or loss of the Airframe or any Engine or any Serviced Engine or interest therein, (v) materialmen's, mechanics', workmen's, repairmen's, employees' or other like liens arising in the ordinary course of business for amounts the payment of which is either not yet delinquent or is being contested in good faith (and the payment of which has been bonded to the satisfaction of Lessor) by appropriate proceedings so long as such proceedings do not involve any danger of the sale, forfeiture or loss of the Airframe or any Engine or any Serviced Engine or interest therein, (vi) liens arising out of judgments or awards against Lessee with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and with respect to which there shall have been secured a stay of execution pending such appeal or proceeding for review, and (vii) the Pooling Agreement. Lessee shall promptly, at its own expense, take such action as may be necessary duly to discharge (by bonding or otherwise) any such Lien not excepted above if the same shall arise at any time. Section 7. Registration, Maintenance and Operation; Possession; Insignia. (a) Registration, Maintenance and Operation. Lessee, at its own cost and expense, shall: (i) maintain, service, repair, overhaul and test or cause to be maintained, serviced, repaired, overhauled and tested each Item of Equipment in accordance with Lessee's FAA approved maintenance program, so as to keep each Item of Equipment (A) in at least as good an operating condition as when delivered, ordinary wear and tear excepted, and within the acceptable limits of performance provided in the Manufacturer's manuals, (B) in conformity with any Manufacturer's operating manual, instructions and service bulletins and all mandatory service bulletins and such other non-mandatory Manufacturer's service bulletins reasonably requested by Lessor and by the Manufacturer, (C) in conformity with all AD's that are required to be performed with respect to any Item of Equipment during the Lease Term, (D) in conformity with the requirements of any other Governmental Authority having jurisdiction over the Item of Equipment, (E) in such condition that the Airframe and each Serviced Engine will comply with the FAA type certificate (as in effect from time to time) issued to the Manufacturer of the Airframe or such Serviced Engine and in compliance with a maintenance program approved by the FAA so long as such maintenance program conforms to the maintenance program (as in effect from time to time) established by the applicable FAA-approved maintenance review board report for airframes and engines of the same type, and (F) in such condition as may be necessary to enable the airworthiness certification of the In-Use Aircraft to be maintained in good standing at all times (and, in the case of any Engine when it is not installed on the Airframe, so as to keep such Engine serviceable at all times except when such Engine is awaiting overhaul, maintenance, repair, inspection or servicing in the normal course -23- of Lessee's FAA-approved or compatible maintenance program) under the rules and regulations of the FAA. All maintenance on the Airframe and Serviced Engines shall be performed by Lessee in accordance with the standards set forth above. Lessee shall promptly notify Lessor of any material change in the maintenance program in respect of the In-Use Aircraft from that in effect on the Delivery Date; (ii) not permit the Airframe, any Serviced Engine, or any Part to be maintained, serviced, repaired, overhauled, tested, used or operated in violation of any Applicable Law of any Governmental Authority having jurisdiction or in violation of any airworthiness certificate, license or registration relating to the Airframe, any Serviced Engine or any Part issued by any such Governmental Authority. In the event that any such Applicable Law requires alteration of the Airframe, any Serviced Engine, or any Part, Lessee will conform thereto or obtain conformance therewith at no expense to Lessor and will maintain the Airframe, such Serviced Engine or such Part in proper operating condition under such Applicable Laws; (iii) maintain or cause to be maintained all records, logs and other materials required by the FAA or other applicable Governmental Authority to be maintained in respect of the In-Use Aircraft; and(iv)promptly furnish to Lessor such information as may be required to enable Lessor to file any reports required to be filed by Lessor with any Governmental Authority because of Lessor's ownership of the Aircraft. (b) Additional Maintenance Provisions. Lessee covenants and agrees that it shall use, operate, maintain, service, repair, overhaul and test or cause to be used, operated, maintained, serviced, repaired, overhauled and tested, the Airframe, each Serviced Engine and any Part in at least as good manner and with at least as much care as used by Lessee with respect to other airframes, engines and parts of the same type or utility owned, leased or operated by Lessee and that it will not discriminate against the Airframe, any Serviced Engine or any Part (as compared to other airframes, engines or parts of the same type or utility owned, leased or operated by Lessee) in the use, operation, maintenance, service, repair, overhaul or testing of the Airframe, each Serviced Engine or any Part. (c) Territorial Restrictions on Use of Aircraft. Lessee agrees not to operate or locate any Item of Equipment, or suffer such Item to be operated, (A) unless such Item is covered by insurance as required by the provisions of Section 9, (B) contrary to the terms of the insurance required by the provisions of Section 9 of this Lease, (C) in any war zone or recognized or threatened area of hostilities unless covered to Lessor's satisfaction by war risk insurance, (D) to or from any airport which is at such time the subject of a prohibition order of any Governmental Authority of the United States or of any international authority or treaty organization of which the United States is a member, or (E) to or from any airport that the aircraft leased by Lessee from Lessor pursuant to the Long-Term Lease are not operated to or from. (d) Obligations Absolute. Nothing herein, including Exhibit E hereto, shall be deemed to affect Lessee's obligations pursuant to this Section 7 or to impose on Lessor the -24- obligation to pay for or be responsible for the payment of any maintenance, repair or overhaul. It is understood and agreed that Lessee shall be responsible for all of its obligations under this Section 7 hereof, regardless of the performance or non-performance by Lessor of its obligations described in Exhibit E hereto; provided that nothing contained in this Lease shall prohibit Lessee from maintaining a separate action against Lessor for any default by Lessor of its obligations described on Exhibit E attached hereto. So long as Lessor is required to maintain the Aircraft pursuant to Exhibit E hereto, the maintenance requirements of this Section 7 shall be deemed to have been satisfied to the extent such maintenance has been provided by Lessor pursuant to Exhibit E hereto. (e) Possession. Except for the delivery of the Airframe or any Serviced Engine to Lessor pursuant to Exhibit E hereto or delivery of any Serviced Engines pursuant to the Pooling Agreement, Lessee shall not sublease or otherwise in any manner deliver, transfer or relinquish possession of the Airframe, and shall not, without the prior written consent of Lessor, sublease or otherwise in any manner deliver, transfer or relinquish possession of any Serviced Engine or install any Serviced Engine, or permit any Serviced Engine to be installed, on any airframe other than the Airframe. (f) Registration and Insignia. Lessee shall maintain in the cockpit of the Airframe adjacent to the airworthiness certificate therein the metal nameplate bearing the Lessor's name, as owner and lessor. Lessee shall affix as promptly as practicable after the Delivery Date and thereafter to maintain on each Engine a metal nameplate bearing the inscription "AMERICAN AIRLINES, INC., OWNER AND LESSOR". Lessee may place its customary colors and insignia on the Airframe or Engines so long as no polished portion of the In-Use Aircraft is painted. The placement of and colors or insignia on the In-Use Aircraft shall be performed by Lessor. Provided that Lessor shall (i) remain a citizen of the United States of America as defined in Section 40102(a)(15) (former 101(16)) of the Act and (ii) cooperate with the Lessee, Lessee shall maintain continued registration of the Airframe in Lessor's name under the Act. Except as set forth in Section 7(h) below, no additional modifications may be made to the Aircraft or any Serviced Engines without the prior written consent of Lessor. (g) Replacement of Parts. Subject to the provisions of Exhibit E hereof, Lessee at its own cost and expense, shall promptly replace (or cause to be replaced) all Parts which may from time to time be incorporated or installed in or attached to the Airframe or any Serviced Engine and which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, except as otherwise provided in Section 8. In addition, Lessee may, at its own cost and expense, remove or cause to be removed in the ordinary course of maintenance, service, repair, overhaul or testing, any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damages beyond repair or permanently rendered unfit for use; provided that Lessee, except as otherwise provided in Section 8, will, at its own cost and expense, replace such Parts as promptly as possible. All replacement Parts shall be free and clear of all Liens (except for Permitted Liens), and shall be in as good operating condition as, and shall have a value and -25- utility at least equal to, the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof. All Parts at any time removed from the Airframe or any Serviced Engine shall remain the property of Lessor, no matter where located. Immediately upon any replacement Part becoming incorporated or installed in or attached to the Airframe or any Serviced Engine as above provided, without further act, (i) title to the replacement Part shall thereupon vest in Lessor free and clear of all Liens (except for Permitted Liens); and (iii) such replacement Part shall become subject to this Lease and be deemed part of the Airframe or such Serviced Engine for all purposes to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Serviced Engine. Any Parts replaced or supplied by Lessor pursuant to Exhibit E attached hereto shall be deemed to satisfy the conditions of this Section. (h) Alterations, Modifications and Additions. Subject to the provisions of Section 7(a) hereof, and, in addition, so long as Lessor is maintaining the Aircraft pursuant to Exhibit E attached hereto, in compliance with Exhibit E attached hereto, Lessee, at its own expense, will make (or cause to be made) such alterations and modifications in and additions to the Airframe and the Serviced Engines as may be required from time to time to meet the standards of the FAA or other Governmental Authority having jurisdiction. In addition and subject to the terms of Exhibit E hereto, Lessee, at its own expense, may from time to time make (or cause to be made) such alterations and modifications in and additions to the Airframe or any Serviced Engine as Lessee may deem desirable in the proper conduct of its business, including, without limitation, removal of Parts which Lessee deems obsolete or no longer suitable or appropriate for use in the Airframe or any Serviced Engine, provided that (i) no such alteration, modification, addition or removal shall diminish the fair market value, utility or remaining useful life of the Airframe or such Serviced Engine, or impair the condition or airworthiness thereof below the value, utility, condition and airworthiness thereof immediately prior to such alteration, modification, addition or removal assuming the Airframe or such Serviced Engine was then of the value and utility and in the condition and airworthiness required to be maintained by the terms of this Lease; and (ii) no structural modification shall be made without the prior written consent of Lessor. Title to all Parts incorporated or installed in or attached or added to the Airframe or any Serviced Engine as the result of such alteration, modification or addition shall, without further act, vest in Lessor. Notwithstanding the foregoing sentence of this Section 7(h), so long as no Default or Lessee Event of Default shall have occurred and be continuing, Lessee may, at any time during the Term, remove any Part, provided that (i) such Part is in addition to, and not in replacement of or substitution for, (x) any Part originally incorporated or installed in or attached to the Airframe or any Serviced Engine at the time of delivery thereof hereunder, or (y) any Part in replacement of or substitution for any such Part, (ii) such Part is not required to be incorporated or installed in or attached or added to the Airframe or any Serviced Engine pursuant to the terms of this Section 7(h), and (iii) such Part can be removed from the Airframe or such Serviced Engine without causing material damage to the Airframe or such Serviced Engine and without diminishing or impairing the value, utility, condition or airworthiness required to be maintained by the terms of this Lease which the Airframe or such Serviced Engine would have had at such time had such alteration, modification or addition not occurred. -26- Upon the removal by Lessee of any Part as provided in the immediately preceding sentence, title thereto shall, without further act, vest in Lessee and such Part shall no longer be deemed part of the Airframe or such Serviced Engine from which it was removed. Any Part not removed by Lessee as provided in such sentence prior to the return of the Airframe or such Serviced Engine to Lessor hereunder shall remain the property of Lessor. (i) Manuals and Technical Records. Lessee undertakes that: (1) Throughout the Lease Term, Lessee shall keep, or cause to be kept, accurate, complete and current records of all flights made by the Aircraft and each Serviced Engine and of all maintenance and repairs carried out to the Airframe and each Serviced Engine and shall allow the Lessor or its agents to examine and make reasonable copies of the records at any reasonable time upon giving reasonable notice to Lessee. (2) The records so kept shall conform with Lessee's approved maintenance program. (3) The records so kept shall be part of the manuals and technical records and shall be the property of Lessor and that at the end of the relevant Lease Term or upon the repossession or redelivery of the Aircraft, Lessee shall deliver the relevant records to the Lessor, provided that Lessee shall be entitled to take and retain copies thereof. (4) The Lessee shall provide to the Lessor or its authorized representative each month a status report containing engine and airframe utilization in hours and cycles, and other information which Lessor may reasonably request. (5) All original records shall be maintained in their original paper form and shall be the property of the Lessor upon lease termination. (j) Maintenance and Usage. Except as otherwise expressly provided herein, throughout the Lease Term, Lessor and Lessee each agrees to perform its obligations, duties and liabilities set forth in Exhibit E attached hereto. Section 8. Loss, Destruction, Requisition, Etc. (a) Event of Loss to the Aircraft. Upon the occurrence of an Event of Loss with respect to the In-Use Aircraft Lessee shall (i) forthwith (and in any event within five days after such occurrence) give to Lessor written notice of such Event of Loss and (ii) comply with Section 8(a)(1): (1) Payment of Stipulated Loss Value and Rent. On or before the Business Day before the earlier of (i) the 60th day following the date of the occurrence of such Event of Loss -27- with respect to the In-Use Aircraft; or (ii) five days following the receipt of insurance proceeds with respect to such occurrence (the "Loss Payment Date"), Lessee shall pay to Lessor, in the manner and in funds of the type specified in Section 3(e), an amount equal to the sum of (i) the Stipulated Loss Value for the In-Use Aircraft calculated as of the Basic Rent Payment Date next following the Event of Loss (or if the date of such Event of Loss is a Basic Rent Payment Date, as of such Basic Rent Payment Date (the "Loss Computation Date")) less any payment of Basic Rent paid by Lessee after the date of such Event of Loss and on or prior to the Loss Payment Date, (ii) any installment of Basic Rent due and owing prior to the Loss Payment Date, (iii) all Supplemental Rent then due and owing for the Aircraft on the Loss Payment Date, and (iv) interest on the amounts described in clause (i) and (ii) hereof from the Loss Computation Date to the Loss Payment Date at the Prime Rate. (2) Termination Upon Payment of Stipulated Loss Value. Upon payment in full of the amounts required pursuant to Section 8(a)(1), (i) Lessee's obligation to pay Basic Rent hereunder with respect to the Aircraft for any period commencing after the Loss Payment Date shall terminate (but Lessee shall remain liable for all payments of Rent, including Basic Rent and Supplemental Rent, including, without limitation, the Supplemental Rent pursuant to Exhibit E hereto, for the Aircraft, due through and including the date of such payment), (ii) the Term for the Aircraft shall end, and (iii) Lessor shall (subject to the rights of any insurer) transfer to Lessee all of Lessor's right, title and interest in the Airframe and the Serviced Engines, if any, which were subject to the Event of Loss "as-is, where-as", free and clear of Lessor's Liens, but otherwise without recourse or warranty, express or implied. (b) Event of Loss to a Serviced Engine. (1) Event of Loss. Upon the occurrence of an Event of Loss with respect to a Serviced Engine not then installed on the Airframe, or upon the occurrence of an Event of Loss with respect to a Serviced Engine installed on the Airframe but not involving an Event of Loss with respect to the Airframe, Lessee shall give Lessor prompt written notice thereof and shall: (i) within sixty (60) days after the occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as replacement for the Serviced Engine with respect to which such Event of Loss occurred, title to a replacement Serviced Engine free and clear of Liens (other than Permitted Liens) or (ii) if mutually agreed between Lessor and Lessee, Lessee shall in lieu of replacing such Serviced Engine pursuant to this Section 8(b)(1), pay or cause to be paid to Lessor hereunder, within ten (10) days after such agreement, the Stipulated Loss Value for such Serviced Engine, computed as of the Basic Rent Payment Date next following the date of such Event of Loss. (2) Conditions, Lessee's Obligations. Lessee's right to replace contemplated by Section 8(b)(1) shall be subject to the fulfillment, in addition to the requirements contained in Section 9(b), of the conditions precedent set forth below: -28- (i) No Default or Lessee Event of Default shall be continuing on the replacement date; (ii) Lessee will promptly (all writings referred to below to be reasonably satisfactory in form and substance to Lessor): (a) furnish Lessor a bill of sale duly conveying to Lessor such replacement Serviced Engine, together with such evidence of title as Lessor may reasonably request; (b) if the replaced Serviced Engine is an Engine hereunder, cause a Lease Supplement, subjecting such Replacement Engine to this Lease, duly executed by Lessee, to be delivered to Lessor for execution and, upon such execution, to be duly filed for recordation with the FAA; (c) furnish Lessor with such evidence of compliance with the insurance provisions of Section 9 with respect to such replacement Serviced Engine as Lessor may reasonably request; (d) furnish Lessor with a certificate or certification of a qualified aircraft engineer reasonably satisfactory to Lessor certifying that such replacement Serviced Engine has a value, utility and remaining useful life at least equal to the Serviced Engine so replaced (assuming such Serviced Engine was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss), provided that in addition to such certificate or certification, Lessor shall have the right to inspect such replacement Serviced Engine and shall be reasonably satisfied that it has a value, utility and remaining useful life at least equal to the Serviced Engine so replaced (assuming such Serviced Engine was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss); and (e) On or before such replacement date, Lessee shall (i) furnish Lessor with an opinion of independent counsel reasonably satisfactory to Lessor, that Lessor will suffer no adverse tax consequences as a result of such replacement or (ii) have agreed to pay to Lessor as an indemnity such amount or amounts as may be necessary to hold harmless, on an after-tax basis, Lessor against any and all adverse tax consequences as may result from such replacement and shall have provided to Lessor satisfactory assurances regarding Lessee's ability to pay such indemnity; and(f)take such other actions and furnish such other certificates and documents as Lessor may reasonably request in order that such replacement Serviced Engine be duly and properly titled in Lessor and leased hereunder to the same extent as the Serviced Engine replaced thereby. (3) Event of Loss to an Engine, Not a Serviced Engine. Upon the occurrence of an Event of Loss to an Engine which is not a Serviced Engine, Lessor shall give Lessee prompt written notice thereof and shall within sixty (60) days after the occurrence of such Event of Loss, lease hereunder to Lessee a Replacement Engine with respect to such Engine to which such Event of Loss occurred, free and clear of Liens (other than Permitted Liens). Lessor shall -29- furnish Lessee with a certificate or certification of a qualified aircraft engineer reasonably satisfactory to Lessee certifying that such Replacement Engine has a value, utility and remaining useful life at least equal to the Engine so replaced, provided that in addition to such certificate or certification, Lessee shall have the right to inspect such Replacement Engine and shall be reasonably satisfied that it has a value, utility and remaining useful life at least equal to the Engine so replaced (assuming such Engine was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss). (4) Conditions, Lessor's Obligations. Lessor's obligation to replace contemplated by Section 8(b)(3) shall be subject to the fulfillment of the conditions precedent that Lessee and Lessor will promptly: (i) cause a Lease Supplement, subjecting such Replacement Engine to this Lease, duly executed by Lessee and Lessor, to be delivered to Lessor for execution and, upon such execution, to be duly filed for recordation with the FAA; and (ii) take such other actions and furnish such other certificates and documents as Lessor may reasonably request in order that such Replacement Engine be duly and properly titled in Lessor and leased hereunder to the same extent as the Engine replaced thereby; provided that Lessor shall have no obligation to deliver possession of a Replacement Engine to Lessee so long as a Default or Lessee Event of Default has occurred and is continuing hereunder. (5) Recordation and Opinions. Promptly after the recordation of the Lease Supplement covering any such Replacement Engine pursuant to the Federal Aviation Act (or in case the Aircraft was at the time of the Event of Loss subject to registration under the laws of a country other than the United States, pursuant to the laws of such country), Lessee shall cause to be delivered to Lessor an opinion of counsel reasonably satisfactory to Lessor as to the due recordation of such Lease Supplement pursuant to the Act (or such other laws). (6) Conveyance; Replacement Engine. Upon compliance by Lessee with the terms of this Section 8(b), Lessor will (subject to the rights of any insurer) transfer (other than in the case of the replacement of an Engine which was not upon the occurrence of the Event of Loss, a Serviced Engine) to Lessee all of Lessor's right, title and interest as of the delivery date of such replacement Serviced Engine in the replaced Serviced Engine, "as-is, where-is", free and clear of Lessor's Liens but otherwise without recourse or warranty, express, implied or otherwise. (7) No Reduction of Basic Rent. No Event of Loss with respect to a Serviced Engine or an Engine under the circumstance contemplated by this Section 8(b) shall result in any reduction of Basic Rent. Upon the payment by Lessee to Lessor of the Stipulated Loss Value of any Serviced Engine, Lessor, shall provide Lessee with a replacement Serviced Engine.(8)If -30- Lessor furnishes the replacement Serviced Engine, then the conditions set forth in Sections 8(b)(2)(ii)(a) and (d) shall be deemed to be fulfilled. (c) Application of Payments for Requisition of Title. Any payments (other than insurance proceeds the application of which is provided for in Section 9) received at any time by Lessor, Lessee or from any Governmental Authority or other Person with respect to any Event of Loss, other than a requisition for use by the Government not constituting an Event of Loss, will be applied as follows: (1) Replacement of Serviced Engine. If such payments are received as a result of an Event of Loss to a Serviced Engine under circumstances contemplated by Section 8(b), and the Serviced Engine is replaced, so much of such payments remaining after reimbursement of Lessor for reasonable costs and expenses, if any, theretofore incurred by Lessor related to such replacement shall be paid over to, or retained by, Lessee, provided that Lessee shall have fully performed, or concurrently therewith will perform, the terms of Section 8(b) with respect to the Event of Loss for which such payments are made. (2) Loss of Airframe. If such payments are received as a result of an Event of Loss to the Airframe or the Airframe or Serviced Engines then installed thereon, so much of such payments as shall not exceed the amounts payable pursuant to 8(a)(1) shall be applied to pay such amounts (or reimburse Lessee for its payment of such amounts), and the balance, if any, of such payment remaining thereafter shall, first, to the extent of the value of Lessee's interest in such payment, be paid over to Lessee, and, second, the remainder, if any, shall be retained by Lessor. For purposes of this clause (2), the value of Lessee's interest in a payment shall be the amount of the Basic Rent due in regard to the leasing of the Aircraft for the remainder of the applicable Term. (d) Requisition of Use of the Airframe. In the event of the requisition for use of the Airframe or any Serviced Engines installed on the Airframe during the Term not constituting an Event of Loss including without limitation, pursuant to CRAF, Lessee shall promptly notify Lessor of such requisition and all of Lessee's obligations under this Lease shall continue to the same extent as if such requisition had not occurred, except to the extent that any failure or delay in Lessee's performance or observance of such obligations (other than obligations for the payment of Rent) is caused by such requisition. Unless Lessor elects to treat such requisition as an Event of Loss, Lessee shall be obligated to return the Airframe and such Serviced Engines to Lessor pursuant to, and in all other respects in compliance with the provisions of, Section 5 promptly at the later of the end of the Term or, if Lessor consents, the date of such return by any such Governmental Authority. All payments received by Lessor or Lessee from any Governmental Authority for the use of the Airframe and Serviced Engines during the Term (so long as no Lessee Event of Default shall have occurred and be continuing) shall be paid over to, or retained by, Lessee; and all payments received by Lessor or Lessee from the Government for the use of the Airframe and such Serviced Engines after the Term (or so long as a default or a Lessee Event of Default shall have occurred and be continuing) shall be paid over to, or -31- retained by, Lessor, unless such requisition for use by any Governmental Authority is treated as an Event of Loss in which case all such payments shall be applied in accordance with Section 8(c)(2). (e) Investment of Proceeds Pending Replacement. If an Event of Loss shall occur with respect to a Serviced Engine and the provisions of Section 8(b) apply, or Lessor receives any insurance proceeds pending completion of repairs by Lessee to the Airframe or a Serviced Engine, Lessor shall, if requested by Lessee and if no Lessee Event of Default shall have occurred and be continuing, use its reasonable efforts to invest, at the request, direction and risk of Lessee, any payments received theretofore or thereafter with respect to the Airframe or such Serviced Engine from any insurer under insurance required to be maintained hereunder or from Lessee or from any Governmental Authority or other person with respect to the applicable Event of Loss or otherwise. Any such investments shall be in obligations of the United States or obligations guaranteed as to principal and interest by the Government or certificates of deposit issued in the United States by a commercial bank or banks each having a combined capital, surplus, and undivided profits of at least $250,000,000, in each case having a stated maturity not later than one year from the date of the acquisition thereof by Lessor. Lessee will pay to Lessor on demand the amount of any loss incurred in connection with any such investment. All profits and losses on such investments and any taxes in respect thereof shall be for the account of Lessee. In order to make the payments to Lessee provided for in Section 8 or 9 hereof, Lessor is authorized to sell any obligations purchased as aforesaid; and Lessor shall not be required to make such payments to Lessee until Lessor shall have had a reasonable time to sell such obligations and to obtain the sale proceeds therefrom. (f) Application of Payments During Default. Any amount for requisition of title or requisition of use of any Item of Equipment referred to in this Section 8 which is payable to or retainable by Lessee shall not be paid to or retained by Lessee if at the time of such payment or retention a Default or a Lessee Event of Default shall have occurred and be continuing, but shall be held by or paid to Lessor and applied against the obligations of Lessee under this Lease, and at such time as there shall not be continuing any such Default or Lessee Event of Default, such amount shall be paid to Lessee to the extent not previously applied in accordance with this sentence. Section 9. Insurance. (a) Liability Insurance. During the Lease Term and during the next three years thereafter, Lessee shall maintain (or cause to be maintained) at no expense to Lessor the following insurance, on a worldwide basis with no territorial restrictions, except as may be specifically consented to from time to time by Lessor, such consent not to be unreasonably withheld, with insurers of recognized responsibility approved by Lessor through nationally recognized aviation insurance brokers: comprehensive aviation liability insurance (including third party legal liability, public liability, passenger legal liability, personal injury liability, passenger's baggage and personal effects (checked and unchecked) liability, cargo legal liability, -32- mail legal liability, premises liability, products/completed operations, hangarkeepers (ground and in-flight) liability and war risks liability (Lloyd's of London Clause AV.52 or its equivalent), insurance of the indemnification obligations set forth in Section 15 hereof, and property damage liability insurance with respect to the In-Use Aircraft in an amount not less than that carried by Lessee on similar equipment owned or leased by Lessee, provided that such liability insurance shall in no event be less than $500,000,000 for any one accident, or series of accidents arising out of any one event. Lessee shall not self-insure with respect to any public liability coverage with the exception of baggage, cargo and mail liabilities. Any policies of insurance carried in accordance with this Section 9(a) and any policies taken out in substitution or replacement for any of such policies shall: (1) name Lessor and its Affiliates and directors, officers, employees, servants and agents as an additional insured (each such Person an "Additional Insured"), as their respective interests may appear; (2) provide that in respect of the interest of each Additional Insured in such policies, the insurance shall not be invalidated by any action or inaction of Lessee or any other insured, and shall insure each Additional Insured regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee; (3) provide that if the insurers cancel such insurance for any reason whatever, or if there is any substantial change in policy terms and conditions or coverage, such cancellation, lapse or change shall not be effective as to any Additional Insured until thirty days (seven days, or such other period as may from time to time be customarily obtainable in the industry, in the case of war risk and allied perils coverage) after receipt by such Additional Insured of written notice from such insurers of such cancellation, lapse or change; and (4) provide that no Additional Insured shall have any obligation or liability for premiums, commissions, assessments or calls in connection with such insurance. Each liability policy shall (i) be primary without right of contribution from any other insurance which is carried by any Additional Insured, (ii) expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering any Additional Insured, and (iii) waive any right of the insurers to any subrogation, set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of any Additional Insured or Lessee to the extent of any moneys due to such Additional Insureds. In the case of the requisition for use of the In-Use Aircraft or any Serviced Engine by the Government, a valid agreement by the Government to indemnify Lessee in a manner satisfactory to Lessor against any of the risks which Lessee is required hereunder to insure against in an amount at least equal to the amount of insurance required to be maintained for the Aircraft under this Section 9 from time to time shall, to the extent such indemnity from the Government complies with the requirements set forth in Section 7(g) hereof, be considered adequate insurance to the extent of the risks and in the amounts that are the subject of any such agreement to indemnify. (b) All Risk Hull Insurance. During the relevant Term, Lessee shall maintain (or cause to be maintained) at no expense to Lessor the following insurance, on a worldwide basis with no territorial restrictions with insurers of recognized responsibility (A) all-risks (ground, taxing, flight and ingestion) hull insurance covering the In-Use Aircraft; and (B) all risks (including transit) Aviation Spare Parts (including Engine and Equipment) Insurance and (C) at all times that any In-Use Aircraft or any Serviced Engine is not covered by the insurance -33- described in Section 9(c), coverage against the perils of (i) strikes, riots, civil commotions or labor disturbances, (ii) any vandalism, malicious act or act of sabotage, and (iii) hijacking, or any unlawful seizure or wrongful exercise of control of the In-Use Aircraft or crew in flight made by any person or persons on board the In-Use Aircraft without the consent of the insured other than hijacking committed by persons engaged in a program of irregular warfare for terrorist purposes, in each case to the extent insured by the standard "buy-back" provisions to the Airline War Exclusion Clause (AV48B) or its equivalent. Such insurance shall be for an Agreed Value basis which shall be in an amount not less than the Stipulated Loss Value. With the consent of Lessor, which will not be unreasonably withheld, Lessee may self-insure only by way of standard market deductibles, the risks required to be insured against pursuant to the preceding two sentences in such amounts as are acceptable to Lessor in its sole discretion. Any policies carried in accordance with this Section 9(b) covering the In-Use Aircraft and any policies taken out in substitution or replacement for any such policies shall (1) name Lessor as loss payee as its interests may appear; (2) provide that the entire amount of any loss shall be paid to Lessor or its order; (3) provide that if such insurance is canceled for any reason whatsoever, or any substantial change is made in policy terms, conditions or coverage, or the same is allowed to lapse for non-payment of premium, such cancellation, change or lapse shall not be effective as to Lessor until thirty days (seven days or such other period as may from time to time be customarily obtainable in the industry, in the case of war risk and allied perils coverage), after receipt by Lessor of written notice from such insurers of such cancellation or lapse or change in policy terms, conditions or coverage; (4) provide that losses shall be adjusted with Lessor; (5) provide that in respect of Lessor, such insurance shall not be invalidated by any action or inaction of Lessee or any other insured and shall insure such parties regardless of any breach contained in such policies by Lessee or any other insured; (6) be primary without right of contribution from any other insurance which is carried by Lessor with respect to its interest in the In-Use Aircraft; (7) waive any right of subrogation of the insurers against Lessor; (8) waive any right of the insurers to set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (9) provide that Lessor shall have no obligation or liability for premiums, commissions, assessments or calls in connection with such insurance. If the insurance required to be carried pursuant to Sections 9(b) and 9(c) is effected under separate policies, the insurers shall agree that if a disagreement arises as to whether a claim is covered by the all-risk insurance or the war-risk insurance, the insurers will settle such claims on the basis of a 50-50 claim funding arrangement. In the case of the requisition for use of the In-Use Aircraft or any Serviced Engine by the Government, a valid agreement by the Government, satisfactory to Lessor, to indemnify Lessee against any of the risks which Lessee is required hereunder to insure against in an amount at least equal to the amount of insurance required to be maintained for the In-Use Aircraft under this Section 9 from time to time shall, to the extent such indemnity from the Government complies with the requirements set forth in Section 7(g) hereof, be considered adequate insurance to the extent of the risks and in the amounts that are the subject of any such agreement to indemnify. -34- (c) War-Risk Insurance. During the Lease Term, Lessee shall maintain (or cause to be maintained), at no expense to Lessor War-Risk and Allied Perils Aviation Hull (including Spare Parts, Engines and Equipment) Insurance on an Agreed Value basis, which shall be not less than the Stipulated Loss Value. Such policy shall (i) insure against those perils excluded under Lessee's All Risks Hull and Spares policy(ies) by virtue of Lloyd's of London Exclusion Clause AVN.48B ("War, Hijacking and Other Perils Exclusion Clause") or its equivalent (other than paragraph (b) thereof relating to nuclear perils), (ii) provide for payment in U.S. Dollars, (iii) contain a 50/50 clause in accordance with Lloyd's of London Aviation Clause AVS.103 or its equivalent, (iv) be endorsed to include coverage for confiscation, requisition, nationalization, seizure, restraint, detention, appropriation, requisition of title or for use by any Governmental Authority (except for the government of registry) of the In-Use Aircraft, (v) provide coverage on a worldwide basis (subject only to such geographical limits as may be imposed by the hull, war and allied perils insurance) and (vi) be endorsed to include provisions identical to those contained in clauses (1), (2), (3), (4), (5), (6), (7), (8), and (9) of Section 9(b). (d) Application of Proceeds. Provided no Lessee Event of Default shall have occurred and be continuing, all insurance payments received under policies required to be maintained by Lessee pursuant to Section 9 as the result of the occurrence of an Event of Loss shall be applied in accordance with Section 8(c)(1) or Section 8(c)(2). Insurance payments relating to any property damage or loss to the In-Use Aircraft or any Serviced Engine not constituting an Event of Loss with respect thereto will be applied in payment for repairs or for replacement property in accordance with the terms of Section 8(c) hereof, if not already paid for by Lessee, and any balance remaining after compliance with such Sections with respect to such loss shall be paid to Lessee. Any amount representing proceeds of insurance required to be maintained by Lessee hereunder which is payable to or retainable by Lessee shall not be paid to or retained by Lessee if at the time of such payment a Default or a Lessee Event of Default shall have occurred and be continuing, but shall be held by or paid to Lessor as security for the obligations of Lessee under this Lease and such amount (to the extent not previously applied against such obligations) shall be paid to Lessee at such time as there no longer exists any Default or Lessee Event of Default. (e) Reports, Etc. On or before the Delivery Date (except, with respect to the insurance required by Section 9(j), prior to the date hereof), and no less than five (5) Business Days prior to the expiration of any insurance required pursuant to this Section 9, Lessee shall furnish to Lessor (i) appropriate certification by each insurer or its authorized signatories and (ii) a report signed by a firm of independent insurance brokers, then retained by Lessee, attaching certificates evidencing the insurance and reinsurance then carried and maintained with respect to the In-Use Aircraft and Allocated Parts and stating that in the opinion of such firm the insurance then carried and maintained with respect to the In-Use Aircraft and Serviced Engines or Parts complies with the terms hereof. Lessee will cause such firm to advise Lessor in writing promptly of any material default in the payment of any premium and of any other act or omission on the part of Lessee of which they have knowledge which might invalidate or render unenforceable, in whole or in part, any insurance on the In-Use Aircraft or any Serviced -35- Engine or Parts. Lessee also shall cause such firm to advise Lessor in writing at least thirty (30) days (seven (7) days, or such other period as may from time to time be customarily obtainable in the industry, in the case of war risk and allied perils coverage), prior to the expiration or termination of any insurance policy carried or maintained with respect to the In-Use Aircraft or any Serviced Engine any Parts pursuant to this Section 9. (f) Additional Insurance. Lessee at its option and at its sole cost and expense may obtain insurance with respect to its interest in the In-Use Aircraft, provided that such insurance does not prevent Lessee from obtaining the insurance required by this Section 9; and provided further, that such additional insurance does not prevent Lessor from obtaining insurance for its own account with respect to the In-Use Aircraft in excess of Stipulated Loss Value. No such insurance shall be subject to this Section 9. Lessor may carry for its own account at its sole cost and expense insurance with respect to its interest in the In-Use Aircraft but in no event shall such insurance prevent Lessee from carrying insurance required by this Section 9 or adversely affect the cost thereof. (g) Notice from Lessee; No Modification. Lessee shall forthwith notify Lessor of any event which may give rise to a claim under the insurance required pursuant to this Section 9. (h) Reinsurance. In the event of any reinsurance of the risks set forth in Section 9(b) the following clause shall be incorporated into such reinsurance policies: "Reinsurers hereby agree that notwithstanding the insolvency, liquidation, bankruptcy, dissolution of or similar proceedings affecting Insurers in respect of a total loss or other claim whereas provided by the Lease such claim will be paid to the person or persons named as loss payee under the primary insurance and that Reinsurers shall in lieu of payment to the Insured, its successors in interest and assigns, pay to the person named as loss payee under the primary insurance that portion of any loss due for which the reinsurers would otherwise be liable to pay the Insurers (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers shall (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith, subject to such clause not contravening any law of the government of registration." (i) Insurance of Lessor. Lessor agrees to maintain throughout the Lease Term Hangarkeeper's Legal Liability Insurance that, in accordance with the terms and conditions of the policy, covers the Serviced Aircraft during periods in which the Serviced Aircraft is within custody and control of Lessor for an amount not less than the Stipulated Loss Value. (j) Insurance Relating to Allocated Parts. During the Term, Lessee shall maintain (or cause to be maintained) at no expense to Lessor the following insurance with respect to the Allocated Parts with insurers of recognized responsibility satisfactory to Lessor: (A) All Risks Property Insurance and (B) coverage against the perils of (i) strikes, riots, civil commotions or labor disturbances or (ii) vandalism, malicious acts or acts of sabotage. Such insurance shall -36- be for an aggregate amount of no less than $1,600,000. With the written consent of Lessor, Lessee may self-insure, only by way of deductibles, the risks required to be insured against pursuant to the preceding two sentences in such amounts as are acceptable to Lessor in its sole discretion. Any policies carried in accordance with this Section 9(j) covering the Allocated Parts and any policies taken out in substitution or replacement for any such policies shall (1) name Lessor as sole loss payee; (2) provide that the entire amount of any loss shall be paid to Lessor or its order; (3) provide that if such insurance is canceled for any reason whatsoever, or any substantial adverse change is made in policy terms, conditions or coverage, or the same is allowed to lapse for non-payment of premium, such cancellation, change or lapse shall not be effective as to Lessor until thirty (30) days after receipt by Lessor of written notice from such insurers of such cancellation or lapse or change in policy terms, conditions or coverage; (4) provide that losses shall be adjusted with Lessor; (5) provide that in respect of Lessor, such insurance shall not be invalidated by any action or inaction of Lessee or any other insured and shall insure such parties regardless of any breach contained in such policies by Lessee or any other insured; (6) waive any right of subrogation of the insurers against Lessor; (7) waive any right of the insurers to set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of Lessor or Lessee to the extent of any moneys due to Lessor; and (8) provide that Lessor shall not have any obligation or liability for premiums, commissions, assessments or calls in connection with such insurance. Lessee shall bear the risk of loss to the extent of any deficiency in any effective insurance coverage with respect to loss or damage to all or any portion of the Allocated Parts. Section 10. Inspection; Financial Information. (a) Inspection. During the Lease Term, Lessee shall furnish to Lessor such information concerning the location, condition, use and operation of the In-Use Aircraft as such party may reasonably request. Lessee shall permit any person designated in writing by Lessor, at such Lessor's expense, to visit and inspect (at any reasonable time, provided that such inspection shall not unreasonably interfere in any material respect with Lessee's business operations or operation or maintenance of the In-Use Aircraft) the In-Use Aircraft and the records maintained in connection therewith and, at such designating party's expense, to make copies of such records as such party may reasonably designate. Lessor shall not have any duty to make any such inspection and shall not incur any liability or obligation by reason of making or not making any such inspection. Any such inspection of the In-Use Aircraft shall be a visual, walk-around inspection which may include going on board the In-Use Aircraft and shall not include opening any panels, bays, or the like, provided that any such designee of Lessor shall be entitled to be present during any maintenance check of the In-Use Aircraft at which any panels, bays or the like may be opened and shall have the right to inspect such items during such maintenance check. Upon written request from Lessor, Lessee shall provide such requesting party with the anticipated dates of any scheduled major maintenance checks (including any "C", heavy "C" or "D" check) occurring within the six-month period following such request. -37- (b) Financial Information. Lessee also agrees to furnish to Lessor during the Lease Term: (1) as soon as possible and in any event within ten (10) days after the occurrence of a Default or Lessee Event of Default, a certificate of Lessee, signed by a vice president of Lessee, setting forth in detail the nature of such Default or Lessee Event of Default and the action which the Lessee proposes to take with respect thereto; (2) from time to time, such information as Lessor may reasonably request with respect to the operations of Lessee in order to determine whether the covenants, terms and provisions of this Lease have been complied with by Lessee; (3) such information as may be required to enable Lessor to file any reports required to be filed with any Governmental Authority because of Lessor's ownership of the Items of Equipment; (4) as soon as available, quarterly and year-end unaudited Reports of Financial and Operating Statistics for Large Certified Air Carriers (U.S. Department of Transportation Form 41 Schedule A); (5) as soon as available, and in any event within sixty (60) days after the end of each of the first three fiscal quarters, an unaudited balance sheet of the Lessee and its consolidated subsidiaries, as of the end of such quarter and related unaudited statements of income and retained earnings of the Lessee and its consolidated subsidiaries, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year; (6) as soon as available, and in any event within 120 days after the end of each fiscal year of Lessee, a financial report for the Lessee for such year, including therein a balance sheet of Lessee as of the end of such fiscal year and related statements of income and retained earnings and changes in financial position of the Lessee for such fiscal year, setting forth in each case in comparative form corresponding figures for the preceding fiscal year, all in reasonable detail and as certified by the Lessee's public accountants, including their certificate and accompanying comments; (7) promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by Lessee to stockholders generally and of each regular or periodic report, registration statement or prospectus filed by Lessee with any securities exchange or the Securities and Exchange Commission or any successor agency, and of any order issued by any Governmental Authority in any proceeding in which Lessee is a party; and(8)from time to time, such statistical information concerning the In-Use Aircraft as Lessor may reasonably request to enable Lessor to evaluate, calculate and/or report any Taxes. -38- Section 11. Lessee's Covenants. (a) Merger. Lessee shall not consolidate with or merge into any other corporation, or convey, transfer or lease all or substantially all of its assets to any Person, unless (i) the corporation formed by such consolidation or into which Lessee is merged or the Person who acquires by conveyance, transfer or lease all or substantially all of the assets of Lessee (the "Successor"): (A) remains entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to this Lease; and (B) shall execute and deliver to Lessor an agreement containing an assumption by such Successor of the due and punctual performance and observance of each covenant and condition of this Lease Agreement to be performed or observed by Lessee; (ii) immediately after giving effect to such transaction, no Default or Lessee Event of Default shall have occurred and be continuing hereunder; (iii) Lessee shall have delivered to Lessor, an officer's certificate and an opinion of independent counsel, each stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement described in clause (i) above comply with this Section 11(a) and that all conditions precedent herein provided for relating to such transaction have been complied with (except that such opinion need not cover the matters referred to in clause (ii) above and may rely, as to factual matters, on an officer's certificate of Lessee) and, in the case of such opinion, that such assumption agreement has been duly authorized, executed and delivered by the Successor, constitutes its legal, valid and binding obligation and is enforceable against such Successor in accordance with its terms, that Lessor shall continue to be entitled to the benefits and protections set forth in Section 1110 of the Bankruptcy Code; and (iv) Lessor shall not suffer any adverse tax consequences as a result of such consolidation, merger or transfer which is not indemnified by Lessee in accordance with the terms hereof or against which Lessor is otherwise indemnified in form and substance reasonably satisfactory to Lessor. Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of Lessee as an entirety in accordance with this Section 11(a), the Successor shall succeed to, be substituted for, and may exercise every right and power of, and shall assume every obligation and liability of, Lessee under this Lease Agreement with the same effect as if the Successor had been named as Lessee herein and therein. No such consolidation or merger or conveyance, transfer or lease of all or substantially all of the assets of Lessee shall have the effect of releasing Lessee or any Successor which shall theretofore have become such in the manner prescribed in this Section 11(a) from its liability hereunder. Nothing contained herein shall permit any lease, sublease or other arrangement for the use, operation or possession of the In-Use Aircraft or Engines except in compliance with the applicable provisions of this Lease. (b) Certificated Air Carrier. Lessee will continue to be a certificated air carrier authorized to engage in scheduled air transportation under the Federal Aviation Act. -39- Section 12. FAA Recordation and Further Assurances. (a) FAA Recordation. Lessee shall cause this Lease, all Lease Supplements and any and all additional instruments which shall be executed pursuant to the terms hereof so far as permitted by Applicable Laws or regulations, to be duly kept, filed and recorded, and maintained of record, in accordance with the applicable law of the government of registry of the Aircraft, which shall be in the office of the FAA. The cost of all such action shall be borne by Lessor. (b) Further Assurances. Each party hereto shall, at its expense, promptly and duly execute and deliver to the other party such further documents and promptly take such further action not inconsistent with the terms hereof as the other party may from time to time reasonably request in order more effectively to carry out the intent and purpose of this Lease or to perfect and protect the rights and, with respect to Lessor, remedies created or intended to be created hereunder. Section 13A. Lessee Events of Default. The following events shall constitute Lessee Events of Default (each a "Lessee Event of Default") (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority) and each such Lessee Event of Default shall be deemed to exist and continue so long as, but only as long as, it shall not have been remedied or waived by Lessor in writing: (a) Lessee shall fail to make any payment of Basic Rent or Supplemental Rent due pursuant to Exhibit E hereto, as and when due or shall fail to make any other payment of Supplemental Rent within five (5) Business Days after delivery to Lessee of notice from Lessor that the amount shall have become due hereunder; or (b) Lessee shall fail to procure, carry and maintain any insurance required by Section 9 hereof; provided that in the case of insurance with respect to which cancellation, change or lapse for nonpayment of premium shall not be effective as to Lessor for 30 days (five days in the case of any war risk and allied perils coverage, or if shorter, such other period as may be customary in the industry for such notice of cancellation) after receipt of notice by Lessor of such cancellation, change or lapse, no such failure to carry and maintain insurance shall constitute a Lessee Event of Default hereunder until the earlier of (i) the date such insurance is no longer in effect as to Lessor, or (ii) the date such failure shall have continued unremedied for a period of 20 days (five days in the case of any war risk and allied perils coverage, or if shorter, such other period as may be customary in the industry for such notice of cancellation) after receipt by Lessor of the notice of cancellation, change or lapse; or (c) Lessee shall fail to perform or observe, breach or be in default under Sections 5, 7(c), 10(c), or 11 hereof; or -40- (d) Lessee shall fail to perform or observe, breach or be in default under any other covenant, condition or agreement to be performed or observed by it hereunder and such failure shall continue unremedied for a period of thirty (30) Business Days after written notice thereof by Lessor; or (e) any material representation or warranty made by Lessee herein or in any document or certificate furnished by Lessee in connection herewith or pursuant hereto shall prove to have been incorrect in any material respect when made; or (f) Lessee shall fail to pay any sums which are or become due and owing under any Interim Aircraft Lease Agreement, the Interim Aircraft Maintenance Agreement, the Long-Term Lease Agreement, the July Lease Agreement or the November Lease Agreement or shall fail to perform under any indemnification obligations contained in any Interim Aircraft Lease Agreement, the Long-Term Lease Agreement, the 151 Lease Agreement, the 161 Lease Agreement, the 162 Lease Agreement, the 171 Lease Agreement or the Interim Aircraft Maintenance Agreement; or (g) Reserved; or (h) all or substantially all of Lessee's airline operations are suspended for more than two days; or (i) Lessee shall consent to the appointment of a custodian, receiver, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or Lessee shall be unable to pay its debts generally as they become due, or shall make a general assignment for the benefit of creditors, or Lessee shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy law (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee in any such proceeding, or Lessee by voluntary petition, answer or consent shall seek relief as debtor under the provisions of any other present or future bankruptcy or other similar law providing for the reorganization or winding-up of corporations, or providing for an agreement, composition, extension or adjustment with its creditors or Lessee shall take any corporate action to authorize any of the foregoing; or (j) a petition against Lessee in a proceeding under any bankruptcy or other insolvency law (as now or hereafter in effect) shall be filed, and any decree or order adjudging Lessee a bankrupt or insolvent in such proceeding shall remain in force undismissed and unstayed for a period of sixty (60) days after such adjudication or, in case the approval of such petition by a court of competent jurisdiction is required, the petition as filed or amended shall be approved by such a court as properly filed and such approval shall not be withdrawn and the proceeding shall not be dismissed within sixty (60) days thereafter, or if, under the provisions of any law providing for reorganization or winding-up of corporations which may apply to Lessee, any court of competent jurisdiction shall enter an order or decree assuming custody or control of -41- Lessee or of any substantial part of its property and such custody or control remains in force unrelinquished, unstayed and unterminated for a period of thirty (30) days; or (k) obligations of Lessee for the payment of borrowed money shall not be paid when the same become due after the expiration of any applicable grace period, if the effect of such default is to cause obligations in excess of $20,000,000 to be accelerated or otherwise declared to be due and unpaid prior to their stated maturity. Section 13B. Lessor Events of Default. The following events shall constitute Lessor Events of Default (each a "Lessor Event of Default") (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority) and each such Lessor Event of Default shall be deemed to exist and continue so long as, but only as long as, it shall not have been remedied, or waived by Lessee in writing: (a) Lessor shall fail to procure, carry and maintain any insurance required by Section 9(i) to be carried and maintained by Lessor; (b) Lessor shall fail to perform or observe, breach or be in default under any other covenant, condition or agreement to be performed or observed by Lessor hereunder and such failure shall continue unremedied for a period of thirty (30) Business Days after written notice thereof by the Lessee; provided the existence of any Defect shall not constitute a Lessor Event of Default so long as Lessor promptly commences and diligently complies with its warranty obligations under Section 5 of Exhibit E; (c) Any material representation or warranty made by Lessor herein or in any document or certificate furnished by Lessor in connection herewith or pursuant hereto shall prove to have been incorrect in any material respect when made; (d) Lessor shall consent to the appointment of a custodian, receiver, trustee or liquidator (or other similar official) of itself or of a substantial part of its property, or Lessor shall be unable to pay its debts generally as they become due, or shall make a general assignment for the benefit of creditors, or Lessor shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy law (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessor in any such proceeding, or such party by voluntary petition, answer or consent shall seek relief as debtor under the provisions of any other present or future bankruptcy or other similar law providing for the reorganization or winding-up of corporations, or providing for an agreement, composition, extension or adjustment with its creditors or Lessor shall take any corporate action to authorize any of the foregoing; or -42- (e) A petition against Lessor in a proceeding under any bankruptcy or other insolvency law (as now or hereafter in effect) shall be filed, and any decree or order adjudging Lessor a bankrupt or insolvent in such proceeding shall remain in force undismissed and unstayed for a period of sixty (60) days after such adjudication or, in case the approval of such petition by a court of competent jurisdiction is required, the petition as filed or amended shall be approved by such a court as properly filed and such approval shall not be withdrawn and the proceeding shall not be dismissed within sixty (60) days thereafter, or if, under the provisions of any law providing for reorganization or winding-up of corporations which may apply to Lessor, any court of competent jurisdiction shall enter an order or decree assuming custody or control of such party or of any substantial part of its property and such custody or control remains in full force unrelinquished, unstayed and unterminated for a period of thirty (30) days. Section 14A. Lessor Remedies. Upon the occurrence of any Lessee Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, declare this Lease to be in default by a written notice to Lessee and Lessor may concurrently therewith or at any time thereafter, as part of the same or a separate written notice, declare this Lease to be terminated, and immediately proceed to do any one or more of the following as Lessor in its sole discretion shall elect, to the extent permitted by, and subject to compliance with any mandatory requirements of, applicable law then in effect; provided that upon the occurrence of any Lessee Event of Default described in Section 13A(i) or (j) above, this Lease Agreement shall automatically be in default, and Lessor may elect to do any of the following, without prior notice to Lessee: (a) Lessor may terminate this Lease; (b) Lessor may cause Lessee, upon the written demand of Lessor and at Lessee's expense, to return promptly, and Lessee shall return promptly the In-Use Aircraft and any Serviced Engines, as Lessor may so demand to Lessor or its order in the manner and condition required by, and otherwise in accordance with all the provisions of, Section 5, as if the Airframe and Engines were being returned at the end of the Term, or Lessor, at its option, may enter upon the premises where the Airframe or Engine is located and take immediate possession of and remove the same (together with any engine or any part which is not an Engine but which is installed on an Airframe, subject to all of the rights of any owner, lessor, lienor or secured party of such engine or the Airframe; it being agreed that such engine or airframe, as the case may be, shall be held for the account of any such owner, lessor, lienor or secured party, or, if such engine is owned by Lessee, may, at the option of Lessor, be exchanged with Lessee for an Engine in accordance with the provisions of Section 8(b)) without the necessity for first instituting proceedings, or by summary proceedings or otherwise, all without liability accruing to Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise; -43- (c) Lessor may proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease and to recover damages for the breach thereof; (d) Lessor, to the extent permitted by applicable law, may with or without taking possession thereof, sell any Airframe or Engine at public or private sale, as Lessor may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle all or the Airframe or Engine as Lessor, in its sole discretion, may determine, all free and clear of any rights of Lessee except as hereinafter set forth in this Section 14A and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto; (e) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights specified above with respect to all or the Airframe or Engine, Lessor, by written notice to Lessee specifying a payment ten (10) days from such written notice, may demand that the Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for the Aircraft due for periods commencing on or after the date specified for payment in such notice), any unpaid Basic Rent for the Aircraft due for periods prior to the payment date specified in such notice plus an amount equal to the excess, if any, of the present worth of the aggregate unpaid Basic Rent due under this Lease for the Airframe or Engine, discounted quarterly at the Discount Rate, over the fair market rental value therefore, discounted in like manner; (f) in the event Lessor, pursuant to paragraph (d) above, shall have sold all or any Airframe or Engine, Lessor, in lieu of exercising its rights under paragraph (e) above with respect to the Airframe or such Engine or part thereof, may, if it shall so elect, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the date of such sale as liquidated damages for loss of a bargain and not as a penalty (in lieu of the installments of Basic Rent for the Aircraft due after the Basic Rent Payment Date preceding such date of sale) any unpaid Basic Rent with respect to the Aircraft due prior to such date plus the amount of any deficiency between the net proceeds of such sale (after deduction of all reasonable costs of sale) and the Stipulated Loss Value of the Aircraft, computed as of the Basic Rent Payment Date on or immediately succeeding the date of such sale together with interest, if any, on the amount of such deficiency, at the Stipulated Interest Rate, from the date of such sale to the date of actual payment of such amount; (g) [Intentionally Left Blank] (h) Lessor may rescind this Lease as to any or all Airframe and any or all Engines, or may exercise any other right or remedy which may be available to it under applicable law; -44- (i) Lessee shall be liable for any and all unpaid Rent and for all legal fees and other costs and expenses incurred by reason of the occurrence of any Lessee Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs or expenses incurred in connection with the return of any Item of Equipment in accordance with the terms of Section 5 hereof or in placing such Item of Equipment in the condition and with airworthiness certificates as required by Section 5; and (j) No remedy referred to in this Section 14A is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor or its Affiliates at law or in equity, and the exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies under either this Lease or any other agreement between Lessor or its Affiliates and Lessee. No express or implied waiver by Lessor of any Lessee Event of Default shall in any way be, or be construed to be a waiver of any future or further Lessee Event of Default. To the extent permitted by Applicable Law, Lessee hereby waives any and all rights to notice and to a judicial hearing with respect to the repossession of any Item of Equipment by Lessor upon the occurrence of a Lessee Event of Default. Section 14B. Lessee Remedies. (a) Remedies. Upon the occurrence of a Lessor Event of Default and at any time thereafter so long as the same shall be continuing, Lessee may, at its option, declare a default by a written notice to Lessor; provided that Lessee's remedies shall in all respects be limited as set forth in Section 5(b) and 5(g) of Exhibit E and this Section 14B. At any time after delivery of such written notice to Lessor, so long as Lessor shall not have remedied all outstanding Lessor Events of Default Lessee may proceed pursuant to Section 6 of Exhibit E to enforce performance by Lessor of its covenants and obligations under Exhibit E to this Agreement and to recover damages for the breach thereof, but only to the extent permitted under Section 14B(b) and Section 5(b) and 5(g) of Exhibit E. Subject to Section 5(b) and 5(g) of Exhibit E and Section 14B(b), Lessor shall be liable for any and all unpaid amounts due from it hereunder and for all legal fees and other costs and expenses incurred by reason of the occurrence of any Lessor Event of Default or the exercise of Lessee's remedies with respect thereto. (b) Limitation on Damages. WITHOUT LIMITING THE PROVISIONS OF SECTION 4 OF THIS AGREEMENT AND NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, LESSOR SHALL HAVE NO OBLIGATION OR LIABILITY WHETHER ARISING IN CONTRACT (INCLUDING WARRANTY), TORT (INCLUDING ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE OR GROSS NEGLIGENCE) OR STRICT LIABILITY OR OTHERWISE FOR LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY BREACH OF THIS AGREEMENT OR THE PROCEDURES SET FORTH IN THE MANUAL (OR ANY MANUAL REFERENCED THEREIN) OR ANY NONCONFORMANCE OR DEFECT IN -45- ANY SERVICE OR WORKMANSHIP OR ANY SERVICED PART OR OTHER MATERIAL, COMPONENT, ACCESSORY, EQUIPMENT OR PRODUCT PROVIDED OR DELIVERED PURSUANT TO THIS AGREEMENT. FURTHERMORE, LESSOR'S LIABILITY FOR DAMAGES, IF ANY, ARISING AS A RESULT OF ANY BREACH OF, OR DEFAULT BY LESSOR UNDER, THIS AGREEMENT (INCLUDING ANY BREACH OF WARRANTY) SHALL IN NO EVENT EXCEED LESSEE'S DIRECT, ACTUAL AND REASONABLE DAMAGES (AFTER TAKING INTO ACCOUNT AMOUNTS THAT WOULD HAVE BEEN PAID TO LESSOR AS SUPPLEMENTAL RENT BUT FOR SUCH BREACH OR DEFAULT) SUFFERED BY LESSEE TO OBTAIN SUBSTITUTE COMPARABLE MAINTENANCE SERVICES FOR THE AIRCRAFT FOR THE REMAINDER OF THE LEASE TERM AFTER THE DATE OF SUCH BREACH OR DEFAULT. (c) No Implied Waiver. No express or implied waiver by Lessee of any Lessor Event of Default shall in any way be, or be construed to be a waiver of any future or further Lessor Event of Default. Section 15. INDEMNIFICATION. (a) General. LESSEE DOES HEREBY ASSUME LIABILITY FOR, AND DOES HEREBY INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS LESSOR AND ANY AFFILIATE OF LESSOR AND THEIR RESPECTIVE SUCCESSORS, PERMITTED ASSIGNS, SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND SERVANTS (EACH THEREOF, WITH ITS RESPECTIVE AFFILIATES, SUCCESSORS, PERMITTED ASSIGNS, AGENTS AND SERVANTS REFERRED TO HEREIN AS AN "INDEMNIFIED PARTY") FROM AND AGAINST, AND ON WRITTEN DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS THE CASE MAY BE, ANY AND ALL EXPENSES OR LIABILITIES IMPOSED ON, CHARGED TO, RECOVERED FROM, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY AS A RESULT OF ANY CLAIM BY A PERSON (OTHER THAN LESSEE UNDER SECTION 5(a) OF EXHIBIT E AND 14B HEREOF) RELATING TO OR ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE INTERIM AIRCRAFT LEASE AGREEMENTS, THE INTERIM AIRCRAFT MAINTENANCE AGREEMENT, THE POOLING AGREEMENT, THE MANUAL (OR ANY OTHER LESSOR MANUAL REFERENCED THEREIN) OR ANY MAINTENANCE SERVICES, OUTSIDE SERVICES, SERVICED ENGINES OR SERVICED PARTS PROVIDED HEREUNDER, OR ANY FAILURE BY LESSEE OR LESSOR TO PERFORM HEREUNDER, INCLUDING CLAIMS FOR INJURY TO OR DEATH OF PERSONS (INCLUDING ANY EMPLOYEES OR AGENTS OF LESSEE WHO ENTER LESSOR'S PREMISES PURSUANT TO SECTION 4(g) OF EXHIBIT E AND ALL INVITEES, GUESTS, PASSENGERS, SHIPPERS, EMPLOYEES AND AGENTS OF LESSEE), AND DAMAGE TO OR DESTRUCTION OF PROPERTY (INCLUDING PROPERTY OF LESSEE AND OF ITS INVITEES, GUESTS, PASSENGERS, EMPLOYEES AND AGENTS AND PROPERTY OF EACH INDEMNIFIED PARTY). THE FOREGOING INDEMNITY OBLIGATIONS SHALL -46- INCLUDE THE OBLIGATION OF LESSEE TO INDEMNIFY EACH INDEMNIFIED PARTY FROM AND AGAINST, AND ON WRITTEN DEMAND TO PAY, OR TO REIMBURSE EACH INDEMNIFIED PARTY FOR THE PAYMENT OF, AS THE CASE MAY BE, ANY AND ALL EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY RELATING TO OR ARISING OUT OF (i) ANY ACTION OR INACTION OF LESSEE; (ii) THE MANUFACTURE OF THE AIRFRAME AND SERVICED ENGINES (INCLUDING LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AND PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT); (iii) THE OWNERSHIP OF THE AIRCRAFT AND, EXCEPT AS PROVIDED IN SECTION 15(d) BELOW, SERVICED ENGINES, DURING THE TERM OF THIS LEASE; (iv) THE DELIVERY, NONDELIVERY, REDELIVERY, LEASE, REGISTRATION, ASSIGNMENT, TRANSFER, POSSESSION, USE, OPERATION, CONDITION, SALE OR RETURN OR OTHER DISPOSITION OF THE AIRFRAME AND SERVICED ENGINES AND PARTS BY LESSEE (INCLUDING INJURY, DEATH OR PROPERTY DAMAGE SUFFERED BY PASSENGERS, SHIPPERS OR OTHERS), AND ENVIRONMENTAL CONTROL, NOISE AND POLLUTION REGULATIONS; (v) THE CONDITION UPON RETURN OF THE AIRFRAME AND SERVICED ENGINES AND PARTS, TO THE EXTENT SUCH CONDITION DOES NOT COMPLY WITH SECTION 5 HEREOF OR (vi) (WITHOUT LIMITING ANY OF THE FOREGOING) ANY BREACH BY LESSEE OF, NONCOMPLIANCE BY LESSEE WITH, OR MISREPRESENTATION BY LESSEE MADE OR DEEMED MADE IN, UNDER OR IN CONNECTION WITH, THIS LEASE OR ANY OTHER DOCUMENT REQUIRED TO BE DELIVERED PURSUANT HERETO, OR ANY WARRANTY, CERTIFICATE OR AGREEMENT MADE OR DELIVERED IN, UNDER OR IN CONNECTION HEREWITH OR THEREWITH. THE FOREGOING INDEMNITY OBLIGATIONS OF LESSEE SHALL NOT INCLUDE THE OBLIGATION TO INDEMNIFY (i) EMPLOYEES OF LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES OR (ii) SUBCONTRACTORS TO LESSOR AND ITS AFFILIATES WHO SUFFER A CLAIM RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES. LESSEE ALSO SHALL NOT BE REQUIRED TO INDEMNIFY ANY INDEMNIFIED PARTY FOR (i) LIABILITIES RESULTING FROM ACTS (INCLUDING FAILURE TO ACT) OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, (ii) DAMAGE TO OR DESTRUCTION OF PROPERTY OF AN INDEMNIFIED PARTY, WHILE WITHIN SUCH INDEMNIFIED PARTY'S SOLE CARE, CUSTODY AND CONTROL, TO THE EXTENT RESULTING FROM THE ACTS (INCLUDING FAILURE TO ACT) OF AN EMPLOYEE OF LESSOR AND ITS AFFILIATES OR OF ANY SUBCONTRACTOR TO LESSOR AND ITS AFFILIATES, (iii) ACTS, OMISSIONS OR EVENTS THAT OCCUR AFTER FULL AND FINAL COMPLIANCE BY LESSEE WITH THE TERMS OF THIS LEASE OR AFTER AN AIRCRAFT, ANY SERVICED ENGINE OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART HAS BEEN RETURNED TO LESSOR PURSUANT TO THE TERMS -47- HEREOF, OR THE POOLING AGREEMENT AS SUCH ACTS, OMISSIONS OR EVENTS RELATE TO SUCH RETURNED AIRCRAFT, ANY SERVICED ENGINE, OR AN ENGINE WHICH IS NOT A SERVICED ENGINE OR PART AFTER ITS RETURN; OR (iv) ANY TAX EXCEPT TO THE EXTENT AND AS SET FORTH IN SECTION 16 HEREOF AND SECTION 3(h) OF EXHIBIT E. (b) Indemnification for Negligent Acts. WITHOUT LIMITING SECTION 15(a), LESSOR AND LESSEE EXPRESSLY INTEND THAT LESSEE SHALL HOLD HARMLESS, DEFEND AND INDEMNIFY EACH INDEMNIFIED PARTY AGAINST CLAIMS (OTHER THAN CLAIMS THAT ARE EXPRESSLY EXCEPTED IN SECTION 15(a)) THAT ARISE AS A RESULT OF THE NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR OR ANY OTHER INDEMNIFIED PARTY AND AS A RESULT OF THE JOINT OR CONCURRENT NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED) OF LESSOR, ANY OTHER INDEMNIFIED PARTY AND LESSEE. (c) Defense of Claims; Settlement. IF ANY INDEMNIFIED PARTY SHALL HAVE KNOWLEDGE OF ANY CLAIM OR LIABILITY REQUIRED TO BE INDEMNIFIED AGAINST UNDER THIS SECTION 15, SUCH INDEMNIFIED PARTY SHALL GIVE REASONABLY PROMPT WRITTEN NOTICE THEREOF TO LESSEE AFTER BECOMING AWARE OF SUCH CLAIM, BUT THE FAILURE OF SUCH INDEMNIFIED PARTY SO TO NOTIFY LESSEE SHALL NOT RELIEVE LESSEE FROM ANY LIABILITY THAT IT WOULD OTHERWISE HAVE TO SUCH INDEMNIFIED PARTY HEREUNDER EXCEPT TO THE EXTENT, AND ONLY TO THE EXTENT, THAT LESSEE DEMONSTRATES THAT THE DEFENSE OF SUCH CLAIM OR LIABILITY IS PREJUDICED THEREBY. LESSEE AND LESSEE'S INSURERS SHALL HAVE THE RIGHT, AT THEIR SOLE COST AND EXPENSE, TO INVESTIGATE, DEFEND OR, EXCEPT AS LIMITED HEREINAFTER, COMPROMISE ANY CLAIM FOR WHICH INDEMNIFICATION IS SOUGHT UNDER THIS SECTION 15 UPON ACKNOWLEDGMENT BY LESSEE OR SUCH INSURER OF ITS LIABILITIES TO EACH INDEMNIFIED PARTY IN RESPECT THEREOF. LESSEE SHALL ASSUME ALL RESPONSIBILITY FOR ANY CLAIM COVERED BY THE FOREGOING INDEMNITY, AND THE INDEMNIFIED PARTY SHALL PROVIDE REASONABLE ASSISTANCE AND COOPERATION DURING THE DEFENSE OR SETTLEMENT OF THE CLAIM. EXCEPT AS LIMITED HEREAFTER, LESSEE SHALL HAVE COMPLETE CONTROL OF THE DEFENSE OR SETTLEMENT OF SUCH CLAIM OR COMPROMISE THEREOF; PROVIDED THAT COUNSEL SELECTED BY LESSEE SHALL BE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY. NO COMPROMISE OR SETTLEMENT OF ANY CLAIM MAY BE EFFECTED BY LESSEE WITHOUT THE INDEMNIFIED PARTY'S CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD; PROVIDED, NO CONSENT SHALL BE REQUIRED IF (i) THERE IS NO FINDING OR ADMISSION OF ANY VIOLATION OF ANY LAW BY THE INDEMNIFIED PARTY OR ANY VIOLATION OF THE RIGHTS OF ANY PERSON BY THE INDEMNIFIED PARTY, (ii) THERE IS NO EFFECT ON ANY CLAIM THAT MAY BE MADE BY THE INDEMNIFIED PARTY, AND (iii) THE RELIEF -48- PROVIDED IS THE SOLE RESPONSIBILITY OF LESSEE. EACH INDEMNIFIED PARTY SHALL HAVE THE RIGHT, BUT NOT THE DUTY, AT ITS OWN EXPENSE, TO PARTICIPATE IN THE DEFENSE AND/OR SETTLEMENT OF ANY CLAIM WITH COUNSEL OF ITS OWN CHOOSING WITHOUT RELIEVING LESSEE OF ANY OBLIGATIONS HEREUNDER. LESSEE AND ITS COUNSEL SHALL COOPERATE WITH THE INDEMNIFIED PARTY'S COUNSEL AND SHALL SUPPLY THE INDEMNIFIED PARTY WITH SUCH INFORMATION REASONABLY REQUESTED BY THE INDEMNIFIED PARTY AS IS NECESSARY OR ADVISABLE FOR THE INDEMNIFIED PARTY TO PARTICIPATE IN ANY PROCEEDING TO THE EXTENT PERMITTED BY THIS SECTION 15, BUT CONTROL OF THE MATTER SHALL REMAIN WITH LESSEE. ANY PAYMENT OR INDEMNITY PURSUANT TO THIS SECTION 15 SHALL INCLUDE THE AMOUNT, IF ANY, NECESSARY TO HOLD THE INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX BASIS (TAKING INTO ACCOUNT ANY CURRENT TAX BENEFITS TO WHICH ANY SUCH INDEMNIFIED PARTY IS ENTITLED) AS A RESULT OF THE MATTER INDEMNIFIED AGAINST UNDER THIS SECTION 15 FROM ALL TAXES REQUIRED TO BE WITHHELD BY LESSEE OR PAID BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH PAYMENT OR INDEMNITY UNDER THE LAWS OF ANY FEDERAL, STATE OR LOCAL GOVERNMENT OR TAXING AUTHORITY IN THE UNITED STATES OR ANY TERRITORY, COMMONWEALTH OR POSSESSION OF THE UNITED STATES OR BY ANY FOREIGN GOVERNMENT OR ANY POLITICAL SUBDIVISION OR TAXING AUTHORITY THEREOF. (d) Indemnification by Lessor. IF A PERSON WHICH HAS A LIEN ON ANY SERVICED ENGINE TAKES POSSESSION OF OR INTERFERES WITH LESSEE'S QUIET ENJOYMENT OR USE OF A SERVICED ENGINE, LESSOR SHALL INDEMNIFY AND HOLD HARMLESS LESSEE FROM ANY AND ALL COSTS, LIABILITIES AND DAMAGES INCURRED BY LESSEE RELATING TO OR ARISING THEREFROM. (e) Survival. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS SECTION 15 SHALL SURVIVE ANY TRANSFER OF TITLE OR POSSESSION OF THE SERVICED AIRCRAFT, ANY SERVICED ENGINE OR ANY SERVICED PART, ANY TERMINATION OR EXPIRATION OF THIS AGREEMENT OR ANY IMPOSSIBILITY OF PERFORMANCE OF THIS AGREEMENT OR FRUSTRATION OF PURPOSE OF THIS AGREEMENT. Section 16. General Tax Indemnity. (a) Tax Indemnity. (i) Except as provided in Section 16(b), Lessee agrees that each payment of Rent and any other amounts payable to Lessor (with any affiliate of Lessor and their respective successors, permitted assigns, shareholders, directors, officers, employees, agents and servants referred to -49- herein as a "Tax Indemnified Party") by Lessee under this Lease shall be paid in full without any deduction or withholding with respect to Taxes of any nature whatsoever imposed by the United States or any other Taxing Authority unless Lessee is prohibited by Applicable Law from doing so, in which event Lessee shall (a) ensure that the deduction or withholding does not exceed the minimum amount legally required; (b) immediately pay to Lessor or any other Person entitled to receive such payment an additional amount (as Supplemental Rent) in such amount, net of any Taxes thereon, and at such time as shall result in the net amount actually received by Lessor or such other Person being, after all deductions or withholdings, equal to the full amount which would have been received by Lessor or such other Person had such deduction or withholding not been made and shall be free of expense to the Lessor or such other Person for collection or other charges; (c) pay to the relevant Taxing Authority within the period for payment permitted by Applicable Law the full amount of all deductions or withholdings; and (d) upon the request of Lessor or such other Person furnish to Lessor or such other Person, as the case may be, within the period for payment permitted by Applicable Law, an official receipt of the relevant Taxing Authority for all amounts deducted or withheld as aforesaid; and (ii) Except as provided in Section 16(b) hereof, Lessee shall pay, protect, save, and on written demand shall indemnify and hold harmless on an after-tax basis each Tax Indemnified Party from and against any and all Taxes imposed against any Tax Indemnified Party, Lessee or the Serviced Aircraft by any Taxing Authority in connection with or relating to (A) the construction, financing, refinancing, purchase, acquisition, acceptance, rejection, delivery, nondelivery, transport, ownership, registration, reregistration, assembly, possession, repossession, operation, location, use, condition, maintenance, repair, sale, return, abandonment, preparation, installation, storage, redelivery, manufacture, leasing, subleasing, modification, rebuilding, importation, reimportation, transfer of title, transfer of registration, exportation, reexportation or other application or disposition of, or the imposition of any Lien (or the incurrence of any liability to refund or pay over any amount as the result of any Lien) on, the Serviced Aircraft, the Serviced Airframe, and any Serviced Engine or any Serviced Part or interest therein, (B) payments of Basic Rent or Supplemental Rent or the receipts or earnings arising therefrom or received with respect to the Serviced Aircraft, the Serviced Airframe, any Serviced Engine or any Serviced Part or interest therein, (C) the Serviced Aircraft, any Serviced Airframe, any Serviced Engine or any Serviced Part or interest therein, (D) otherwise with respect to or in connection with the transactions contemplated by this Lease, and (E) any out-of-pocket penalties, late payment fees, interest, costs and expenses fairly attributed to any of the foregoing incurred by any Tax Indemnified Party. (b) Exclusions from General Tax Indemnity. The provisions of subsection 16(a) shall not apply to a Tax Indemnified Party in the case of: (i) Taxes that are imposed on or measured by the net income, excess profits, receipts (other than any excise or gross receipts tax imposed by the State of Hawaii), franchises, capital or conduct of business of such Tax Indemnified Party, other than any such taxes which are imposed in lieu of any sales, use or value added taxes; -50- (ii) any other Taxes based on, or measured by, the net income of such Tax Indemnified Party (other than (x) Taxes which are, or are in the nature of, sales, use or rental taxes or (y) Taxes imposed by any Taxing Authority (other than a taxing authority for the jurisdiction in which such Tax Indemnified Party is doing business) as a result of a nexus between the jurisdiction of the Taxing Authority and any Item of Equipment or any Part or any part or the activities in the jurisdiction of the Taxing Authority of Lessee, any sublessee or any other user of the Aircraft (other than such Tax Indemnified Party or any Affiliate thereof) or any Affiliate of any of the foregoing); (iii) Taxes that are imposed as a result of (y) any voluntary sale, assignment, transfer or other disposition by such Tax Indemnified Party of any interest of such Tax Indemnified Party in the Aircraft, the Airframe, any Serviced Engine, any Part, or any interest therein, unless such sale, assignment, transfer or disposition results from (1) action taken by or on behalf of such Tax Indemnified Party as provided in or permitted by this Lease in connection with or by reason of any Lessee Event of Default that has occurred and is continuing or any exercise by the Lessor of any of its remedies in connection with any such Lessee Event of Default as provided in or permitted by the Lease, or (2) any replacement or substitution by the Lessee of any Engine or any Part; or (z) any involuntary transfer of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which such Tax Indemnified Party is the debtor or any foreclosure by a creditor of such Tax Indemnified Party; (iv) Taxes in the nature of penalties, additions to tax, interest or fines resulting directly from the negligence of the Tax Indemnified Party in connection with the preparation or filing of any tax return unless such Tax Indemnified Party files any tax return in a manner requested by Lessee, required to be filed by such Tax Indemnified Party without regard to the transactions contemplated by this Lease, the payment of any taxes shown thereon or the conduct of any proceeding in respect thereof, except to the extent attributable to the failure of Lessee to perform its obligations or to otherwise perform its duties and responsibilities pursuant to this Lease, including, without limitation, the obligation to make payments hereunder; (v) so long as no Lessee Default or Event of Default shall be continuing, Taxes imposed with respect to any period after (i) the expiration of the Term and the return of the Aircraft to the Lessor in accordance with Section 5 of this Lease or (ii) the earlier discharge in full of Lessee's obligation to pay the Stipulated Loss Value and all other amounts due under this Lease; provided, however, that this exception shall not apply to Taxes (x) relating to events occurring or matters arising upon or prior to such expiration and return or discharge, or (y) imposed on or with respect to any payments due after such expiration and return or discharge until after such payments have been made; (vi) Taxes to the extent of the excess of such Taxes over the amount of such Taxes which would have been imposed and indemnified against had there not been a sale, assignment, transfer or other disposition (whether voluntary or, if resulting from bankruptcy, foreclosure (other than foreclosure resulting from a Lessee Event of Default) or similar proceedings in which 51 such Tax Indemnified Party is the debtor, involuntary) by a Tax Indemnified Party of any interest of such Tax Indemnified Party in the Aircraft, the Airframe, any Serviced Engine, or any Part, unless such transfer results from action taken by or on behalf of such Tax Indemnified Party after a Lessee Event of Default has occurred and while it is continuing or any exercise by the Lessor of any of its remedies in connection with any such Lessee Event of Default; (vii) Taxes arising out of or caused by any willful misconduct or gross negligence of such Tax Indemnified Party; (viii) with respect to any Tax Indemnified Party, any Tax that results solely from such Tax Indemnified Party or a related Tax Indemnified Party engaging in transactions other than those contemplated by this Lease or any Long-Term Agreement, or those in which such Tax Indemnified Party is currently engaged; (ix) sales tax incurred by Lessor in connection with the maintenance of the Serviced Aircraft pursuant to Attachment A to Exhibit E hereto, other than any such tax, whether in the form of a sales tax, gross receipts tax or other functional equivalent of a sales tax imposed by the State of Hawaii; (x) any Tax to the extent such Tax would not have been imposed if a Tax Indemnified Party or a related Tax Indemnified Party had not engaged in activities in the jurisdiction imposing such Tax which activities are unrelated to the transactions contemplated by the this Lease or the other Long Term Agreements, but only to the extent such Tax would not have been payable in the absence of such unrelated activities; or (xi) any failure of a Tax Indemnified Party to comply with (I) certification, information, documentation, reporting or other similar requirements concerning the nationality, residence, identity or connection with the jurisdiction imposing such Tax, if such compliance is required by statute or by regulation of the jurisdiction imposing such Tax as a precondition to relief or exemption from such Tax; or (II) any other certification, information, documentation, reporting or other similar requirements under the Tax laws or regulations of the jurisdiction imposing such Tax that would establish entitlement to otherwise applicable relief or exemption from such Tax; provided, however, that the exclusion set forth in this subsection 16(a)(x) shall not apply if (v) such failure to comply was due to a failure of the Lessee to provide such Tax Indemnified Party with the information required to be supplied by the Lessee in order for such Tax Indemnified Party to comply with such requirement or due to a failure of the Lessee to notify such Tax Indemnified Party of such requirement and such Tax Indemnified Party was not otherwise aware of such requirement; or (w) such failure to comply was done upon the advice, concurrence and/or direction or with the knowledge of the Lessee. 52 (c) Calculation of General Tax Indemnity Payments. (i) Lessee agrees that, with respect to any payment or indemnity to a Tax Indemnified Party under Section 16 hereof, the Lessee's indemnity obligations shall include the payment of an amount necessary to hold such Tax Indemnified Party harmless on an after-tax basis from all Taxes required to be paid by such Tax Indemnified Party with respect to such payment or indemnity (including any payments made pursuant to this subsection 16(c) under the laws of any Taxing Authority. (ii) If any Tax Indemnified Party shall realize a current tax benefit as a result of any Taxes paid or indemnified against by the Lessee under this Section 16 (except to the extent previously taken into account in computing the indemnity paid with respect to such Taxes), such Tax Indemnified Party shall, so long as no Lessee Event of Default shall have occurred and be continuing and no payment is due and owing by Lessee under this Lease or any Long-Term Agreement, pay to the Lessee an amount which, after subtraction of any further tax savings such Tax Indemnified Party realizes as a result of the payment thereof, is equal to the amount of such current tax benefit, but only after the Lessee shall have made all payments then due and owing to such Tax Indemnified Party pursuant to this Lease and the Long-Term Agreements; provided that any subsequent loss of any tax benefit paid to the Lessee hereunder shall be treated as a Tax subject to indemnification in accordance with subsection 16(a) (without regard to any exclusions set forth in subsection 16(b) or the provisions of subsection 16(g); and provided further, that such Tax Indemnified Party shall not be obligated to make any payment pursuant to this subsection 16(c) to the extent that the amount of such payment would exceed (x) the amount of all prior payments by Lessee to such Tax Indemnified Party pursuant to this subsection 16(c), less (y) the amount of all prior payments by such Tax Indemnified Party to Lessee hereunder. Each such Tax Indemnified Party shall in good faith use reasonable efforts in filing its tax returns and in dealing with taxing authorities to seek and claim any such tax benefit. (d) Payment of General Tax Indemnity. Unless otherwise requested by a Tax Indemnified Party, or unless the Tax is being contested in accordance with the provisions of subsections 16(g) hereof, the Lessee shall pay when due any Tax for which it is liable pursuant to this Section 16 directly to the appropriate Taxing Authority, or, upon written demand, shall reimburse a Tax Indemnified Party for the payment of any such Tax made by such Tax Indemnified Party. Within thirty (30) days after the date of each payment by the Lessee of any Tax referred to in the preceding sentence, the Lessee shall upon request furnish such Tax Indemnified Party the original or a copy of the receipt for the Lessee's payment of such Tax or such other evidence of payment of such Tax as is reasonably acceptable to such Tax Indemnified Party. The Lessee shall also cause to be furnished, promptly upon request, such data as such Tax Indemnified Party reasonably may require that are within the reasonable control or possession of Lessee and are not otherwise reasonably obtainable by such Tax Indemnified Party to enable such Tax Indemnified Party to comply with the requirements of any Taxing Authority in respect of any Tax referred to in subsection 16(a) hereof. 53 (e) Verification of Calculations. At the request of Lessee, the accuracy of any calculation of the amount or amounts payable to a Taxing Authority or a Tax Indemnified Party pursuant to this Section 16 shall be verified by independent public accountants selected by such Tax Indemnified Party and reasonably satisfactory to Lessee, and such verification shall be binding on both the Tax Indemnified Party and Lessee. In order, and to the extent necessary, to enable such independent accountants to verify such amounts, such Tax Indemnified Party shall provide to such independent accountants (for their confidential use and not to be disclosed to Lessee or any other person) all information reasonably necessary for such verification. Such verification shall be at the expense of Lessee. (f) Reports. If any report, return or statement is required to be filed with respect to any Tax which is subject to indemnification under this Section 16, the Lessee shall timely file the same, except for any such report, return or statement which a Tax Indemnified Party has notified the Lessee that it intends to file. The Lessee shall either file such report, return or statement so as to show the ownership of the Aircraft in the Lessor and send a copy of such report, return or statement to such Tax Indemnified Party or, where the Lessee is not so permitted to file in the name of such Tax Indemnified Party, shall notify such Tax Indemnified Party of such requirements and cooperate reasonably with such Tax Indemnified Party with respect thereto. (g) General Tax Indemnity Contest Provisions. (i) Notice. If a Tax Indemnified Party receives a written notice regarding the imposition of a Tax, or if at the conclusion of any audit by any Taxing Authority there is a proposed adjustment regarding any Tax which if agreed to by such Tax Indemnified Party would result in the imposition of a Tax for which such Tax Indemnified Party would seek indemnification from the Lessee in an amount equal to or in excess of $25,000 pursuant to this Section 16, such Tax Indemnified Party shall within the lesser of: (A) thirty (30) days after receipt of such written notice by a responsible officer of such Tax Indemnified Party or promptly after the conclusion of such audit; or (B) not less than ten (10) days prior to the expiration of the statutory period to respond, so notify the Lessee in writing; provided, however, that the failure so to notify the Lessee shall not diminish the Lessee's obligations hereunder, except in the event that Lessee's rights to contest such tax shall have been precluded by such failure, and after such contest, Lessor would not have been liable for such taxes and except for any interest or penalties related to any late or missed payment dates. (ii) Contest Provisions. If requested by the Lessee in writing, a Tax Indemnified Party shall in good faith contest in the name of such Tax Indemnified Party or, if requested by the Lessee and if such contest does not in such Tax Indemnified Party's reasonable discretion involve or potentially involve taxes imposed on such Tax Indemnified Party that are not indemnified against hereunder, to contest in the name of the Lessee (or permit the Lessee, if requested by the Lessee, to contest in the name of the Lessee or the Tax Indemnified Party) the validity, applicability and amount of the imposition of any Tax or any proposed adjustment that 54 would give rise to the proposed imposition of any Tax by (a) resisting payment thereof, if such Tax Indemnified Party in its sole and reasonable discretion shall determine such course of action to be appropriate, (b) not paying the same except under protest, if protest is necessary and proper, or (c) if payment shall be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings; provided, however, that (u) such Tax Indemnified Party shall not be required to contest such imposition or proposed adjustment if the aggregate amount of an indemnity on an after-tax basis, would be less than $25,000, (v) no Lessee Event of Default has occurred and is continuing, (w) such Tax Indemnified Party has been provided with an opinion of independent tax counsel selected by such Tax Indemnified Party and reasonably acceptable to the Lessee (the cost of which shall be borne by the Lessee) to the effect that a reasonable basis in law or in fact exists that such Tax Indemnified Party will prevail in such contest, (x) such Tax Indemnified Party, at its sole option, may at any time forego any and all administrative appeals, proceedings, hearings and conferences with any Taxing Authority and, in lieu thereof, continue to contest the claim in any permissible judicial forum selected by such Tax Indemnified Party, (y) Lessee shall have agreed to pay such Tax Indemnified Party (or, in the case of item (iii) below, lend to such Tax Indemnified Party on an interest-free basis (and in such case pay any additional amount as shall be required to hold such Tax Indemnified Party harmless on a net after-tax basis from any adverse tax consequences attributable to the loan), on demand, all reasonable out-of-pocket costs and expenses which such Tax Indemnified Party incurs in connection with and reasonably allocable to contesting such imposition or adjustment, including, without limitation, (i) all legal, accountants' and investigatory fees and disbursements, (ii) the amount of any interest, penalties or additions to tax (to the date such payment is made) payable as a result of contesting such adjustment, and (iii) if such contest is to be initiated by the payment of, and the claiming of a refund for, the amount of such imposition or adjustment, funds sufficient to make such payment of, and the claiming of a refund for, the amount of such imposition or adjustment, funds sufficient to make such payment (and in the event such contest is finally determined adversely, the amount of such loan shall be applied against the Lessee's obligation to indemnify such Tax Indemnified Party for the Tax which was the subject of such contest), and (z) such proceedings do not involve any risk (other than a remote risk) of the sale, forfeiture or loss of the Aircraft, the Airframe, any Serviced Engine or any Part or interest therein or, if there is such a risk, Lessee has provided to such Tax Indemnified Party a bond in form and substance reasonably satisfactory to such Tax Indemnified Party in an amount sufficient to protect such Tax Indemnified Party from any detriment that would be suffered by the Lessor as a result of such sale, forfeiture, or loss or has otherwise protected such Tax Indemnified Party in a manner acceptable to such Tax Indemnified Party and there is no risk or the imposition of criminal penalties. Such Tax Indemnified Party will consult with Lessee regarding any contest and will consider in good faith any suggestions made by Lessee with respect to the most favorable forum for, and the conduct of, such contest; provided, however, that, unless such Tax Indemnified Party elects to permit Lessee to conduct such contest, such contest shall be controlled by such Tax Indemnified Party and conducted by independent counsel selected by such Tax Indemnified Party or by "in-house" counsel of such Tax Indemnified Party and reasonably acceptable to Lessee. In the event that such Tax Indemnified Party elects to permit the Lessee to conduct such contest, the independent 55 counsel selected by the Lessee to conduct such contest shall be reasonably satisfactory to such Tax Indemnified Party. If requested by the Lessee in writing, such Tax Indemnified Party will appeal (or, if desired by such Tax Indemnified Party, permit the Lessee to appeal) any adverse judicial determination, provided that, as a condition to the commencement of the appeal of such adverse judicial determination, (a) such Tax Indemnified Party shall receive, at the Lessee's expense, an opinion of independent counsel, selected by such Tax Indemnified Party and reasonably satisfactory to Lessee, to the effect that a more likely than not probability of success exists for such appeal and (b) Lessee shall have acknowledged its liability to such Indemnified Party for an indemnity payment as a result of such tax claim if such Tax Indemnified Party shall not prevail in the contest; provided, however, that such Tax Indemnified Party shall not be required to appeal any adverse judicial determination to the United States Supreme Court. Notwithstanding anything contained in this subsection 16(g) to the contrary, no Tax Indemnified Party shall be required to contest any claim if the subject matter thereof shall be of a continuing nature and shall have previously been decided pursuant to the contest provisions of this subsection 16(g) (including a contest pursuant to the contest provisions hereof in which the Tax Indemnified Party may be required to contest such a claim if there shall have been a change in the law (including, without limitation, amendments to statutes or regulations, administrative ruling and court decisions)) or Lessee shall have provided new facts after such claim shall have been so previously decided, and such Tax Indemnified Party shall have received an opinion of independent tax counsel selected by such Tax Indemnified Party and approved by the Lessee (the cost of which shall be borne by the Lessee) to the effect that, as a result of such change or new facts, it is more likely than not that the position which such Tax Indemnified Party or the Lessee, as the case may be, had asserted in such previous contest, would prevail; provided that the provisions of this paragraph shall not require an Tax Indemnified Party to file an amended tax return or refund claim for any prior taxable period. (h) Compromise or Settlement. A Tax Indemnified Party shall have the right to settle or compromise a contest if such Tax Indemnified Party has provided Lessee a reasonable opportunity to review a copy of that portion of the settlement or compromise proposal which relates to the Tax for which such Tax Indemnified Party is seeking indemnification hereunder, provided that, if (i) such Tax Indemnified Party fails to provide the Lessee such a reasonable opportunity to review such portion of such proposal or (ii) after such reasonable opportunity to review such proposal the Lessee in writing reasonably withholds its consent to all or part of such settlement or compromise proposal, the Lessee shall not be obligated to indemnify such Tax Indemnified Party hereunder to the extent of the amount attributable to the Tax to which such settlement or compromise relates as to which the Lessee has reasonably withheld its consent. If such Tax Indemnified Party effects a settlement or compromise of such contest without giving notice to the Lessee or, notwithstanding that the Lessee has reasonably withheld its consent thereto, such Tax Indemnified Party shall repay to the Lessee such amounts theretofore advanced by the Lessee pursuant to clause (y)(iii) of subsection 16(g)(i) hereof as relate to such claim, to the extent the Lessee has reasonably withheld its consent to the settlement or compromise thereof. 56 (i) Refunds. If any Tax Indemnified Party shall obtain a refund of all or any part of any Taxes that the Lessee shall have paid for such Tax Indemnified Party or for which the Lessee shall have reimbursed such Tax Indemnified Party, such Tax Indemnified Party shall, so long as no Default or Lessee Event of Default shall have occurred and be continuing and no payment is due and owing by the Lessee under this Agreement or any Long-Term Agreement, pay to the Lessee an amount which is equal to the sum of the amount of such refund, plus any interest received attributable thereto net of any net taxes payable by such Tax Indemnified Party with respect to the receipt or accrual of such interest and the payment thereof to the Lessee, but only after the Lessee shall have made all payments then due and owing to such Tax Indemnified Party pursuant to this Section 16; provided, however, that any subsequent loss of any refund paid to the Lessee hereunder shall be treated as a Tax subject to indemnification in accordance with this Section 16 (without regard to any exclusions set forth in subsection 16(b) or the provisions of subsection 16(g)). (j) Failure to Contest. Notwithstanding anything to the contrary contained in this subsection 16(g), a Tax Indemnified Party may at any time decline to take any further action with respect to a proposed adjustment or the imposition of a Tax; provided that if the Lessee has properly requested such action pursuant to, and is otherwise entitled to require any action to be taken by a Tax Indemnified Party pursuant to the provisions of subsection 16(g), and such Tax Indemnified Party has failed to contest, or permit the Lessee to contest, such proposed adjustment or the imposition of such Tax, such Tax Indemnified Party shall be deemed to have waived its right to any Indemnity payment that would otherwise be payable by the Lessee pursuant to this Section 16 in respect of such adjustment or the imposition of such Tax. In such event, such Tax Indemnified Party shall reimburse the Lessee for all amounts previously advanced by the Lessee to such Tax Indemnified Party with respect to such proposed adjustment pursuant to clause (y)(iii) of subsection 16(g) hereof. If a Tax Indemnified Party fails to contest or to permit a contest hereunder, such Tax Indemnified Party will not be required to pay over the Lessee any amount representing tax benefits described in subsection 16(c)(B) hereof which result from the payment of Taxes as to which such Tax Indemnified Party has been deemed to have waived its right to any indemnity payment hereunder. (k) Interest. To the extent permitted by applicable law, interest at the Stipulated Interest Rate shall be paid, on demand, on any amount not paid when due, pursuant to Section 16 until the same shall be paid. Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due. (l) Effect of Other Indemnities. The Lessee's obligations under the indemnities provided for in this Agreement and the Long-Term Agreements shall be those of a primary obligor whether or not the Person indemnified shall also be indemnified with respect to the same matter under the terms of this Agreement, any Lease or any Long-Term Agreement or any other document or instrument, and the Person seeking indemnification from the Lessee pursuant to any provisions of this Agreement may proceed directly against the Lessee without first seeking to enforce any other right of indemnification. 57 Section 17. Miscellaneous (a) Construction; Governing Law. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect. No term or provision of this Lease may be changed, waived, discharged or terminated orally, but only by written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought; and, in compliance with Section 2A-208(b) of the Texas Business and Commerce Code requiring a separate signature of this provision, Lessee has signed in the space provided below. Any consent or approval specified herein of a party hereto may be withheld entirely in such party's discretion unless it is herein expressly provided that such consent may not be unreasonably withheld. No waiver of a breach of any provision of this Lease Agreement by either party shall constitute a waiver of any subsequent breach of the same or any other provision hereof, and no waiver shall be effective unless in writing. HAWAIIAN AIRLINES, INC. By: ------------------------------------- Clarence K. Lyman, Vice President-Finance, Treasurer and Assistant Corporate Secretary By: --------------------------------------- Rae A. Capps, Vice President, General Counsel and Corporate Secretary The captions in this Lease are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (EXCLUDING THE CONFLICT OF LAW PROVISIONS THERETO), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 58 (b) Notices. All notices, offers, acceptances, approvals, waivers, requests, demands and other communications hereunder or under any instrument, certificate or other instrument delivered in connection with the transactions described herein shall be in writing, shall be addressed as provided below and shall be considered as properly given (a) if delivered in person, (b) if sent by overnight delivery service (including, without limitation, Federal Express, UPS, Emery, Purolator, DHL, Air Borne, and other similar overnight delivery services), (c) if sent by telecopier (upon receipt by the sender thereof of evidence that a clean transmission of such telecopy was made to the recipient thereof) and, in such case, dispatching a copy of such notice by the methods described in clause (a) or (b) above. All notices shall be effective upon delivery; provided that if any notice is tendered to an addressee, such notice shall be effective upon tender. For the purposes of notice the addresses of the parties shall be as set forth below; provided that any party shall have the right to change its address for notice hereunder to any other location by giving thirty (30) days' notice to the other parties in the manner set forth hereinabove. The initial addresses of the parties hereto are as follows: If to Lessor: American Airlines, Inc. 4333 Amon Carter Boulevard MD 5566 Fort Worth, Texas 76155 Attention: Vice President Corporate Development and Treasurer Telecopier: (817) 967-2199 Telephone: (817) 967-1227; and American Airlines, Inc. Maintenance & Engineering Center 3900 N. Mingo Road Tulsa, Oklahoma 74115 Attention: Senior Vice President, Maintenance and Engineering Telecopier: (918) 292-2203 Telephone: (918) 292-2612 With copies to: American Airlines, Inc. 4333 Amon Carter Boulevard MD 5675 Ft. Worth, Texas 76155 Attention: Corporate Secretary Telecopier: (817) 967-4313 Telephone: (817) 967-1254; and Haynes and Boone, L.L.P. 901 Main Street 3100 NationsBank Plaza Dallas, Texas 75202-3789 59 Attention: Janice V. Sharry Telecopier: (214 651-5940 Telephone: (214) 651-5000 If to Lessee: Hawaiian Airlines, Inc. 3375 Koapaka Street Suite G350 Honolulu, Hawaii 96819 Attention: Vice President-Finance Telecopier: (808) 836-4795 Telephone: (808) 835-3075 With copies to: Hawaiian Airlines, Inc. 3375 Koapaka Street Suite G350 Honolulu, Hawaii 96819 Attention: Vice President-General Counsel Telecopier: (808) 835-3690 Telephone: (808) 835-3610 (c) Lessor's Right to Perform. If Lessee fails to perform any of its obligations hereunder, Lessor may (but shall not be obligated to) discharge such obligation, and the amount of the expenses of Lessor incurred in connection with such discharge shall be deemed Supplemental Rent, payable by Lessee upon demand together with interest thereon at the Stipulated Interest Rate to but excluding the date of payment. Lessor shall use its best efforts to give Lessee prior notice of Lessor's intention to discharge any such obligation. (d) Confidentiality. (i) Confidential Information. For purposes of this Agreement, confidential information shall mean any and all (i) trade secrets, (ii) confidential or other proprietary information of a party or its Affiliates concerning past, present or future research, development, business activities or affairs, finances, properties, methods of operation, processes and systems, (iii) customer lists, and (iv) other customer information, whether oral, written or contained in any magnetic, electronic or other media; provided that in order for a party's information to be considered confidential hereunder such information, if non-oral, must be marked by such party as confidential; and provided further that oral information must be specified as confidential at the time of disclosure (collectively, "Confidential Information"). Notwithstanding the foregoing, the parties expressly acknowledge and agree that the terms and conditions of this Agreement set forth in Exhibit E of this Agreement constitute Confidential Information. The party which receives Confidential Information from the other party agrees to maintain such information in secrecy at all times, using the same degree of care with respect to such Confidential Information as it uses in protecting its own proprietary information, trade secrets and similar items; provided 60 that Confidential Information may be used in an action by one party to this Agreement against the other if subject to the conditions set forth in (ii) below. Information of either party which would otherwise be considered Confidential Information shall not be considered Confidential Information if such information is in the public domain, or is placed in the public domain through no violation of this Agreement, or is lawfully obtained from another source free of restriction. (ii) Use of Confidential Information. Except to the extent expressly permitted in Section 4(l) of Exhibit E, neither party shall sell, transfer, publish, disclose, display or otherwise make available the Confidential Information of the other party to any third party (and third parties shall be deemed also to include Affiliates of the party so restricted which are not parents or subsidiaries), except as may be required by Applicable Law in which case the party from whom disclosure is sought shall promptly notify the other party. To the extent that the other party objects to disclosure of such Confidential Information, the party from which disclosure is sought shall (i) use reasonable and lawful efforts to resist making any disclosure of such Confidential Information, (ii) use reasonable and lawful efforts to limit the amount of such Confidential Information to be disclosed, and (iii) use all reasonable efforts to obtain a protective order or other appropriate relief to minimize the further dissemination of any Confidential Information to be disclosed. In addition, neither party shall disclose the Confidential Information of the other party to any employee or agent except on a need-to-know basis. Each party shall use reasonable efforts to inform all such employees and agents that the Confidential Information of the other party is subject to this non-disclosure obligation. Furthermore, neither party shall use the Confidential Information of the other party for any purpose other than as expressly provided in this Agreement. (iii) Termination. Upon termination of this Agreement for any cause or reason, each party shall, within ninety (90) days of such termination, either deliver to the other party or destroy all of such other party's Confidential Information (including all copies thereof, other than copies of this Agreement) at the option of the other party then in its possession and shall purge any copies thereof encoded or stored on magnetic or other electronic media or processors; provided that neither Lessee nor Lessor shall be required to purge or destroy any Confidential Information that is reasonably necessary in connection with the resolution of any disputes which may have arisen pursuant to the terms of this Agreement. (iv) No Adequate Remedy. Each party acknowledges and agrees that the other party will have no adequate remedy at law if there is a breach or threatened breach of this Section 17(d) and, accordingly, that the other party shall be entitled to an injunction against such breach. Nothing herein shall be construed as a waiver of any other legal or equitable remedies that may be available to either party if the other party breaches this Section 17(d). (v) Survival. The restrictions of this Section 17(d) shall survive for a period of eight (8) years after the termination or expiration of this Agreement. 61 (vi) Affiliates. The Affiliates of Lessor and Lessee shall comply in all respects with the restrictions of this Section 17(d) and Lessor and Lessee, respectively, shall in all respects be responsible for their compliance. (vii) Other Confidentiality Agreements. The provisions of this Section 17(d) are in addition to, and shall not be deemed to affect the terms and provisions of, the Confidentiality Agreement. To the extent the terms hereof may be deemed to be inconsistent with the terms of the Confidentiality Agreement or such Confidentiality Agreement shall be silent, this Agreement shall control with respect to this Agreement and any Confidential Information relating hereto. Upon the written consent of Lessor, which consent shall not be unreasonably withheld, Lessee may provide this Agreement to third party lenders or investors of Lessee; provided that the party receiving this Agreement shall, prior to obtaining it, enter into a confidentiality agreement with Lessee for the benefit of Lessor in substantially the form of this Section 17(d). (e) Counterparts. This Lease and the Lease Supplement No. 1 may be executed in several counterparts, each of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. To the extent that this Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease may be created through the transfer or possession of any counterpart other than the counterpart marked as the "Original" and containing the receipt therefore executed by the applicable secured party on the signature page thereof. (f) Grant of Security Interest by Lessor. In compliance with the terms of this Section, Lessor may grant a security interest in this Lease as collateral for a loan provided Lessor notifies Lessee at least ten (10) Business Days before granting such security interest. The rights of Lessee under this Lease shall be superior in all respects to the rights of any such lender and Lessor shall require any such lender to agree in writing in form and substance reasonably satisfactory to Lessee that such lender's rights in and to the Aircraft and under the Lease shall be subject and subordinate to the terms of this Lease to receive all such performance from Lessor as may from time to time be required by the terms hereof. Lessee agrees to reasonably cooperate with Lessor in connection with Lessor's efforts to grant such security interest and to provide, at Lessor's cost and expense, such documents and certificates in connection therewith as Lessor may reasonably request, provided, that anything in this Section 17(f) to the contrary notwithstanding, the consummation of any such loan shall not increase the actual or potential responsibilities or liabilities of the Lessee or deprive Lessee of any of its rights or privileges under the Long-Term Agreements. (g) Survival. Except as otherwise expressly set forth herein or in the Long-Term Agreements, the representations, warranties and covenants set forth in this Agreement, and the obligations hereunder, shall survive any transfer of title or possession of the Serviced Aircraft, any Serviced Engines or any Serviced Part, any termination or expiration of this Agreement or any impossibility of performance of this Agreement or frustration of purpose of this Agreement. 62 (h) Assignment. SUBJECT TO THE TERMS HEREOF, THIS AGREEMENT SHALL BIND AND BENEFIT LESSOR, LESSEE, AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS. LESSOR MAY ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL OF ITS OBLIGATIONS HEREUNDER TO ANY AFFILIATE OF LESSOR; PROVIDED THAT LESSOR SHALL NOT ASSIGN ANY OR ALL OF ITS RIGHTS AND/OR DELEGATE ANY OR ALL OF ITS OBLIGATIONS UNDER EXHIBIT E OR ANY RELATED PROVISIONS OF THIS AGREEMENT TO ANY AFFILIATE THAT IS NOT CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES. SUBJECT TO THE PROVISIONS OF SECTION 4(f) OF EXHIBIT E, LESSOR MAY SUBCONTRACT CERTAIN SPECIFIC TYPES OF MAINTENANCE SERVICES CONSTITUTING LESS THAN ALL OR SUBSTANTIALLY ALL OF THE MAINTENANCE SERVICES TO BE PERFORMED HEREUNDER, AND, IN CONNECTION THEREWITH, ASSIGN CERTAIN OF ITS RIGHTS AND DELEGATE CERTAIN OF ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, LESSOR MAY ASSIGN ALL OR SUBSTANTIALLY ALL OF ITS RIGHTS AND/OR DELEGATE ALL OR SUBSTANTIALLY ALL OF ITS OBLIGATIONS UNDER EXHIBIT E AND ANY RELATED PROVISIONS OF THIS AGREEMENT TO ANY PERSON CERTIFICATED BY THE FAA TO PERFORM MAINTENANCE SERVICES SUBJECT ONLY TO SECTION 3(f)(ii)(C) OF EXHIBIT E. LESSEE MAY NOT (EITHER VOLUNTARILY OR INVOLUNTARILY) ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER. (i) Transaction Expenses. Lessee agrees to pay the reasonable out-of-pocket costs and expenses incurred by Lessor in connection with the preparation, execution and delivery of any amendments, modifications or waivers requested by Lessee or resulting from any requests of Lessee under this Agreement. Except as specifically set forth herein, each of Lessor and Lessee shall be responsible for their own legal and out-of-pocket expenses arising from the transactions contemplated herein. (j) Entirety. This Lease Agreement, the Lease Supplements, the Confidentiality Agreement and the Letter of Credit embody the entire agreement between the parties hereto and thereto concerning the subject hereof and thereof and such agreements terminate and supersede all prior or contemporaneous agreements, discussions, undertakings, and understandings, whether written or oral, express or implied, between the parties hereto and thereto concerning the subject hereof and thereof. (k) Force Majeure. Lessor shall not be liable to Lessee for a failure or delay in the performance of any obligation or agreement contained herein, if such failure or delay arises from any cause beyond Lessor's reasonable control, including any act, omission, or breach of this Lease Agreement by Lessee, acts of God, action or regulation of any Governmental Authority, fire, the elements, flood, earthquakes, explosions, accidents, mechanical or electrical failures, acts of the public enemy, war, civil disturbance, rebellion, insurrection, work stoppage, strikes 63 (including any mechanic, flight attendant or pilot strike), labor dispute or difference with workers, regardless of whether or not Lessor (or its Affiliate) is capable of settling such labor problem, or any other cause, whether similar or dissimilar, beyond Lessor's reasonable control; provided, however, that, notwithstanding the foregoing, with respect to Maintenance Services and related obligations as provided in Exhibit E hereto, the provisions of Section 4(c)(i) of Exhibit E shall apply. (l) Independent Contractor; No Agency. Nothing in this Agreement is intended or shall be construed to create or establish any agency, partnership, or joint venture or fiduciary relationship between the parties and neither Lessee nor any of its Affiliates has any authority to act for or to incur any obligations on behalf of or in the name of Lessor or any of its Affiliates and neither Lessor nor any of its Affiliates has any authority to act for or to incur any obligations on behalf of or in the name of Lessee or any of its Affiliates by virtue of this Agreement. The parties hereto acknowledge and agree that nothing contained herein creates any fiduciary duties between the parties or their respective Affiliates. (m) Certain Consents and Waivers of Lessee. (i) Jurisdiction. Except as set forth in Section 6 of Exhibit E hereto, (a) Each party hereto hereby irrevocably submits to the exclusive jurisdiction of: (i) the United States District Court for the Northern District of Texas, and of the courts of the State of Texas in Tarrant County, and (ii) to the United States District Court for the District of Hawaii (other than the Court), and of the courts of the State of Hawaii in Honolulu County, for the purposes of any suit, action or other proceeding arising out of this Lease Agreement or the subject matter hereof brought by any other party, and (iii) any federal, state or foreign court of competent jurisdiction where the In-Use Aircraft may be located from time to time for the purpose of Lessor exercising any rights and remedies under this Lease Agreement, including, without limitation, repossession of the In-Use Aircraft. Lessor and Lessee each agrees that neither of them will bring any suit, action or other proceeding arising out of this Lease Agreement, the subject matter herein, or any of the transactions described herein, in any jurisdiction other than the jurisdictions described above. (b) To the extent permitted by applicable law, each party hereby waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such suit, action or proceeding, any claim (i) that it is not personally subject to the jurisdiction of the above-named courts, (ii) that the suit, action or proceeding is brought in an inconvenient forum, (iii) that it is immune from any legal process with respect to itself or its property, (iv) that the venue of the suit, action or proceeding is improper, or (v) that this Lease Agreement or the subject matter hereof may not be enforced in or by such courts; 64 (c) Lessee agrees to designate CT Corporation in Texas as its agent for service of process in Texas, and Lessor agrees to designate CT Corporation in Hawaii as its agent for service of process in Hawaii. Lessor and Lessee each agrees that submission to jurisdiction and designation of an agent for service of process set forth above is made solely for the express benefit of the other party and is effective solely for purposes of this Lease Agreement; (d) Final judgment against a party in any suit in any court of competent jurisdiction shall be conclusive, and may be enforced in other jurisdictions, to the extent permitted by Applicable Law, by suit on the judgment, a certified and true copy of which, to the extent permitted by Applicable Law, shall be conclusive evidence of the fact and the amount of any indebtedness or liability of the party therein described; and (e) To the extent that any party or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any competent court, from service of process, from attachment prior to judgment, from attachment in aid of execution, or from jurisdiction, that party for itself and its property does hereby irrevocably and unconditionally waive, and agrees not to plead or claim any such immunity with respect to its obligations, liabilities or any other matter arising hereof. Such agreement shall be irrevocable and not subject to withdrawal in any and all jurisdictions including under the Foreign Sovereign Immunities Act of 1976 of the United States of America. (ii) WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT OR ANY MATTER RELATED HERETO. (iii) OTHER WAIVERS. LESSEE AGREES AND ACKNOWLEDGES THAT UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS LEASE AGREEMENT, LESSOR SHALL SUFFER IRREPARABLE HARM FOR WHICH MONEY DAMAGES WILL NOT BE ADEQUATE OR CANNOT BE READILY ASCERTAINED. IN FURTHERANCE THEREOF, LESSEE AGREES THAT IT WILL TAKE NO ACTION TO HINDER, DELAY OR INTERFERE WITH ANY ACTIONS TAKEN BY LESSOR IN CONNECTION WITH THE REPOSSESSION OF THE IN-USE AIRCRAFT. SPECIFICALLY, LESSEE WILL NOT TAKE ANY ACTION WHICH WOULD REQUIRE THE LESSOR TO BREACH THE PEACE IN CONNECTION WITH REPOSSESSION OF THE IN-USE AIRCRAFT. LESSEE CONSENTS TO THE ISSUANCE OF ANY ORDER OF ANY COURT OF COMPETENT JURISDICTION ENABLING LESSOR TO REPOSSESS THE IN-USE AIRCRAFT, FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT, WITHOUT THE NECESSITY OF LESSOR POSTING OR ISSUING ANY BOND. IN ADDITION, LESSEE AGREES THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT DESCRIBED IN SECTIONS 13A(I) OR (J) OF THE LEASE AGREEMENT, LESSEE SHALL NOT TAKE ADVANTAGE OF ANY PERIODS SPECIFIED IN SECTIONS 365 OR 1110 OF THE 65 BANKRUPTCY CODE DURING WHICH IT MIGHT RETAIN POSSESSION OF THE IN-USE AIRCRAFT OR THE PROVISIONS OF THE AUTOMATIC STAY SET FORTH IN SECTION 362 OF THE BANKRUPTCY CODE, AND, WITHOUT LIMITING OTHER REMEDIES AVAILABLE TO LESSOR, SHALL EITHER IMMEDIATELY UPON THE FILING OF ANY BANKRUPTCY PETITION TURN OVER THE IN-SERVICE AIRCRAFT TO LESSOR OR PAY ALL AMOUNTS THEN DUE AND OWING HEREUNDER AND THEREAFTER ACCRUING UNDER THIS LEASE AGREEMENT. IN THE EVENT THAT AN ORDER IS ISSUED GIVING LESSOR POSSESSION OF ANY IN-USE AIRCRAFT, LESSEE HEREBY WAIVES ANY RIGHT IT MAY HAVE TO RETURN OF POSSESSION OF SUCH AIRCRAFT, AND COVENANTS THAT IT WILL NOT SEEK ANY ORDER PERMITTING IT TO RETAIN OR REPOSSESS SUCH AIRCRAFT, BY POSTING A BOND OR OTHERWISE. IN THE EVENT THAT ANY COURT DECLINES TO ISSUE AN ORDER PERMITTING LESSOR TO REPOSSESS ANY IN-USE AIRCRAFT UNLESS LESSOR POSTS OR ISSUES A BOND, OR LESSOR ELECTS NOT TO REQUEST THAT THE REQUIREMENT FOR SUCH A BOND BE WAIVED, LESSEE HEREBY AGREES THAT (IF LESSOR SO ELECTS) THE AMOUNT OF SUCH BOND SHALL NOT BE REQUIRED TO EXCEED ONE YEAR'S BASIC RENT FOR SUCH AIRCRAFT. (n) Offset. Until all Deferred Basic Rent is paid under the Long-Term Lease Agreement (provided that on the date all Deferred Basic Rent is paid thereunder, all other Rent then due and payable thereunder and hereunder has also been paid; such date being the "Setoff Release Date") Lessor, AMRCG, SABRE and AMS shall each have the right to setoff and recoup any sums payable to Lessee against any sums payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to this Lease Agreement, the other Long-Term Agreements or otherwise. Until the Setoff Release Date Lessor shall also have the right to setoff and recoup any amounts payable by Lessee to Lessor, AMRCG, SABRE or AMS pursuant to this Lease Agreement, or the other Long-Term Agreements by drawing upon any letter of credit or withdrawing any portion or all of the Deposit (which may constitute all or a portion of the Letter of Credit). Nothing set forth in this Subsection 17(n) or Subsection 17(n) of the Long-Term Lease Agreement, the July Lease Agreement or the November Lease Agreement shall otherwise limit Lessor's right to draw upon or withdraw from the Letter of Credit to the extent otherwise set forth herein or in any Long-Term Agreement. Section 18. True Lease (a) Intent of the Parties. It is the intent of the parties to this lease that it will be a true lease and not a "finance lease" as defined in Section 168(f) of the Internal Revenue Code of 1954, as amended and in effect prior to the Tax Reform Act of 1986 (P.L. 99-154) or a "conditional sale" as defined in 49 U.S.C. Section 40102(a)(18) (former 1301) and that the Lessor shall at all times be considered to be the owner of the Aircraft which is the subject of this Lease for the purposes of 49 U.S.C. Section 44103 (former 1401) and for all Federal, state, 66 city and local income taxes or for franchise taxes measured by net income and that this Lease conveys to the Lessee no right, title or interest in the Aircraft except as a lessee. Section 19. Enforceability in Jurisdictions. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 20. No Third-Party Beneficiaries. Except for rights and benefits conferred on certain of Lessor's Affiliates as set forth in this Lease Agreement, all rights, remedies, and obligations of the parties hereunder shall accrue or apply solely to the parties hereto or their permitted successors or assigns and there is no intent to benefit any third parties. Section 21. Maintenance Obligations. Lessee and Lessor agree that notwithstanding the provisions of the Long-Term Lease Agreement, including Exhibit F thereto, which by its terms relates to the provision of maintenance services by Lessor of all DC10-10 aircraft leased by Lessor to Lessee, that the terms of this Lease Agreement shall govern the maintenance of the Aircraft. The Long-Term Lease Agreement, including Exhibit F thereto shall continue in full force and effect as to all other Serviced Aircraft (as defined in the Long-Term Lease Agreement) other than the aircraft which is subject to the November Lease Agreement, which shall remain subject to the maintenance provisions set forth in Exhibit E to the November Lease Agreement, the aircraft which is subject to the July Lease Agreement, which shall remain subject to the maintenance provisions set forth in Exhibit E to the July Lease Agreement and the aircraft which is subject to the December Lease Agreement, which shall remain subject to the maintenance provisions set forth in Exhibit E of the December Lease Agreement. Section 22. Amendment of Long-Term Lease Agreement. Lessor and Lessee agree that the occurrence of any Lessee Event of Default hereunder shall constitute a "Lessee Event of Default" under the Long-Term Lease Agreement, the 151 Lease Agreement, the 161 Lease Agreement, the 162 Amendment and the 171 Lease Agreement. [Next following page is the signature page.] 67 IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Agreement to be duly executed as of the day and year first above written. Lessor: AMERICAN AIRLINES, INC. By: ___________________________________ Jeffery M. Jackson Vice President - Corporate Development and Treasurer Lessee: HAWAIIAN AIRLINES, INC. By: ___________________________________ Clarence K. Lyman, Vice President-Finance, Treasurer and Assistant Corporate Secretary By: ___________________________________ Rae A. Capps, Vice President, General Counsel and Corporate Secretary 68 EXHIBIT A TO LEASE AGREEMENT LEASE SUPPLEMENT NO. 1 THIS LEASE SUPPLEMENT NO. 1, dated , 1997, between AMERICAN AIRLINES, INC., a Delaware corporation ("Lessor"), and HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Lessee"). W I T N E S S E T H: WHEREAS, Lessor and Lessee have heretofore entered into the Aircraft Lease Agreement dated as of January, 3, 1997 (the "Lease Agreement", defined terms used herein are as therein defined), which provides in Section 2 for the execution of a Lease Supplement substantially in the form hereof for the purpose of leasing the Aircraft under the Lease Agreement on its Delivery Date in accordance with the terms hereof; and WHEREAS, the Lease Agreement relates to the airframe and engines described below, and a counterpart of the Lease Agreement is attached to and made a part of this Lease Supplement, and this Lease Supplement, together with such attachment, is being filed for recordation on the date hereof with the FAA as one document; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and pursuant to Section 2 of the Lease Agreement, the Lessor and Lessee hereby agree as follows: 1. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts and leases from Lessor, under the Lease Agreement as hereby supplemented, the McDonnell Douglas DC10-10 aircraft (the "Aircraft") which consists of the following components (which may or may not be attached to each other at the moment of acceptance hereunder): (i) airframe: U.S. registration number N160AA; manufacturer's serial no. 46710; and (ii) three General Electric CF6-6K engines bearing manufacturer's serial nos. 451210, 451392and 451262 (each of which engines has 750 or more rated takeoff horsepower or the equivalent of such horsepower). 2. The Term for the Aircraft commences on the date of this Lease Supplement. 3. The Term shall commence on the date hereof and shall end on September 11, 2001, unless earlier terminated in accordance with the provisions of the Lease Agreement. 4. Lessee hereby confirms its agreement to pay to Lessor Basic Rent for the Aircraft throughout the Term in accordance with Section 3 of the Lease Agreement and to pay Supplemental Rent pursuant to Exhibit E attached to the Lease. 5. All of the provisions of the Lease Agreement are hereby incorporated by reference in this Lease Supplement on and as of the date of this Lease Supplement to the same extent as if fully set forth herein. 6. 6.This Lease Supplement is being delivered in the State of Texas and shall in all respects be governed by, and construed in accordance with, the laws of the State of Texas, including all matters of construction, validity and performance. 7. This Lease Supplement may be executed in several counterparts, each fully-executed counterparts all of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. To the extent that this Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease Supplement may be created through the transfer or possession of any counterpart other than the counterpart marked as the "Original". IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to be duly executed and delivered as of the date and year first above written. AMERICAN AIRLINES, INC. By: ___________________________________ Jeffery M. Jackson Vice President --Corporate Development and Treasurer HAWAIIAN AIRLINES, INC. By: ___________________________________ Clarence K. Lyman, Vice President-Finance, Treasurer and Assistant Corporate Secretary By: ___________________________________ Rae A. Capps, Vice President, General Counsel and Corporate Secretary -2- EXHIBIT B This Exhibit B has been intentionally omitted for recording purposes, as the parties deem the information contained therein to be confidential financial information. EXHIBIT C CONDITIONS PRECEDENT TO DELIVERY 1. The Aircraft shall have been tendered for delivery to Lessee in the condition required by the Lease at LAX or such other location as Lessor and Lessee may have agreed to in writing. 2. On the Delivery Date, the representations and warranties of Lessor set forth in the Lease Agreement shall be true and accurate as if made on such date. 3. This Lease and Lease Supplement No. 1 shall have been executed and delivered to Lessor for filing for information with the FAA in Oklahoma City, Oklahoma. 4. The receipt by Lessor from Lessee not later than two (2) days prior to the Delivery Date of the following, dated as of such Delivery Date, all of which shall be satisfactory in form and substance to Lessor: (a) copies of the articles of incorporation and by-laws of Lessee, certified to be true and up to date copies by a duly authorized officer thereof; (b) copies of resolutions of the board of directors of Lessee authorizing Lessee to enter into and perform the Lease Agreement and the transactions contemplated hereby, certified to be true and up to date copies by a duly authorized officer of Lessee; (c) a closing certificate and an incumbency certificate of a duly authorized officers of Lessee setting out the names and signatures of the person or persons authorized to sign the Lease Agreement; (d) Opinion of in-house counsel to Lessee in form and substance reasonably satisfactory to Lessor, and the opinion of independent counsel confirming the applicability of the protections of Section 1110 of the Bankruptcy Code to the Lease Agreement; (e) certificate acceptable in form and substance to Lessor evidencing the insurance required by Section 9 of the Lease Agreement; (f) receipt by Lessor of the first installment of Basic Rent pursuant to Section 3 of the Lease Agreement and Supplemental Rent pursuant to Exhibit E to the Lease Agreement and payment of all amounts then due under any Long-Term Agreement; and (g) Execution and delivery by Lessee of any financing statements required by Lessor. 5. Execution by Lessee of the Lease Termination relating to this Lease Agreement. 6. The Final Order (as defined in the Long-Term Lease Agreement) confirming the Plan shall be and remain in full force and effect. 7. The Long-Term Agreements are in full force and effect. 8. No Default or Lessee Event of Default shall have occurred and be continuing and no "Event of Default" or "Termination Event" shall have occurred and be continuing under the Interim Definitive Agreements or Long-Term Agreements; provided however, that the effectiveness of this Lease Agreement shall not be deemed to be a waiver by either party to this Lease Agreement or any of the Interim Definitive Agreements of any claims (whether or not disclosed) such party may have against the other party under the Interim Definitive Agreements or the Long Term Agreements. -2- EXHIBIT D TO LEASE AGREEMENT DELIVERY AND RETURN CONDITIONS The following conditions shall apply to the In-Use Aircraft upon delivery of the In-Use Aircraft by Lessor to Lessee and upon return of each Return Aircraft to the Lessor by the Lessee pursuant to this Agreement. CONDITION OF IN-USE AIRCRAFT UPON DELIVERY AND RETURN AIRCRAFT UPON RETURN Lessor and Lessee agree that Lessor shall deliver the In-Use Aircraft and Lessee shall return the Return Aircraft to the Lessor in compliance with all of the following provisions: 1. Inspection of "on-condition" and "condition monitored" components will have been accomplished when due and all such items shall be serviceable. 2. It is the intent of the parties that the Return Aircraft at the termination of the Lease shall be to conform to that of the standards of international air transportation, with the interior and exterior in good repair and appearance, without significant corrosion, or structural maintenance work deferred, and with all Airworthiness Directives in full compliance. It is further the intent of the Lease that the Return Aircraft and its Serviced Engines will be readily transferable to the registration of another carrier without having to undergo significant repairs, refurbishment or modification being required on the Return Aircraft. At the time of such return, the Return Aircraft shall comply with the following conditions: A. Upon delivery to Lessee, the In-Use Aircraft shall comply with Lessor's FAA-approved maintenance program. Upon return to Lessor, the Return Aircraft shall comply with Lessee's FAA-approved maintenance program. B. All deferred maintenance items and all deficiencies or discrepancies which by their nature are outside Lessor's (upon delivery) and Lessee's (upon return) maintenance manual limits for unrestricted operation found prior to or during the predelivery or return inspection or final inspection or demonstration delivery flight(s) shall be corrected by repair in accordance with the approved Lessor's (upon delivery) and Lessee's (upon return) maintenance manual. Except upon the delivery of the In-Use Aircraft, any maintenance items, deficiencies or discrepancies which are approved for Lessor's (upon delivery) and Lessee's (upon return) maintenance manual limits for unrestricted operation which may be deferred, may at the discretion of Lessor (upon delivery) and Lessee (upon return) be deferred until the next C check. C. In addition, the fuel, hydraulic, pneumatic, water and waste systems leaks on the In-Use Aircraft shall be within the limits allowable pursuant to Lessor's (upon delivery) maintenance manual. The fuel, hydraulic, pneumatic, water and waste system leaks on the Return Aircraft shall be within the limits allowable pursuant to Lessee's (upon return) maintenance manual. This is to be demonstrated by filling all tanks and reservoirs to capacity for performance of a functional and leak check of all related systems. The cost of such checks shall be borne by Lessor (upon delivery) and the Lessee (upon return). D. The Aircraft on delivery by Lessor and Return by Lessee and all parts installed shall have all necessary FAA-approved service tags or equivalent Lessor (upon delivery) and Lessee (upon return) documents approved by the Lessor's (upon delivery) and Lessee's (upon return) maintenance program. E. In the event Lessor is no longer maintaining the Aircraft, upon return, Lessee shall provide the life history of all life limited parts, as well as airframe and engine records, carried forward from the life histories thereof furnished to Lessee by Lessor. F. Engines a. Engine borescope inspections of compressor, burner and turbine sections of each installed engine shall be conducted in accordance with Lessor's engine borescope inspection cards #4930-1, 4930-2 and 4930-3 (or any such replacement card therefor). Each card shall have attached thereto findings and comments along with visual records (photographic or video data). Inspected engines shall meet the requirements of Lessor's maintenance manual (upon delivery) and Lessee's maintenance manual (upon return). Borescope inspection findings that result in inspection intervals being reduced to less than 400 hours will be corrected by engine replacement and/or repair prior to delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft by Lessee. Borescope inspections shall have been completed by Lessor/Lessee or its authorized representative, at Lessee's expense prior to re-delivery. In the event the APU fails to meet the pneumatic or electrical load requirements, the APU shall be changed. b. Each installed engine will be subject to completion of a power assurance run and review of engine trend analysis with all engine parameters being within limits in accordance with the appropriate manufacturer's engine manual. Engine ground runs for the Aircraft prior to re-delivery shall be conducted in accordance with Lessor's engine ground run-up card number DR71-95-18 (or any such replacement card therefor). Engine Exhaust Gas Temperature ("EGT") shall not exceed a maximum of 925 DEG C during ground runs to max power. In the event EGT exceeds 925 DEG C and adjustments cannot be accomplished with the engine installed within eight working hours to reduce EGT below 925 DEG C at max power, the engine installed shall be rejected and a Replacement Engine installed. -2- c. No re-delivered aircraft shall have an installed engine which shall be on "watch" and each such engine shall comply with the operations specification of Lessee without waiver or exceptions. In the event Lessor is no longer maintaining the In-Use Aircraft, the expense of complying with this paragraph F shall be at Lessee's sole expense. In the event Lessor is maintaining the In-Use Aircraft pursuant to Exhibit F hereto, the cost of any repairs or replacements required by this paragraph F shall be borne by the parties in accordance with the other terms of Exhibit F as if such repairs and replacements were made in the normal course of the term of the Lease Agreement, except to the extent specifically set forth in this Exhibit D. G. Lessor shall (upon delivery) and Lessee shall (upon return) provide the then current weight and balance report in the delivery configuration as required by the FARs provided to Lessor and/or Lessee. H. All required placards per Lessor's/Lessee's maintenance and operations specifications must be current, in place and in English and legible. I. Fuselage: (1) Dents, corrosion and abrasions, or any loose, pulled or missing rivets shall be within the limits of Lessor's (upon delivery) and Lessee's (upon return) maintenance manual. External patches shall be of a type consistent with industry standards and approved by Lessor's (upon delivery) and Lessee's (upon return) maintenance manual. Each repair shall have proper documentation of structural repair manual reference and/or engineering repair drawings or documentation as applicable. (2) Windows shall be serviceable in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manual. Visibility through windows will comply with industry standards. (3) Doors shall be free moving, correctly rigged and be fitted with serviceable seals, in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manual limits. (4) Exterior logos will be removed pursuant to Exhibit F hereto, by stripping the present logo, and repainting to blend with existing exterior paint in accordance with Lessor's (upon delivery) and Lessee's (upon return) standard maintenance manual practices. (5) Unpainted metal surfaces shall be clean and buffed. -3- J. Wings and Empennage (1) All leading edges shall be serviceable in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manual limits. Any repairs to leading edges shall be in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manuals. (2) All control surfaces shall be clean by airline standards and free of delamination in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manual. (3) Unpainted cowlings and fairings shall be buffed and clean by airline standards and tightly fitted in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manual limits. (4) Fuel leaks in the wings shall be within the limits allowed by Lessor's (upon delivery) and Lessee's (upon return) FAA-approved maintenance program. Except upon the delivery of any In-Use Aircraft, temporary fuel leak repairs will be within the limits allowed, by Lessor's (upon delivery) and Lessee's (upon return) FAA-approved maintenance program. Permanent repairs may be deferred until the next C check. (5) Fuel tanks shall be free from contaminates, as evidenced by sumping the tanks externally. K. Interior (1) The In-Use Aircraft shall be delivered in the standard Lessee's interior configuration, including, but not limited to seats, seat covers and belts. Upon return, the Return Aircraft shall be delivered with Lessee's carpet, flooring, drapes, tapestries and hard decor as last operated in revenue service by Lessee, all of which items shall become the property of Lessor and may be subsequently used by Lessor in its sole discretion. Upon return, all logos and markings of Lessee shall be carefully and tastefully removed. Except as otherwise provided herein, Lessor may retain other severable items that do not add to the value of the Return Aircraft and that are not required to be installed in the Aircraft by the FAA. Unless otherwise agreed in writing, Lessee shall deliver the Return Aircraft with Lessor's seat covers installed in the In-Use Aircraft. (2) Ceilings, sidewalls and bulkhead panels shall be clean and free of major cracks and stains by normal airline standards. -4- (3) All carpets and seat covers shall be in good condition, normal wear and tear excepted, clean and stain-free by normal standards and shall meet current FAA fire retardant regulations. (4) All seats shall be serviceable in accordance with maintenance manual limits in good condition, normal wear and tear excepted and repainted as reasonably required. (5) All signs and decals shall be in English, clean and properly fitted to the seat by normal industry standards. (6) All emergency equipment which is limited by calendar life shall have a minimum of one year's useful life remaining. (7) Aircraft galleys delivered in the In-Use Aircraft hereunder and the Return Aircraft shall include all necessary inserts, ovens, coffee makers and trash containers as required for normal passenger revenue flights. (8) Floor panels shall be in good condition free of soft spots and delamination. If field repairs are installed, permanent repairs may be deferred to the next C check. (9) The aircraft interior shall be thoroughly cleaned to the standards acceptable for passenger revenue flights. L. Cockpit (1) All placard and decals shall be in English, clean, secure and legible. (2) All fairing panels shall be free of major stains and major cracks and shall be clean. (3) Floor coverings shall be clean and effectively sealed as required by Lessor's (upon delivery) and Lessee's (upon return) maintenance program. (4) Seat covers shall be in good condition, free of major tears and major stains, normal wear and tear excepted, and shall conform to existing fire-blocking regulations. (5) Seats shall be fully serviceable, in good condition, normal wear and tear excepted, and repainted as reasonably required. -5- M. Cargo Compartments (1) All panels shall be in serviceable condition, normal wear and tear excepted. All repairs to floor, ceilings or side walls shall be in accordance with Lessor's (upon delivery) and Lessee's (upon return) maintenance manuals. Except, if approved field repairs are installed, permanent repairs may be deferred to the next C Check. (2) Upon return of the Return Aircraft, one ship set of serviceable cargo containers shall be included.* (3) All cargo loading functions shall be tested under load conditions by utilizing one fully loaded cargo container. (4) Upon the return of the Return Aircraft, one ship set of catering modules shall be included.* (5) One ship set of onboard ovens/coffee makers shall be included.* N. Landing Gear and Wheel Wells (1) Shall be clean, free from leaks and in good repair, normal wear and tear excepted. (2) All decals shall be in English, clean, secure and legible. (3) Upon return of the Return Aircraft brakes will be in good condition. No brake will have less than one half (1.950) inch of wear remaining on wear indicator with the brake hydraulic system fully pressurized. O. No structural repairs including corrosion, skin replacement, crack propagation or SSI programs shall be overdue on the Return Aircraft at time of redelivery, or be in a deferred status. P. (1) reserved (2) Lessee shall make the In-Use Aircraft available to Lessor on or before the anticipated Delivery Date for an operational test flight. Up to five persons designated by Lessor may participate in such flight as observers. Such test flight shall be conducted at Lessee's expense and, unless mutually agreed by Lessee and Lessor, shall not exceed two hours. The test flight shall be conducted by Lessee using Lessee's standard flight test procedures. Lessee shall demonstrate such additional -6- aircraft functions as may reasonably requested by Lessor's observers. Lessor shall identify to the Lessee in writing any claim of any discrepancy between the required condition of the Return Aircraft and the Return Aircraft's actual condition. In the event Lessor is no longer maintaining the Aircraft, the expense of correcting any discrepancy shall be at Lessee's sole expense. In the event Lessor is maintaining the Aircraft pursuant to Exhibit F hereto, the cost of correcting any discrepancy required by this paragraph P(2) shall be borne by the parties in accordance with the other terms of Exhibit F as if such actions were taken in the normal course of the Term. Q. Upon return to Lessor the In-Use Aircraft shall be in compliance with Stage III Noise Regulations. R. Any FAA-mandated corrosion control program will be current as specified by the manufacturer's corrosion control document or approved Lessee's corrosion control program. S. The Return Aircraft shall be in compliance with all mandatory environmental, noise, air pollution and other standards prescribed by the respective regulatory authorities. * Lessee shall be responsible for removing such Items of Equipment for the In-Use Aircraft returned to Lessor. Pre-Delivery and Return Inspection and Acceptance Flight Ground Inspection - -------------------------------------------------------------------------- The In-Use Aircraft shall be made available to Lessee on or before delivery and the Return Aircraft shall be made available to Lessor on or before return of the Return Aircraft, for ground inspection(s) at either Tulsa, Oklahoma Airport or another Airport satisfactory to Lessor on or before the due date for delivery or return, as the case may be, in order that Lessee or Lessor, as the case may be, may reasonably satisfy itself that the Aircraft is in the condition required under this Agreement. The manuals and technical records shall be made available to Lessee or Lessor, as the case may be, for inspection during such period prior to delivery thereof as Lessee reasonably requires or during such period prior to return thereof as Lessor reasonably requires. Such inspections shall be conducted in coordination with Lessee's and Lessor's respective personnel and Lessee or Lessor, as the case may be, shall be allowed reasonable access to the Aircraft, as the case may be, to verify compliance with the conditions set forth in this Agreement. Lessee or Lessor, as the case may be, shall immediately state orally and confirm in writing within one (1) business day of the relevant inspection to Lessee or Lessor, as the case may be, each claim of discrepancy. To facilitate such inspection Lessor or Lessee, as the case may be, will provide reasonable office -7- accommodation at or near the inspection site (equipped with a telephone and having access to a photocopier, telecopier and word processing facilities) provided, however, that Lessee or Lessor, as the case may be, shall indemnify Lessor or Lessee, as the case may be, for all out-of-pocket costs so incurred by Lessee or Lessor. Documents Required for Return - ----------------------------- Listed below are the Lessor's documents or Lessee's equivalent documents that will be required upon delivery of the In-Use Aircraft by Lessor and the return of the Return Aircraft by Lessee. All documents shall be valid at time of return and shall incorporate the most recent revisions issued by the document's controlling regulatory agency: 1. Standard Airworthiness Certificate 2. Certificate of Sanitary Construction 3. A copy of Maintenance Check Manual 4. Airworthiness Directive Compliance Status including Repetitive and Method of Compliance 5. Status of Time Controlled and Life Limited Parts; Status of Airframe, Engines, Auxiliary Power Unit and Land Gear 6. Report covering any Minor Accidents or Repairs on the Aircraft with Supporting Documentation 7. A review of the Aircraft Log Books 8. FAR Compliance Status including Method of Compliance 9. Alteration/Repair/Modification Records 10. Service Bulletin Status List 11. AOL/Service Letter Status List 12. Supplemental type Certificates issued for Aircraft and Equipment as held by operator 13. List of Open Items 14. Weight and Balance Records -8- The following Lessor's manuals or Lessee's equivalent manuals shall be furnished in hard copy or reproducible film or in the then current form in which it is used by Lessor (upon delivery) and Lessee (upon return). Unless otherwise indicated, one copy of each of the following manuals or equivalents will be provided to Lessee or Lessor, as the case may be. Additional copies will be or have been provided pursuant to that certain Manuals Supplement between Lessor and Lessee, the Interim Aircraft Lease Agreements, the Interim Aircraft Maintenance Agreement or pursuant to the provisions hereof and all copies of each of the following shall be returned. All manuals will be valid at time of return and shall include the most recent revisions issued by the documents controlling regulatory agency. 1. FAA Approved Flight Manual 2. Flight Crew Operational Manual 3. Performance Manual 4. Airframe Maintenance Manual 5. Airframe Illustrated Parts Catalog 6. Airframe Structures Repair Manual 7. Wiring Diagram Manual 8. Engine Maintenance Manual 9. Engine Illustrated Parts Manual 10. Weight and Balance Records 11. Minimum Equipment List 12. Part Number Conversation List - Operator to Manufacturer P/N 13. Red Book for each microfilm library NOTE: All documents and manuals must be in English. Return of Other Engines. In the event that any engine not owned or leased by Lessor shall be installed on an Airframe (upon return), such engine shall be an engine suitable to be a Replacement Engine hereunder. Upon return of the Return Aircraft, Lessee shall duly convey to Lessor good title to any such engine, free and clear of all Liens and, upon such conveyance, Lessee will furnish Lessor with a full warranty bill of sale, in form and -9- substance reasonably satisfactory to Lessor, with respect to such engine and take such other action as may be reasonably requested in order that title to such engine may be duly and properly vested in Lessor to the same extent as the Engine replaced thereby. Upon conveyance by Lessee of good title to such engine to Lessor, and upon full compliance by Lessee with its obligations hereunder, at Lessee's expense, Lessor will transfer to Lessee all rights, title and interest originally conveyed to Lessor in an Engine constituting part of any Aircraft but not installed on the Airframe at the time of the return of the Airframe "as-is, where-is", free and clear of Lessor's Liens but otherwise without recourse or warranty, express or implied to Lessee. -10- EXHIBIT D-1 ADDITIONAL RETURN CONDITIONS At the time of return, the Return Aircraft shall be returned to Lessor as follows: (i) All time controlled and life limited components of the Serviced Engines shall have at least the same number of hours and cycles (as appropriate) remaining until the applicable limit of hours and cycles as set forth in Lessee's or manufacturer's Maintenance Manual as existed at the Delivery Date. (ii) All time controlled and life-limited components, the landing gear, and other Items of Equipment shall have at least the same number of hours, cycles or days (as appropriate) remaining until the applicable limit of hours, cycles and days as set forth in Lessee's or manufacturer's Maintenance Manual as existed at the Delivery Date. (iii) The Airframe shall have at least the same number of flight hours remaining to the next "C-check" (based on a 7200 hours "C-check" interval) as existed at the Delivery Date. (iv) Immediately prior to return of the Return Aircraft to Lessor, the Aircraft shall have received a "B-check" and shall have fewer than four (4) flights and ten (10) flight hours since such "B-check" (based on a 400 hour "B-check" interval) as existed at the Delivery Date. EXHIBIT E This Exhibit E has been intentionally omitted for recording purposes, as the parties deem the information contained therein to be confidential financial information. -2- SCHEDULE I This Schedule I has been intentionally omitted for recording purposes, as the parties deem the information contained therein to be confidential financial information. SCHEDULE 4(d)(i) Refer to letter dated December 15, 1995 from Lessee to Lessor. SCHEDULE 4(d)(iv) Refer to letter dated December 15, 1995 from Lessee to Lessor. SCHEDULE 4(d)(v) Refer to letter dated December 15, 1995 from Lessee to Lessor. SCHEDULE 4(d)(vi) Refer to letter dated December 15, 1995 from Lessee to Lessor. SCHEDULE 4(d)(vii) Refer to letter dated December 15, 1995 from Lessee to Lessor. EX-10.5 6 SEPARATION AGREEMENT Exhibit 10.5 SEPARATION AGREEMENT AND COMPLETE SETTLEMENT AND RELEASE OF ALL CLAIMS I. PARTIES TO THE AGREEMENT This Separation Agreement and Complete Settlement and Release of All Claims ("Agreement") is made between BRUCE R. NOBLES ("Executive") and HAWAIIAN AIRLINES, INC. ("Hawaiian"). Executive and Hawaiian are collectively referred to as the "Parties." II. BACKGROUND AND RECITAL A. By mutual agreement, Executive's active employment with Hawaiian will end as of the close of business on March 31, 1997. B. The Parties wish to resolve all potential claims Executive may have arising out of or related to Executive's employment by Hawaiian. III. CLAIMS For the purpose of this Agreement, the term "Claims" shall be defined as any and all claims, counterclaims, cross-claims, third-party complaints, demands, causes of action, obligations, controversies, liabilities and damages of any kind, name, nature or description, whether based on contract, tort, fraud, misrepresentation, statute or any other theory which the Parties had, have or may have against each other and/or related persons and/or past and present officers and directors and/or entities either at law, or in equity, whether now known, or unknown, and whether suspected or unsuspected, and which have been, or could have been, alleged by the Parties in a lawsuit or administrative or other legal proceeding or forum of any nature or which are based upon, arose from, related to, or are connected in any way whatsoever with: (i) the hiring, employment, or cessation of employment of Executive; or (ii) any and all claims arising from any alleged violations by Hawaiian and/or past or present officers and directors and/or related persons and/or entities of any federal, state or local statutes, ordinances or common laws, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act, and all federal and state laws and regulations regarding employment matters. As used in this Agreement the term "Claims" expressly does not include any of the obligations under this Agreement. The duties, covenants and warranties of the Parties under this Agreement shall expressly survive the execution of this Agreement. IV. CONSIDERATION In consideration of the mutual covenants contained in this Agreement, the Parties hereby agree as follows: A. SETTLEMENT SUM. If and only if Executive does not breach any term or condition in this Agreement, Hawaiian shall provide Executive with the following: 1. Pay Executive the sum of Three Hundred Thirty-One Thousand Dollars ($331,000.00) in equal semi-monthly payments beginning on April 1, 1997 and continuing through March 31, 1998. 2. Provide Executive with full medical, dental and insurance benefits as provided to senior executives of Hawaiian through March 31, 1998. 3. a. Extend the last exercise date of Executive's existing stock options granted under Hawaiian's 1994 Stock Option Plan (including those transferred to Executive's former wife pursuant to their Property Settlement Agreement) until June 30, 1999. b. During the term of Executive's options, extend to Executive and his former spouse the benefits of any amendments, other than maturity changes, awarded to the other option holders. 4. Provide Executive travel benefits on Hawaiian as a senior executive through March 31, 1999. 5. Provide Executive with travel benefits on other airlines as a continuing employee of Hawaiian through the expiration dates of the current year's pass cards, with the exception of American Airlines. The intention is that Executive shall be entitled to Executive's current boarding priority category. 6. Provide free shipment of Executive's personal effects from Hawaii to Dallas, Texas, including pick up and delivery. 7. Provide Executive with COMAT cargo benefits on Hawaiian as if he were employed by Hawaiian through March 31, 1998. 8. Provide Executive with a container freight employee discount between Hawaii and the U.S. mainland as if he were employed by Hawaiian through March 31, 1998. 9. Provide Executive with the use of his leased vehicle through March 31, 1997. 2 10. For the nine-month period from April 1, 1997, it will be assumed that employee status for income tax on personal travel will apply. After that, taxable travel will be valued at no higher than FTP rates unless changes in federal tax law, regulations or practice dictate otherwise. 11. Hawaiian will continue to assist Executive in making required personal SEC filings relating to Hawaiian securities. The consideration stated in this paragraph IV.A. in its entirety is hereinafter referred to as the "Settlement Sum." If Executive breaches in a material way any term of this Agreement, he shall immediately forfeit all rights under this Agreement to any portion of the Settlement Sum that remains to be paid or provided as of the date of the breach. In the event of such breach, the Executive's duties under this Agreement will remain, and Executive acknowledges that his receipt of any portion of the Settlement Sum shall be good and adequate consideration for all of the duties he has undertaken in this Agreement. Prior to the time that Executive's medical and dental benefits cease or are terminated, Hawaiian shall provide Executive with information regarding his right to receive COBRA benefits. B. ACCRUAL OF BENEFITS. Executive agrees and understands that his active employment with Hawaiian will cease as of March 31, 1997 and that final separation from Hawaiian's payroll will occur on March 31, 1998. Both Parties agree that the Settlement Sum provided by paragraph IV.A. is consideration for this Agreement and is not a wage or employment benefit. C. COMPANY PROPERTY. Executive shall immediately return to Hawaiian all company issued items, including but not limited to office keys, computer equipment, disks and/or electronic data. Immediately after Hawaiian's payment obligations pursuant to paragraph IV.A. above cease or are terminated, Executive shall immediately return to Hawaiian his A.O.A. badge and Friendship Program vouchers. On or before March 31, 1998, Executive shall return to Hawaiian his employee identification badge and annual pass card. D. MUTUAL RELEASE. The Parties, and their respective and related entities, for themselves and each of their heirs, and their executors, administrators, or personal representatives, hereby fully and finally waive, release and discharge each other and their respective and related entities, and their stockholders, partners, related partnerships and partners, subsidiaries, parent corporations, affiliate corporations, corporations under common control, past and present employees, past and present officers, past and present directors, agents, representatives, brokers, attorneys, insurers, excess insurers, reinsurers, indemnitors, subcontractors, consultants, suppliers, and successors and/or assigns from any and all Claims. 3 E. ABSOLUTE BAR. This Agreement is an absolute bar to all Claims released hereunder. The Parties agree that they will not at any time file any suit or make any claim or demand against each other or related persons or entities concerning the Claims released hereunder. The Parties also specifically warrant that they have no other claims and will bring no other claim against each other and/or related persons and/or entities. F. NO PENDING CHARGES OR COMPLAINTS. The Parties warrant that neither they nor any other person or entity have filed or reported any complaint, charge, or claim of any nature with any court, agency, or other governmental office or entity against each other regarding the Claims. The Parties agree that they will not file or report or permit the filing or reporting of any complaint, charge, or claim of any nature with any court, agency, or other governmental office or entity regarding the Claims. V. FURTHER AGREEMENTS, COVENANTS AND REPRESENTATIONS A. CONSULTING. Hawaiian may at its initiative call upon Executive for services during the nine month period from April 1, 1997 at per diem rates to be agreed plus expenses for car and lodging, separate from the Settlement Sum. Executive shall be issued an IRS Form 1099 at year-end for all such income derived as a result of these services. B. RIGHT OF REVOCATION. Executive has a period of seven (7) full days following the execution of this Agreement by all Parties hereto to revoke this Agreement by providing written notice of such revocation to Hawaiian. This Agreement shall not become effective or enforceable until this seven (7) day revocation period has expired without Executive having exercised his right of revocation. C. FURTHER ACKNOWLEDGMENTS. Executive fully understands, acknowledges and agrees that among the various rights and claims he is waiving, releasing and forever discharging by the execution of this Agreement are all rights and claims arising under the Federal Age Discrimination in Employment Act of 1967, 29 U.S.C. section 621 et seq. Executive further understands, acknowledges and agrees that he: 1. Has been given at least twenty-one (21) full days within which to consider this Agreement before executing it; 2. Has carefully read and fully understands all of the provisions of this Agreement; 3. Is, by the execution of this Agreement, waiving, releasing and forever discharging Hawaiian from all claims for relief, causes of action and 4 liabilities of any nature whatsoever, known or unknown, that he has or may have against Hawaiian, individually and/or collectively, including but not limited to claims of age discrimination; 4. Knowingly and voluntarily agrees to all of the terms of this Agreement; 5. Knowingly and voluntarily intends to be legally bound by all of the terms of this Agreement; 6. Was previously advised, and is hereby further advised, in writing to consult with an attorney of his choice before executing this Agreement; 7. Has a period of seven (7) full days following the execution of this Agreement by all Parties hereto to revoke this Agreement by providing written notice of such revocation to Hawaiian and was previously advised, and is hereby further advised, in writing that this Agreement shall not become effective or enforceable until this seven (7) day revocation period has expired without Executive having exercised his right of revocation; and 8. Understands that rights or claims under the Federal Age Discrimination in Employment Act of 1967, 29 U.S.C. section 621 et seq., that may arise after the date when this Agreement is executed by all Parties hereto are not waived. D. ACCEPTANCE OF AGREEMENT. If Executive does not revoke this Agreement within the seven (7) day revocation period described in paragraph IV.B. above, Executive agrees to mail or hand deliver to Rae A. Capps the original of a letter he has executed, in the form attached hereto as Exhibit "A," confirming Executive has not exercised his right to revoke. Within seven (7) days after Hawaiian receives the original of said letter as executed by Executive, Hawaiian agrees to commence the settlement consideration described in paragraph IV.A. above. E. INDEMNITY AND ENFORCEMENT OF THIS AGREEMENT. Each Party agrees that if he or it shall breach this Agreement, said Party shall fully indemnify and hold harmless the other Party from the consequences of such breach. The liability of any Party in any action or other proceeding for breach of this Agreement shall include not only the monetary amount of any judgment which may be awarded but also all of the damages, costs and reasonable attorneys' fees and costs incurred by the non-breaching party. F. ALL CLAIMS. As a further inducement for this Agreement, the Parties expressly waive the provisions of any and all ordinances, statutes, and common law principles and doctrines providing that a general release may not extend to claims which they did not know or suspect to exist in their favor at the time of executing 5 the release, which if known by them might have materially affected their settlement with each other and/or related persons and/or entities. The Parties acknowledge that they understand that this Agreement shall extend and apply to all unknown, unsuspected and unanticipated Claims, and/or losses, and/or damages, which are related to the Claims, as well as those which are specifically referred to herein, and the Parties hereby affirm that they have affixed their signatures hereto voluntarily and of their own free will and accord. G. FACTS. The Parties understand and expressly accept and assume the risk that the facts with respect to which this Agreement is executed may be found hereafter to be other than or different from the facts now believed by them to be true, and agree that this Agreement shall remain effective notwithstanding any such differences in fact. H. SERIOUSNESS OF CLAIMS. The Parties further understand that there is a risk that their damages or Claims may be or may become more serious than they now expect or anticipate. The Parties expressly accept and assume this risk, and agree that this Agreement shall be and remain effective notwithstanding any such misunderstanding as to the seriousness of their damages or Claims. I. OWNERSHIP OF CLAIMS. The Parties represent and warrant to each other that no person other than themselves had, or has, an interest in the Claims and that they have not sold, assigned, transferred, conveyed or otherwise disposed of any of the Claims. J. HEADINGS. The headings included in this Agreement are for convenience only and do not in any way limit, alter or affect the matters contained in this Agreement or the paragraphs that they encaption. K. ALTERATION OF THIS AGREEMENT. This Agreement shall not be altered, amended, modified or otherwise changed in any respect or particular whatsoever, except in writing duly executed by all the Parties. Each Party acknowledges and agrees that he or it will make no claim, at any time or place, that this Agreement has been verbally altered or modified in any respect whatsoever. L. ATTORNEYS' FEES. The Parties will each bear their own attorneys' fees and costs to date relative to this Agreement, [except that Hawaiian shall pay for Executive's attorneys' fees relating to the review and execution of this Agreement]. M. AUTHORITY. The Parties warrant to each other that each of them has full power, authority and capacity to execute this Agreement. Executive acknowledges that he has been informed of his right to consult with an attorney prior to entering into this Agreement. 6 N. CONFIDENTIALITY. As a condition of this Agreement, Executive agrees not to reveal any information concerning the Claims, the terms and conditions of this Agreement, or the negotiations leading to this Agreement or the amount or range of amount of the Settlement Sum and/or any other aspect of settlement made by or on behalf of the Parties to any third person, except his immediate family members, his attorney (if any), as necessary for tax purposes, or as otherwise required by law. Anyone to whom the terms are disclosed as allowed by this Agreement shall be advised of this confidentiality requirement. As a further condition of this Agreement, Executive warrants that he has not disclosed the amount of the Settlement Sum, except as permitted above, and that he will not and has not, in any manner, publicized the existence of the Settlement Sum. Executive further warrants that he has not and will not disclose any confidential or proprietary information of Hawaiian which he obtained during his employment with Hawaiian except as permitted in writing signed by an authorized representative of Hawaiian. O. SUPPORT OF THE COMPANY. Executive acknowledges and understands that the Settlement Sum pursuant to this Agreement is contingent upon his support of Hawaiian both in the public domain and within the Company. Executive agrees that in the aforementioned twelve (12) month period, he will recommend and promote Hawaiian and not disparage it or its past or present directors, officers, employees or agents in any way or manner. P. DISPUTES. Any dispute which arises under this Agreement shall be resolved solely by binding arbitration under the rules of the American Arbitration Association with arbitration to take place in Honolulu, Hawaii. Q. COMPLETE AGREEMENT. This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof. 7 DATED: Honolulu, Hawaii. February __ 1997. HAWAIIAN AIRLINES, INC. By _______________________________ John W. Adams Chairman By _______________________________ Rae A. Capps Vice President, General Counsel and Corporate Secretary "HAWAIIAN" _______________________________ BRUCE R. NOBLES "EXECUTIVE" 8 EX-10.6 7 EMPLOYMENT AGREEMENT Exhibit 10.6 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), effective as of April 14, 1997 ("Effective Date") is entered by and between Paul John Casey ("Employee") and Hawaiian Airlines, Inc. ("Company"). The Company desires to establish its right to the continued services of the Employee, in the capacity described below, on the terms and conditions and subject to the rights of termination hereinafter set forth, and the Employee is willing to accept such employment on such terms and conditions, In consideration of the mutual agreements hereinafter set forth, the Employee and the Company have agreed and do hereby agree as follows: 1. EMPLOYMENT AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY. The Company does hereby employ, engage, and hire the Employee as President and Chief Executive Officer of the Company and the Employee does hereby accept and agree to such hiring, engagement, and employment. The Employee's duties during the Employment Period (defined below) shall be such executive, managerial and reporting duties as are appropriate for a President/CEO and such other duties as the Board of Directors of the Company shall from time to time prescribe and as provided in the Bylaws of the Company. The Employee shall devote his full time, energy, and skill to the performance of his duties for the Company and for the benefit of the Company, reasonable vacations authorized by the Company's Board of Directors and reasonable absences because of illness excepted. Furthermore, the Employee shall exercise due diligence and care in the performance of his duties to the Company under this Agreement. 2. TERM OF AGREEMENT. This Agreement ("Term") shall commence on the Effective Date and shall continue for a period of eighteen (18) months; provided; however, that on the first day of each calendar month commencing one month following the Effective Date, the Term shall be extended one additional month unless either party shall have given written notice to the other that it does not wish to extend the Term. The period of time commencing on the Effective Date and ending on the expiration date of the Term, or, if earlier, the date of termination of the Employee's employment ("Termination Date") under this or any successor agreement shall be referred to as the "Employment Period." If (a) Employee is still employed with the Company on April 14, 1999 or (b) the Company is involved in a merger or other change in control as provided in PARA 9, and neither party has prior to that date given notice that it does not wish to extend the term of this Agreement, the term hereof will, on April 14, 1999 or the effective date of the merger or change of control, be extended from 18 (eighteen) months to 24 (twenty-four) months and thereafter it will be extended month-by-month, as provided above. 3. COMPENSATION (a) BASE SALARY. The Company shall pay the Employee, and the Employee agrees to accept from the Company in full payment for his services to the Company, a base salary at the rate of Three Hundred Thousand U.S. Dollars ($300,000) per year ("Base Salary"), payable in equal semi-monthly installments or at such other time or times or times as the Employee and the Company shall agree. Employee's Base Salary shall be reviewed on a calendar year basis, at least annually by the Company and may be increased as determined by the Company's Board of Directors in its sole and absolute discretion. In addition to the foregoing and in consideration of Employee entering into this Agreement, Employee shall receive an initial bonus of Seventy Thousand U.S. Dollars ($70,000.00), payable on April 14, 1997. Provided, however that if Employee is hereafter able to obtain any bonus from his present employer; the bonus to be paid by the Company will be reduced by an amount equal to fifty percent (50%) of the amount of such bonus, up to a maximum reduction of Twenty Thousand U.S. Dollars ($20,000.00). Thus, in no circumstances will Company's obligation be less than Fifty Thousand U.S. Dollars ($50,000.00). Company understands that it is unlikely that Employee's current employer will pay him any bonus. (b) PERFORMANCE BONUS-BOARD OF DIRECTORS' DISCRETION. Employee shall be eligible to receive an annual performance bonus based upon the Company's actual performance compared to the Company's business plan(s). Promptly after the execution of this Agreement Employee and a representative of Company shall develop a new package of financial incentives for Employee and Company's other senior management. This package shall include, but not be limited to stock incentives and cash performance bonuses. 4. FRINGE BENEFITS. Employee shall be entitled to participate in any benefit programs adopted from time to time by the Company for the benefit of its executive employees, and Employee shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Company's Board of Directors. (a) BENEFIT PLANS. Employee shall be entitled to participate in any benefit plans relating to stock options, stock purchases, pension, thrift, profit sharing, life and disability insurance, medical coverage, executive medical coverage, education, or other retirement or employee benefits available to other executive employees of the Company, subject to any restrictions (including waiting periods) specified in such plans. (b) AUTOMOBILE. The Company shall provide Employee with an automobile allowance of $800.00 per month. (c) CLUB DUES. The Company shall pay all dues and similar charges (other than initiation fees) for one combination social and golf club, one business meal club and one health or fitness club. 2 (d) TRAVEL BENEFITS. Employee and his spouse shall be entitled to travel benefits on Company flights (but not charter flights) at the PS2F/PS2Y category. Employee's dependents shall be entitled to travel benefits on Company flights (but not charter flights) at the SA2F/SA1Y category. Employee and his dependents shall be entitled to travel benefits on other airlines at the sole discretion of such airlines, at a comparable level to that provided to other Company executive officers. (e) 1996 INCENTIVE STOCK PLAN. On February 28, 1996, Employee shall be granted 150,000 options under the Company's 1996 Incentive Stock Plan, contingent upon this Agreement becoming effective on April 14, 1997. The exercise price will be equal to the closing price of the Company's stock on February 28, 1997. The vesting period and other terms will be determined by the Compensation Committee. (f) EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN. Subject to the applicable waiting periods, Employee will be included in the Company's Executive Long-Term Disability Insurance Plan, as it may be modified from time to time, at the Company's expenses. (g) BUSINESS EXPENSES. The Company shall reimburse the Employee for any and all necessary, customary, and usual expenses, properly received in accordance with Company policies, incurred by Employee on behalf of the Company. 5. CONFIDENTIAL INFORMATION. Employee recognizes that by reason of his employment by and service to the Company he will occupy a position of trust with respect to business and technical information of a secret or confidential nature which is the property of the Company which will be imparted to him from time to time in the course of the performance of his duties hereunder. Employee acknowledges that such information is a valuable and unique asset of the Company and agrees that he shall not during or after the Term of this Agreement, use or disclose directly or indirectly any confidential information of the Company to any person, except that Employee may use and disclose to authorized personnel of the company such confidential information as is reasonably appropriate in the course of the performance of his duties hereunder. Confidential information of the Company shall include all information and knowledge of any nature and in any form relating to the Company including but not limited to, business plans; development projects; computer software and related documentation and materials; designs, practices, processes, methods, know-how and other facts relating to the business of the Company; advertising, promotions, financial matters, sales and profits figures, customers or customer lists. Confidential information shall not include any information that is or shall become publicly known through no fault of the Employee and any information received in good faith from a third party who has the right to disclose such information and who has not received such information, either directly or indirectly, from the Company. 3 6. TERMINATION OF EMPLOYEE'S EMPLOYMENT. (a) DEATH. If the Employee dies while employed by the Company, his employment shall immediately terminate. The Company's obligation to pay the Employee's Base Salary shall cease as of the date of Employee's death. Thereafter, Employee's beneficiaries or his estate shall receive benefits in accordance with the Company's retirement, insurance and other applicable programs and plans then in effect. (b) DISABILITY. If, as a result of Employee's mental or physical incapacity, Employee shall be unable to perform the services for the Company contemplated by this Agreement in the manner in which he previously performed them during an aggregate of one hundred twenty (120) business days in any consecutive seven (7) month period ("Disability"). Employee's employment may be terminated by the Company for Disability. During any period prior to such termination during which Employee is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Employee his Base Salary at the rate in effect at the commencement of such period of Disability. Any such payments made to the Employee shall be reduced by amounts received from disability insurance obtained or provided by the Company, and by the amounts of any benefits payable to Employee, with respect to such period, under the Company's Executive Long-Term Disability Plan. Subsequent to the termination provided for in this Section 6(b), Employee's benefits shall be determined under the Company's retirement, insurance, and other compensation programs then in effect in accordance with the terms of such programs. (c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Employee's employment under this Agreement for "Cause" at any time prior to expiration of the Term, only upon the occurrence of any one or more of the following events: (i) The material breach of this Agreement by Employee, including without limitation, repeated willful neglect of Employee's duties, Employee's material lack of diligence and attention in performing services as provided in this Agreement, or Employee's repeated willful failure (other than any such failure resulting from the termination of the Employee's employment for death, disability, retirement or good reason, as provided elsewhere in this Agreement) to implement or adhere to policies established by, or directives of, the Company's Board of Directors. (ii) Conduct of a criminal nature that may have an adverse impact on the Company's reputation and standing in the community; or (iii) Fraudulent conduct in connection with the business affairs of the Company, regardless of whether said conduct is designed to defraud the Company or others. In the event of termination for cause or resignation by the Employee without good reason, the Company's obligation to pay Employee's Base Salary for any periods after the Termination Date shall cease as the Termination Date. If Employee's employment is terminated 4 for cause, Employee's employment may be terminated immediately without any advance written notice. (d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall have the right to terminate this Agreement prior to the expiration of Term, at any time, without cause. In the event the Company shall so elect to terminate this Agreement, the Employee shall receive compensation pursuant to the provisions of Section 7 hereof. (e) TERMINATION BY THE EMPLOYEE FOR GOOD REASON. The Employee shall have the right to terminate this Agreement for good reason. For purposes of this Agreement, "good reason" shall mean the occurrence, without the Employee's prior written consent, of any one or more of the following events: (i) The assignment to the Employee of any duties that are materially inconsistent with, or reflect a material continuing reduction of the powers and responsibilities, or a change of the Employee's reporting responsibilities, or a material improper intervention by the Company's Board of Directors in the Employee's ability to materially perform the duties and responsibilities. (ii) The Company's material breach of any of the provisions of this Agreement, or a material change in the conditions of Employee's employment (e.g. including, without limitation, a failure by the Company to provide the Employee with incentive compensation and benefit plans that provide comparable benefits and amounts as such type programs in effect as of the Effective Date or as provided to other Company executive officers, etc.); and (iii) The relocation of the Company's principal executive officers to a location outside of the Honolulu areas or the Company's requiring the Employee to be based anywhere other than the Company's principal executive offices, except for travel on Company business to an extent substantially consistent with the Employee's position and responsibilities. The Employee agrees to provide the Company thirty (30) days' prior written notice of any termination for good reason, during which 30-day period the Company shall have the right to cure the circumstances giving rise to the good reason stated in such notice. In the event of termination for good reason, the Employee shall receive compensation pursuant to the provision of Section 7 hereof. (f) RETIREMENT. The Employee may terminate this Agreement on account of retirement. For purposes of this Agreement, retirement shall have the same meaning as provided for in the Company's defined benefit plan covering Employee. Employee shall provide six (6) months notice to the Company of Employee's intent to terminate this Agreement on account of retirement. The Employee shall not be entitled to any further payments of compensation or other benefits provided under Section 3 of this Agreement after the Termination 5 Date, except for any amounts earned and any accrued but unpaid retirement benefit payment due the Employee from any Company sponsored plan. 7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall be terminated (i) by act of the Company other than for cause, or (ii) by the Employee for good reason, the Employee shall be entitled to the following benefits: (a) PAYMENT OF UNPAID BASE SALARY. The Company shall immediately pay the Employee any portion of the Employee's Base salary accrued, but not paid, prior to the Termination Date. (b) CONTINUED PAYMENT OF BASE SALARY. The Employee shall receive, on a monthly basis, the Base Salary that would have been paid to the Employee pursuant to this Agreement had the Employee continued to be employed for the remaining term of this Agreement (i.e., eighteen (18) months or twenty-four (24) months, depending upon the Termination Date)(such Base Salary for such period being equal to the Employee's Base Salary in effect as of the Termination Date); plus (ii) an amount equal to the bonus payments that would have been payable to the Employee pursuant to this Agreement. These post-termination bonus payments will be equal to the greater of (A) the total of any performance bonus or bonuses paid to the Employee pursuant to Section 3(b) in the fiscal year of the Company which ended immediately prior to the fiscal year in which the Termination Date occurs, and (B) the average of the annual performance bonuses (excluding the signing bonus and any special bonus not based on performance) paid to Employee by the Company during the three prior fiscal years or, if the Employee has been employed with the Company less than three fiscal years, during the term of Employee's tenure with the Company. (c) CONTINUATION OF FRINGE BENEFITS. The Company shall continue to provide the Employee with all Fringe Benefits set forth in Section 4 throughout the remaining term of this Agreement (i.e., eighteen (18) months or twenty-four (24) months, depending upon the Termination Date), as if the Employee's employment under the Agreement had not been terminated. If, as the result of terminating of Employee's employment, Employee and/or his otherwise eligible dependents or beneficiaries shall become ineligible for benefits under any one or more of the Company's benefit plans, the Company shall continue to provide the Employee and his eligible dependents or beneficiaries with benefits at a level at least equivalent to the level of benefits for which the Employee and his dependents and beneficiaries were eligible under such plans immediately prior to the Termination Date. (d) STOCK OPTIONS. Notwithstanding any provision in any applicable Company benefit plans or agreements (including, but not limited to, those relating to stock options, stock appreciation rights, restricted stock awards, stock purchases, pensions, thrift, profit sharing, or other retirement or employee benefits) to the contrary, all rights to such benefits previously granted to Employee shall become immediately fully vested and exercisable as of the Termination Date and shall remain exercisable for a period thereafter of one (1) year. 6 The provision of this Section 7(d) shall supersede, insofar as concerns Employee, any such plans or agreements of the Company referred to above as of the Effective Date. (e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO BENEFITS UNDER AGREEMENT. The Employee shall not be required in any way to mitigate the amount of any payment provided for in this Section 7, including, but not limited to, by seeking other employment, nor shall the amount of any payment provided for in this Section 7 be reduced by any compensation earned by the Employee as the result of employment with another employer after the Termination Date, or otherwise. Following a termination governed by this Section 7, the Employee shall not be entitled to any compensation or benefits beyond those set forth in this Agreement, except as may be separately negotiated by the parties and approved by the Board of Directors of the Company in writing in conjunction with the termination of Employee's employment under this Section 7. 8. NONCOMPETITION PROVISIONS. (a) RIGHT TO COMPANY MATERIALS. Employee agrees that all styles, designs, lists, materials, books, files, reports, correspondence, records, and other documents ("Company Materials") used, prepared, or made available to Employee, shall be and shall remain the property of the Company. Upon the termination of employment or the expiration of this Agreement, all Company Materials shall be returned immediately to the Company, and Employee shall not make or retain any copies thereof. (b) ANTISOLICITATION. Employee promises and agrees that during the term of this Agreement he will not influence or attempt to influence customers or suppliers of the Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation or other entity then in competition with the business of the Company, or any subsidiary or affiliate of the Company. (c) SOLICITING EMPLOYEES. During the term of this Agreement and for the eighteen (18) month period commencing on the termination Date, Employee promises and agrees that he will not directly or indirectly solicit any of the Company's employees to work for any business, individual, partnership, firm, corporation, or other entity then in competition in Hawaii with the business of the Company or any subsidiary or affiliate of the Company. 9. MERGER OR OTHER CHANGE IN CONTROL. Employee shall have the right to terminate this Agreement for good reason if at any time within ninety (90) days after completion of (i) a merger of the Company with any other corporation as a result of which the shareholders of the Company immediately prior to such merger fail to hold at least a majority of the voting securities of the surviving corporation in such merger immediately after the merger, and members of the pre-merger Board of Directors of the Company, elected by the pre-merger shareholders of the Company or by a majority of the directors of the Company who were elected by the pre-merger stockholders of the Company, fail to constitute a majority of the Board of Directors of the surviving corporation following completion of the merger, or (ii) a sale of 7 all or substantially all of the assets of the Company to another corporation if (x) a majority of the directors of the ultimate parent of the purchaser immediately following the purchase and sale were not members of the Board of Directors of the Company immediately prior to such sale and y) shareholders of the Company immediately prior to such sale do not hold a majority of the voting securities of the ultimate parent of the purchasing corporation following completion of such sale; or (iii) a purchase by another person, firm, or corporation of a majority of the voting securities of the Company, and following completion of such sale, members of the Board of Directors of the Company elected by shareholders of the Company (other than such purchaser) fail to constitute a majority of the Board of Directors of the Company. 10. NOTICES. All notices and other communications under the Agreement shall be in writing and shall be given by facsimile, first class mail, certified or registered with return receipt requested, or express mail and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to the Company: Hawaiian Airlines, Inc. Attn: Chairman 3375 Koapaka Street, Suite G-350 Honolulu, Hawaii 96819 with a copy to the General Counsel If to Employee: Paul John Casey 1221 Victoria Street, #2805 Honolulu, Hawaii 96814 Fax (808) 523-1289 Either party may change such party's address for notices by notice duly given pursuant hereto. 11. ATTORNEY'S FEES. In the event judicial or quasi-judicial determination is necessary of any dispute arising as to the parties' rights and obligations hereunder, the Company and the Employee shall each bear their own respective attorneys' fees and costs associated with such dispute. 12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and supersedes any and all prior agreements and understandings between the parties with respect to employment or with respect to the compensation of the Employee by the Company from and after the Effective Date. 13. ASSIGNMENT: SUCCESSORS. This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided that, in the event of the merger, 8 consolidation, transfer or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the express provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder. 14. GOVERNING LAW. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the laws of the State of Hawaii. 15. ARBITRATION. Any dispute regarding the interpretation or performance of this Agreement which cannot be resolved by the parties shall be resolved through arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Honolulu, Hawaii. The arbitrators will allocate costs of arbitration as they deem just. 16. ENTIRE AGREEMENT: HEADINGS. This Agreement embodies the entire Agreement of the parties respecting the matters within its scope and may be modified only in writing. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. 17. WAIVER: MODIFICATION. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto. 18. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 19. INDEMNIFICATION. The Company shall indemnify and hold Employee harmless to the maximum extent permitted by Section 415-5 of the Hawaii Business Corporation Act and the Restated Articles of Incorporation of the Company, as amended. 20. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Employee has hereunto signed this Agreement, as of the date first above written. By:______________________________________ John Adams Chairman By:______________________________________ Rae A. Capps Its Vice President, General Counsel and Corporate Secretary "Company" By:______________________________________ Paul J. Casey "Employee" 10 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 45,072 0 30,576 500 8,336 89,369 65,055 11,816 214,325 85,496 17,160 0 0 401 81,422 214,325 99,766 99,766 104,270 104,270 239 0 51 4,794 2,398 2,396 0 0 0 2,396 0.06 0
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